World Trade Organisation (WTO) announced a huge blow to the Indian exporters in a ruling filed by United States (US) against the export benefits provided by the Indian Government to the exporters. The US has dragged India to the WTO in 2018 to remove the special & differential treatment to India, a developing country. The ruling was announced on 31st October 2019 against India’s odds.
Let’s dig into the ruling and find out what were the Export incentives and what made the US to file a case against India.
Export incentives are provided by the Government to boost up the exports to make their balance of payment in surplus. Indian Government in its 5 years Foreign Trade Policy 2015-20 announced export incentives naming Merchandise Export from India Scheme (MEIS), Service Export from India Scheme (SEIS), Export Promotion of Capital Goods (EPCG) Advanced Authorization (AA) schemes to provide an incentive for the exporters to improve their margin.
In MEIS, exporter of goods will be entitled to a duty scrip ranging from 3-7% of the Free on Board (FOB) value of goods exported.
In SEIS, exporter of services will be entitled to a duty scrip ranging from 3-7% of the Net Foreign Exchange earnings during the year.
This scrip can be used to discharge the custom duty at the time of the import of any item. These schemes provide rewards to exporters to offset infrastructural inefficiencies and associated costs.
AA helps an exporter to import duty free input which is physically incorporated in the export product. The only condition is there should be minimum value addition of 15% .
i.e. FOB value of Exports – CIF Value of Imports * 100 > 0.15
CIF Value of Imports
EPCG is to facilitate the import of capital goods for producing quality goods and services and enhance India’s manufacturing competitiveness. This scheme allows import of capital goods for production at Zero custom duty & IGST. But this incentive is available subject to an export obligation of 6 times the saved on capital goods and to be fulfilled in 6 years. These exports should be in addition to the average of last 3 years exports .
Countries that are part of WTO has an agreement on subsidies and countervailing measures. Only the countries under the developing category are allowed to provide financial aid to the exporters of the country. But the definition of the developing country as per the agreement is their Gross National Product per capita should be below $ 1,000.
India crossed the threshold of $ 1000 GNI per capital way back in 2013.
US contended that these export incentive policies were harming the US domestic industry creating an uneven level playing field.
WTO panel gave different deadlines to withdraw the prohibited subsidies. But India has filed an appeal against the ruling to WTO. India has contended that a period of 8 years should be provided phase-out period for the export subsidy.
And in an interesting twist, the Appellate Body of the WTO may cease its operations indefinitely in December due to the insufficient number of confirmed judges, and if that continues it will delay the U.S.'s authority to impose any sanctions against India.
Maybe the US has taken the Modi’s speeches seriously of advertising India’s status as an economic superpower.
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