India’s export promotion schemes recently came under the scrutiny of the US administration. Reportedly, the argument put forth by the US trade representative (USTR) is that India’s export promotion programmes provide financial benefits to exporters which contribute to their price-competitiveness in the global market. The argument was further extended to suggest that these ‘export subsidy programmes’ harm US workers by creating uneven playing field. This is a matter which deserves serious attention. It also raises possibly more questions than provides answers. Can ‘export promotion schemes’ be equated with ‘export subsidy programmes’? Are these programmes WTO non-compliant? Has India’s exports sector reached a level of development that it must desist from promoting exports? Do India’s exports inflict only harm to US workers? If that is so, why does a US importer import from India? Aren’t Indian exports to the US beneficial to the US economy? Are imports always bad and exports always good? Let us begin from the beginning. First, export promotion programmes cannot be equated with export subsidies. That is why most countries have such programmes. If we do not have an objective view of this, then possibly export promotion organisations in several countries, including the developed ones and their activities, could also be misconstrued.
Secondly, even if a country has a subsidy programme, it can be acceptable such as in the case of Article 2.1(b) of the WTO Agreement on Subsidies and Countervailing Measures (ASCM). According to this, a subsidy programme which adheres to neutral criteria rather than being exclusive and if the eligibility is automatic, that programme is considered non-specific and therefore falls outside the coverage of the ASCM. The criteria or conditions must be clearly spelled out in law, regulation or other official document, so as to be capable of verification. India’s foreign trade policy document has always remained in public.
Thirdly, there is no doubt that India’s exports have made rapid strides and have undergone structural transformation, especially since 1991. Nonetheless, India still remains a developing country. It might be in the interest of the global economy that countries such as India do even better in terms of trade and development. For this, export promotion schemes become an imperative in a country like India. Fourth, an American firm or a company would import only when it is a profitable and economically viable proposition. Imports thus need not necessarily be viewed in a bad light. Fifth, imports of any category of goods – be it raw materials, intermediates, capital and consumers goods – help consumers and producers depending on the category. Moreover, all consumers may not be producers but all producers are consumers. Again, imports cannot be bad as it is being made out to be.
Finally, if all countries consider exports as good and imports as bad and if each country only wishes to export; trade cannot take place. This is ‘Trade Impossibility Theorem’. Every unit of export of one country by definition is a unit of import for the partner country. Exports and imports are two sides of the same coin. In short, both the US and India would have to view both the exports and imports in a balanced perspective rather than in a framework of combating each other and cancelling out the mutually beneficial potential trade and economic linkages!
Sorce: financialexpress.com