Context: Recently, the United States and the European Union have now imposed countervailing duties (CVDs) on four Indian products, as a retaliation against the Remission of Duties and Taxes on Export Products (RoDTEP) scheme introduced for outbound shipments in January 2021.

Affected Product

• U.S Measure: Paper file folders, common alloy aluminum sheet, and forged steel fluid end blocks.

• EU Measure: Certain graphite electrode systems

• Earlier, in 2020, the US had removed from a list that gave India preferential treatment by imposing relaxed standards during CVD investigations. This made imposing CVD on Indian products easy. 

India’s Response to the Duties

• Government and Exporters’ Defense: The Indian government and affected exporters have actively defended against the subsidy allegations. Their defense covered various programs and schemes at both the Central and State levels in India.

• Method of Defense: The defense was presented through written and oral responses during the investigations.

Potential WTO Dispute

• India’s Stance on Dispute Resolution: Minister of State for Commerce and Industry indicated India’s openness to bilateral resolution.

• WTO Dispute Settlement Mechanism: Any party could approach the WTO Dispute Settlement mechanism if they believe a WTO member has adopted measures inconsistent with WTO agreements.

What is Countervailing Duty?

• Countervailing Duty (CVD): These are tariffs imposed by the country on imported goods to offset subsidies provided by the home country to the producers of these goods.  

• Purpose: Countervailing Duty islevied by the importing country to level the playing field between the producers in the foreign country and the domestic country, taking the subsidies in note provided by the foreign country. 

• WTO Regulations on Countervailing Duties: The WTO only permits countervailing duties to be charged after the importing nation has conducted an in-depth investigation into the subsidized exports.

• Mechanism in India: Countervailing measures in India are administered by the Directorate General of Trade Remedies (DGTR), in the Department of Commerce , Ministry of Commerce and Industry.

• Investigation & Imposition: Requires a domestic investigation to confirm the presence of subsidies and their impact on domestic industries.

• Types of Subsidies: Includes direct transfers of funds, tax concessions, loan guarantees, and provision of goods/services at a discount.

• Global Use: Frequently used by countries like the United States, European Union, Canada, and India.

• Controversy and Disputes: Can lead to trade disputes, viewed by some as protectionist or unjustified.

• Impact on Prices: May result in higher prices for affected goods in the importing country due to increased import costs.

What is RoDTEP Scheme?

• It is a duty and tax remission scheme by the Government of India, which is a successor to the Merchandise Export from India Scheme (MEIS), and is being implemented from 1st Jan 2021. 

• Objective: Its objective is to provide support to the exporters by providing a reimbursement of taxes, duties and levies on the exported product, which are currently not being refunded under any other mechanism, and thus become embedded in the export. 

• Duration: The scheme has been extended till 30th June 2024 to maintain the competitiveness in the export market. 

• WTO Compatibility: The scheme is WTO compatible and is being implemented in an end-to-end IT environment. 

• Financial Allocation:  For the Financial Year 23-24, a budget of Rs 15,070 crores is available to support this scheme. 

Conclusion

• Growing Trade Tensions: The imposition of CVDs by the US and EU signifies escalating trade tensions with India, particularly concerning the RoDTEP scheme.

• Impact on Indian Exports: These duties could potentially impact Indian exporters, affecting trade dynamics between India and these global economic powers.

• Prospect of WTO Involvement: The possibility of this dispute reaching the WTO highlights the complexities of international trade laws and the need for careful navigation of global trade policies.