India has lost a case filed by the US at the WTO against domestic export incentives as the dispute settlement panel on Thursday concluded that these schemes are inconsistent with the international trade norms. With this ruling, India will have to re-work these incentive schemes to comply with the WTO ruling. However, it can file appeal against the ruling at the appellate body of the WTO dispute settlement mechanism.
On March 14 last year, the US had dragged India to the WTO's dispute settlement mechanism over New Delhi's export incentive schemes, including Merchandise Exports from India Scheme (MEIS); Export Oriented Units (EOUs) and Export Promotion Capital Goods (EPCG) Scheme; and duty free imports scheme. The US had alleged that these schemes were harming American companies.
The dispute panel in its report has concluded that most of these schemes like EOU, Electronics Hardware Technology Parks Scheme; EPCG, and MEIS are inconsistent with certain provisions of WTO's Agreement on Subsidies and Countervailing Measures. The dispute panel recommended that India should withdraw the prohibited subsidies under DFIS within 90 days from adoption of the report. It should also withdraw the prohibited subsidies under the EOU/EHTP/BTP schemes, EPCG , and MEIS, within 120 days and SEZ scheme within 180 days. The exemptions from customs duties on importation under the EOU/EHTP/BTP (Bio-Technology Parks) schemes are subsidies contingent upon export performance inconsistent with certain articles of the agreement, the ruling said.
"The duty credit scrips awarded under MEIS are subsidies contingent upon export performance, inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement," it added. According to the procedure established by the WTO, the first step to resolve a trade dispute is engaging for consultation process. If two trading partners having dispute could not resolve at that level, one of them can ask for settlement of dispute panel for hearing. The panel's report or ruling can be challenged at the appellate body.