It is tempting to pass off the recent US action against India’s export subsidies at the World Trade Organisation as yet another example of the superpower’s growing economic aggression against trade partners. But that would be incorrect.

Since August last year, when the WTO officially notified that India’s per capita Gross National Income (GNI) had crossed $1,000 three years in a row, a formal complaint against India at the multilateral forum was just waiting to happen. According to WTO rules, countries can give export subsidies only as long as their per capita GNI is below $1,000. Once it is established that the higher income is there to stay (with three consecutive years of GNI breaching the $1,000 threshold), countries can no longer enjoy the special dispensation of export subsidies which is otherwise banned under WTO rules.

The fact that it was the US that complained against India was just a matter of chance. It could have been any other member such as the EU, Japan or Australia that could have raised the dispute as all of them are unhappy with India’s continued use of export subsidies.

For and against

One might argue that expecting a country to change a plethora of export subsidy schemes, including extremely popular ones like the Merchandise Export from India Scheme (MEIS) used across sectors, at a drop of a hat, could be considered harsh. The fact, however, remains that breaching the $1,000 mark was not an overnight development: India could see it coming. In fact the Foreign Trade Policy, which was announced in 2015, as well as the review of the policy announced last year, talked about the need to re-calibrate existing export promotion schemes. However, nothing was done on the ground.

Instead of trying to wean exporters off the export subsidy schemes, the FTP review went ahead and increased the number of items covered under MEIS and also increased the level of entitlement in certain cases.

In its defence, India has said that it believes that it is entitled to an eight-year phase-out period and would put this forth in the discussions it has with the US. Its contention is based on the argument that when the Agreement on Subsidies and Countervailing Measures was implemented in 1994-95, the countries with GNI higher than $1,000 got eight years to get rid of their export subsidies and, therefore, it should get the same.

But obviously the two situations are not comparable as initially the phase-out period was extended to give comfort to members when the pact kicked in and more than two decades have passed since then. India’s efforts to establish that it would be fair to extend the same dispensation to all have not borne fruit yet at the WTO.

Pushing its case

Recently, officials from the commerce ministry, in their interaction with the media, pointed out that India had submitted a paper way back in 2011 stressing that the phase-out period for export subsidies should be eight years from the time it crossed threshold; it has been demanding and discussing the matter at the WTO since then. An effort to make the demand a part of the discussion agenda at the Nairobi ministerial meeting of the WTO in December 2015 did not succeed.

So, what exactly is making the country optimistic about having its demand met now?

The least that India should have done to prepare for the eventuality was to have a contingency plan ready. It should have held wide-ranging discussions with industry and related ministries to look at the best possible alternatives to the export subsidy schemes which could include technology upgrading funds, capital expenditure subsidies and funds for research and development. Some discussions happened but no concrete plan emerged. Especially in the area of textiles, where India itself has accepted that its time to extend export subsidies runs out in 2018 ( the sector reached export competitiveness as defined by the WTO back in 2010), there should have been some movement.

Although the textile ministry held a few meetings with the commerce ministry on the issue, nothing moved on the ground as it did not want to push the industry out of the comfort zone of receiving the subsidies it is familiar with.

However, it is not too late for action. Since it takes at least a couple of years for a dispute at the multilateral forum to run its course, New Delhi has to use this time effectively to draw up alternative schemes. All the ministries need to take the matter seriously and cooperate with the commerce ministry to decide on ways to continue extending support to exporters without violating WTO rules. India cannot afford to be caught napping the second time round when the WTO is ready to pronounce judgment on the matter.

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