UPSC PRELIMS 2020: India – US WTO Dispute

Ind - US Trade blows

Topic: India – US WTO Dispute

Topic in Syllabus: International Affairs

Ind - US Trade blows

Context:

A WTO dispute settlement panel has upheld a US complaint that export subsidy programmes provided by the Indian government violated provisions of the trade body’s subsidies and countervailing measures (SCM) pact.

The Issue:

  • In 2018, the US complained that India’s export-related programmes violated Article 3.1(a) of WTO’s SCM agreement.
  • Under Article 3.1, developing countries with gross per capita of $1,000 per annum are not entitled to provide export subsidies that are contingent upon export performance.

Reasons:

  • WTO has struck down Indian export promotion schemes because India is not entitled to provide such subsidies because its per capita gross national product (GNP) has crossed $1,000 per annum.

What Next:

  • Once the panel’s final report is made public, India will have a month to challenge the ruling before an appellate body, the highest court for global trade disputes.
  • If the appellate body upholds the panel’s ruling, India will be required to discontinue the existing export promotion schemes.

Impact:

The programmes that could be affected are export-oriented units scheme, electronics hardware technology parks scheme, bio-technology parks scheme, merchandise exports from India scheme, export promotion capital goods scheme, special economic zones and duty-free imports for exporters.

WTO SCM (Subsidy and Counter-veiling) Agreement:

 It covers subsidation by WTO members and counter-vailing measures.

It follows traffic light approach for subsidies.

  • Red Subsidy (Prohibited)
  • Yellow or Amber (Actionable): These subside are allowed if does not have adverse impact on other members. Otherwise, other members can apply counter vailing measures.
  • Green (Non-Actionable): These subside are allowed which cover mostly research subsidy, environmental subsidy and assistance to other nations.

Prohibited subsidies

Prohibited subsidies are those, which are contingent on export performance (Export Subsidies) except agreement on agriculture. It also prohibits Import substitution subsidies, which allow use of domestic products over imported goods.

Sample Question:

Which of the following institution is associated with Dunkel Proposals?

(A) World Bank

(B) International Monetary Fund

(C) World Trade Organization

(D) United Nations Organization

Answer C

Explanation: Uruguay Round of the GATT on multilateral trade negotiations has given birth to the Dunkel Draft. World Trade Organization was also given birth by the Uruguay Round.