On 31 October 2019, a WTO panel decided the case India-Export Related Measures (WT/DS541/R). The US had challenged five Indian measures, claiming they were prohibited export subsidies inconsistent with Articles 3.1(a) and 3.2 of the Agreement on Subsidies and Countervailing Measures (“SCM Agreement”).
The five measures were undoubtedly of the kind prohibited by the SCM Agreement: they included schemes exempting businesses from central excise duties and from customs duties on capital equipment, provided they met various metrics of export performance, as well as a mechanism that gave businesses transferable notes that could be exchanged to offset certain taxes if they exported particular goods to particular countries.
Slam dunk? In fact, India argued that the measures were not contrary to the SCM Agreement because of Article 27, which provides developing countries with transition periods to phase out export subsidies.
In particular, Article 27.2(a) exempts Members referred to in Annex VII (which includes the least developed countries and certain other very poor countries) while Article 27.2(b) exempts other developing country Members for a period of eight years from the date of entry into force of the WTO Agreement. India was originally listed under Annex VII. However, under the terms of Annex VII and as agreed by both parties, it had “graduated” from that list when its Gross National Product (“GNP”) per capita exceeded USD 1,000. India contended that graduation should trigger the eight-year transition period provided for under Article 27.2(b), beginning from its date of graduation. Its argument hinged on the interpretation of the phrase “eight years from the date of entry into force of the WTO Agreement” under Article 27.2(b). It reasoned that a purely textual interpretation of the phrase was would render the meaning of its terms ambiguous and would lead to an absurd result, so that supplementary means of interpretation were needed to give effect to the object and purpose of the SDT. More concretely, the textual interpretation would lead to inconsistencies with other provisions that cross-reference the eight-year period without qualifying it by reference to the entry into force of the WTO Agreement. Sri Lanka, supporting India’s submissions, claimed it was inequitable for there to be a common start date for the eight-year period. Developing countries not within Annex VII already had a GNP per capita of USD 1,000 but benefitted from an eight-year transition period. Denying such a period to lower-income countries would be inequitable. The US, by contrast, argued that supplementary and contextual interpretations of the provision should not be allowed because the ordinary meaning of the text of Article 27.2(b) was clear in terms of the starting date of the eight-year period. Article 27.2(b) had expired for all Members on 1 January 2003 since the WTO Agreement entered into force on 1 January 1995.
The Panel favoured the US interpretation of the provision and decided that the transition period would not commence from the date of graduation. It considered that this interpretation did not result in the inconsistencies claimed by India; the relevant provisions could be harmoniously interpreted to mean that each reference to the eight-year transition period was to the period beginning on entry into force of the WTO Agreement. The Panel recognised that granting SDT to developing country Members is part of the balance between strengthening GATT disciplines on subsidies and recognising Members’ rights to provide them under certain conditions. Contrary to India’s claim, it held that a textual interpretation of Article 27.2(b) was in line with this object and purpose of the SCM Agreement as it enabled SDT through clear, time-bound mechanisms while constraining certain kinds of measures. The Panel felt no need to delve into supplementary means of interpretation as Article 27.2(b) was sufficiently clear and unambiguous.
Therefore, the Panel ruled that as Article 27 no longer applied to India, its various export schemes were inconsistent with Articles 3.1(a) and 3.2.
As the first case to decide on transition periods under the SCM Agreement, it has ramifications for developing countries reaching or having reached the GNP per capita threshold. It has clarified that the eight-year transition period under Article 27.2(b) ends for all Members when they graduate from Annex VII. Although India appealed before the Appellate Body became inquorate, it is unlikely that the Panel’s decision will be overturned. This should serve as a reminder to other previous Annex VII countries such as Indonesia, Nigeria, Pakistan, Guatemala, Morocco and Egypt that special and differential treatment is not intended not last forever; they may need to review whether they have been incorrectly relying on such exemptions.