India is undergoing a transformation in its export schemes to overcome challenges and foster growth. Facing countervailing duties from major partners like the European Union (EU) and the United States, India replaced the Merchandise Exports from India Scheme (MEIS) with the Remission of Duties and Taxes on Exported Products (RODTEP). However, WTO incompatibility issues persist.
Customs Duties and Competitiveness
High customs duties in India, reaching 14.7% compared to the EU’s 4.1%, make export schemes crucial for competitiveness. Key schemes include Advance Authorisation, Export Promotion Capital Goods, Duty Drawback, RoDTEP, Special Economic Zones (SEZ), and Export-Oriented Units (EOUs).
Challenges Faced
The EU and the US view these schemes as subsidies, leading to countervailing duties. This stems from the belief that these schemes violate the World Trade Organization’s Agreement on Subsidies and Countervailing Measures (ASCM).
RODTEP and Countervailing Duties
Introduced as a WTO-compatible alternative to MEIS, RODTEP hasn’t fully resolved the issue. The EU and the US continue to impose countervailing duties, citing incompatibility with WTO rules.
Complexity of Achieving WTO Compatibility
Perfect WTO compatibility is challenging due to the need to reconcile individual exporter transactions, leading to administrative burdens. While India’s export schemes estimate expenses on an average basis for expedited dues settlement, this approach often results in disputes.
Government Response and Proposed Approach
To tackle these challenge multi-pronged approach is suggested:
1. Improve Export Scheme Structure:Enhance schemes to comply with global trade rules, trace raw materials, reduce import duties on capital goods, and establish effective verification systems.
2. Use Offense as Defense: Actively dispute protectionist policies and WTO-incompatible schemes implemented by countries like the US and EU.
3. Resist Premature Withdrawal: Avoid abrupt termination of schemes like MEIS, crucial for supporting exporters and offsetting high transaction costs.
4. Examine Customs Duty Structure: Reduce import duties on inputs and capital goods to decrease the reliance on export schemes.
India must align its export promotion strategies with international trade norms, requiring adaptability, strategic foresight, and commitment. Harmonizing domestic objectives with evolving international trade landscapes is essential for enhancing India’s global trade footprint while respecting global trade laws.
In this ever-changing landscape, careful policy-making, proactive dispute resolution, and a strategic examination of customs duties will be pivotal for India’s success in the global market.