With a debate more than specific important elements of the next 5-year foreign trade policy (FTP), in particular export schemes, nevertheless underway, the government will most likely delay the announcement of a new FTP even as the present one, currently 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 specific important export programmes that have been challenged effectively by the US at the World Trade Organisation (WTO) on ground of getting inconsistent with worldwide trade guidelines, 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 more than 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 contain the Merchandise Exports from India Scheme (MEIS) and these relating to specific financial zones, export-oriented units, electronics hardware technologies parks, capital goods and duty-cost-free imports for re-exports.
While India has currently replaced the MEIS, the most significant scheme, with a WTO-compliant tax refund programme from January 1, other folks nevertheless continue. A restructuring or abolition of these schemes would warrant an exhaustive physical exercise and impinge on export prospects as nicely.
New Delhi believes that it has a sturdy case and the verdict of the appellate body, when it comes, must 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 supply 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 regular functions. However, analysts say this is less complicated stated than accomplished, provided that America’s criticism of the WTO predates the Trump administration.
Unless a selection is produced by the appellate tribunal on the appeal, the findings of the WTO’s dispute panel can not 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 inside a mutually-agreed-upon (with the US, in this case) time frame, which is typically a year.
Already, the government was forced to extend the validity of the foreign trade policy (FTP) for 2015-20 by a different year by way of FY21. The move final year was aimed at preserving policy stability and softening the blow to exporters in the wake of the Covid-19 pandemic.
According to the specific and differential provisions in the WTO’s Agreement on Subsidies and Countervailing Measures, when a member’s per capita gross national earnings (GNI) exceeds $1,000 per annum (at the 1990 exchange price) 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 3 straight years by way of 2015–to $1,178 in 2015 from $1,051 in 2013. However, India has been arguing that just like some other folks who had been granted eight years to scrap export subsidies, it, also, 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 power in favour of India. In response to a plea by India, the dispute panel had in June 2019 held that America’s domestic content needs and subsidies offered by eight of its states in the renewable power sector had been inconsistent with worldwide trade norms. Even this appeal by the US, also, is pending.
Highlights
Policy riddle
Govt in a repair more than export schemes effectively 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 through these schemes stood at $7 bn/year
The schemes contain MEIS and these relating to SEZs, EoUs, electronics parks & capital goods MEIS is replaced but other folks continue