India – US: Dance over WTO Claims (Part 1)

Recently, I came across a news article which stated that India is dragging US to the WTO over trade tariffs. I was confused as only recently, I had read about the US filing a complaint against India at the WTO. It turns out, that these are not counter claims over the same subject matter; but two separate claims. This is a 2 part article which will explain both the claims by US and India. It will also look into the legality of these claims. To have a better understanding about US’ stance on trade tariffs in general, please read the guest post here and here.

Why has US dragged India to the WTO?

To put it simply, US feels India is wrongly taking advantage of the export subsidies. According to the US, these export subsidies give an unfair competitive advantage. Hence in accordance with the WTO Agreement, they are prohibited. As such, the US Trade Representative, Robert Lighthizer has requested for consultation proceedings with India at the WTO. These consultations will be regarding the Indian Export Subsidy Programmes.

What are Export Subsidies?

Export subsidy is a policy of encouraging export of goods by giving financial benefits. These benefits could range from direct payments, to low-cost loans to even tax exemptions. The aspect of export subsidies is governed by the WTO Agreement on Subsidies and Countervailing Measures. Article 1 of the Agreement gives the definition of a subsidy.

According to Annex VII clause (a) of the Agreement, India is exempted until its GNP per capita has reached USD 1000 per annum. (Gross National Product or GNP measures the total economic output of a country, including earnings from foreign investments. GNP per capita is a country’s GNP divided by its population.)

What is US alleging?

Image result for robert lighthizer
Robert Lighthizer (Source: CNBC)

US alleges that India is taking advantage of the following export subsidy programmes:

  • The Merchandise Exports from India Scheme;
  • Export Oriented Units Scheme and sector specific schemes, including Electronics Hardware Technology Parks Scheme;
  • Special Economic Zones;
  • Export Promotion Capital Goods Scheme; and
  • A duty free imports for exporters program.

US considers that these subsidies are giving an unfair advantage to India in the trade arena at the cost of harming their workers and manufacturers. In fact, Lighthizer stated as follows:

“These export subsidy programs harm American workers by creating an uneven playing field on which they must compete. USTR will continue to hold our trading partners accountable by vigorously enforcing U.S. rights under our trade agreements and by promoting fair and reciprocal trade through all available tools, including the WTO.”

US states that India reached its economic benchmark in 2015. But instead of removing the subsidies, it is expanding it instead. So in accordance with Article 7 of the WTO Agreement, US has requested consultations with India.

Why is this a big deal?

But this is not the first time that India and US have had claims in the WTO. In fact, India has 7 cases against it brought by the US, and 11 cases against the US in the WTO. Why then is the news singling out the claim against exports?

That’s because this is the first time that such broad claims have been put by US against India. Mr. Richard M. Rossow, Senior Adviser and Wadhwani Chair in U.S.-India Policy Studies at the Centre for Strategic & International Studies states that:

“The U.S. and India regularly use the World Trade Organization as a platform to resolve trade disputes. Per the WTO website, there appears to be 16 active cases, with the U.S. being the complainant in 6, and the respondent in 10. However, most of these disputes are for a product or group of products, and less about India’s larger policy programmes. That has changed with the current dispute initiated by the United States, which raises concerns about multiple wider trade programs issued by the Indian government.”

What does India say to that?

India relies on its status as a developing country and is asking for an 8 year phase out period. The developing countries crossing the economic mark at the time of implementation of the WTO Agreement in 1994 got an 8 year phase out period. Similarly, India argues, WTO must give the same treatment to India now that it has crossed the said benchmark. Since India was ineligible for the subsidy exception from 2015, it has time till 2023 to phase out all the subsidies. Other schemes that are WTO-compliant will replace these schemes..

Pursuant to the 14th March 2018 request for consultations with India, US held consultations with India on 11th April 2018. As the said consultations could not resolve the matter, US on 18th May, has requested the Dispute Settlement Body to establish a panel to look into the matter.

In the next article, we will look at the reasons why India has filed claims against the US.

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