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India Might Have To Phase Out Textile Export Subsidy Regime by December 2018

India might have to phase out its export subsidy regime soon in the current form, since World Trade Organisation (WTO) rules bar it from offering export incentives to any sector, including textiles, when it reaches certain thresholds which are already nearing. The deadline for ending direct subsidies to textile companies is December 2018.

Schemes such as the Merchandise Exports from India Scheme, Export Promotion Capital Goods scheme and interest equalisation scheme for the textiles sector under the Foreign Trade Policy (FTP) 2015-20 are likely to get impacted.

Under the special and differential provisions in the WTO’s Agreement on Subsidies and Countervailing Measures, least developed countries and developing countries whose gross national income (GNI) per capita is below US $1,000 per annum at the 1990 exchange rate, are allowed to provide export incentives to any sector which has a share of below 3.25% in global exports.

In case a sector in such a country crosses the 3.25% threshold for two consecutive years, it has to phase out export subsidies for that sector within eight years. India’s textile exports crossed the 3.25% mark in 2010, requiring it to end its export incentives to the sector by December 2018.

However, an official at the Directorate General of Foreign Trade, which is now in the process of conducting a mid-term review of the FTP, said that India is likely to seek two to four years’ extension to comply with the norm for the textile sector and maintained there is no clarity yet on what happens once India crosses the US $1,000 GNI per capita mark for three consecutive years.

A Delhi-based trade expert said WTO rules are very clear and it would be only “wishful thinking” on the part of the government to imagine that it will allow India more time to phase out export subsidies. This person also requested anonymity.

Federation of Indian Export Organisations (FIEO) Director General Ajay Sahai said that Indian industry needs to be made aware that existing export subsidies will have to be phased out. India should move to a permissible subsidy regime under WTO rules, he said.