US drags India to WTO over export subsidies; India rules out trade war

The Dollar Business Bureau

Few days after threatening with reciprocal taxes on export products from India, the US, under Donald Trump administration, has launched a fresh offensive against it by filing complaint at the World Trade Organisation (WTO) about, what it termed, as its export subsidies programmes such as Special Economic Zones (SEZs) and the Merchandise Exports from India Scheme (MEIS).

The US has requested to hold discussions with India on the issue, the first step before taking any legal action. In its request, the US has argued that the incentives provided by India violate the WTO agreements as it has crossed the economic benchmark of $1,000 per capita gross national income (GNI).

Under the rules of WTO, India and the US are required to try to resolve the issue through consultation, failure to which lead the matter to a dispute settlement mechanism under WTO.

The US has challenged almost all of India’s export subsidy schemes including the MEIS, Export Oriented Units (EOUs) Scheme and other sector specific schemes such as SEZs, Electronics Hardware Technology Parks (EHTP), Export Promotion Capital Goods (EPCG) and duty-free import scheme for exporters.

“These export subsidy programmes harm American workers by creating an uneven playing field on which they must compete,” US Trade Representative (USTR) Robert Lighthizer said in a statement.

“USTR will continue to hold our trading partners accountable by vigorously enforcing US rights under our trade agreements and by promoting fair and reciprocal trade through all available tools, including the WTO,” he added.

The USTR has estimated these apparent subsidies offered by India provide benefits to its exporters to the tune of $7 billion, which allow them to export their products more cheaply to American markets.

However, Indian authorities said India would respond to the US’ request for bilateral consultations within the specified period of 60 days and ruled out the possibility of a full-blown trade war.

While briefing the media on Thursday, Commerce Secretary Rita Teaotia said that the use of trade remedies is an ongoing process under the WTO and she doesn’t think that both nations would escalate the situation into a trade war.

“The US has asked for a consultation process, we will engage fully in the process and we would make sure that we make our position known to the US. We expect that they would also engage with a positive spirit with an effort to resolve a dispute with a friendly country,” she said.

Teaotia argued that in similar situations in the past, like other countries, India should also be allowed eight years transition period to phase out the subsidy regime.

“Our presumption is that India also has a similar period of eight years to graduate out of the subsidy regime and this is what we would be placing before the US,” she said.

Hoping that this time-frame would be recognised by them, Commerce Secretary said, “During this time frame, we would commit ourselves and meet our obligations.”

“There is a confusion over the year from which the eight-year period will be calculated. India wants that the reference year should be 2015,” she added.

It was alleged by the USTR that in spite of expiration of India’s exemption in 2015, it has not withdrawn export subsidies and has rapidly raised coverage of schemes such as MEIS to include over 8,000 items.

On imposition of import tariffs by the US on steel and aluminium at 25% and 10%, respectively, on all nations excluding Mexico and Canada, Teaotia said that India is quite amazed and disappointed by the move.

“Since the tariffs have been imposed on security grounds and some of the key trading partners have been excluded from that, on the basis of India’s strategic partnership with the US, we are certainly not a security threat to the US. So exemption to India should also be available on the same ground,” she said.