Time to move beyond subsidies

Time to move beyond subsidies

Context

Challenge to India’s export promotion schemes by United States Trade Representative (USTR) in WTO

What are the arguments given by USTR?

The main argument of the USTR is that

• India’s five export promotion schemes violate Articles 3.1(a) and 2 of the SCM (Subsidies and Countervailing Measures) Agreement, since the two provisions prohibit granting of export subsidies
• Exception to these articles: Annex VII countries were an exception as these 20 developing countries (including India) were allowed to use these subsidies as long as their per capita Gross National Product (GNP) had not crossed $1,000at constant 1990 dollars, for three consecutive years.  Except Annex VII countries, all other developing countries were allowed a period of eight years from the entry into force of the WTO Agreement, i.e. 1995, to eliminate export subsidies

India crossed the threshold in 2015& sought extension

India crossed the $1,000 GNP per capita threshold in 2015 became known when the WTO Secretariat produced its calculations in 2017

• In the Doha negotiations, India and several other Annex VII countries sought an amendment of the agreement so as to enable them to get a transition period
• In a submission made in 2011, India, along with Bolivia, Egypt, Honduras, Nicaragua and Sri Lanka, argued that the Annex VII countries should be eligible to enjoy the provisions applicable to the other developing countries, namely, those that had GNP per capita above the threshold. But this proposal, like all other proposals made as a part of the Doha Round negotiations, remains unaddressed

Has US previously also put India’s export promotion schemes under the scanner?

Yes.

• In 2010, the U.S. had questioned the export incentives provided to the textiles and clothing sector as a whole, arguing that this sector had a share in global trade exceeding 3.25% and had therefore become export competitive. The U.S. pointed out that according to Article 27.5 of the SCM Agreement, any Annex VII developing country which had reached export competitiveness in one or more products must gradually phase out export subsidies on such products over a period of eight years
• There was, therefore, considerable pressure on the Department of Commerce to consider its future strategies regarding export promotion schemes.

What needs to be done?

In the mid-term review of the FTP released in December 2017, the Indian government showed its awareness that the country was at the verge of losing the benefits of being an Annex VII country. A subsequent reduction of export subsidies and removal of the infrastructural deficiencies that ail the Indian export sector is the need of the hour wherein government should invest in trade-related infrastructure and trade facilitation measures, which can deliver tangible results on the export front.