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Trump gives India a long-overdue wake-up call PDF Print E-mail
Friday, 16 March 2018 05:43
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The US Trade Representative (USTR) questioning the legality of India’s subsidies to exporters, via a host of schemes, might appear unduly protectionist. However, it is a wake-up call for India and a signal that the country must start phasing out export incentives. As trade economists point out, other countries too are unhappy with the sops being provided to exporters, and will up the ante sooner rather than later. The Trump administration has been vocal about ensuring a level playing field where global trade is concerned, and has said it will act against countries that resort to protectionist measures to support their manufacturers and service-providers. Early last week, the US announced that it would impose import tariffs of 25% and 10% on steel and aluminum, respectively; later in the week, it threatened to impose retaliatory duties on countries that exported more to it than they imported from it. The US’s request, announced on Wednesday, for dispute settlement consultations at the WTO might seem belligerent, and its estimate of more than $7 billion of benefits provided by India to exporters might be somewhat of an exaggeration. But, the US is not altogether wrong, and India cannot afford to take the challenge lightly.

Some of the export assistance schemes are in the nature of reimbursements for taxes and, therefore, WTO-compliant. However, India could find itself in a tight spot over several schemes, such as the Merchandise Exports from India (MEIS) that is not compatible with the WTO. Again, in the case of textiles, for instance, India’s share has reached 3.25% of world trade and, therefore, as per the rules, these products would not be eligible for subsidies. It is not clear what stand the WTO will take on some of the programmes listed by the USTR—Export Oriented Units Scheme, Electronics Hardware Technology Parks Scheme, Special Economic Zones and Export Promotion Capital Goods Scheme. There could be room to bargain on some incentives, say trade economists, but duty-free imports for exports may not be acceptable. Again, while the WTO does recognise the needs of a developing economy, and there are allowances for special and differential treatments under Article 27 of the ASCM, the fact that India’s per capita income has crossed $1,000 makes its case weaker.

The commerce secretary has said that India has eight years to phase out incentives and hopes the US would “understand the need for special and differential treatment”. The fact is India lost the case on renewable energy when the WTO ruled India had broken the rules by mandating the use of locally made cells and modules. India remains on the “priority watch list”, as per the US’s Special 301 report for its intellectual property rights regime, although India claims it is TRIPS-compliant. Given the current mood of the Trump administration, the commerce ministry’s optimism might be misplaced.

To be sure, India should try and negotiate good terms, at least, for the near term. It could use the consultations to buy some time by allowing US companies access to its large market, much like the Chinese leverage their market. However, simultaneously, the ministry should draw up a calendar to phase out the incentives well before eight years. The key to export competitiveness lies in greater ease of doing business and better infrastructure, not in financial support.

 

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