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11 November 2019

Indian export promotion schemes held inconsistent with WTO provisions

Various Indian export promotion schemes have been held inconsistent with Articles 3.1(a) and 3.2 of the Subsidies and Countervailing Measures Agreement of the WTO.

As per WTO Panel report circulated on 31st of October, 2019, exemptions from customs duties on importation under the Export Oriented Units, Electronics Hardware Technology Park and Bio-Technology Park (EOU/EHTP/BTP) Schemes and Export Promotion Capital Goods (EPCG) scheme, and exemptions from customs duties on importation and exportation, the exemption from IGST on importation, and the deductions from taxable income under Special Economic Zone (SEZ) scheme, are inconsistent with the specified WTO provisions.

Similarly, the Panel was of the view that exemptions from customs duties on importation under specified conditions under Duty-Free Imports for Exporters Scheme (DFIS) and duty credit scrips awarded under Merchandise Exports from India Scheme (MEIS) are subsidies contingent upon export performance.

The Panel however rejected the claim that the exemption from central excise duty on domestically procured goods under the EOU/EHTP/BTP Schemes and the exemptions from customs duties on importation under few specified conditions of DFIS are subsidies contingent upon export performance.

India has been asked to remove the prohibited subsidies under the EOU/EHTP/BTP Schemes, EPCG Scheme and MEIS within 120 days of adoption of the Panel report. Further, while 90 days have been given to India to withdraw the prohibited subsidies in respect of DFIS, the subsidies in respect of SEZ scheme must be withdrawn within 180 days from date of adoption of the report.

It may be noted that India’s argument that the eight-year period set out in Article 27.2(b) of the SCM Agreement did not start, for India, on the date of entry into force of the WTO Agreement but, commenced on the date of India’s graduation from Annex VII(b), thus starting in 2017 and ending in 2025, was rejected by the Panel.

The Panel was of the view that the terms of Article 27.2(b) in the context of the SCM Agreement and in light of its object and purpose do not lead to conclude otherwise than that the eight-year transition period in Article 27.2(b) runs from 1 January 1995 and has expired on 1 January 2003, also for Members graduating from Annex VII(b). It was held that Article 27 hence no longer excludes India from the application of Articles 3.1(a) and 4 of the SCM Agreement.