On October 31, 2019, the World Trade Organization (WTO) ruled in favor of the United States in determining that Government of India provides prohibited export subsidies to Indian producers and exporters. The WTO dispute panel determined that the: Merchandise Exports from India Scheme (MEIS); Export Oriented Units Scheme (EOU) and related sector-specific schemes; Special Economic Zones (SEZ); Export Promotion Capital Goods Scheme (EPCG); and Duty-Free Imports for Exporters Scheme (DFIS) are in violation of India’s obligations set forth in the Agreement on Subsidies and Countervailing Measures (SCM Agreement), a multilateral agreement that defines and regulates subsidies provided to entities located within the territory of a WTO member. The United States requested consultations at the WTO in March 2018 concerning these subsidies, which have provided over $7 billion annually to Indian producers and exporters in the form of import duty exemptions, tax exemptions/deductions, and direct transfers of funds to pay additional duties and taxes otherwise owed to the Government of India.
The SCM Agreement classifies subsidies under two categories: prohibited or actionable. Prohibited subsides include export subsidies—receipt of benefits is contingent, in whole or in part, upon export performance—and local content subsidies—receipt of benefits is contingent, whole or in part, upon the use of domestic over imported goods. In contrast, actionable subsidies are not prohibited but are subject to challenges if they adversely affect a WTO member. In the decision handed down Thursday, each of the subsidies was determined to be a prohibited export subsidy.
Based on its findings over the course of the proceeding, the WTO dispute panel concluded that the withdrawal of the aforementioned subsidies would require amendments to India’s Foreign Trade Policy, central government notifications, and operational procedures, actions that may also necessitate review by the Indian Parliament. As a result of these facts and a review of each level of government associated with the prohibited programs, the WTO dispute panel gave India: 90 days to withdraw DFIS; 120 days to withdraw the EOU and related sector-specific schemes, EPCG scheme, and MEIS; and 180 days to withdraw the SEZ schemes.
The full WTO dispute panel report can be read here.