On October 31, 2019, the WTO Dispute Settlement Panel ruled that
certain export schemes run by India violate Articles 3.1(a) and 3.2
of the Subsidies and Countervailing Measures Agreement (SCM
Agreement). The U.S. government brought the challenge in May 2018,
alleging that export subsidies provided by India under five sets of
measures, including: the Export Oriented Units, Electronics
Hardware Technology Park, and Bio-Technology Park (EOU/EHTP/BTP)
Schemes; the Export Promotion Capital Goods (EPCG) Scheme; the
Special Economic Zones (SEZ) Scheme; a collection of duty
stipulations described in these proceedings as the Duty-Free
Imports for Exporters Scheme (DFIS); and the Merchandise Exports
from India Scheme (MEIS); were in violation of the prohibition on
export subsidies set forth under the SCM Agreement. It claimed that
the subsidies were hurting American companies and that the
subsidies run by the Indian Government were giving undue advantage
to Indian companies. "According to the Indian Government,
thousands of Indian companies are receiving subsidies totaling over
$7 billion annually from these programs, and India has increased
the size and scope of these programmes," the office of U.S.
Trade Representative said in a statement. The United States also
said that India gives prohibited subsidies to producers of steel
products, pharmaceuticals, chemicals, information technology
products, textiles, and apparel.
The WTO's website states that India argued before the
Panel that the special and differential provisions of Article 27 of
the SCM Agreement excluded it from the application of the
prohibition on export subsidies as a developing country. However,
the Panel found that India had graduated from this threshold since
its per capita gross national product had crossed $1,000 per annum,
and that no further transition period under Article 27.2(b) is
available to India after graduation. The website goes on to state
that India also argued, on the basis of a legal technicality in the
SCM Agreement, that in four of the five schemes at issue (i.e. all
the challenged schemes except for the SEZ Scheme), it can under
certain conditions utilize the exemption from or remission of
duties or taxes on an exported product. On these grounds, the Panel
rejected the United States' claims regarding certain challenged
customs duty exemptions under DFIS, and regarding the challenged
exemption from excise duties under the EOU/EHTP/BTP Schemes.
However, the Panel found that the remaining measures under the four
schemes did not meet the conditions thereof, and therefore India
was required to withdraw the subsidies under all four
schemes.
Overall, the Panel gave India varying deadlines with respect to
each of the five schemes (about 3-6 months) to withdraw the
prohibited subsidies. India has the right to appeal this ruling and
more likely than not, it will appeal the decision before an
appellate body of the WTO. In an interesting twist, the Appellate
Body of the WTO may cease its operations indefinitely in December
due to insufficient number of confirmed judges, and if that
continues before India's appeal can be heard, it will delay the
U.S.'s authority to impose any sanctions against India.
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