In 2018, the United States claimed that India’s export subsidy schemes were hurting American Companies and therefore the US filed a dispute and won the case against India in October 2019. The US had challenged India to the WTO under Article 27 of the organisation’s Agreement on Subsidies and Countervailing Measures (SCM Agreement), which also provides for special and differential treatment to developing countries, such as India.
The Indian programmes found in violation of the WTO rules are: the Merchandise Exports from India Scheme (MEIS); Export Oriented Units Scheme and related sector specific schemes (EOU); Special Economic Zones (SEZ); Export Promotion Capital Goods Scheme (EPCG); and duty free imports for exporters programme (DFIS).
Though New Delhi appealed the WTO ruling before the appellate body, a panel in this ruling rejected India’s claim by stating that it was exempted from prohibition on export subsidies under the special and differential treatment provisions of the WTO’s SCM Agreement. India’s exemption was expired, but India did not withdraw its export subsidies.
While decline in exports had already been a major concern for Indian industry and government, the WTO ruling added to the adverse situation. India’s exports declined for the fourth successive month in November and for the fifth time this fiscal year. Exports fell 0.32 per cent in November, while imports declined by 12.71 per cent on a year-on-year basis, leaving a trade deficit of $12.12 billion against $16.61 billion last year, showed data released by the ministry of commerce and industry. India, therefore, has been re-working on challenged export subsidies/incentives to comply with the WTO ruling.
What after the withdrawal of the exports schemes?
It is a time for India to come out with new and re-designed schemes which not only protect domestic industries but also cannot be legally challenged under the SCM Agreement.
Two new schemes announced by the government are, Rebate of State & Central Taxes and Levies Scheme (RoSCTL) and Remission of Duties or Taxes on Export Product (RoDTEP) scheme.
The RoSCTL came into force on March 7, 2019, and will be effective till March 31, 2020. Currently this scheme is available for the textile industry and sooner it might be extended for other sectors too. It is meant for exports of made-up articles and garments. The most critical feature of this scheme is that it is in compliance with the WTO guidelines.
The RoDTEP scheme was announced to replace the existing Merchandise Exports from India Scheme (MEIS) and create a fully-automated route for Input Tax Credit (ITC) in the GST to help increase exports in India. This scheme was supposed to be put in place from January 1, thereby putting an end to the MEIS. However, as was being anticipated, the scheme has not been rolled yet. The policy framework, rules and regulations and rates are still undecided. Further, the RoDTEP scheme has also not received a very positive and enthusiastic response from exporters as the rates under this scheme may be lower than existing MEIS schemes.
A decline in exports and non-clarity on upcoming schemes in place of schemes in dispute is worrying stakeholders. However, the government doesn’t want to do anything that could give a further jolt to exporters and, therefore, take extremely calculated actions while framing new schemes. They are moving and working cautiously on the schemes, which not only help exporters in becoming more export competitive but it also helps the country tackle trade deficits.
Jyoti Singh Rathore, is assistant secretary-general, Forum for Trade Remedies (FFTR). Views are personal.