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Tuesday, September 19, 2023

India’s 2023 FTP – a Tight Rope Walk between Export Targets and WTO Commitments

Authors: Ambarish Sathianathan, Partner, AmbarishSathianathan@elp-in.com

                Divyashree Suri, Associate, DivyashreeSuri@elp-in.com

In response to the significant supply chain disruptions accompanying the last three (pandemic-ridden) years, manufacturers across the globe have undertaken strategies to diversify their supply sources. During these years of uncertainty, India has catapulted itself to becoming a strong trading partner for several countries and multinational companies on the back of a stable economy, prospects for growth, vast consumer base, and natural resources.

The Indian Government’s new Foreign Trade Policy, 2023 (“FTP”) capitalizes on these opportunities and has set ambitious aspirations for India’s role in the global market.  The Indian Government appears to be performing a delicate balancing act between meeting its obligations under the WTO and achieving its target of exporting goods and services worth USD 2 trillion by 2030. At the launch of the FTP, the Indian government emphasized the WTO compatibility of the new policies. At the same time, sections of the FTP either incorporate export incentives from previous policies, or allude to the introduction of new export-boosting programs. Given this context, this article examines some of the questions that may arise out of India’s new FTP (with a focus on subsidies) given its commitments under the WTO.

What are India’s commitments under the WTO?

The General Agreement on Tariffs and Trade (“GATT”) is the primary multilateral agreement relating to international trade in goods under the WTO. Amongst other features, the GATT empowers members to impose countervailing duties on imports made from another member, including India, if the government provides trade-distorting subsidies to its exporters. This provision is supplemented by the Agreement on Subsidies and Countervailing Measures (“ASCM”).

The ASCM distinguishes between ‘prohibited’ and ‘countervailable’ subsidies. Subsidies which are based on local content manufacturing, or are contingent on exports, are prohibited under the ASCM. Other subsidies are not strictly prohibited under the ASCM but may be subject to being countervailed by other members by way of an anti-subsidy duty.

How does the FTP weigh against India’s WTO Obligations?

As highlighted by Mr Piyush Goyal, the Minister of Commerce and Industry, with the current iteration of the FTP, India has shifted from an incentive-based regime to a remission-based one. Simply put, remission of local taxes is permissible under the ASCM since it only prevents exporters from exporting local taxes by refunding such taxes upon export. Accordingly, in line with its 2020 decision, the FTP has replaced the MEIS with the Remission of Duties and Taxes on Exported Products (“RoDTEP”). Since the RoDTEP Scheme merely refunds domestic taxes imposed on goods upon export, a plain reading of the scheme suggests that it is neither countervailable nor prohibited under the ASCM.

Retention of Programs that have been the subject matter of WTO Disputes against India

According to Economic Laws Practice (ELP), one of the best law firms in India, the Indian Government has retained schemes such as Duty Free Import Authorization, Export Promotion of Capital Goods Scheme (“EPCG”), and Export Oriented Units (“EOUs”) in the new FTP. In 2018, the United States filed a complaint with the WTO against certain Indian trade policies. It alleged that programs such as the ones listed above are export subsidies and are therefore prohibited under the Agreement on Subsidies and Countervailing Measures (“ASCM”).

During the dispute with the United States at the WTO, India made detailed submissions regarding the permissibility of these schemes under the WTO regime. However, the WTO’s Panel concurred with the United States and directed India to withdraw the flagged schemes (“Panel Report”).However, India has since appealed the Panel Report into the void, whereby the report remains pending in appeal. Until the Appellate Body deadlock at the WTO is resolved, the Panel Report is unlikely to get adopted by the Dispute Settlement Body. As a result, the Panel Report did not confer any additional commitments on India, and India appears to keep its position intact on these schemes.

Introduction of Other Potential Subsidies

The FTP also allows authorities to support local industries in specific districts to boost manufacturing and exports of selected priority products/services. The details of the support available to the exporters will become clearer once the respective District Export Promotion Committees formulate their plans. Relevant authorities will likely shape the nuances of such programs with due consideration to India’s obligations under the WTO. From past experience, Indian lawmakers will be well advised to bear in mind that support to manufacturing contingent on use of local content or export orientation could result in the program being challenged under the ASCM as ‘prohibited’.

Previously countervailed Indian programs

Additionally, the FTP has proposed changes that are likely to impact how investigating authorities across the globe calculate the benefit conferred on Indian exporters under certain programs which have been historically countervailed in anti-subsidy investigations against India.

For example, exporters may now self-ratify ‘additional inputs’ for products for which Standard Input Output Norms (“SION”) have been notified, without the intervention of the Norms Committees, and seek an Advance Authorization for the same.This may further impact an investigating authority’s assessment of whether India has a reasonable and effective system in place to confirm which inputs and in what amounts are consumed in the exported products. Similarly, it would be interesting to see whether the waiver on the export obligation default under the Amnesty Scheme would impact benefit calculation in any potential anti-subsidy investigations against Indian exporters.

In conclusion, India’s new Foreign Trade Policy, 2023 clearly reflects India’s aspirations to play a more prominent role in the global supply chain. The FTP has provided Indian regulatory authorities with the framework to boost exports while maintaining compliance with its WTO obligations. As the Indian economy continues to grow in the context of the global value chain, it will be important for the Indian government to be mindful about its obligations under the WTO and work towards finding a balance between its development goals and international trade commitments.

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