In a move expected to put Indian export subsidy programmes claimed to be worth over $7 billion at risk, the World Trade Organization (WTO) dispute settlement panel has sided with the United States on a complaint that these subsidies were not compliant with the multilateral trade body’s norms. At the same time, sources told The Indian Express that India will appeal the ruling, which may prevent the adoption and implementation of the panel’s decision.

The dispute panel formed to look into US’ complaints last year found that exemptions from customs duties and Integrated Goods and Services Tax and tax deductions provided under some sections or conditions of India’s export-oriented schemes were “inconsistent” with provisions of WTO’s Subsidies and Countervailing Measures (SCM) Agreement.

This includes India’s Export Oriented Units (EOU) scheme, Electronics Hardware Technology Parks (EHTP) and Bio-Technology Parks (BTP) schemes, Export Promotion Capital Goods (EPCG) scheme, Special Economic Zones (SEZ) scheme and the Duty-Free Imports for Exporters Scheme (DFIS). It also found the duty credit scrips awarded under the Merchandise Exports from India Scheme (MEIS) to be inconsistent with these provisions.

The panel — in its 113-page report released late Thursday — recommended that India “withdraw the prohibited subsidies” under these schemes within 90-180 days (depending on the scheme) from the adoption of its report.

At the same time, the panel rejected US’ claims that the exemption from central excise duty on domestically procured goods under the EOU/EHTP/BTP schemes and the exemptions from customs duties on importation under certain conditions of the DFIS scheme are inconsistent with SCM.

These subsidies, worth “over $7 billion”, are enjoyed by producers of Indian steel products, pharmaceuticals, chemicals, information technology products, textiles and apparel “to the detriment of American workers and manufacturers”, said the office of the United States Trade Representative (USTR).

“This is a resounding victory for the United States,” said USTR Robert Lighthizer in a statement on the development.

India has “rapidly” expanded the MEIS to “nearly double” the number of products covered since the scheme’s introduction in 2015, said the USTR release.

“Exports under the SEZ have increased over 6,000 per cent from 2000 to 2017 and in 2016 accounted for over $82 billion in exports, or 30 per cent of India’s export volume. Exports from the EOU increased by over 160 per cent from 2000 to 2016,” it added. “We will appeal the report,” a senior government official close to the development told The Indian Express on condition of anonymity.

The report comes a little over a month before the WTO dispute settlement mechanism is likely to be paralysed as its appellate body, which is supposed to consist seven members, will only be left with one member. At least three members are required to hear an appeal on a dispute panel’s ruling, and experts feel this may keep WTO from enforcing the ruling against the Indian export promotion schemes that were scrutinised in the present report.

“Since the appellate body is likely to be dysfunctional by December, if India appeals the report, then the panel report does not stand a chance of getting adopted by the dispute settlement body. In that situation, there would be a huge question mark on the legal sanctity of this report,” said Abhijit Das, head of the Centre for WTO Studies at the Indian Institute of Foreign Trade.

“If the appellate body had upheld the contentions of the US, India would have had to withdraw the export-contingent subsidies without delay,” he said.

Meanwhile, the Centre has already begun work on making some of the debated schemes more WTO-compliant. In September, it announced various schemes for promotion of exports, including the Remission of Duties or Taxes on Export Product (RODTEP) to replace the MEIS under the Foreign Trade Policy of India (FTP 2015-20).

“The new scheme which is being proposed is a different scheme as compared to the MEIS … the overall envelope for the duty forgone under the new scheme will be more or less the same as MEIS which is at present around Rs 40,000-45,000 crore (annually). Otherwise, MEIS will have to be closed as it is not WTO compliant,” Directorate General of Foreign Trade Alok Chaturvedi had said. “The new scheme is WTO compliant and will go on.”