Thursday, June 17, 2021

WTO ruling

The World Trade Organisation (WTO) ruling against India in a critical trade dispute, ordering it to stop all export promotion schemes, is a serious issue, which can hit adversely the exports from the country. It is important to note that under WTO rules, the export promotion schemes are reserved only for the poorest countries, which have a per capita income of less than $1,000 and India has been excluded from that list. The ruling covers among others the Export Promotion Capital Goods (EPCG) scheme, the Special Economic Zones (SEZ) scheme, as well as the withdrawal of benefits extended under the Merchandise Exports from India Scheme (MEIS). It appears that the policy planners were not calculating these rulings from the WTO where all the trade schemes are laid bare for the rest of the exporting countries to assess and reset their own policies for protecting their exports to other countries. But somehow some of the measures to be initiated by the WTO had been calculated by the trade promotion planners in the country which were not sufficient to ensure competitiveness in the international market. Anticipating this development, perhaps, the Indian government had earlier announced another scheme, compliant with WTO rules, the Remission of Duties or Taxes on Export Product (RoDTEP) to replace the MEIS. While the MEIS was meant to incentivise merchandise exports by compensating them for various kinds of cost inefficiencies faced by them such as high transportation costs, high electricity rates, delays at customs, the new scheme is based on the notion that whatever taxes are levied on products that are exported or on inputs that go into products that are exported, should not be passed on. Reportedly, the costs of this scheme are similar to those under the MEIS which suggests little impact on exporters, apart from transitional issues. But, there is a reasonable argument to be made that as indirect taxes should not be ‘exported’ in any case, exporters should be separately compensated for the loss of benefits extended under MEIS. Similarly, some of the schemes at the grassroot level are being implemented by the central government for the products which are manufactured in the cottage industrial sector in the states so that the producers benefit for the exports. Apart from other measures, India can prevent the adoption and implementation of the WTO panel’s decision by going to its appellate body by the end of November. With two of the current three members of the body retiring by December 11, the body would be rendered dysfunctional as the WTO rules require the presence of at least three members to hear an appeal on a dispute panel’s ruling. The appeal could keep the WTO from enforcing its ruling against India’s export promotion schemes. It is difficult to predict the fallout of this move. Though it would be a tactical decision, aimed at ensuring a short-term reprieve, but the situation calls for a comprehensive analysis of India’s export strategy. While schemes for the promotion of exports have been in place for years, India’s export performance has been languishing. During the past 5 years since the NDA-government took over the reins, the exports to most countries in the West, Europe and US have been decline. Same is the case with China wherein the balance of payments has been rising over the past half a decade. In fact, the country’s merchandise exports have barely grown in the past five years. This requires for urgently addressing the underlying issues that afflict the competitiveness of India’s exports, especially when the country is in the final stages of negotiating its entry into the Regional Comprehensive Economic Partnership (RCEP) trade agreement. Already the trade standoff between the US and India has remained unresolved, which also calls for urgent resolution to protect its trade relations with trade partners in the interest of the Indian industries and exports.