India: Commerce Ministry Looking for Alternatives to Export Subsidies

With the US questioning India’s export subsidies at the World Trade Organisation (WTO), the government is reportedly keen on identifying alternative ways to support exporters without facing challenges at the multilateral forum.

The government has set up an informal committee under the Director General of Foreign Trade (DGFT) to look into the existing export promotion schemes. The idea is to identify non-compatible provisions and to look for alternatives assuming that India’s eight-year phase-out period argument is not accepted.

Industry bodies invited

In a recent meeting, the informal committee invited views from FICCI, CII, FIEO and the Indian Institute of Foreign Trade (IIFT), on the matter. The meeting is said to have discussed issues, including problems with the existing export subsidy schemes vis-à-vis the WTO rules, and how other countries were supporting their exporters. The informal committee is likely to be given a formal shape soon through an official notification, and more industry bodies and export bodies could be part of it.

The committee, headed by the DGFT, will look at ways in which a production-based subsidy can be used to replace export subsidies, as these are allowed under the WTO. The panel could look at the cluster-based approach, where export-centric clusters could be selected and subsidies given to units based on what they produce rather than what they export.

US complaint

The US dragged India to the WTO’s dispute settlement body recently complaining that India’s export subsidies were harming American companies. It identified five popular export promotion schemes, including the Merchandise Export from India Scheme (MEIS) and the Export Promotion Capital Goods Scheme, as violating the WTO’s Agreement on Subsidies and Countervailing Measures.

The US complaint is based on the fact that since India’s per capita Gross National Income (GNI) exceeded the threshold of $1,000 for three years in a row in 2015, as per WTO rules, it is no longer eligible to extend export subsidies.

“Although India will argue its case and demand an eight-year phase-out period, which is the same as what was given to developing countries at the time of entry into force of the WTO Agreement in 1995, there is no guarantee that this will go down well either with the US or the WTO,” a government official said. India has been trying since 2011 to get the WTO to agree to an eight-year phase-out period but has not succeeded.

Technology upgradation schemes, like the existing one for the textiles sector, which provides a subsidy to the entire sector instead of just exporters, are permissible under WTO rules.