Global trade war: India's export promotion schemes challenged by US at WTO

USTR asks for dispute resolution based on schemes ''unfairly benefitting Indian exporters''

The Trump administration in the US has challenged India’s export promotion schemes at the World Trade Organization (WTO). India has promised to fight back the charge that it was misusing export subsidies and is set to reply within the next 60 days according to WTO rules.

US Trade Representative (USTR) Robert Lighthizer’s office announced early Thursday that the US has requested dispute settlement consultations with India at the WTO over Merchandise Exports from India Scheme and Export Oriented Units Scheme among others. Similar action has been initiated over sectoral schemes including Electronics Hardware Technology Parks Scheme, special economic zones and the Export Promotion Capital Goods Scheme.

“These subsidies provide benefits to Indian exporters that allow them to sell their goods more cheaply to the detriment of American workers and manufacturers,” the USTR said. It has also cornered India at the multilateral platform, stating WTO rules prohibit nations from providing export subsidies. However, India is set to argue that the law invoked by the US — the Agreement on Subsidies and Countervailing Measures (ASCM) — allows it a window of eight years to phase out these subsidies.

The central issue 

Developed nations including the US have long argued that export subsidies provide unfair competitive advantage to recipients, pointing out that WTO rules prohibit them. The ASCM aims to gradually lower and finally prohibit export subsidies provided by nations so that global trade becomes equitable.

However, a limited exception to this rule is for specified developing countries that may continue to provide export subsidies temporarily until they reach a defined economic benchmark of a $1000 per capita income. India was initially within this group, but was informed last year by the WTO secretariat in a report that it had crossed the threshold back in 2015. The US now points to this fact as proof of India knowingly bending the rules to bulk up its exports by continuously expanding export promotion schemes.

"The article 27 of the agreement also provides for special and differential  treatment. At the time the agreement came into force, developing countries who were above the threshold were provided with a period of eight years in order to bring down their export subsidies. We had clearly assumed that the same period of eight years is available to countries, as and when they cross the threshold," Commerce Secretary Rita Teaotia said on Thursday. "India has submitted a paper to the negotiating group on rules to this effect every year since then", she added. 

The US also refers to official figures by India saying that "thousands of Indian companies are receiving benefits totaling over $7 billion annually from these programs.’’ It further adds that exports from Special Economic Zones increased over 6,000 per cent from 2000 to 2017. Teaotia said India would ask the US how it reached such a figure.

The larger game

However, experts caution that the US has its sights on a much larger target. “The US is playing a far larger game whereby it is on one hand petitioning the Dispute Settlement Body while also single-handedly and consistently blocking the appointment of judges to the seven-member panel. Currently, three members have retired and a fourth is set to retire,” senior trade expert and Jawaharlal Nehru University professor Biswajit Dhar said. India had repeatedly raised this issue during the last ministerial conference of the WTO at Buenos Aires in Argentina, with Commerce and Industry Minister Suresh Prabhu urging swift action to resolve the impasse. 

While the US focused on China for the larger part of Trump’s first year in office, India has been a target in the recent past. Trump voiced his disappointment against “unfair” treatment of American exports to the country even as India enjoys free access to the US market.

“This is part of a larger plan to destabilise the WTO structure and force India and other nations to come into a bilateral agreement with the United States,” Abhijit Das, head of the Centre for WTO Studies, said.