India moves WTO on ambiguity in import duties

NEW DELHI: India has suggested at the WTO that there should be an objective benchmark for countries levying penal duties on imports that originate from countries that provide various subsidies to their exporters.

This benchmark could be linked to the annual average yield on government securities, India has proposed.
Some countries levy stiff countervailing duties on imports from other countries if they feel the host country has subsidised the exports that could undermine its local industry.

Such penal duties are not very common but India is apprehensive that the discount it gives on interest rates on loans to crisis hit exports sectors such as textile, leather and marine products could invite action by importing countries. An objective benchmark would ensure that such action is not arbitrary and excessive.

“Although we are well within the flexibilities given by the WTO to developing countries in giving export subsidies, we want ambiguities to be removed from the process of calculation of countervailing duties to avoid unnecessary complications,” a government official told ET.

The WTO agreement on subsidies and countervailing measures says that a government loan is not considered to confer a benefit unless the rate of interest charged is less than that exporter would get from the market for a comparable loan.

A proper benchmarking will help determine what the cost of a comparable commercial loan would be for computing the subsidy component, if any, India has submitted.

“The investigating authorities have wide discretion in interpreting this provision and this has led to the use of unreasonable benchmarks for the calculation of subsidy,” it said.

In the case of OECD countries, the system of export credit is based on reference interest rates, technically Commercial Interest Reference Rates (CIRR), which is linked to three-year government bond yields.
India proposed that the same benchmark could be used for calculating the countervailing duty.

“The rate of interest on a comparable commercial loan in the currency of the exporting country may be based on the benchmark of annual average government securities yields of nearest maturity corresponding to the tenor of export credit plus the fixed margin of 100 basis points,” it said.

A number of products from India including drugs, chemicals and metals have faced countervailing duties mainly from countries in the EU and the US. The instances of countervailing duties on exports is, however, much lower than cases of anti-dumping duties and safeguard duties imposed every year, which are mainly aimed at stopping a surge in imports.