India-Japan trade dispute: Policymakers concerned over WTO verdict

The recent verdict delivered against India by the World Trade Organization (WTO) on a dispute on iron and steel imports from Japan has made policymakers concerned about major upcoming rulings affecting New Delhi’s trade policy and export sector.

On November 6, a panel formed by the dispute settlement body of the WTO — the first stage of a winding arbitration process — said certain safeguard duties imposed by India on iron and steel imports from Japan were not in keeping with trade rules. It said India had failed in proving that domestic injury had suffered serious economic losses owing to higher imports.

This latest move by the global trade watchdog against New Delhi — the fourth major instance in the past five years — have raised serious concerns among experts and policymakers regarding the fate of other upcoming cases.

Prime among these are the Trump administration’s assault on India’s export promotion schemes including the flagship the Merchandise Exports from India Scheme and Export Oriented Units Scheme. It had also argued that New Delhi under-reports its level of farm subsidies, after which the Centre had raised the minimum support price (MSP) for farm produce twice. Earlier this year, the US Trade Representative (USTR) office had initiated dispute settlement proceedings on both matters. Similar action has been initiated over sectoral schemes including the 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 cornered India at the multilateral platform, stating WTO rules prohibit nations from providing export subsidies. 

India has promised to fight the charge that it was misusing export subsidies and is set to reply within the next 60 days. "That 60-day deadline was set to end on September 23, but both parties are yet to complete their submission," Jayant Dasgupta, former ambassador of India to the WTO, said. 

He suggested the case might only move ahead in the early part of 2019.

A matter of time

New Delhi 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, according to a senior trade department official.

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 lower and finally prohibit export subsidies.

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 $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 in 2015.

"We don’t think there is any misconception that we will deny this. It’s just that the economy needs time to adjust," the official added. However, he said the US might contest the eight-year period.

The trade department is fine tuning its policy on this. India has some leeway on the agriculture issue because the US has not officially launched any cases, a senior official said.

Source: World Trade Organization