Following this, the WTO set up an investigatory panel to look into the complaint in May 2018. The US challenged the scheme by citing their primary concern as the subsidies provided by the Indian government to exporters. They claimed that the enticing subsidy rates create an uneven playing field for the American workers with which they have to compete. The US, and now the WTO, believe that India cannot provide subsidies since it is no longer considered a low-income developing country. India is now required to phase out its current subsidy regime, especially in the textile sector, where it attained competitiveness in 2010.
So, do these allegations against India hold any weight? And if so, what will be the fate of the Indian export sector if MEIS is gone for good?
In its essence, subsidies are offered by governments to encourage production and consumption in specific industries. They help initiate development in economically weaker countries, especially during the initial stages. However, subsidies that are contingent on export performance have a trade-distorting effect and are therefore prohibited by the WTO laws. Therefore, in order to strike a balance, the WTO wrote Article 27 in the Agreement on Subsidies and Countervailing Measures (ASCM) which allows for the special and differential treatment of developing countries. It puts India, along with other developing countries, in the 'annex VII (b) countries' category.
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