WORLD TRADE
ORGANIZATIONTN/RL/W/68
11 March 2003
(03-1367)
Negotiating Group on Rules Original:  English
INTERVENTION BY INDIA ON THE SUBMISSION BY THE
UNITED STATES ON SPECIAL AND DIFFERENTIAL
TREATMENT AND THE SUBSIDIES AGREEMENT
The following communication, dated 10 March 2003, has been received from the Permanent
Mission of India.
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Mr. Chairman,
We thank the United States for its submission on S&D treatment provisions and the Subsidies
Agreement.
We would like to briefly recall some of the important points made in this submission.  First it
has been stated that over time, all countries will be subject to a single set of disciplines.  The US has
also asserted that the goal is to completely integrate all Members under the full disciplines of the
Subsidies Agreement.  It is also the view of the US that that once a developing or lesser-developed
country becomes export competitive in a product area, it is no longer in need of special and
differential treatment.  Based on certain economic arguments regarding the distortion caused by
subsidies, the United States has questioned the appropriateness of S&D treatment provisions in theSubsidies Agreement.
We would like to give a substantive response to some of these issues.It has been recognised in the preamble to the Marrakesh Agreement Establishing the WTO
that there is a need for positive efforts designed to ensure that developing countries and especially the
least developed among them secure a share in the growth in international trade commensurate with the
needs of their economic development.  The S&D treatment provisions are meant to ensure that equal
rules do not apply to unequal players.  If, as the United States asserts, a single set of disciplines were
to apply to all WTO Member countries, then developing countries would be required to compete in afield that is tilted against them.  It may not be difficult to speculate the adverse consequences for
developing countries were they to be subject to a single set of disciplines- their insignificant share in
global trade would be further eroded and the multilateral trading system may not be perceived by such
countries as being a mutually advantageous system.  The approach taken by the United States may
eventually threaten the continued stake of developing countries in the multilateral trading system.
We would like to briefly recall the economic rationale for government intervention through
export incentives and its role in positive economic development.  Industry in developing countries are
characterised by low level of infrastructure development, high cost of capital, prevalence of under-
developed regions where industries may be reluctant to invest etc.  The various export incentive
schemes in developing countries are less in the nature of conferring an advantage to the exporters in
such countries and more for the purpose of creating a level playing field, in view of the fact that theirTN/RL/W/68
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competitors from the developed countries do not suffer from these disadvantages.  It has therefore
been recognised that governments have to assume  a more active role in assisting the industry by
creating a level playing field.  S&D treatment provisions in the Subsidies Agreement should be seen
in this context and not perceived as a bounty to the developing countries.  These provisions are a
structural need for developing countries in the multilateral trading system.  It is a matter ofdisappointment that the United States has not touched upon this aspect.
The context in which the S&D treatment provisions were negotiated remain equally valid
even today.  However, what seems to have changed is more the political attitudes to S&D rather than
the underlying reality.  In general the disparity in per capita income between the developed and
developing countries has actually increased since 1980 and many developing countries may have
fallen in the category of “least developed”.
Mr. Chairman, a question that needs to be addressed at this point is - why are several
developing countries so agitated regarding the Subsidies Agreement and have requested for more
meaningful S&D provisions?
In our view the ASCM has been patterned on legislation already in existence in developed
countries and is tailored to meet their administrative, fiscal and other structures.  There is therefore a
need to make modifications in this agreement so th at it is more in-tune with the developing countries’
needs and priorities.  A few illustrative examples are the following:
First, grant of official export credits by OECD countries has been permitted, while most of the
other countries are prohibited from giving such credits.
Second, subsidies normally given by developed countries in the nature of financial
contribution for research and development were designated as being non-actionable subsidies for fiveyears.  In this process the developed countries cr eated a safe harbour for a substantial part of the
activities on which the competitive strength of their firms rely.  While this provision may have
benefited developing countries in a few cases, rare as they may have been, it would not allow them
exemption from countervailing duty action in case assi stance were to be provided for the acquisition
of technology, which is essential for developing countries.  Such an exemption needs to be considered
in the framework of S&D treatment provisions in the Doha Development Agenda.
Third, the Subsidies Agreement permits remission, exemption and deferral of prior stage
cumulative indirect taxes on goods and services used in the production of exported products.  While
the prevalent system of VAT in most developed countries is suitable for meeting the stringent
requirements of the Subsidies Agreement in this respect, problems faced by developing countries not
having a VAT system have not been recognized and remission, exemption and deferral of indirect
taxes have been countervailed and exporters penalised.
Fourth, developing countries have to impose customs duty on capital goods for meeting the
exigencies of revenue generation.  However they are not able to avail remission, exemption or deferral
of such duties when the capital goods are used for production of products which are exported.  Thus alevel playing field is denied to the developing countries’ exports as an element of customs duty paid
on capital goods used gets reflected in the total cost of the exported products.  On the other hand,
developed countries’ exports do not include such costs as the customs duty on capital goods is low or
the capital goods are manufactured within their countries.
It may be relevant here to quote from Development, Trade and the WTO: A Handbook, a
publication referred to by the United States.  "In the light of experience with implementation
following the Uruguay Round, the transition period s and threshold levels appear to have been
excessively optimistic. ….  It is obvious that the limited duration of the transition periods used toTN/RL/W/68
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reflect S&D concessions in many Uruguay Round agreements renders them both inadequate and
inappropriate as a basis for building capacity for enhanced production and trade in low-income
countries."  While this publication has not identified the specific transition periods and threshold
levels that in hindsight may appear to have been pegged at optimistic levels, it is India’s view that the
transition periods and the benchmarks specified in the ASCM could be considered to be appropriateillustrations.  Some of the proposals by the developing countries seek modifications in the threshold
levels.
On the issue of export competitiveness we emphasis that the Subsidies Agreement does not
address situations wherein a country, which may have achieved export competitiveness, subsequently
loses it.  This is a genuine problem that needs to be addressed.  Once the export competitiveness is
lost, the country may again be in the need of S&D treatment.  Such a concern cannot be ignored bythe WTO Member countries.  It is important to address the legitimate economic development needs of
the developing world by agreeing to the propos al made by developing countries during the
implementation process on issues relating to Articles 27.5 and 27.6 of the ASCM.  Otherwise the
provisions on export competitiveness would remain a  one-way street.
Considerable part of the US submission has been devoted to economic distortions caused by
subsidies.  We would like to point out that the multilateral disciplines on subsidisation is not based
solely on economic underpinnings.  Selective use of arguments relating to trade distortions caused by
subsidies are not convincing.  If economic rationale was the sole basis of multilateral rules then the
questions that India would like to ask are- what is the economic rational for the safe haven fromprohibition on export subsidies in respect of export credits for OECD countries?  Can it be denied that
export credits distort markets?  What is the economic rationale for continuing with high agricultural
subsidies?
We would also recall that "from an historical point of view the legislation relating to subsidies
was flexible and adapted itself to the specific conditions of developed countries during the various
stage of their development.  One cannot, therefore, talk of an inviolable principle which is unalterable
when the need arises" (Michael Rom 1968).  Can the developed countries deny that they did not
actively subsidise their production and exports in the past even when they were at a level of
development that was much higher than where most of the developing countries find themselves
today?
Mr. Chairman, we would now turn to the link  between a robust export sector and economic
growth in developing countries.
Technology improvement and productivity enhancement have been recognised as the key
elements in economic development and the governments are generally eager to update the technologyto realize the goal of economic development.  Economists have shown that export promotion
measures are definitely beneficial to developing countries in updating technology, improving
productivity and stimulating employment (Xingshuo Yin 2000), thereby contributing to development
objectives.  It may be difficult to deny the positive impact on the economy of a developing country
due to increased imports.  In particular the emphasis by the United States on human capitaldevelopment and technological change can also be achieved by developing countries through a robust
export sector.  We would like to remind the United States that export promotion incentives and EPZs
have been an engine - among others – for industrialization and growth in the economy, when they
have been given their proper place as a policy tool.
The United States has suggested that the Secretariat survey the literature on export subsidies
and import substitution subsidy and make available to all Members the important academic work that
has been done in this area.  We are not certain what would be the purpose of such a survey.  If further
consideration is to be given to any literature survey, its scope should include the policies and exportTN/RL/W/68
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and import substitution subsidies of US and other developed economies that may have been pursued
by these countries in their economic development at a stage comparable to the stage of development
of some of the present day developing countries.
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