Economics Prelims cum Mains

Disputes @ WTO

Withdraw prohibited subsidies: WTO panel to India + India loses a case filed by US at WTO + India offering subsidies via export schemes: WTO panel

In News

  • India has lost a case filed by the US at the WTO against domestic export incentives as the dispute settlement panel concluded that these schemes are inconsistent with the international trade norms.
  • The report comes a little over a month before the WTO dispute settlement mechanism is likely to be paralysed as its appellate body, which is supposed to consist seven members, will only be left with one member.
  • At least three members are required to hear an appeal on a dispute panel’s ruling, and experts feel this may keep WTO from enforcing the ruling against the Indian schemes that were scrutinised in the present report.

Dispute resolution

  • According to the procedure established by the WTO, the first step to resolve a trade dispute is engaging for consultation process.
  • If two trading partners having dispute could not resolve at that level, one of them can ask for settlement of dispute panel for hearing. The panel’s report or ruling can be challenged at the appellate body.

Background

  • On March 14 last year, the US had dragged India to the WTO’s dispute settlement mechanism questioning its export promotion schemes.
  • The US claimed that subsidies, worth over $7 billion, are enjoyed by Indian producers to the detriment of American workers and manufacturers.

Dispute Panel’s decision

  • The panel first rejected India’s claim that it was exempted from the prohibition on export subsidies under the special and differential treatment provisions of the WTO’s Agreement on Subsidies and Countervailing Measures.
  • The panel determined that India had “graduated” from the exemption it was originally entitled to and was not eligible for any further transition period.
  • The panel concluded that most of these schemes like EOU, Electronics Hardware Technology Parks Scheme; EPCG, and MEIS are inconsistent with certain provisions of WTO’s Agreement on Subsidies and Countervailing Measures.
  • It also found the duty credit scrips awarded under the Merchandise Exports from India Scheme (MEIS) to be inconsistent with these provisions.
  • While, other US claims regarding a subset of exemptions from customs duties and an exemption from excise duties were rejected by the panel.
  • The panel recommended India to withdraw the prohibited subsidies under these schemes within 90-180 days (depending on the scheme) from the adoption of its report.

Future course of action for India

  • Meanwhile, India has already begun work on making some of the debated schemes more WTO-compliant.
  • In September, India had announced various schemes for promotion of exports, including the Remission of Duties or Taxes on Export Product (which will be WTO compliant) to replace the MEIS.
  • However, India still has the option to appeal against the panel’s ruling.
  • Since the appellate body is likely to be dysfunctional by December, if India appeals the report, then the panel report does not stand a chance of getting adopted by the dispute settlement body.
  • In that situation, there would be a huge question mark on the legal sanctity of the report.

WTO

  • The World Trade Organization (WTO) is an intergovernmental organization that is concerned with the regulation of international trade between nations. It is the largest international economic organization in the world
  • The WTO officially commenced on 1 January 1995 under the Marrakesh Agreement, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948.
  • It deals with regulation of trade in goods, services and intellectual property between participating countries.
  • It provides a framework for negotiating trade agreements and a dispute resolution process aimed at enforcing participants’ adherence to WTO agreements.
  • The agreements are signed by representatives of member governmentsand ratified by their parliaments.
  • The WTO prohibits discrimination between trading partners, but provides exceptions for environmental protection, national security, and other important goals.
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