The 11th WTO [World Trade Organization] ministerial conference held in Buenos Aires during December 10-13, 2017 had ended up in a fiasco as there was not even a customary declaration not to talk of specific mandate/work program to take things forward.
Meanwhile, Indian commerce minister, Suresh Prabhu held an informal meeting of the members of the WTO in New Delhi on March 19-20, 2018 [delegates from as many as 52 countries, including the US and China participated] to “find ways to identify common ground for strengthening and re-invigorating the Organization”. Even as these efforts go on to ensure that WTO stays relevant, Donald Trump is leaving no stone un-turned in demolishing the very foundation of this multilateral body.
In Buenos Aires, the USA dumped the Doha Development Round, rejected developing countries demand for ‘permanent solution to stock-holding for food security, hiked import duty on steel and aluminum to 25% and 10% respectively in violation of WTO rules and now is blocking appointment of members of the appellate authority of WTO dispute settlement body [DSB].
The US has also dragged India to the WTO challenging at least half a dozen of the latter’s export subsidies schemes viz. Merchandise Exports from India Scheme [MEIS]; Export Oriented Units Scheme [EOUs] and sector specific schemes, including Electronics Hardware Technology Parks Scheme [EHTPS], Special Economic Zones [SEZs], Export Promotion Capital Goods Scheme [EPCGS] and Duty Free Imports for Exporters Program [DFIEP].
The US Trade Representative [USTR] has argued that the schemes provide financial benefits to Indian exporters creating an ‘uneven level playing field’ thereby enabling them sell their goods more cheaply to the detriment of American manufacturers and workers. The sectors benefiting under these schemes include steel, pharmaceuticals, chemicals, IT products, textiles and apparel. The value of these benefits is estimated to be over US$ 7 billion annually.
As per the WTO dispute settlement process, Indian authorities have to respond to the US request for consultations within the specified 60 days. If, the US and India are not able to reach a mutually agreed solution through consultations, the former may request establishment of a WTO dispute settlement panel [DSP] to review the matter. The decision of the DSP can be challenged before the appellate authority of WTO’s dispute settlement body.
Even as export subsidies violate WTO rules, a limited exception is made for specified developing countries that may continue to provide export subsidies temporarily until they reach a defined economic benchmark – US$1,000 per capita gross national income [GNI]. Further, developing countries that had a GNI of over $1,000 per capita at the time when the WTO was set up [1995], were allowed eight years to wind up their export promotion schemes.
Whether, this leeway of eight years to wind up the schemes would be available to developing countries [like India] which did not have GNI of over US$ 1000 per capita at the time of setting up of the WTO but reached this benchmark subsequently was left unsaid. This ambiguity may have led to varying interpretations and become a bone of contention between USTR and India.
India’s GNI being below US$ 1000 per capita initially availed of the exemption from no export subsidy obligation. But, in 2015, it surpassed the threshold thereby pushing it into no exemption zone. USTR has accused India of not just continuing with subsidies, but further expanding their scope.
For example, the MEIS launched in 2015 was rapidly expanded to include more than 8,000 eligible products, nearly double the number of products covered at its inception. Exports from SEZs increased over 6,000 per cent from 2000 to 2017, and in 2016, these accounted for over US$ 82 billion or 30 per cent of India’s export volume. Exports from the EOUs and sector specific schemes including EHTPS increased by over 160 per cent from 2000 to 2016.
This has prompted USTR to put pressure on India to withdraw export subsidies. However, India wants a transition period of eight years that too from 2017 when WTO notified the fact of its crossing the threshold [though the same happened in 2015]. It also cites countries such as Egypt and Sri Lanka which were given such dispensation in the past. This stance taken by India is anomalous.
The scenario facing developing countries which already had subsidy schemes and GNI in excess of US$ 1000 per capita at the time of WTO agreement cannot be compared with those who introduced these later. While, there is a strong justification for giving leeway to the former for withdrawing the schemes, the same cannot be said for the latter as they knew in advance that subsidies will have to go when GNI threshold is crossed.
The developing countries such as India had ample opportunity to plan and be ready for withdrawal on D-day; indeed, starting from 1995 till 2015 when the threshold was crossed, a long period of 20 years was available to get adjusted to a WTO compatible scenario. That was not done and now when the D-day has arrived, India wants 8 more years that too commencing from 2017 which effectively means 10 years from 2015! This was bound to upset USTR who has now challenged our export subsidy regime in the WTO.
True, US and other developed countries have been violators of WTO rules in all crucial areas such as agricultural subsidies, tariff on imported goods, trade related investment measures [TRIMs] etc. They have also dilly dallied on much needed reforms in Agreement on Agriculture [AoA] which is heavily tilted against developing countries from the day one. Indeed, India has been raising these issues at various for a viz. WTO ministerial conference, WTO-General Council etc.
But, that cannot be a valid reason for India not adhering to its commitments in other areas. The sanctity of multilateral rules can be preserved only when all member countries adhere to discipline. If, every member starts pursuing its own agenda [recent years have witnessed this trend at its worst] then, the effectiveness of WTO in promoting ‘free’ and ‘fair’ trade based on transparent and non-discriminatory rules will be seriously undermined.
It is therefore, incumbent on all members to make concerted and coordinated efforts to think through what they can do to resurrect a rule based international trade regime under the aegis of WTO. The exercise can yield positive results only when each one of them [especially developed countries and better-offs among developing countries] are guided by a spirit of what he or she can sacrifice for achieving the common good.