31 Oct 2019

Subscribe

Stay Up to Date on Canadian Trade Issues

Thank you for subscribing.

Something went wrong.

WTO Panel issues Report in U.S.-India Dispute concerning Export Subsidies

On 31st October 2019, the report of the World Trade Organization (WTO) Panel in India – Export Related Measures (DS541) was released. This dispute concerned the United States’ challenge of certain alleged export subsidy measures in India under the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement).

Two interesting aspects of this proceeding included: (i) the Panel’s interpretation and application of its Working Procedures in the abbreviated proceedings under Article 4 of the SCM Agreement in the light of its obligation under Article 12.10 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) to accord sufficient time to a developing country Member to prepare and present its argumentation; and (ii) the Panel’s distinction between “exceptions” and “excluding provisions” in WTO agreements for the purposes of determining the applicable burden of proof when a responding Member raises an “excluding provision” to defend a measure.

Overview of the Panel’s Report

The United States challenged the following schemes maintained by India: (a) the Export Oriented Units (EOU) Scheme and Sector-Specific Schemes, including the Electronics Hardware Technology Parks (EHTP) Scheme and the Bio-Technology Parks (BTP) Scheme (the EOU/EHTP/BTP Schemes); (b) the Merchandise Exports from India Scheme (MEIS); (c) the Export Promotion Capital Goods (EPCG) Scheme; (d) the Special Economic Zones (SEZ) Scheme; and (e) the Duty-Free Imports for Exporters Scheme. These measures provide certain exemptions from customs duties and taxes or grant freely transferable “scrips” that Indian exporters can use to satisfy certain liabilities vis-à-vis the Indian government.

The Panel concluded that certain exemptions from customs duties, taxes, and taxable income provided to Indian enterprises under the above-referenced measures constitute prohibited export subsidies (i.e., subsidies contingent upon export performance, either in law or in fact) within the meaning of Articles 3.1(a) and 3.2 of the SCM Agreement.

Accordingly, the Panel recommended that, pursuant to Article 4.7 of the SCM Agreement, India proceed “without delay” to: (a) withdraw within 120 days from adoption of the Panel’s Report the prohibited subsidies under the EOU/EHTP/BTP Schemes, EPCG Scheme, and MEIS; (b) withdraw within 90 days from adoption of the Panel’s Report the prohibited subsidies under DFIS; and (c) withdraw within 180 days from the date of adoption of the Report the prohibited subsidies under the SEZ Scheme.

Taking account of India’s status as a developing country Member

In accordance with Article 12.11 of the DSU, the Panel explained how it had taken account of India’s status as a developing country Member in adopting and reviewing its Working Procedures and timetable for this proceeding. Although the Panel had been established under the fast-track procedures contemplated in Article 4 of the SCM Agreement, it had allowed additional time for India to prepare each of its first and second written submissions and also its responses to the Panel’s questions following the substantive meeting. Although the Panel did not accede to India’s request to consider holding more than one meeting, it did consider India’s developing country Member status in the process of reconciling competing considerations in its decision to hold a single substantive meeting.

In addition, India argued as a preliminary matter that Articles 3 and 4 of the SCM Agreement do not apply to India by virtue of Article 27.2. Article 27.2(a) provides that the prohibition on export subsidies under Article 3.1(a) does not apply to developing country Members referred to in Annex VII (i.e., those designated as “least developed countries” by the United Nations). Article 27.2(b) provides the same exception to other developing country Members for a period of eight years from the date of the entry into force of the WTO Agreement. Annex VII(b) provides that when India’s GNP reaches US $1,000 per capita, it shall become subject to the provisions applicable to other developing country Members under Article 27.2(b).

The parties agreed that India has graduated from Annex VII(b) and that Article 27.2(a) no longer excludes India from the application of the prohibition of export subsidies under Article 3.1(a). However, India argued that the exemption under Article 27.2(b) continued to apply to India because the eight-year exemption period set out in that provision did not start for India on the date of the entry into force of the WTO Agreement, but rather on the date of India’s graduation from Annex VII(b) — i.e., starting in 2017 and ending in 2025. The Panel rejected India’s argument, finding instead that it was clear from the wording of Article 27.2(b) that the eight-year period had commenced on the date of the entry into force of the WTO Agreement and had therefore expired in January 2003. As a consequence, India was subject to the prohibition on export subsidies under Article 3.1(a).

The distinction between exceptions and excluding provisions

Another interesting aspect of this report is the Panel’s considerations related to the distinction between “exceptions” and “excluding provisions” for the purposes of determining the applicable burden of proof. The Panel considered this issue to be relevant in relation to the defensive arguments raised by India under footnote 1 to Article 1.1(a)(1)(ii) and Article 27 of the SCM Agreement.

The general rule in WTO dispute settlement is that the burden of proof rests upon the party who asserts the affirmative of a particular claim or defence. The Panel considered that while the application of this rule is obvious in many instances — e.g., where a responding Member invokes an exception under Article XX of the GATT 1994 — the dividing line is sometimes less clear in cases involving provisions which could potentially disqualify a claim but are not considered to be “exceptions” or “affirmative defences”.

The Panel considered that “exceptions” afford a justification for measures that are found to be inconsistent with other provisions of the WTO Agreements, while “excluding provisions” limit the scope of other provisions without there being a violation in the first place. The Panel explained that although the outcome of upholding an “exception” or an “excluding provision” is the same (i.e., the complaint fails), an “exception” presupposes a valid claim, to which it responds, whereas if an “excluding provision” applies, there is no valid claim under the provision that is excluded.

The Panel considered that the question of which party bears the burden of raising an “excluding provision” is different from the question of which party bears the burden of proof under an “excluding provision”. It also considered that the responding Member is best placed to know whether its measures fall under a particular “excluding provision”. On this basis, the Panel determined that the respondent bears the burden of raising “excluding provisions”, but once the respondent has properly raised an “excluding provision”, the complainant will bear the burden of proof under the “excluding provision”, i.e. the burden of proving that the “excluding provision” does not apply.

Tereposky & DeRose LLP regularly provides advice and acts as counsel in international trade disputes, including WTO dispute settlement proceedings.

Greg Tereposky
613.237.1210
gtereposky@tradeisds.com

Daniel Hohnstein
613.237.9005
dhohnstein@tradeisds.com