Target Plus may run foul of WTO norms

EXIM MATTERS

The abeyance order comes within two weeks of the date of notification of the revised application forms and detailed procedures.

According to the DGFT, trade has requested simplification of the documentation requirements and the merits of these representations are under study. Revised applications shall be notified shortly, it says.

The truth, however, is that the application forms are not faithful to the substantive provisions of the Foreign Trade Policy and some of the related provisions in the policy as well as the Handbook of Procedures are much too confusing.

Under the DFCEC scheme, the status holders (that is, export houses, and others) who achieve incremental export growth of at least 25 per cent in the year 2003-04 over the export performance in the year 2002-03 are entitled to duty credits to the extent of 10 per cent of the incremental growth, provided they achieve aggregate exports of at least Rs 25 crore in the year 2003-04.

Under the Target Plus scheme, the status holders who achieve a minimum 20 per cent incremental export growth in the year 2004-05 over the year 2003-04 are entitled to duty credits to the extent of 5-15 per cent of the incremental growth subject to certain caps and conditions.

The application form says that the entitlement is available to those who have minimum export performance of Rs 10 crore in the year 2003-04.

The two schemes are highly controversial because they give direct export subsidies based on the value of exports and are not compatible with the disciplines of the agreements at the World Trade Organisation (WTO).

There is apprehension that at least some of India's trading partners, notably the European Union and the United States, will object to the schemes. They may ask India to withdraw the schemes or retaliate by initiating action under the WTO agreements on subsidies and countervailing or anti-dumping measures.

They may even file complaints at the Dispute Settlement Body at the WTO and ask for accelerated dispute settlement process to speed up the investigation process.

In any case, what has surprised the exporters is that the forms and procedures notified after considerable delay should contain so many mistakes.

The DFCEC scheme was notified on March 31, 2003 and the Target Plus scheme was notified on August 31, 2004. The DGFT had enough time to design proper forms and notify correct procedures.

It appears that the DGFT had not applied his mind on how the scheme will work before notifying the application forms. The suspension of the scheme at this stage betrays lack of adequate effort to think through the consequences and ground-level realities and difficulties.

Even the applications forms already filed have to be held in abeyance, says the DGFT Policy Circular No. 2 dated April 20, 2005. It is interesting to note that although the annual review of the policy notified on April 8 abolishes various categories of advance licenses, the finance ministry is yet to issue fresh exemption notifications, as per the changes notified in the policy.

The lack of coordination between the finance ministry and the commerce ministry unnerves the exporters who want some certainty that what the commerce ministry says will be implemented.

tncr@sify.com