India lost a major trade dispute with the US at the World Trade Organization on Thursday when a dispute settlement panel upheld US complaints that New Delhi’s export subsidy programmes violated core provisions of the WTO’s rules.
In its final report circulated on Thursday, a three-member dispute settlement panel comprising Jose Antonio S. Buencamino, Leora Blumberg, and Serge Pannatier ruled that India’s export promotion schemes violated several provisions of the WTO’s subsidies and countervailing measures (SCM) agreement.
India is not entitled to provide subsidies contingent upon export performance as its per capita gross national product crossed $1,000 per annum, the panel ruled.
Under Article 3.1 of the WTO’s SCM Agreement, developing countries with gross per capita of $1,000 per annum are not entitled to provide export subsidies that are contingent upon export performance.
The ruling, which can be challenged by India, is set to severely affect several export-subsidy schemes being administered by the Indian government. The schemes include: (1) export-oriented units scheme, including Electronics Hardware Technology Parks Scheme, Bio-Technology Parks Scheme, (2) the Merchandise Exports from India Scheme, (3) the Export Promotion Capital Goods Scheme, (4) Special Economic Zones, and (5) a duty-free imports for exporters programme.
The panel ruled that “pursuant to Article 4.7 of the SCM Agreement, if the measures in question are found to be prohibited subsidies, the panel must “recommend that the subsidizing member withdraw the subsidies without delay".
“Accordingly, we recommend that India withdraw, without delay, the subsidies we have found to be inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement."
Although the panel has ruled that India must withdraw all the schemes within a time period of 90-120 days, after it is adopted by the WTO’s dispute settlement panel within a month (as required under the dispute settlement understanding), the ruling will remain infructuous if India appeals the panel ruling before the Appellate Body.
India secured some relief when the panel rejected US claims “that the exemption from central excise duty on domestically procured goods" to export-oriented schemes are inconsistent with core provisions of the SCM agreement.
The panel further maintained that “in cases where there is an infringement of the obligations assumed under a covered agreement, the action is considered prima facie to constitute a case of nullification or impairment of benefits."
“We conclude that, to the extent the measures at issue are inconsistent with the SCM Agreement, India has nullified or impaired benefits accruing to the US under this agreement," the panel argued.
Last year, the US launched the trade dispute against India arguing that the country is in violation of the SCM Agreement because its gross national product per capita has now reached $1,000 per annum. However, “India provides subsidies contingent upon export performance."
Although India maintained that the subsidies programs will be discontinued, as per the government’s announcements in 2015 and 2017, New Delhi has not yet scrapped the five programmes.