WTO and the war against export subsidies

• Under Article 3.1, developing countries with gross per capita of US$ 1,000 per annum are not entitled to provide export subsidies that are contingent upon export performance
• So far, there are 32 cases of disputes against India and most of them are broadly on anti-dumping and import restrictions.
• The government made another announcement in 2017 that it would end the support under amber box and allocate financial support towards green box, which is WTO compliant.
• Export subsidies (direct payments, export loans, tax benefits) are adopted by developed and developed nations. They distort market dynamics, leading to surplus production in exporting countries and lower prices and less production in importing countries.

India recently lost the case on export subsidies against US. In 2018, the US filed a complaint that India’s export-related programmes violated Article 3.1(a) of WTO’s SCM agreement. The US has challenged almost all of India’s export programmes at the WTO, saying they will harm its workers, citing the Agreement on Subsidies and Countervailing Measures (ASCM). It pegged the subsidies at US$ 7 billion. Major products which are getting export subsidies includes dairy, medical and pharma products, according to the US.

Under Article 3.1, developing countries with gross per capita of US$ 1,000 per annum are not entitled to provide export subsidies that are contingent upon export performance. Subsequently, the government made another announcement in 2017 that it would end support under amber box and allocate financial support towards green box, which is WTO complaint. Despite these pronouncements, most of the governments across the globe have continued with export subsidies.

So far there are 32 cases of disputes against India and most of them are broadly on anti-dumping and import restrictions. Now as per the details given by US on India’s export subsidies, India provides export subsidies through:

(1) Export Oriented Units Scheme and sector specific schemes, including Electronics Hardware Technology Parks Scheme
(2) Merchandise Exports from India Scheme
(3) Export Promotion Capital Goods Scheme
(4) Special Economic Zones
(5) A duty-free import for exporters program.

Last month, a WTO Dispute Settlement Panel upheld the US complaint that India’s export subsidy programmes violated provisions of the trade body’s subsidies and countervailing measures (SCM) pact.The recent loss for India will further push Indian policy makers to design WTO-compliant policies, which should not violate article 3.1 (a) and 3.2 of WTO. But this is not true only for India. Most of the developed and developing economies practice export subsidy policies. Let us see the consultations requested by India as a complainant on other economies as disputes.

Source: WTO

Why WTO abolished agricultural export subsidies?

Export subsidies (direct payments, export loans, tax benefits) are distorting market prices, leading to higher-than-market prices and surplus production in exporting countries and lower prices and less production in importing countries. In the short term, consumers in importing countries benefit from low food prices. In the long-term, this system undermines competitiveness of food production in both exporting and importing countries.

One of the major reasons why it took so long to abolish export subsidies is that policymakers in developed countries tend to care more about farmers, while policymakers in developing countries think more about consumers. Food prices are political issues in poor countries for poor people and may lead to political turmoil. In developed countries and emerging economies, food prices are political issues for farmers.

The sudden rise of export subsidies in the years leading up to the introduction of the Uruguay Round in 1986 was one of the major issues addressed in these negotiations and they remained an intense topic for many years in the WTO. While export subsidies for industrial products have been generally prohibited for over 50 years, such subsidies in agricultural products had only been subjected to limited disciplines with limited scope. Development NGOs, economists, environmental and aid organizations would easily agree that subsidized imports below market prices effectively undermine development prospects. Thus, subsidies under amber box actually acts as a pseudo stabilizing policy, which is now more or less discouraged.