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Export sops may be modified to meet US challenge in WTO

Exporters trade body head says Centre looking at production-based incentive scheme, does not expect early settlement of despite

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The central government is working on several options to maintain competitiveness of Indian exports in a bid to minimise the hit from the US's complaint to the World Trade Organisation (WTO) on India's export promotion schemes.

Ajay Sahai, director general CEO, Federation of Indian Export Organisations (FIEO), said the core team, formed by the government for studying various options, was considering a production-based subsidy for exports in the event of the outcome in the matter going against India.

"The government has already started (looking at a) strategy of having a fall-back plan. So that in case there is no time given to us and these (export promotion) schemes need to be phased out, there is an alternative. The core committee is regularly meeting so that we can put into place some production-based subsidy, which is non-specific and so it becomes non-countervailing. I am sure they (core committee) will put into place a secondary option. India has to also keep its interest alive and so we are also engaging with the US. We are given to understand that a bilateral discussions is going to take place in June," said the top FIEO executive.

Dinesh Agarwal, partner (global trade dispute), Khaitan & Co, also believes that the government could look at new schemes for exporters under a different name to ensure that their competitiveness in the global market is not eroded.

"The government has to continue these schemes till some other incentives are worked. Agarwal said that export schemes have been dwindling over the years. He estimated that the benefit from subsidies on exports worked out to 4%-5%. " One year down the line, the government will create some other schemes for exporters and they will eliminate the existing schemes for exporters. We may have something in new names for these schemes," said the legal expert on global trade disputes.

According to FIEO's Sahai, despite both countries knocking on the door of the WTO, mutual consultation process was still on.

"We have taken the US to WTO and the US has taken us to WTO. That does not mean the consultation process has stopped. We are working on the consultation process also," he said.

The FIEO executive does not see a decision on the matter coming before March next year. He expected the whole process to be long drawn and could be settled only by early next year.

"Right now, they have targeted five of the schemes. In some of schemes, we have differences. So, we can argue. For other schemes, we have to look into alternative solution. If this does not go against us, earliest the decision is communicated to us will be March 2019," he said.

Sahai expects the panel to be constituted in two to three months and another five to six months before any decision is communicated.

After India and the US were unable to work out a mutually agreeable solution on issue of India's export promotion scheme, which has been raised by the US, in the stipulated timeline of 30 days the later on Tuesday moved the WTO to form a dispute settlement body (DSB).

This has been reportedly done under accelerated timelines of the agreement on subsidies and countervailing measures (ASCM). The DSB panel will have to submit its report to WTO members within 90 days of its formation and finalisation of terms of reference.

The dispute between the two countries landed in the WTO in March, when the US flagged the issue with the global trade dispute body alleging India had violated agreement under the ASCM to the tune of $7 billion in five of its export promotion schemes—the export-oriented units scheme and sector-specific schemes including electronics hardware technology parks scheme, merchandise exports from India scheme, export promotion capital goods scheme, special economic zones and duty-free import authorisation scheme.

In its complaint, the US has alleged that India continued to offer incremental incentives to exporters under various schemes despite India's exemption under the WTO's special and differential provisions for developing countries expiring in 2015.

The agreement reportedly provides eventual phasing out of export subsidies and gives eight years for graduating countries (least developed and developing), which cross the $1,000 mark at 1990 exchange rate to phase out export subsidies.

As per the current WTO rules, a country cannot offer export subsidies if its per-capita GNI has crossed $1,000 for three years in a row. In 2017, WTO reportedly notified that India's GNI was $1,051 in 2013, $1,100 in 2014 and $1,178 in 2015.

"The government is maintaining the line that even if we have breached to $1,000 per capita income limit we should be given an eight-year time to graduate out of the threshold limit. That is a subject of dispute. One rule says that the moment you graduate, you have to phase out all subsidy. There is a parallel clause where an eight-year phase out period is permitted," said Sahai.

THE DISPUTE

  • The US had alleged in March that India had violated agreement under the ASCM to the tune of $7 billion in five of its export promotion schemes
     
  • It complained that India continued to offer incremental incentives to exporters under various schemes despite its exemption under the WTO's special and differential provisions expiring in 2015
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