With a debate over certain critical aspects of the next five-year foreign trade policy (FTP), especially export schemes, still underway, the government will likely delay the announcement of a new FTP even as the current one, already extended by a year, expires on March 31.
At the heart of this delay is not just Covid-induced disruptions but a policy dilemma about the continuation of certain key export programmes that have been challenged successfully by the US at the World Trade Organisation (WTO) on ground of being inconsistent with global trade rules, sources told FE.
Washington had also claimed that “thousands of Indian companies are receiving benefits totalling over $7 billion annually from these programmes”.
India had appealed against the ruling of the WTO’s dispute body in response to the US plea in November 2019. But with the WTO’s appellate body remaining dysfunctional for over a year now, ironically due to the US’ blocking of the appointment of judges, the fate of India’s appeal remains uncertain.
The programmes that have been challenged include the Merchandise Exports from India Scheme (MEIS) and those relating to special economic zones, export-oriented units, electronics hardware technology parks, capital goods and duty-free imports for re-exports.
While India has already replaced the MEIS, the biggest scheme, with a WTO-compliant tax refund programme from January 1, others still continue. A restructuring or abolition of these schemes would warrant an exhaustive exercise and impinge on export prospects as well.
New Delhi believes that it has a strong case and the verdict of the appellate body, when it comes, should go in its favour.
“Given these complexities, the government will soon take a call on whether to extend the validity of the current FTP or not,” a source told FE.
If the Biden administration in the US junks the policies adopted by Donald Trump and permits the appointment of judges, the WTO’s appellate body will resume normal functions. However, analysts say this is easier said than done, given that America’s criticism of the WTO predates the Trump administration.
Unless a decision is made by the appellate tribunal on the appeal, the findings of the WTO’s dispute panel can’t be binding on India. However, if the appellate body upholds the panel’s ruling, India will have to scrap or restructure the export promotion schemes within a mutually-agreed-upon (with the US, in this case) time frame, which is often a year.
Already, the government was forced to extend the validity of the foreign trade policy (FTP) for 2015-20 by another year through FY21. The move last year was aimed at maintaining policy stability and softening the blow to exporters in the wake of the Covid-19 pandemic.
According to the special and differential provisions in the WTO’s Agreement on Subsidies and Countervailing Measures, when a member’s per capita gross national income (GNI) exceeds $1,000 per annum (at the 1990 exchange rate) for a third straight year, it has to withdraw its export subsidies. According to a WTO notification in 2017, India crossed the per-capita GNI threshold for three straight years through 2015–to $1,178 in 2015 from $1,051 in 2013. However, India has been arguing that just like some others who were granted eight years to scrap export subsidies, it, too, deserves such a time frame to do so.
Interestingly, the US in 2019 appealed against a ruling by the WTO’s dispute settlement panel on renewable energy in favour of India. In response to a plea by India, the dispute panel had in June 2019 held that America’s domestic content requirements and subsidies provided by eight of its states in the renewable energy sector were inconsistent with global trade norms. Even this appeal by the US, too, is pending.
Govt in a fix over export schemes successfully challenged by the US at WTO’s dispute body
India has appealed against it but verdict is delayed due to a crippled appellate body
The US had claimed India’s “illegal” subsidies via these schemes stood at $7 bn/year
The schemes include MEIS and those relating to SEZs, EoUs, electronics parks & capital goods; MEIS is replaced but others continue