INDIA – EXPORT RELATED MEASURES REPORT OF THE PANEL
Document: REPORT OF THE PANEL
Date: 31 October 2019
Document codes: WT/DS541/R
Complainant: U.S.
Respondent: India
Third parties: Brazil, Canada, China, Egypt, EU, Japan, Kazakhstan, South Korea, Russia, Sri Lanka, Taiwan, Thailand
Dispute stage: Mutually Agreed Solution
Agreements cited: Art. 3.1(a), 3.2  Subsidies and Countervailing Measures (SCM)

INDIA – EXPORT RELATED MEASURES
REPORT OF THE PANEL

LIST OF ANNEXES
ANNEX A
PANEL DOCUMENTS
Contents Page
Annex A-1 Working Procedures of the Panel 4
Annex A-2 Interim Review 10
ANNEX B
ARGUMENTS OF THE PARTIES
Contents Page
Annex B-1 Integrated executive summary of the arguments of the United States 35
Annex B-2 Integrated executive summary of the arguments of India 46
ANNEX C
ARGUMENTS OF THE THIRD PARTIES
Contents Page
Annex C-1 Integrated executive summary of the arguments of Brazil 59
Annex C-2 Integrated executive summary of the arguments of Canada 63
Annex C-3 Integrated executive summary of the arguments of Egypt 67
Annex C-4 Integrated executive summary of the arguments of the European Union 69
Annex C-5 Integrated executive summary of the arguments of Japan 75
Annex C-6 Integrated executive summary of the arguments of Sri Lanka 78
Annex C-7 Integrated executive summary of the arguments of Thailand 80
ANNEX D
PRELIMINARY RULINGS AND OTHER COMMUNICATIONS FROM
THE PANEL TO THE PARTIES
Contents Page
Annex D-1 Communication dated 22 January 2019 from the Panel to the parties
concerning the issues of a single substantive meeting and a partially open
meeting
84
Annex D-2 Communication dated 22 January 2019 from the Panel to the parties
concerning the Panel's terms of reference, the applicability of Article 4 of the
SCM Agreement and the statement of available evidence
92
Annex D-3 Communication dated 16 April 2019 from the Panel to the parties concerning
the Panel's Working Procedures and Timetable
116

CASES CITED IN THIS REPORT
Short title Full case title and citation
Argentina – Footwear (EC) Appellate Body Report, Argentina – Safeguard Measures on Imports of Footwear,
, adopted 12 January 2000, DSR 2000:I, p. 515
Australia – Automotive
Leather II
Panel Report, Australia – Subsidies Provided to Producers and Exporters of
Automotive Leather, WT/DS126/R, adopted 16 June 1999, DSR 1999:III, p. 951
Brazil – Aircraft Appellate Body Report, Brazil – Export Financing Programme for Aircraft,
WT/DS46/AB/R, adopted 20 August 1999, DSR 1999:III, p. 1161
Brazil – Aircraft Panel Report, Brazil – Export Financing Programme for Aircraft, WT/DS46/R,
adopted 20 August 1999, as modified by Appellate Body Report WT/DS46/AB/R,
DSR 1999:III, p. 1221
Brazil – Taxation Appellate Body Reports, Brazil – Certain Measures Concerning Taxation and
Charges, WT/DS472/AB/R and Add.1 / WT/DS497/AB/R and Add.1, adopted
11 January 2019
Brazil – Taxation Panel Reports, Brazil – Certain Measures Concerning Taxation and Charges,
WT/DS472/R, Add.1 and Corr.1 / WT/DS497/R, Add.1 and Corr.1, adopted
11 January 2019, as modified by Appellate Body Reports WT/DS472/AB/R /

Canada – Aircraft Appellate Body Report, Canada – Measures Affecting the Export of Civilian
Aircraft, WT/DS70/AB/R, adopted 20 August 1999, DSR 1999:III, p. 1377
Canada – Aircraft Panel Report, Canada – Measures Affecting the Export of Civilian Aircraft,
WT/DS70/R, adopted 20 August 1999, upheld by Appellate Body Report
WT/DS70/AB/R, DSR 1999:IV, p. 1443
Canada – Aircraft
(Article 21.5 – Brazil)
Panel Report, Canada – Measures Affecting the Export of Civilian Aircraft –
Recourse by Brazil to Article 21.5 of the DSU, WT/DS70/RW, adopted
4 August 2000, as modified by Appellate Body Report WT/DS70/AB/RW,
DSR 2000:IX, p. 4315
Canada – Aircraft Credits
and Guarantees
Panel Report, Canada – Export Credits and Loan Guarantees for Regional
Aircraft, WT/DS222/R and Corr.1, adopted 19 February 2002, DSR 2002:III,
p. 849
Canada – Autos Appellate Body Report, Canada – Certain Measures Affecting the Automotive
Industry, WT/DS139/AB/R, WT/DS142/AB/R, adopted 19 June 2000, DSR
2000:VI, p. 2985
Canada – Autos Panel Report, Canada – Certain Measures Affecting the Automotive Industry,
WT/DS139/R, WT/DS142/R, adopted 19 June 2000, as modified by Appellate
Body Report WT/DS139/AB/R, WT/DS142/AB/R, DSR 2000:VII, p. 3043
Canada – Renewable
Energy / Canada – Feed-in
Tariff Program
Appellate Body Reports, Canada – Certain Measures Affecting the Renewable
Energy Generation Sector / Canada – Measures Relating to the Feed-in Tariff
Program, WT/DS412/AB/R / WT/DS426/AB/R, adopted 24 May 2013,
DSR 2013:I, p. 7
China – Publications and
Audiovisual Products
Appellate Body Report, China – Measures Affecting Trading Rights and
Distribution Services for Certain Publications and Audiovisual Entertainment
Products, WT/DS363/AB/R, adopted 19 January 2010, DSR 2010:I, p. 3
EC – Chicken Cuts Appellate Body Report, European Communities – Customs Classification of
Frozen Boneless Chicken Cuts, WT/DS269/AB/R, WT/DS286/AB/R, adopted
27 September 2005, and Corr.1, DSR 2005:XIX, p. 9157
EC – Computer Equipment Appellate Body Report, European Communities – Customs Classification of
Certain Computer Equipment, WT/DS62/AB/R, WT/DS67/AB/R, WT/DS68/AB/R,
adopted 22 June 1998, DSR 1998:V, p. 1851
EC – Hormones Appellate Body Report, European Communities – Measures Concerning Meat and
Meat Products (Hormones), WT/DS26/AB/R, WT/DS48/AB/R, adopted
13 February 1998, DSR 1998:I, p. 135
EC and certain member
States – Large Civil Aircraft
Appellate Body Report, European Communities and Certain Member States –
Measures Affecting Trade in Large Civil Aircraft, WT/DS316/AB/R, adopted
1 June 2011, DSR 2011:I, p. 7

Short title Full case title and citation
EC and certain member
States – Large Civil Aircraft
Panel Report, European Communities and Certain Member States – Measures
Affecting Trade in Large Civil Aircraft, WT/DS316/R, adopted 1 June 2011, as
modified by Appellate Body Report WT/DS316/AB/R, DSR 2011:II, p. 685
EC – Tariff Preferences Appellate Body Report, European Communities – Conditions for the Granting of
Tariff Preferences to Developing Countries, WT/DS246/AB/R, adopted
20 April 2004, DSR 2004:III, p. 925
EU – PET (Pakistan) Appellate Body Report, European Union – Countervailing Measures on Certain
Polyethylene Terephthalate from Pakistan, WT/DS486/AB/R and Add.1, adopted
28 May 2018
EU – PET (Pakistan) Panel Report, European Union – Countervailing Measures on Certain
Polyethylene Terephthalate from Pakistan, WT/DS486/R, Add.1 and Corr.1,
adopted 28 May 2018, as modified by Appellate Body Report WT/DS486/AB/R
Guatemala – Cement I Appellate Body Report, Guatemala – Anti-Dumping Investigation Regarding
Portland Cement from Mexico, WT/DS60/AB/R, adopted 25 November 1998,
DSR 1998:IX, p. 3767
India – Patents (US) Appellate Body Report, India – Patent Protection for Pharmaceutical and
Agricultural Chemical Products, WT/DS50/AB/R, adopted 16 January 1998, DSR
1998:I, p. 9
Indonesia – Autos Panel Report, Indonesia – Certain Measures Affecting the Automobile Industry,
WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R, Corr.1 and Corr.2, adopted
23 July 1998, and Corr.3 and Corr.4, DSR 1998:VI, p. 2201
Japan – Alcoholic
Beverages II
Appellate Body Report, Japan – Taxes on Alcoholic Beverages, WT/DS8/AB/R,
WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, DSR 1996:I, p. 97
Japan – Apples Appellate Body Report, Japan – Measures Affecting the Importation of Apples,
WT/DS245/AB/R, adopted 10 December 2003, DSR 2003:IX, p. 4391
Japan – DRAMs (Korea) Appellate Body Report, Japan – Countervailing Duties on Dynamic Random
Access Memories from Korea, WT/DS336/AB/R and Corr.1, adopted
17 December 2007, DSR 2007:VII, p. 2703
Korea – Commercial
Vessels
Panel Report, Korea – Measures Affecting Trade in Commercial Vessels,
WT/DS273/R, adopted 11 April 2005, DSR 2005:VII, p. 2749
Korea – Dairy Appellate Body Report, Korea – Definitive Safeguard Measure on Imports of
Certain Dairy Products, WT/DS98/AB/R, adopted 12 January 2000, DSR 2000:I,
p. 3
Peru – Agricultural Products Appellate Body Report, Peru – Additional Duty on Imports of Certain Agricultural
Products, WT/DS457/AB/R and Add.1, adopted 31 July 2015, DSR 2015:VI,
p. 3403
US – Anti-Dumping and
Countervailing Duties
(China)
Appellate Body Report, United States – Definitive Anti-Dumping and
Countervailing Duties on Certain Products from China, WT/DS379/AB/R, adopted
25 March 2011, DSR 2011:V, p. 2869
US – Continued Zeroing Appellate Body Report, United States – Continued Existence and Application of
Zeroing Methodology, WT/DS350/AB/R, adopted 19 February 2009,
DSR 2009:III, p. 1291
US – FSC Appellate Body Report, United States – Tax Treatment for "Foreign Sales
Corporations", WT/DS108/AB/R, adopted 20 March 2000, DSR 2000:III, p. 1619
US – FSC Panel Report, United States – Tax Treatment for "Foreign Sales Corporations",
WT/DS108/R, adopted 20 March 2000, as modified by Appellate Body Report
WT/DS108/AB/R, DSR 2000:IV, p. 1675
US – FSC (Article 21.5 – EC) Appellate Body Report, United States – Tax Treatment for "Foreign Sales
Corporations" – Recourse to Article 21.5 of the DSU by the European
Communities, WT/DS108/AB/RW, adopted 29 January 2002, DSR 2002:I, p. 55
US – FSC (Article 21.5 – EC) Panel Report, United States – Tax Treatment for "Foreign Sales Corporations" –
Recourse to Article 21.5 of the DSU by the European Communities,
WT/DS108/RW, adopted 29 January 2002, as modified by Appellate Body Report
WT/DS108/AB/RW, DSR 2002:I, p. 119
US – Gasoline Appellate Body Report, United States – Standards for Reformulated and
Conventional Gasoline, WT/DS2/AB/R, adopted 20 May 1996, DSR 1996:I, p. 3
US – Large Civil Aircraft
(2nd complaint)
Appellate Body Report, United States – Measures Affecting Trade in Large Civil
Aircraft (Second Complaint), WT/DS353/AB/R, adopted 23 March 2012,
DSR 2012:I, p. 7

Short title Full case title and citation
US – Large Civil Aircraft
(2nd complaint)
Panel Report, United States – Measures Affecting Trade in Large Civil Aircraft
(Second Complaint), WT/DS353/R, adopted 23 March 2012, as modified by
Appellate Body Report WT/DS353/AB/R, DSR 2012:II, p. 649
US – Large Civil Aircraft
(2nd complaint)
(Article 21.5 – EU)
Panel Report, United States – Measures Affecting Trade in Large Civil Aircraft
(Second Complaint) – Recourse to Article 21.5 of the DSU by the
European Union, WT/DS353/RW and Add.1, adopted 11 April 2019, as modified
by Appellate Body Report WT/DS353/AB/RW
US – Softwood Lumber IV Appellate Body Report, United States – Final Countervailing Duty Determination
with Respect to Certain Softwood Lumber from Canada, WT/DS257/AB/R,
adopted 17 February 2004, DSR 2004:II, p. 571
US – Tax Incentives Appellate Body Report, United States – Conditional Tax Incentives for Large Civil
Aircraft, WT/DS487/AB/R and Add.1, adopted 22 September 2017, DSR 2017:V,
p. 2199
US – Tax Incentives Panel Report, United States – Conditional Tax Incentives for Large Civil Aircraft,
WT/DS487/R and Add.1, adopted 22 September 2017, as modified by Appellate
Body Report WT/DS487/AB/R, DSR 2017:V, p. 2305
US – Upland Cotton Appellate Body Report, United States – Subsidies on Upland Cotton,
WT/DS267/AB/R, adopted 21 March 2005, DSR 2005:I, p. 3
US – Upland Cotton Panel Report, United States – Subsidies on Upland Cotton, WT/DS267/R, Add.1
to Add.3 and Corr.1, adopted 21 March 2005, as modified by Appellate Body
Report WT/DS267/AB/R, DSR 2005:II, p. 299
US – Wool Shirts and
Blouses
Appellate Body Report, United States – Measure Affecting Imports of Woven
Wool Shirts and Blouses from India, WT/DS33/AB/R, adopted 23 May 1997, and
Corr.1, DSR 1997:I, p. 323

LIST OF EXHIBITS
Exhibit Short Title
(if any)
Description
IND-7 WTO, Negotiating group on Rules, Amendment to Articles 27.2 and
27.4 of the ASCM in relation to developing countries covered under
Annex VII, Communication from the Plurinational State of Bolivia,
Egypt, Honduras, India, and Sri Lanka, TN/RL/GEN/177/Rev.1
(9 March 2011)
IND-9 General Council
decision WT/L/384
WTO, General Council Decision on Implementation -Related Issues
and Concerns of 15 December 2000, and the report thereon of the
Chairman of the Committee on Subsidies and Countervailing
Measures of 3 August 2001, WT/L/384
IND-10 SCM Committee
decision

WTO, Committee on Subsidies and Countervailing Measure s,
"Chairman's Report on the Implementation-Related Issues referred
to the Committee on Subsidies and Countervailing Measures in the
15 December 2000 Decision of the General Council", G/SCM/34
(3 August 2001)
IND-11 Council for Leather
Exporters
Guidelines
"Council for Leather Export ers: Duty Free Import Scheme - An
Introduction", CLE-HO/POL/DFIS/2018-19 (22 March 2018)
IND-14 The Integrated Goods and Services Tax Act, 2017
IND-21 Letter dated 16 March 2017 from the GOI to an enterprise to be set
up as EOU
IND-22 2019 Amendment
to the SEZ Rules
Indian Ministry of Commerce and Industry, Department of
Commerce, Special Economic Zones (amendment) Rules (7 March
2019)
IND-23 Income Tax Act (1961) as amended
USA-3 Foreign Trade
Policy
Indian Ministry of Commerce and Industry, Department of
Commerce, Foreign Trade Policy, Notification No. 01/2015 -2020
(1 April 2015); Mid -Term Review, Notification No. 41/2015-2020
(5 December 2017)
USA-4 "Export Champions", The Economic Times, (12 February 2018)
USA-5 Handbook of
Procedures
Indian Ministry of Commerce and Industry, Department of
Commerce, Handbook of Procedures, Public Notice
No. 01/2015-2020, (1 April 2015); updated by Public Notice
No. 43/2015-2020 (5 December 2017)
USA-6 Appendices and
Aayat Niryat forms
Indian Ministry of Commerce and Industry, Department of
Commerce, Appendices and Aayat Niryat Forms of FTP 2015 -2020
(1 April 2015 -31 March 2020)
USA-7 Excerpt from Customs Tariff Act (1975) as amended
USA-8 Customs Act (1962) as amended, Section 12 to Section 15
USA-11 Public Notice
2/2015-2020
Indian Ministry of Commerce and Industry, Department of
Commerce, Public Notice No. 2/2015-2020, MEIS, schedule of
country group, ITC (HS) code wise list of products with reward rates
under Appendix 3B (1 April 2015)
USA-20 Excerpt from highlights of the Foreign Trade Policy Review,
2015-2020, mid-term review (December 2017)
USA-22 SEZ Act Ministry of Law and Justice, Special Economic Zones Act, 2005
No. 28 of 2005, Gazette of India, Extraordinary Part II Section I
(23 June 2005)
USA-23 Annual
Supplement
2013-2014 to the
Foreign Trade
Policy 2009-2014
Address by Shri Anand Sharma, Minister of Commerce, Industry and
Textiles at the Release of Annual Supplement 2013 -2014 to the
Foreign Trade Policy 2009-2014 (18 April 2013)
USA-24 Nirmala Sitharaman, "SEZ Scheme of India is Quite
Comprehensive", Daily News and Analysis (20 December 2014)
USA-27 Notification
No. 15/2017
Indian Ministry of Finance, Department of Revenue, Notification
No. 15/2017, integrated tax (rate) (30 June 2017)
USA-28 SEZ Rules Indian Ministry of Commerce and Industry, Special Economic Zones
Rules, incorporating amendments up to July 2010
(10 February 2006)

Exhibit Short Title
(if any)
Description
USA-29 Income Tax Act,
1961, Sections
10A and 10AA
Excerpt from Income Tax Act (1961) as amended, Sections 10A and
10AA
USA-30 Income Tax Act,
1961, Section 80A
Excerpt from Income Tax Act (1961) as amended, Section 80A
USA-31 Customs Tariff Act Excerpt from Customs Tariff Act (1975) as amended,
Second Schedule
USA-32 Integrated Goods
and Services Tax
Act
Indian Ministry of Law and Justice, Integrated Goods and Services
Tax Act, Gazette of India, part II, section 1 (12 April 2017)
USA-35 Export Promotion
Schemes
Indian Ministry of Electronics and Information Technologies, website
information about Export Promotion Schemes (accessed
7 December 2018)
USA-36 Notification
No. 50/2017
Indian Ministry of Finance, Department of Revenue, Notification
No. 50/2017-Customs (30 June 2017)
USA-38 Excerpts from Notification No. 50/2017
USA-55 MIS Report on
Export Promotion
Schemes
Excerpt from Indian Ministry of Commerce and Industry,
Department of Commerce, MIS Report on Export Promotion
Schemes 2017 (31 May 2017)
USA-56 Ministry of
Commerce and
Industry
Department of
Commerce,
Annual Report,
2017-2018
Excerpt from Indian Ministry of Commerce and Industry Department
of Commerce, Annual Report, 2017-2018
USA-57 Scripbazaar website (accessed 9 October 2018)
USA-60 2018 Amendment
to the SEZ Rules
Indian Ministry of Commerce and Industry, Department of
Commerce, Notification No. G.S.R. 909(E) Special Economic Zones
(amendment) Rules (19 September 2018)
USA-62 Excerpt from Central Excise Tariff Act of 1985, as amended
USA-63 Excerpt from Central Excise Tariff Act, 1985, First Schedule (Central
Excise Tariff 2016 -2017), updated 2 February 2017, and
subsequent notifications and rate changes
USA-65 Indian Ministry of Finance, Department of Revenue website, Rates
of Goods and Services Tax (accessed 14 March 2019)
USA-84 Income Tax Act (1961) as amended
USA-85 Highlights of the Foreign Trade Policy Review, 2015 -2020, mid-term
review (December 2017)
USA-87 Customs Tariff Act (1975) as amended
USA-88 Central Excise Act (1944) as amended
USA-89 Excerpt from Customs Tariff Act (1975) as amended, First Schedule
USA-90 Food Shark Marfa website, at
https://www.foodsharkmarfa.com/best-meat-tenderizers/ (last
visited 18 July 2019)

ABBREVIATIONS USED IN THIS REPORT
Abbreviation Description
BTP Bio-Technology Parks
CIF cost insurance freight
DFIS Duty-Free Imports for Exporters Scheme
DSB Dispute Settlement Body
DSU Understanding on Rules and Procedures Governing the Settlement of Disputes
DTA domestic tariff area
EHTP Electronics Hardware Technology Park
EOU Export Oriented Units
EPCG Export Promotion Capital Goods
FOB free on board
FTP Foreign Trade Policy
GATT 1994 General Agreement on Tariffs and Trade 1994
GNP gross national product
HBP Handbook of procedures
Highlights Highlights of the Foreign Trade Policy 2015 2020 Mid Term Review (5 December 2017)
IGST Integrated Goods and Services Tax
ITC Indian Tariff Code
MEIS Merchandise Exports from India Scheme
MSME micro, small & medium enterprises
Press Release Release of the Mid Term Review of Foreign Trade Policy 2015-2020 – Annual Incentives
Increased by 2% amounting to over Rs 8,000 crore for Labour Intensive/MSME sectors
(5 December 2017)
NFE net foreign exchange
SAE statement of available evidence
SCM Agreement Agreement on Subsidies and Countervailing Measures
SCM Committee Committee on Subsidies and Countervailing Measures
SEZ Special Economic Zones
SEZ Act Special Economic Zones Act
SEZ Rules Special Economic Zones Rules
STP Software Technology Park
Vienna Convention Vienna Convention on the Law of Treaties, Done at Vienna, 23 May 1969, 1155 UNTS
331; 8 International Legal Materials 679
WTO World Trade Organization

1 INTRODUCTION
1.1 Complaint by the United States
1.1. On 14 March 2018 , the United States requested consultations with India pursuant to
Articles 1 and 4 of the Understanding on Rules and Procedures Governing the Settlement of
Disputes (DSU) and Articles 4 and 30 of the Agreement on Subsidies and Countervailing Measures
(SCM Agreement) with regard to certain alleged export subsidy measures of India.1
1.2. Consultations were held on 11 April 2018 but failed to resolve the dispute.
1.2 Panel establishment and composition
1.3. On 17 May 2018 , the United States requested the establishment of a panel pursuant to
Article 6 of the DSU and Article 4.4 of the SCM Agreement with standard terms of reference in
document WT/DS 541/4.2 At its meeting on 28 May 2018 , the Dispute Settlement Body (DSB)
established a panel pursuant to the request of the United States , in accordance with Article 6 of
the DSU and Article 4.4 of the SCM Agreement.3
1.4. The Panel's terms of reference are the following:
To examine, in the light of the relevant provisions of the covered agreements cited by
the parties to the dispute, the matter referred to the DSB by the United States in
document WT/DS541/4 and to make s uch findings as will assist the DSB in making
the recommendations or in giving the rulings provided for in those agreements.4
1.5. On 16 July 2018 , the United States requested the Director -General to determine the
composition of the panel, pursuant to Article 8 .7 of the DSU and Article 4.12 of the
SCM Agreement. On 23 July 2018 , the Director -General accordingly composed the Panel as
follows5:
Chairperson: Mr Jose Antonio S. Buencamino

Members: Ms Leora Blumberg
 Mr Serge Pannatier

1.6. Brazil, Canada, China, Egypt, the European Union, Japan, Kazakhstan, the Republic of Korea,
the Russian Federation, Sri Lanka, Chinese Taipei, and Thailand notified their interest in
participating in the Panel proceedings as third parties.
1.3 Panel proceedings
1.3.1 General
1.7. After consultation with the parties, the Panel adopted its Working Procedures 6 and timetable
on 22 August 2018.
1.8. The United States and India submitted their first written submissions on 23 August and
20 September 2018, respectively, and their second written submi ssions on 11 October and
1 November 2018, respectively. The Panel held a substantive meeting with the parties on 12 and
13 February 2019. A session with the third parties took place on 13 February 2019. On 14 May
2019, the Panel issued the descriptive part of its Report to the parties. The Panel issued its Interim

1 Request for consultations by the United States, WT/DS541/1-G/SCM/D119/1 (United States' request
for consultations).
2 Request for the establishment of a panel by the United States, WT/DS541/4 (United States' panel
request).
3 Dispute Settlement Body, Minutes of Meeting held on 28 May 2018, WT/DSB/M/413, para. 7.7.
4 Constitution note of the Panel, WT/DS541/5.
5 Constitution note of the Panel, WT/DS541/5.
6 See the Panel's Working Procedures in Annex A-1.

Report to the parties on 28 August 2019. The Panel held an interim review meeting with the
parties on 16 September 2019 and issued its Final Report to the parties on 30 September 2019.
1.3.2 Single substantive meeting of the Panel with the parties
1.9. On 3 August 2018, the Chairperson of the Panel, on behalf of the Panel, held a meeting with
the parties to obtain their views in preparation of the Panel's draft Working Procedures and
timetable. He stressed th e need to reconcile different considerations, namely, the provision for
accelerated procedures in Article 4 of the SCM Agreement, the obligation to provide special and
differential treatment to developing country Members, and resource constraints in the Se cretariat.
At that meeting, the United States proposed that the Panel hold a single meeting with the parties
in this case, a proposal which India opposed.
1.10. As a means to balance the competing obligations and constraints in the particular
circumstances of th is case, in its draft Working Procedures and timetable sent to the parties on
8 August 2018, the Panel proposed holding a single meeting with the parties, after the filing of
both parties' first and second written submissions 7, and reserved the right to sc hedule further
meetings with the parties as required. 8 On 22 August 2018, the Panel adopted its draft Working
Procedures and timetable. In response to communications from India to the Chairperson 9, on 9
and 19 October 2018 the Panel confirmed that it would proceed with the adopted Working
Procedures and timetable , while reserving the right to schedule additional meetings as
necessary.10 On 19 October 2018, the Panel indicated that it would communicate the reasons
supporting its decision in due course.11
1.11. India objected to the Panel's approach in its comments on the draft Working Procedures and
timetable12, comments on the United States' comments13, first written submission 14, and in
communications dated 5 October and 16 October 2018 15, and sought a preliminary ruling from the
Panel that an additional substantive meeting with the parties should be held before the filing of the
second written submissions.16
1.12. In its own communications, the United States took the view that the Panel could hold a
single substantive meeting with the parties, or even decide the case entirely on the basis of the
parties' written submissions, without holding any substantive meeting with the parties. 17 The
United States set out its arguments on the matter in its comments on the draft Working
Procedures and timetable18, comments on India's comments19, and second written submission.20
1.13. Brazil commented on this matter in its third -party submission. In Brazil's view, a
panel's decision to deviate from the working procedures set out in Appendix 3 to the DSU and hold

7 Draft Working Procedures (8 August 2018), paras. 3, 5, and 15-16; Draft timetable (8 August 2018).
8 Draft timetable (8 August 2018), fn 1.
9 Communication dated 5 October 2018 from India to the Chairperson of the Panel; Communication
dated 16 October 2018 from India to the Chairperson of the Panel.
10 Communication dated 9 October 2018 from the Panel to the parties and third parties; Communication
dated 19 October 2018 from the Panel to the parties and third parties.
11 Communication dated 19 October 2018 from the Panel to the parties and third parties.
12 Communication dated 14 August 2018 from India to the Chairperson of the Panel, paras. 1-2 and 5-7.
13 Communication dated 17 August 2018 from India to the Chairperson of the Panel, paras. 1-15.
14 India's first written submission, paras. 16-18 and 105-116.
15 Communication dated 5 October 2018 from India to the Chairperson of the Panel; Communication
dated 16 October 2018 from India to the Chairperson of the Panel.
16 India's first written submission, paras. 18 and 105-115; Communication dated 5 October 2018 from
India to the Chairperson of the Panel, pp. 1-4. See also Communication dated 16 October 2018 from India to
the Chairperson of the Panel, p. 2.
17 Communication dated 14 August 2018 from the United States to the Chairperson of the Panel,
paras. 4-7; Communication dated 17 August 2018 from the United States to the Chairperson of the Panel,
para. 1.
18 Communication dated 14 August 2018 from the United States to the Chairperson of the Panel,
paras. 1-7.
19 Communication dated 17 August 2018 from the United States to the Chairperson of the Panel,
paras. 1-8.
20 United States' second written submission, paras. 45-52.

a single substantive meeting with the parties should only happen with the agreement of both
parties to the dispute.21
1.14. On 22 January 2019, the Panel, as it had anticipated, communicated the reasons for its
earlier decision to proceed with the adopted Working Procedures and timetable, while reserving
the right to schedule additional meetings, as necessary (see Annex D-1).
1.15. During the substantive meeting with the parties and subsequently in writing, the Panel
asked the parties whether they considered a second substantive meeting necessary. 22 On both
occasions, it also asked India whether and how concretely the fact of holding a single substantive
meeting affected India's ability to defend itself. 23 The parties responded to these questions on
4 March 2019 and commented on each other's responses on 18 March 2019. Having studied the
parties' responses and comments 24, and in light of the proceedings thus far, the Panel did not
consider that there was a need to depart from the st ructure of the proceedings as originally
envisaged in this dispute by adding a second substantive meeting with the parties; the Panel
communicated its decision to the parties on 16 April 2019.25
1.3.3 Partially open meeting
1.16. On 8 August 2018, the Panel transmitted the draft Working Procedures to the parties,
pursuant to which the Panel would "meet in closed session". 26 On 14 August 2018, the United
States requested the Panel to open the meeting(s) with the parties to the public, either in whole or
in part.27 On 17 August 2018, India "completely oppose[d]" the United States' request.28
1.17. In the Working Procedures adopted on 22 August 2018, the Panel indicated that it would
"revert to this issue in due course before the date of [its] meeting" with the parties.29
1.18. On 3 Januar y 2019, the Panel invited the third parties to express their views on holding a
partially open meeting. Canada, China, the European Union, and Japan considered panels to have
discretion to hold a partially open meeting. China and Thailand expressed concern about granting
a request for a partially open meeting without the consent of both parties to the dispute. In the
event that the Panel held a partially open meeting, Brazil, Canada, the European Union, and Japan
agreed to open their statements to the publi c.30 China, Egypt, the Russian Federation, and
Sri Lanka indicated their intention to keep their respective statements confidential.31
1.19. By communication dated 22 January 2019 32, the Panel declined the United States' request
for a partially open meeting.

21 Brazil's third-party submission, paras. 27-32.
22 Panel question No. 91.
23 Panel question No. 92(a)-(c).
24 Including the parties' responses and comments to all other questions the Panel had asked during and
after the hearing, which India had indicated would themselves require an additional substantive meeting with
the parties.
25 Communication dated 16 April 2019 from the Panel to the parties concerning the Panel's Working
Procedures and Timetable, (Annex D-3).
27 Communication dated 14 August 2018 from the United States to the Chairperson of the Panel,
28 Communication dated 17 August 2018 from India to the Chairperson of the Panel, para. 21. See also,
ibid. paras. 22-26.
29 Working Procedures (22 August 2018), para. 10.
30 Communication dated 11 January 2019 from Brazil to the Panel; Communication dated
11 January 2019 from Canada to the Panel; Communication dated 11 January 2019 from the European Union
to the Panel; and Communication dated 11 January 2019 from Japan to the Panel.
31 Communication dated 11 January 2019 from China to the Panel; Communication dated
11 January 2019 from Egypt to the Panel; Communication dated 11 January 2019 from the Russian Federation
to the Panel; and Communication dated 11 January 2019 from Sri Lanka to the Panel.
32 Communication dated 22 January 2019 from the Panel to the parties concerning the issues of a single
substantive meeting and a partially open meeting (Annex D-1), paras. 3.1-3.16.

1.3.4 The Pa nel's terms of reference, the applicability of Article 4 of the
SCM Agreement, and the statement of available evidence
1.20. In its first written submission, India requested the Panel to issue a preliminary ruling to the
effect that (a) the United States' panel request does not meet the requirements of Article 6.2 of
the DSU with respect to both the identification of the specific measures at issue and the summary
of the legal basis of the United States' complaint ; (b) the provisions of Article 4 of the
SCM Agreement could not, at that stage of the proceedings, apply to the dispute before the Panel;
and (c) the statement of available evidence in the United States' request for consultations does not
meet the requirements of Article 4.2 of the SCM Agreement.33
1.21. In its second written submission, the United States disagreed with India's request on all
counts.34
1.22. In a communication of 22 January 2019, the Panel ruled that the United States' panel
request meets the requirements of Article 6.2 of the DSU .35 It however declined to rule, at that
stage, on the applicability of Article 4 of the SCM Agreement36 and the conformity of the statement
of available evidence with Article 4.2 of the SCM Agreement.37 The Panel rules on these matters in
this Report.
2 FACTUAL ASPECTS
2.1. This dispute concerns t he United States' challenge of the following schemes maintained by
India:
a. the Export Oriented Units (EOU) Scheme and Sector -Specific Schemes, including the
Electronics Hardware Technology Parks (EHTP) Scheme and the Bio -Technology Parks
(BTP) Scheme (the EOU/EHTP/BTP Schemes);
b. the Merchandise Exports from India Scheme (MEIS);
c. the Export Promotion Capital Goods (EPCG) Scheme;
d. the Special Economic Zones (SEZ) Scheme; and
e. the Duty-Free Imports for Exporters Scheme (DFIS).
2.2. These measures provide for certain exemptions from, or reductions of, customs duties or
taxes, or for the granting by the government of freely transferable "scrips" to be used to satisfy
certain liabilities vis-à-vis the government.
2.3. Section 7.5 below outlines key characteristics of the five schemes at issue.
3 PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS
3.1. The United States requests that the Panel find that each of the challenged measures is a
prohibited export subsidy inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement. The
United States further requests, pursuant to Article 4.7 of the SCM Agreement, that the Panel

33 India's first written submission, paras. 19-70.
34 United States' second written submission, paras. 11-52.
35 Communication dated 22 January 2019 from the Panel to the parties concerning the Panel's terms of
reference, the applicability of Article 4 of the SCM Agreement and the statement of available evidence
(Annex D-2), paras. 2.1-2.126.
36 Communication dated 22 January 2019 from the Panel to the parties concerning the Panel's terms of
reference, the applicability of Article 4 of the SCM Agreement and the statement of available evidence
(Annex D-2), paras. 3.1-3.13.
37 Communication dated 22 January 2019 from the Panel to the parties concerning the Panel's terms of
reference, the applicability of Article 4 of the SCM Agreement and the statement of available evidence
(Annex D-2), paras. 4.1-4.8.

recommend that India withdraw the subsidies within 90 days from the date the DSB adopts its
recommendations.
3.2. India requests the Panel to find that Article 3 of the SCM Agreement does not apply to India
by virtue of Article 27.2(b) granting India an eight -year exemption period from India's
Annex VII(b) graduation. India also requests that the Panel find that, in any event, the challenged
schemes are not export subsidies and are not inconsistent with Articles 3.1(a) and 3.2 of the
SCM Agreement. Moreover, India requests the Panel to find that the dispute could not be subject
to Article 4 of the SCM Agreement or, in the alternative, to dismiss the dispute due to the
insufficiency of the statement of available evidence under Article 4.2 of the SCM Agreement.
4 ARGUMENTS OF THE PARTIES
4.1. The arguments of the parties are reflected in their executive summaries, provided to the
Panel in accordance with paragraph 23 of the Working Procedures adopted by the Panel (see
Annexes B-1 and B-2).
5 ARGUMENTS OF THE THIRD PARTIES
5.1. The arguments of Brazil, Canada, Egypt, the European Union, Japan, Sri Lanka, and Thailand
are reflected in their executive summaries, provided in accordance with paragraph 26 of the
Working Procedures adopted by the Panel (see Annexes C-1 to C-7). China, Kazakhstan, the
Republic of Korea, the Russian Federation, and Chinese Taipei did not submit written or oral
arguments to the Panel.
6 INTERIM REVIEW
6.1. On 28 August 2019, the Panel issued its Interim Report to the parties. On 9 September 2019,
the parties submitted their written requests for review. In addition to its written requests, India
also requested that the Panel hold an interim review meeting with the parties. The parties
submitted written comments on each other's written requests for rev iew on 16 September 2019.
On the same day, the Panel held an interim review meeting with the parties. After the meeting,
the Panel put written questions to India, to which India responded on 18 September 2019.
The United States provided written comments on India's responses on 20 September 2019.
The requests made at the interim review stage as well as the Panel's discussion and disposition of
those request are set out in Annex A-2.
7 FINDINGS
7.1. Our findings, below, are structured as follows. We begin by outlini ng the burden of proof,
burden of raising certain provisions (section 7.1), and standard of proof (section 7.2), as they are
relevant to this dispute. Next, we ascertain whether Article 27 of the SCM Agreement still excludes
India from the scope of application of Articles 3 and 4 of the SCM Agreement, and we find that it
does not (section 7.3). We then assess whether the statement of available evidence provided by
the United States as part of its request for consultations meets the standard of Article 4.2 of the
SCM Agreement, and we find that it does meet that standard (section 7.4).
7.2. We therefore proceed to assess the United States' claims that certain measures under the
EOU/EHTP/BTP Schemes, EPCG Scheme , SEZ Scheme, DFIS, and MEIS, are export contingent
subsidies inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement.
7.3. We begin by providing a brief factual outline of the measures at issue (section 7.5). We then
examine whether the measures at issue under the EOU/EHTP/BTP Schemes, EPCG Scheme, DFIS,
and MEIS meet the conditions of footnote 1 of the SCM Agreement (section 7.6). Next, we assess
whether the challenged measures constitute a financial contribution by the government (in the
form of revenue foregone, in section 7.7, and in the form of a direct transfer of funds, in
section 7.8), through which a benefit is conferred (section 7.9) and, therefore, a subsidy. Finall y,
we examine whether the subsidies that we have found to exist are export contingent and therefore
inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement (section 7.10).

7.4. Before concluding, we explain how we have taken into account the special and differential
provisions raised by India (section 7.11). We then set out our conclusions (section 8) and our
recommendations, including the time period within which the measures we have found to be
inconsistent with Articles 3.1(a) and 3.2 must be withdrawn (section 9).
7.1 Burden of proof
7.5. The DSU does not set forth express rules concerning burden of proof.38 It has long been held,
however, that WTO dispute settlement follows the "generally accepted canon of evidence in …
most jurisdictions, that the burden of proof rests upon the party … who asserts the affirmative of a
particular claim or defence".39
7.6. Applying this rule assumes an understanding of which party "asserts the affirmative of a
particular claim or defence". In many instances, this is obvious. For example, a respondent
invoking an exception under Article XX of the GATT 1994 is "assert[i ng] the affirmative of a
particular … defence", and therefore bears the burden of proving that the conditions of Article XX
are met. Sometimes, however, the dividing line is less clear, as in cases involving provisions
which, while potentially disqualifyin g a claim, are not considered to be exceptions / affirmative
defences.40 We now turn to this subject, which is relevant to two provisions at issue in this case,
namely, footnote 1 and Article 27 of the SCM Agreement.41
7.1.1 Exceptions and excluding provisions
7.1.1.1 The distinction between exceptions and excluding provisions
7.7. WTO adjudicators have drawn a distinction between provisions that afford a "justification" for
"measures that are found to be inconsistent with other provisions of" the WTO Agreements 42
(which we refer to as exceptions) and provisions that "limit[] the scope" of other provisions 43,
without there being a violation in the first place (which we refer to as excluding provisions).44

38 The burden of proof identifies the party who bears the negative consequences of a situation where the
factual foundation of a claim or defence has not been established to the necessary standard: "[w]hen the
evidence is in equipoise, the party on whom the burden of proof rests loses". (L. P. Loren, "Fair Use: An
Affirmative Defense" (2015) Vol. 90:685, Washington Law Review, p. 706). This is also referred to as the
burden of persuasion (e.g. J. Pauwelyn, "Defenses and the Burden of Proof in International Law"
(3 November 2016), version 11 July 2017, https://ssrn.com/abstract=2863962 (accessed 21 March 2019),
p. 3), the ultimate burden of proof (B. Cheng, General Principles of Law as Applied by International Courts and
Tribunals (Cambridge, 1953), p. 334), and the legal burden (J. MacLennan, "Evidence, Standard and Burden of
Proof and the Use of Experts in Procedure before the Luxembourg Courts", in F. Weiss, (ed.), Improving WTO
Dispute Settlement Procedures: Issues and Lessons from the Practice of Other International Courts and
Tribunals, p. 266).
The allocation of the ultimate burden of proof is different from "the rule that the party who asserts a
fact … is responsible for providing proof thereof", which is referred to e.g. as the procedural burden of proof
(B. Cheng, op. cit., p. 334) and the evidential burden (MacLennan, op. cit., p. 266). See also Appellate Body
Report, Japan – Apples, para. 157 (describing the two as "distinct").
39 Appellate Body Report, US – Wool Shirts and Blouses, DSR: 1997:I, p. 335.
40 We use the term "exceptions" as interchangeable with the phrase "affirmative defences".
WTO adjudicators in the past have done the same. (See e.g. Appellate Body Report, US – Wool Shirts and
Blouses, DSR: 1997:I, p. 337). The phrasing "affirmative defence" is used in common law jurisdictions.
(See e.g. A. St. Eve and M. Zuckerman, "The Forgotten Pleading", (2013), Vol. 7, Issue 1, The Federal Courts
Law Review, p. 160). ("A negative defense … asserts 'defects in the plaintiff's case' and the defendant has no
burden to prove it. … Unlike a negative defense, an affirmative defense is one that admits the allegations in the
complaint, but seeks to avoid liability, in whole or in part, by new allegations of excuse, justification, or other
negating matter".)
41 Footnote 1 of the SCM Agreement excludes certain measures from the scope of the definition of a
"subsidy" for purposes of the SCM Agreement. Article 27.2 of the SCM Agreement provides that the prohibition
of Article 3(1)(a) of the SCM Agreement shall not apply to certain Members, subject to compliance with certain
conditions. Article 27.4 of the SCM Agreement provides that the provisions of Article 4 of the SCM Agreement
shall not apply to export subsidies that are in conformity with Articles 27.2-27.5.
42 E.g. Appellate Body Reports, Brazil – Taxation, para. 5.83.
43 E.g. Appellate Body Reports, Brazil – Taxation, para. 5.84.
44 The phrase "excluding provisions" is used by Grando, e.g. in M. Grando, "Allocating the Burden of
Proof in WTO Disputes: A Critical Analysis" (2016), Vol. 9, No. 3, Journal of International Economic Law,

7.8. In other words, although the outcome of upholding an exception or an excl uding provision is
the same (i.e. the complaint fails), an exception presupposes a valid claim, to which it responds,
whereas if an excluding provision applies, there is no valid claim under the provision that is
excluded.
7.1.1.2 Burden of proof under excluding provisions
7.9. WTO adjudicators have often placed on complainants the burden of proof under excluding
provisions.45 Since excluding provisions do not presuppose a valid claim, but rather relate to the
question of whether a valid claim has been established (nec essarily by the complainant), we will
do the same.
7.1.1.3 Burden of raising excluding provisions
7.10. A different46 question from that of which party bears the burden of proof under an excluding
provision is the question of which party bears the burden of raising an excluding provision.
7.11. In our view, it makes little sense to require complainants to anticipate all possible excluding
provisions that might apply and then explain why, in fact, they do not apply. 47 A responding
Member is best placed to know whether its measures fall under a particular excluding provision.
7.12. Therefore, we consider that the respondent bears the burden of raising excluding
provisions.48 As set out in the previous section, once the respondent has properly raised an
excluding provision, the complainant will bear the burden of proof under the excluding provision,
i.e. the burden of proving that the excluding provision does not apply.
7.2 Standard of proof
7.13. The standard of proof is the degree of proof that must be provided to satisfy one's burden of
proof.
7.14. In WTO dispute settlement, a complainant must "establish a prima facie case of
inconsistency with [the] provision [invoked] before the burden of showing consistency with that
provision is taken on by the defending party". In this context, a " prima facie case is one which, in
the absence of effective refutation by the defending party, requires a panel, as a matter of law, to
rule in favour of the complaining party presenting the prima facie case".49
7.3 Whether Article 27 of the SCM Agreement excludes India from the scope of
application of Articles 3 and 4 of the SCM Agreement
7.15. The United States claims that the challenged measures are prohibited export subsidies in
violation of Articles 3.1(a) and 3.2 of the SCM Agreement. Accordingly, it has sought the

p. 619. WTO adjudicators have used several terms to refer to these provisions, including "derogations",
"exemptions", and "autonomous rights". (See, e.g. Appellate Body Reports, Canada – Renewable Energy /
Canada – Feed-in Tariff Program, para. 5.56, and EC – Hormones, para. 104). "Autonomous rights" appear to
constitute a subcategory of excluding provisions, with the peculiar trait that they can give rise to an
independent claim.
45 E.g. Appellate Body Report, Brazil – Aircraft, para. 141. Often, but not always: see Appellate Body
Report, EC – Tariff Preferences, para. 113-118. The Appellate Body has made somewhat conflicting statements
on whether the nature of a provision as an exception or excluding provision determines the allocation of the
burden of proof. (Compare Appellate Body Reports, EC – Tariff Preferences, para. 88 and Canada – Renewable
Energy / Canada – Feed-in Tariff Program, para. 5.56).
46 We discuss this question under a subheading of a section on "burden of proof" only for practical
convenience.
47 Of course, if the excluding provision also provides an autonomous basis for a claim (as is the case
e.g. of Article 3.3 of the SPS Agreement), and the complainant wants to bring a claim on that basis, altogether
different considerations apply.
48 This is without prejudice to the possibility – indeed, the need – for a panel to examine an excluding
provision on its own motion, when a failure to do so would result in a failure to conduct an objective
assessment of the applicability of the relevant covered agreements, contrary to Article 11 of the DSU.
49 Appellate Body Report, EC – Hormones, para. 104.

establishment of a panel under Article 4.4 of the SCM Agreement. India, howev er, submits that
following its graduation from Article 27.2(a) and Annex VII(b), the prohibition in Article 3.1(a) still
does not apply to its subsidy schemes, as a result of Article 27.2(b). India submits that, as a
result, Article 27.7 renders the provis ions of Article 4 of the SCM Agreement inapplicable to this
dispute.
7.16. India asked the Panel to issue a preliminary ruling that the dispute could not be subject to
Article 4 of the SCM Agreement unless the United States demonstrated, or the Panel otherwise
found, that Article 27 of the SCM Agreement did not apply to the challenged measures. 50 At the
same time, India and the United States had opposing interpretations of Article 27 of the
SCM Agreement, and India argued that this disagreement went to the essence of the dispute and
could only be decided by the Panel as part of the full panel proceedings. 51 In a communication
dated 22 January 2019, the Panel explained that, in the circumstances of this dispute, a ruling on
the applicability of Article 4 of the SCM Agreement would require a ruling on the
parties' interpretive disagreement over Article 27 of the SCM Agreement.52
7.17. Below, we first recall the relevant provisions of Article 27.2 and Annex VII of the
SCM Agreement.53 We then summarize the parties' main arguments, before analysing the merits
of the disagreement between the parties over the proper interpretation of Article 27.2(b). We then
draw the consequences of our conclusion under Article 27.2(b) for the applicability of
Articles 3.1(a) and 4 of the SCM Agreement.
7.18. We conclude that India does not fall under Articles 27.2 and 27.7 any longer, because it has
graduated from Annex VII(b) and Article 27.2(a) of the SCM Agreement54, and because
Article 27.2(b) expired on 1 January 2003. Therefore, we find that Articles 3 and 4 of the
SCM Agreement apply in the present dispute.
7.3.1 Relevant provisions
7.19. Article 27 of the SCM Agreement sets out provisions on "Special and Differential Treatment
of Developing Country Members". Articles 27.2 and 27.4 -27.7 concern special and dif ferential
treatment in respect of prohibited export subsidies.
7.20. Article 27.2 of the SCM Agreement provides:
The prohibition of paragraph 1(a) of Article 3 shall not apply to:
(a) developing country Members referred to in Annex VII.
(b) other developing coun try Members for a period of eight years from the date of
entry into force of the WTO Agreement, subject to compliance with the provisions in
paragraph 4.55
7.21. Annex VII of the SCM Agreement, titled "Developing country Members referred to in
paragraph 2(a) of Article 27", provides:

50 India's first written submission, paras. 74-90.
51 India's first written submission, para. 79; Communication dated 17 August 2018 from India to the
Chairperson of the Panel, paras. 5-6.
52 Communication dated 22 January 2019 from the Panel to the parties concerning the Panel's terms of
reference, the applicability of Article 4 of the SCM Agreement, and the statement of available evidence,
(Annex D-2), paras. 3.1-3.13.
53 According to India, the burden of raising Article 27 and the burden of proof under this provision fall on
the United States. Article 27.2 "entitle[s]" certain developing countries "to the non-application of Article 3.1(a)"
as long as they comply with the relevant provisions of Article 27 (Appellate Body Report, Brazil – Aircraft,
paras. 139-141), i.e. Article 27.2 is an excluding provision. As set out in paras. 7.10-7.12 above, we consider
that, under excluding provisions, the burden of raising rests on the respondent but the burden of proof is on
the complainant. As regards raising, we note that, in any event, the United States did raise this provision. As
regards proof, we place the burden on the United States.
54 A point that is undisputed between the parties.
55 Emphasis added.

The developing country Members not subject to the provisions of paragraph 1(a) of
Article 3 under the terms of paragraph 2(a) of Article 27 are:
(a) Least -developed countries designated as such by the United Nations which are
Members of the WTO.
(b) Each of the following developing countries which are Members of the WTO shall be
subject to the provisions which are applicable to other developing country Members
according to paragraph 2(b) of Article 27 when [gross national product] per capita has
reached $1,000 per annum: Bolivia, Cameroon, Congo, Côte d'Ivoire, Dominican
Republic, Egypt, Ghana, Guatemala, Guyana, India, Indonesia, Kenya, Morocco,
Nicaragua, Nigeria, Pakistan, Philippines, Senegal, Sri Lanka and Zimbabwe.56
7.22. The WTO Secretariat annually publishes the gross national product (GNP) per capita of the
Annex VII(b) developing country Members (Annex VII(b) Members) using the three most recent
years for which data are available. 57 In 2017 and in 2018, the WTO Secretariat released the
calculations for the three most recent years for which data are available. According to these Notes
by the Secretariat, India's GNP per capita exceeded USD 1,000 per year for the periods 2013-2015
and 2014-2016.58
7.3.2 Main arguments of the parties and third parties
7.23. The parties agree that India has graduated from Annex VII(b) of the SCM Agreement.59 It is
also not in dispute that Article 27.2(a) no longer excludes India from the application of the
prohibition of export subsidies set forth in Article 3.1(a). The parties, however, differ on the
interpretation of Article 27.2(b), that is, the meaning of the phrase "eight years from the date of
entry into force of the WTO Agreement".
7.24. India argues that the eight -year period set out in Article 27.2(b) did not start, for India, on
the date of entry into force of the WTO Agreement. Rather, it commenced on the date of
India's graduation from Annex VII(b), thus starting in 2017 and ending in 2025. 60 India argues
that a mere literal interpretation of Article 27.2(b) would render Article VII(b) ineffective or inutile,
and would run contrary to the object and purpose of the SCM Agreement. India argues that Annex
VII(b) and Article 27.1 are integral to the overall object and pu rpose of the SCM Agreement.
Further, India submits that the purpose of providing special and differential treatment through
Article 27 of the SCM Agreement must not be undermined and that an interpretation of
Article 27.2(b) based on the ordinary meaning of its text would result in inconsistencies with
Annex VII(b), Article 27.4, and Article 27.5.61 To avoid any contradictions with these provisions,
Article 27.2(b) must be interpreted so that the eight-year period start s upon Annex VII(b)
graduation. Moreover, India contends that a textual interpretation of Article 27.2(b) leaves the
meaning of its terms ambiguous and obscure and would lead to absurd and unreasonable results.62
According to India, t his provision must there fore be interpreted by recourse to supplementary
means of interpretation according to Article 32 of the Vienna Convention and in particular the
negotiating history of Annex VII(b) .63 India argues that considering the negotiating history ,

56 Fn omitted.
57 In the 2001 Decision of the Ministerial Conference on "Implementation-Related Issues and Concerns",
Members decided that the threshold of GNP per capita of USD 1,000 per year is met when Annex VII(b)
Members reach USD 1,000 in constant 1990 dollars for three consecutive years. (WTO, Ministerial Conference,
Decision of 14 November 2001, WT/MIN(01)/17, para. 10.1).
58 Committee on Subsidies and Countervailing Measures, Annex VII(b) of the Agreement on Subsidies
and Countervailing Measures, G/SCM/110/Add.14 (11 July 2017); Committee on Subsidies and Countervailing
Measures, Annex VII(b) of the Agreement on Subsidies and Countervailing Measures, G/SCM/110/Add.15
(20 April 2018).
59 United States' first written submission, para. 26; India's first written submission, para. 119.
60 India's first written submission, paras. 10 and 119.
61 India's first written submission, paras. 155-160, 162, and 164; second written submission, paras. 14,
16, 18, 20, 23-26, and 30. See also India's request for review, para. 5, and Annex A-2, para. 2.1.
62 India's second written submission, paras. 8 and 27.
63 India's second written submission, para. 7.

Article 27.2(b) gra nts graduating Annex VII(b) Members an additional eight -year transition
period.64
7.25. According to the United States, the eight-year period under Article 27.2(b) ended on
1 January 2003, when eight years had passed since the entry into force of the WTO Agreement on
1 January 1995. In the United States' view, India is therefore now subject to the prohibition of
export subsidies pursuant to Article 3.1(a).65 The United States argues that the ordinary meaning
of the phrase "a period of eight years from the date of e ntry into force of the WTO Agreement" in
Article 27.2(b) is clear. Other means of interpretation, as invoked by India, cannot override that
treaty text.66
7.26. Egypt and Sri Lanka as third parties support India's position concerning the interpretation of
Article 27.2(b). Egypt argues that an interpretation of Article 27.2(b) as proposed by the
United States would be "unfair" and "unreasonable" for Annex VII(b) Members and would leave
those Members "unprotected". 67 Sri Lanka argues that it would not be "equitable" to treat
low-income developing countries (when their GNP per capita reaches USD 1,000 per year) less
favourably than higher-income developing countries, which benefited from an eight -year period at
the entry into force of the WTO Agreement, when their GNP per capita already exceeded
USD 1,000 per year.68
7.27. Brazil, Canada, the European Union, Japan, and Thailand as third parties contend that the
ordinary meaning of the text of Article 27.2(b) is clear and disallows India's interpretation.69 These
third parties a lso disagree with India's contextual arguments concerning Annex VII(b) and
Articles 27.4 and 27.5.70
7.3.3 Analysis
7.28. The parties agree that India has reached a GNP per capita of USD 1,000 per year and that
as of 2017 India had graduated under Annex VII(b) and Article 27.2(a) of the SCM Agreement.
The question is whether Article 27.2(b) now applies to India, excluding the applicability of
Article 3.1(a) (and as a consequence also Article 4) of the SCM Agreement for a further eight years
after graduation, as India argues, or whether instead Article 27.2(b) expired for all Members on
1 January 2003, as the United States argues.
7.29. The interpretative question for us to resolve is whether, in the case of Members graduating
from Annex VII(b), the eight -year period afforded by Article 27.2(b) to developing country
Members must be counted "from the date of entry into force of the WT O Agreement", or from the
date of graduation from Annex VII(b).
7.30. Below, after recalling certain rules of treaty interpretation, we consider, first, the terms of
Article 27.2(b), and then India's arguments concerning context (specifically, Annex VII(b),
Article 27.4, and Article 27.5), and object and purpose.
7.3.3.1 Treaty interpretation
7.31. Article 3.2 DSU provides that Members recognize that the WTO dispute settlement system
serves among other objectives to clarify the existing provisions of the covered Agreements
"in accordance with customary rules of interpretation of public international law". 71 The customary

64 India's first written submission, paras. 166-179; second written submission, para. 33.
65 United States' first written submission, paras. 24-26.
66 United States' second written submission, paras. 55-58 and 62-63, and fn 48.
67 Egypt's third-party statement at the meeting of the Panel, paras. 7 and 9.
68 Sri Lanka's third-party statement at the meeting of the Panel, p. 2.
69 Brazil's third-party submission, paras. 14 and 15; Canada's third-party submission, paras. 6 and 9;
European Union's third-party submission, paras. 5 and 9; Japan's third-party submission, para. 11; and
Thailand's third-party statement at the meeting of the Panel, paras. 6 and 8.
70 Brazil's third-party submission, paras. 16-24; European Union's third-party submission, paras. 7 and 9.
71 Article 27.2(b) is one of "the existing provisions of the covered Agreements" as the SCM Agreement is
a covered Agreement in accordance with Article 1.1 and Appendix 1 to the DSU.

rules of interpretation of public international law are codified, in particular, in Articles 31 and 32 of
the Vienna Convention.72
7.32. Article 31 of the Vienna Con vention sets out the "General Rule of Interpretation". Pursuant
to Article 31.1 of the Vienna Convention, WTO adjudicators must interpret the covered Agreements
"in good faith in accordance with the ordinary meaning to be given to the terms of the treaty i n
their context and in light of its object and purpose". Articles 31.2 and 31.3, respectively, list items
that form part of "context", and other items that "shall be taken into account, together with the
context".
7.33. Article 31 of the Vienna Convention "is me ant to assist an interpreter in ascertaining the
ordinary meaning of treaty terms, reflecting the common intention of the parties to the treaty". 73
It is generally presumed that parties to a treaty were deliberate in the specific terms they used;
interpretation must therefore be based "above all" on the text of the treaty .74 From this follows
also that a treaty interpreter must give meaning and effect to each term and not render redundant
whole clauses or paragraphs.75
7.34. Moreover, the rules of treaty interpretation "neither require nor condone the imputation into
a treaty of words that are not there or the importation into a treaty of concepts that were not
intended".76 Rather, "[t]he fundamental rule of treaty interpretation requires a treaty interpreter to
read and interpret the words actually used by the agreement under examination, and not words
which the interpreter may feel should have been used".77
7.35. The ordinary meaning of treaty terms is not to be equated solely with dictionary meaning. 78
Instead, "[u]nder Article 31 of the Vienna Convention, the 'ordinary meaning' of treaty terms may
be ascertained only in their context and in the light of the object and purpose of the treaty". 79
While it may help to organize an analysis to discuss text, context, and object and purpose in turn,
it must be borne in mind that "interpretation pursuant to the customary rule codified in Article 31
of the Vienna Convention is ultimately a holistic exercise that should not be mechanically
subdivided into rigid components".80
7.36. Regarding the relationship between the plain textual meaning of treaty terms, on the one
hand, and context, and object and purpose (and "possibly" the tools in Article 32 of the
Vienna Convention), on the other, the Appellate Body has stated:
While context is a necessary element of an interpretative analysis under Article 31 of
the Vienna Convention, its role and importance in an interpretative exercise depends
on the clarity of the plain textual meaning of the treaty terms. If the meaning of
treaty terms is difficult to discern, determining the ordinary meaning under Article 31
may require more reliance on the context and the object and purpose of the treaty
and possibly other elements considered "together with the context" and the tools
mentioned in Article 32.81
7.37. Article 32 of the Vienna Convention provides for recourse to "[s]upplementary means of
interpretation". Pursuant to Article 32, a treaty interpreter may resort to supplementary means of

72 Appellate Body Reports, US – Gasoline, DSR 1996:I, pp. 15-16; Japan – Alcoholic Beverages II,
DSR 1996:I, p. 104.
73 Appellate Body Report, Peru – Agricultural Products, para. 5.93.
74 Appellate Body Report, Japan – Alcoholic Beverages II, DSR 1996:I, p. 105.
75 See, e.g. Appellate Body Report, US – Gasoline, DSR 1996:I, p. 21. The principle of effectiveness in
treaty interpretation is a corollary of the general rule of interpretation in the Vienna Convention. See also
Appellate Body Report, Korea – Dairy, para. 81.
76 Appellate Body Report, India – Patents (US), para. 45.
77 Appellate Body Report, EC – Hormones, para. 181.
78 Appellate Body Report, China – Publications and Audiovisual Products, para. 348.
79 Appellate Body Report, China – Publications and Audiovisual Products, para. 348. Object and purpose
is that of the treaty as a whole. (Appellate Body Report, EC – Chicken Cuts, para. 238).
80 Appellate Body Report, China – Publications and Audiovisual Products, para. 348.
81 Appellate Body Report, Peru – Agricultural Products, para. 5.94. However, the holistic exercise under
Article 31 cannot "be used to develop interpretations … that appear to subvert the common intention of the
treaty parties as reflected in the text of [the provisions being interpreted]". (Ibid.)

interpretation either to confirm the meaning resulting from th e application of Article 31 of the
Vienna Convention, or to determine the meaning when the interpretation according to Article 31
leaves the meaning ambiguous or obscure or leads to manifestly absurd or unreasonable results.
Supplementary means of interpre tation include " the preparatory work of the treaty and the
circumstances of its conclusion"82, but this listing is not exhaustive.83
7.38. The Appellate Body has repeatedly emphasized the "holistic" nature of the interpretive
exercise under the rules codified in Articles 31 and 32 of the Vienna Convention, stressing that this
"exercise is engaged so as to yield an interpretation that is harmonious and coherent and fits
comfortably in the treaty as a whole so as to render the treaty provision legally effective".84
7.3.3.2 Interpretation of Article 27.2(b) based on ordinary meaning, context, and object
and purpose
7.3.3.2.1 Article 27.2(b)
7.39. Based on the above rules of treaty interpretation, the starting point for our analysis in this
case is the text of Article 27.2(b) of the SCM Agreement. Article 27.2(b) provides for a transition
period of "eight years from the date of entry into force of the WTO Agreement", during which the
prohibition in Article 3.1(a) "shall not apply". The WTO Agreement entered into force on
1 January 1995. Thus, "a period of eight years from the date of entry into force of the
WTO Agreement" is the period running from 1 January 1995 to 1 January 2003. The text of
Article 27.2(b) does not leave scope for ambiguity in respect of the end date of that transition
period.85
7.40. India does not contest the ordinary meaning of the phrase in Article 27.2(b). Rather, it
argues that in respect of Members graduating after the entry into force of the WTO Agreement, the
Panel should depart from giving the terms in Article 27.2(b) their ordinary meaning and rely
instead on supplementary means of interpretation pursuant to Article 32 of the Vienna
Convention.86 India justifies such departure from the text of Article 27.2(b) with arguments
pertaining to context, and object and purpose of the SCM Agreement.87 According to India, when
Article 27.2(b) is read in conjunction with the context provided by Annex VII(b), Article 27.4, and
Article 27.5, its interpretation "results in ambiguity or obscurity".88 Further, according to India, the
ordinary meaning of the phrase in Article 27.2(b) also runs counter to the special and differential
treatment tenet of the object and purpose of the SCM Agreement.

82 Article 32 of the Vienna Convention.
83 Appellate Body Report, EC – Chicken Cuts, para. 283. The reference to the circumstances of the
conclusion of a treaty "permits, in appropriate cases, the examination of the historical background against
which the treaty was negotiated". (Appellate Body Report, EC – Computer Equipment, para. 86).
84 Appellate Body Report, US – Continued Zeroing, para. 268. See also e.g. Appellate Body Reports,
Anti-Dumping and Countervailing Duties (China), para. 570.
85 See also Appellate Body Report, Brazil – Aircraft, para. 139 ("[t]he ordinary meaning of the text of
Article 27.2(b) is clear").
86 India's first written submission, paras. 159, 164, and 166; second written submission, paras. 8, 10,
12, 19, 27, and 31; opening statement at the meeting of the Panel, paras. 15, 26, and 28; response to Panel
question No. 18; and comments on the United States response to Panel question No. 21, first para. Similarly,
Sri Lanka's third-party statement at the meeting of the Panel, pp. 2-3.
87 The parties and certain third parties have also invoked the "Joint Proposal concerning the scope of
Articles 27.2 and 27.4" (WTO, Negotiating Group on Rules, Amendment to Articles 27.2 and 27.4 of ASCM in
relation to developing countries covered under Annex VII, Communication from the Plurinational State of
Bolivia, Egypt, Honduras, India and Sri Lanka, TN/RL/GEN/177/Rev. 1 (9 March 2011), (Exhibit IND-7)) as
supporting either India's or the United States' interpretative position (India's first written submission,
para. 184; response to Panel question No. 20, pp. 6-8; United States' opening statement at the meeting of the
Panel, para. 65; and Japan's third-party statement at the meeting of the Panel, para. 5). The Members
sponsoring the Joint Proposal suggested adopting the following language as a footnote to
Article 27.2(b): "[i]n the case of developing country Members included in Annex VII, the 8-year period shall
commence from the year in which they graduate out of Annex VII". However, the Joint Proposal remained a
proposal by a sub-group of Members to amend Articles 27.2(b) and 27.4, which has not been adopted by the
WTO Membership. The purpose of treaty interpretation is to ascertain the common intention of the parties
(Appellate Body Report, EC – Computer Equipment, para. 84), whereas unadopted negotiating proposals by
some Members reflect the position of only those Members supporting the proposal.
88 India's second written submission, para. 27.

7.41. For purposes of interpreting Article 27.2(b), we therefore turn, first, to the context provided
by Annex VII(b), Article 27.4, and Article 27.5 of the SCM Agreement and, second, to the object
and purpose of the SCM Agreement.
7.3.3.2.2 Annex VII(b)
7.42. India argues that a "literal interpretation" of Article 27.2(b) based on its ordinary meaning
and resting on an eight-year transition period starting upon the entry into force of the
WTO Agreement would:
a. render the mandatory language of Annex VII(b) ineffective89; and
b. treat graduating Annex VII(b) Members differently from other developing country
Members.90
7.43. We address India's arguments in turn below.
7.44. Regarding India's first argument, India recalls that the text of Annex VII(b) mandates
("shall be subject") Article 27.2(b) to apply when Annex VII(b) Members reach the threshold of
GNP per capita of USD 1,000 per y ear. India posits that the ordinary meaning of the terms in
Article 27.2(b), limiting the transition period to eight years from the entry into force of the
WTO Agreement, invalidates the mandatory language in Annex VII(b). After 1 January 2003,
graduating Annex VII(b) Members would no longer be "subject to the provisions which are
applicable to other developing country Members according to paragraph 2(b) of Article 27",
contrary, in India's view, to what Annex VII(b) requires.
7.45. We consider that India's argument is not persuasive. India seems to conflate two distinct
issues: the applicability of Article 27.2(b) and its content. Annex VII(b) regulates the applicability
of Article 27.2(b) in respect of those developing country Members listed therein. By contrast ,
Article 27.2(b) sets out the conditions governing the entitlement to the non -application of
Article 3.1(a).
7.46. The phrase in Annex VII(b) "shall be subject to the provisions" renders applicable 91
Article 27.2(b), without modifying the latter's content. The subclause " which are applicable to
other developing country Members according to paragraph 2(b) of Article 27 when GNP per capita
has reached $1,000 per annum" qualifies the provisions made applicable. 92 This phrase indicates
that Annex VII(b) Members are s ubject to the same provisions applying to other developing
country Members at the time the cross-reference in Annex VII(b) to Article 27.2(b) operates. We
therefore consider that the text of Annex VII(b) does not support a reading that Article 27.2(b) is
made applicable with a modified starting date for the eight-year transition period.
7.47. We also reject India's contention that using the ordinary meaning of Article 27.2(b) in case
of Annex VII(b) Members graduating late would render Annex VII(b) ineffective or redundant.
As set out above, Annex VII(b) provides for a simple cross -reference to Article 27.2(b). The expiry
of the transition period in Article 27.2(b) does not render ineffective or redundant this cross -
reference: the substance of the cross -reference is determined by the content of the provision
referred to. Developing country Members in Annex VII(b), in the event of graduation before
1 January 2003, still enjoyed a transition period that in no case would have been less than the
eight-year transition p eriod until 1 January 2003 pursuant to Article 27.2(b). The possibility that
Members graduating from Annex VII(b) no longer benefit from an additional transition period
under Article 27.2(b) is inherent in the reference by Annex VII(b) to a provision that contains a
time-limited transition period.

89 India's first written submission, paras. 157-160; second written submission, para. 18; opening
statement at the meeting of the Panel, para. 15; and response to Panel question No. 18, pp. 3-4.
90 India's second written submission, paras. 16 and 18; opening statement at the meeting of the Panel,
para. 15; and response to Panel question No. 18, pp. 2-3.
91 The application of Article 27.2(b) is triggered by meeting the GNP per capita threshold.
92 Emphases added.

7.48. In light of the above, rather than rendering Annex VII(b) ineffective, an eight -year
transition period from the date of entry into force of the WTO Agreement is precisely what
Annex VII(b) envisages by stipulating that the listed Members "shall be subject to the provisions
which are applicable to other developing country Members according to paragraph 2(b) of
Article 27".
7.49. India's second argument relates to graduating Annex VII(b) Members not being gr anted the
same full eight -year transition period to phase out their export subsidies that other developing
country Members are afforded pursuant to Article 27.2(b). India submits that graduating
Annex VII(b) Members would thus have less or no time to phase out their export subsidies,
although Annex VII(b) seeks to grant additional special and differential treatment. 93 In the same
vein, certain third parties contend that the less developed Annex VII(b) Members should not be
treated less favourably than other more advanced developing countries which did not fall under
Annex VII(b) in the first place and yet could avail themselves of an eight-year transition period.94
7.50. Article 27.2 and Annex VII provide for special and differential treatment and establish
different degrees of flexibility in excluding developing country Members from the application of the
prohibition of export subsidies under Article 3.1(a). The flexibilities differ between three categories
of Members in respect of the period during which the prohib ition in Article 3.1(a) "shall not apply",
i.e. the transition period. First, for developing country Members in general, Article 27.2(b)
stipulates a transition period of eight years from the entry into force of the WTO Agreement.
During this period, the first sentence of Article 27.4 imposes a progressive phase-out obligation on
developing country Members referred to in Article 27.2(b) . Second, for least developed country
Members, Article 27.2(a) in connection with Annex VII(a) provides that the prohibitio n in
Article 3.1(a) shall not apply as long as the Members in question are designated as least developed
countries by the United Nations. Third, for the developing country Members listed in Annex VII(b),
Article 27.2(a) in connection with Annex VII(b) provides for a transition period that lasts as long as
these Members remain below the relevant threshold, even after the eight-year period available to
the first category of Members referred to above.
7.51. Under this scheme of different flexibilities, we consider that a literal interpretation of
Article 27.2(b) in respect of graduating Annex VII(b) Members does not reduce the additional
flexibilities afforded by Annex VII(b). First, such literal interpretation does not affect the additional,
and more favourable, fl exibility of a transition period that lasts as long as GNP remains below the
relevant threshold, irrespective of a strict deadline, and without an additional phase-out obligation.
Second, beyond this additional flexibility, Annex VII(b), through its expres s cross -reference to
Article 27.2(b), ensures that graduating Members have at least the same flexibility as the other
developing country Members, namely "a period of eight years from the date of entry into force of
the WTO Agreement".
7.52. Based on the above, we consider that Annex VII(b) does not provide a basis for departing
from the text of Article 27.2(b) in respect of graduating Annex VII(b) Members. In particular, a
textual interpretation of Article 27.2(b) neither renders Annex VII(b) ineffective, nor re sults in an
interpretation that is ambiguous, obscure, absurd, or unreasonable. To the contrary, it allows for a
harmonious application of both provisions.
7.53. Members graduating from Annex VII(b) after 1 January 2003 are also not required to
eliminate export subsidies without prior notice. Graduation does not come as a surprise
"overnight".95 In fact, in the 2001 Decision of the Ministerial Conference on " Implementation-
Related Issues and Concerns ", Members agreed that Annex VII(b) graduation would depend on
reaching the threshold of GNP per capita of USD 1,000 per year in constant 1990 US dollars for
three consecutive years.96

93 India's first written submission, paras. 157-160; second written submission, para. 18.
94 Egypt's third-party statement at the meeting of the Panel, paras. 6-7; Sri Lanka's third-party
statement at the meeting of the Panel, pp. 2-3.
95 India's first written submission, paras. 177 and 186-187.
96 WTO, Ministerial Conference Decision of 14 November 2001, WT/MIN(01)/17, para. 10.1.

7.3.3.2.3 Article 27.4
7.54. India relies on the fact that the first sentence of Article 27.4 refers to an eight -year period
without qualifying this period as commencing on the date of entry into force of the
WTO Agreement. India argues that Article 27.4 therefore allows Members graduating from
Annex VII(b) after the entry into force of the WTO Agreement to benefit from an eig ht-year
transition period that begins when they graduate. It follows, according to India, that Article 27.4
requires interpreting Article 27.2(b) harmoniously in favour of an eight-year transition period upon
Annex VII(b) graduation.97 In India's view, Article 27.4 also leads to the conclusion that the text of
Article 27.2(b) results in internal contradictions and is ambiguous and obscure, thus necessitating
recourse to supplementary means of interpretation.
7.55. The first sentence of Article 27.4 provides:
Any d eveloping country Member referred to in paragraph 2(b) shall phase out its
export subsidies within the eight-year period, preferably in a progressive manner.98
7.56. We disagree with India's argument that the eight -year period in Article 27.4 does not start
from the entry into force of the WTO Agreement and that the phrase "from the date of entry into
force of the WTO Agreement" in Article 27.2(b) cannot be read into Article 27.4.99 Rather, for the
following reasons, we consider that the first sentence of Article 27.4 must be read as referring to
the period of eight years from the date of entry into force of the WTO Agreement stipulated in
Article 27.2(b).100
7.57. First, the first sentence of Article 27.4 expressly connects with Article 27.2(b) through the
reference to "an y developing country Member referred to in paragraph 2(b)". Second, having
made this connection in respect of the same developing country Members, the first sentence of
Article 27.4 then refers to phasing out export subsidies within "the eight -year period". The use of
the definite article "the" demonstrates that Article 27.4 refers to a particular or already specified
eight-year period. This period is defined in Article 27.2(b) to which Article 27.4 refers. Third, we
find support for this reading of Article 27.4 in the fact that this provision serves to qualify the
obligation on Members during the Article 27.2(b) transition period. 101 During this period,
developing country Members are not, without more, entitled to the non -application of
Article 3.1(a). The en titlement to the transition period in Article 27.2(b) is made "subject to
compliance with the provisions in paragraph 4". Those Members shall (preferably in a progressive
manner) phase out their export subsidies as provided in Article 27.4.
7.58. It follows tha t while Article 27.2(b) establishes an eight -year transition period from
Article 3.1(a), the first sentence of Article 27.4 does not establish a separate and independent
phase-out period. Rather, it imposes an additional phase -out obligation during the Article 27.2(b)
period.102 Article 27.2(b) and the first sentence of Article 27.4 refer to the same transition period
of eight years starting on the date of entry into force of the WTO Agreement.
7.59. We therefore deny India's request to depart from the text of Arti cle 27.2(b) because of
Article 27.4. Instead, we conclude that the text of these provisions ensures the provisions operate
harmoniously. For the same reason, we also reject India's proposition that, based on Article 27.4,
the text of Article 27.2(b) can be characterized as ambiguous, obscure, absurd, or unreasonable.
7.3.3.2.4 Article 27.5
7.60. India argues that a textual interpretation of Article 27.2(b) would lead to inconsistency with
Article 27.5 and render the latter inutile and ineffective. More specifically, India invokes an

97 India's first written submission, para. 162; opening statement at the meeting of the Panel, para. 17.
98 Emphasis added.
99 India's second written submission, para. 20.
100 See also United States' second written submission, paras. 37 and 60; Brazil's third-party submission,
para. 21; European Union's third-party submission, paras. 3-9; and Canada's third-party statement at the
101 Brazil's third-party submission, para. 20.
102 Panel Report, Brazil – Aircraft, para. 7.55; Appellate Body Report, Brazil – Aircraft, para. 140.

"internal contradiction"103 that arises, according to India, because of separate phase -out timelines
between export subsidies for products that reach export competitiveness pursuant to Article 27.5
and all other export subsidies under Article 27.2(b).
7.61. India notes that under the second sentence of Article 27.5, an Annex VII Member has
eight years to phase out export subsidies for products in which it has reached export
competitiveness. India contrasts this with an interpretation of Article 27.2(b) which does not
provide for an additional eight -year transition period after graduation from Annex VII(b).
According to India, the result would be that, on graduating from Annex VII, a Member would be
required to eliminate all export subsidies but at the sa me time would be allowed eight years to
phase out export subsidies for products for which it has reached export competitiveness.104
7.62. We disagree with India's premise that the eight -year phase -out period in the second
sentence of Article 27.5 survives graduati on. The second sentence of Article 27.5 applies to
developing country Members "referred to in Annex VII". On graduating, a Member ceases to be
one "referred to in Annex VII", and the second sentence of Article 27.5 is no longer available to it.
7.63. In other wo rds, Article 27.5 does not extend the transition period set forth in Article 27.2.
Its phase-out timelines and requirements operate within the framework of that transition period,
and in fact limit on a product -specific basis the scope of the exclusion from Article 3.1(a) granted
in Articles 27.2(a) and (b). Article 27.5 therefore qualifies the scope of the special and differential
treatment conferred by Article 27.2; it does not grant an additional or extended exclusion from
Article 3.1(a).105 This mechanism is similar to the operation of the phase -out requirement in the
first sentence of Article 27.4.106
7.64. As a result, the alleged internal contradiction is based on a misreading of Article 27.5.
We therefore conclude that interpreting Article 27.2(b) using the or dinary meaning of its terms
does not, in light of Article 27.5, lead to ambiguous, obscure, absurd, or unreasonable results.
7.3.3.2.5 Object and purpose
7.65. India appears to argue that interpreting the terms of Article 27.2(b) according to their
ordinary meaning would undermine the object and purpose of providing special and differential
treatment and of recognizing the economic development needs of developing country Members.107
7.66. As set forth in Article 31.1 of the Vienna Convention, the object and purpose of a trea ty, as
a whole108, is relevant in determining the meaning of its provisions. 109 The object and purpose of
the SCM Agreement "is to strengthen and improve GATT disciplines relating to the use of both
subsidies and countervailing measures, while, recognizing at the same time, the right of Members
to impose such measures under certain conditions ".110 Part of this balance is to grant developing
country Members special and differential treatment.111 This emerges in particular from Article 27.1,
which provides that "Members recognize that subsidies may play an important role in economic
development programmes of developing country Members".112

103 India's second written submission, paras. 22 and 25.
104 India's first written submission, para. 164; second written submission, paras. 23-26; and opening
statement at the meeting of the Panel, paras. 21-24.
105 See also Brazil's third-party submission, paras. 23-24; and Japan's third-party statement at the
106 The first sentence of Article 27.4 equally does not establish a phase-out period that is separate and
independent from the transition period in Article 27.2(b). See para. 7.57 above.
107 See, e.g. India's first written submission, paras. 151, 163, and 183; opening statement at the
meeting of the Panel, paras. 6 and 16; and response to Panel question No. 18, p. 5.
108 Appellate Body Report, EC – Chicken Cuts, para. 238.
109 Appellate Body Report, Japan – Alcoholic Beverages II, DSR 1996:I, fn 20.
110 Appellate Body Report, US – Softwood Lumber IV, para. 64. See also Appellate Body Report, US –
Anti-Dumping and Countervailing Duties (China), para. 301.
112 The preamble to the WTO Agreement also recognizes "[the] 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".

7.67. Part VIII of the SCM Agreement, devoted to "Developing Country Members", consists of
Article 27, entitled "Special and Differential Treatment of Developing Country Members". Article 27
"makes operational"113 the principle of special and differential treatment in the context of the
WTO rules on subsidies and countervailing measures. It "provide[s]"114 special and differential
treatment for developing country Members under certain specified conditions. Articles 27.2 to 27.7
and Annex VII, in particular, provide for special and differential treatment in respect of the
prohibited export subsidy disciplines. It is therefore difficult to see how, in India's view, the text of
Article 27.2(b) "would run contrary to the object and purpose of Part VIII of the
SCM Agreement".115 Rather, it reflects part of a delicate balance, struck by the drafters, between
constraining certain types of su bsidies on the one hand and providing special and differential
treatment through clear and unambiguous time -bound flexibilities on the other hand. A literal
interpretation of Article 27.2(b) is thus in line with, and gives effect to, the purpose of further ing
special and differential treatment for developing country Members.
7.68. We therefore take the view that considering the object and purpose of the SCM Agreement
does not require a departure from the ordinary meaning of Article 27.2(b).
7.3.3.2.6 Conclusion
7.69. Based on th e above, we find that the terms of Article 27.2(b) in the context of the
SCM Agreement and in light of its object and purpose do not lead to conclude otherwise than that
the eight-year transition period in Article 27.2(b) runs from 1 January 1995. In fact, a reading of
Article 27.2(b) as referring to eight years from 1 January 1995 sits harmoniously with its context
and with the object and purpose of the SCM Agreement.
7.3.3.3 Supplementary means of interpretation
7.70. Article 32 of the Vienna Convention allows recourse to supplementary means of
interpretation either "to confirm the meaning resulting from the application of article 31" of the
Vienna Convention or, when the interpretation according to Article 31 leaves the meaning
ambiguous or obscure or leads to manifest ly absurd or unreasonable results, "to determine the
meaning".
7.71. India argues that the plain text of Article 27.2(b), when viewed in light of Annex VII(b) and
Articles 27.4 and 27.5, results in ambiguity, obscurity, absurdity, and unreasonableness. 116 India
submits that the Panel must therefore depart from the text of Article 27.2(b) and rely on
supplementary means of interpretation according to Article 32 of the Vienna Convention in order to
read Article 27.2(b) as entitling graduating Annex VII(b) Members to an eight -year transition
period upon their graduation.117
7.72. Above, we found that a textual interpretation of the terms in Article 27.2(b) does not leave
their meaning ambiguous or obscure, or lead to manifestly absurd or unreasonable results. To the
contrary, the meaning of Article 27.2(b) is clear and unambiguous and its textual interpretation
does not result in internal contradictions with Annex VII(b), Article 27.4, or Article 27.5. On this
basis, we disagree with India on the need in this case to resort to supplementary means of
interpretation because of alleged ambiguity, obscurity, absurdity, and unreasonableness resulting
from the interpretation according to Article 31 of the Vienna Convention.
7.73. Article 32 of the Vienna Convention also allows us to have recourse to supplementary
means of interpretation in order to confirm the meaning resulting from the application of
Article 31. However, in light of the clear meaning of Article 27.2(b), we do not consider it
necessary in this case to have recourse to supplementary means of interpretation.118

113 Panel Report, Canada – Aircraft (Article 21.5 – Brazil), fn 120.
114 Appellate Body Report, Brazil – Aircraft, para. 140.
115 India's second written submission, para. 10.
116 India's first written submission, para. 166; second written submission, paras. 10, 27, and 30-31.
117 India's second written submission, paras. 12, 27, and 31.
118 See also Annex A-2, paras. 2.19-2.28.

7.3.3.4 Conclusion on Article 27.2 and Article 3.1(a) of the SCM Agreement
7.74. It is an undisputed fact that India has graduated from Annex VII(b). The text of
Article 27.2(b), in its context and in light of the object and purpose of the SCM Agreement, leads
us to conclude that the eight -year transition period from the date of entry into force of the
WTO Agreement set forth in Article 27.2(b) has expired on 1 January 2003, also for Members
graduating from Annex VII(b). Therefore, we find that Article 27 no longer excludes India from the
application of Article 3.1(a) of the SCM Agreement.
7.3.3.5 Conclusion on Article 4 of the SCM Agreement
7.75. Article 27.7 of the SCM Agreement excludes from the application of Article 4 of the
SCM Agreement "a developing country Member in the case of export subsidies which are in
conformity with the provisions of paragraphs 2 to 5" of Article 27.
7.76. As set out above, India has graduated from Annex VII to the SCM Agreement, and the
transition period in Article 27.2(b) has expired. Therefore, the exclusion set out in Article 27.7
does not operate and, as a result, Article 4 of the SCM Agreement applies to this dispute.
7.4 Statement of available evidence
7.77. India as ked the Panel to rule that the statement of available evidence included in the
United States' request for consultations does not meet the requirements of Article 4.2 of the
SCM Agreement.119 India argues that the statement fails to provide any evidence of th e character
of the measures as subsidies, and merely reproduces the list of legal instruments appearing in the
request for consultations and subsequently in the panel request.
7.78. We discuss, first, the legal standard under Article 4.2 of the SCM Agreement (section 7.4.1)
and, second, the application of that legal standard to the statement of available evidence, in light
of the arguments of the parties ( section 7.4.2). As set out below, we find that the statement of
available evidence contained in the United States' request for consultations meets the standard set
out in Article 4.2 of the SCM Agreement.
7.4.1 The applicable legal standard under Article 4.2 of the SCM Agreement
7.79. Article 4.2 of the SCM Agreement is a special or additional rule listed in Appendix 2 to the
DSU, applying to disputes involving allegations of prohibited subsidies under Article 3 of the
SCM Agreement. Pursuant to Article 1.2 of the DSU, such special or additional rules apply together
with the DSU, except that, to the extent there is a conflict, the special or a dditional rules
prevail.120
7.80. Article 4.2 of the SCM Agreement provides:
A request for consultations under paragraph 1 shall include a statement of available
evidence with regard to the existence and nature of the subsidy in question.
7.81. Thus, a complainant in a prohibited subsidies case must "indicate, in its request for
consultations, the evidence that it has available to it, at that time, 'with regard to the existence
and nature of the subsidy in question'". 121 This must be "available evidence of the character of the
measure as a 'subsidy' … and not merely evidence of the existence of the measure".122

119 India's first written submission, paras. 16-18; see also DSB, Minutes of the meeting held on
28 May 2018, WT/DSB/M/413, para. 7.3, reporting India's concerns that the request for consultations failed to
meet the requirements of the SCM Agreement, as well as of the DSU. The Panel declined the request for a
ruling at preliminary stage. (Communication dated 22 January 2019 from the Panel to the parties concerning
the Panel's terms of reference, the applicability of Article 4 of the SCM Agreement, and the statement of
available evidence, (Annex D-2), paras. 4.1-4.8).
120 Appellate Body Report, Guatemala – Cement I, para. 65.
121 Appellate Body Report, US – FSC, para. 161.
122 Appellate Body Report, US – FSC, para. 161.

7.82. In Australia – Automotive Leather II, the panel interpreted the requirement for a "statement
of available evidence" in Article 4.2 as meaning that the complainant must include in its request
for consultations:
[A]n expression in words of the facts at its disposal at the time it requests
consultations in support of the conclusion that it has, in the words of Article 4.1,
"reason to believe that a prohibited subsidy is being granted or maintained".123
7.83. Further, "the requirement is to provide a 'statement' of the evidence and not the evidence
itself"124, nor "disclosure of arguments".125
7.84. The Appellate Body has emphasized the importance of the requirement in Artic le 4.2 of the
SCM Agreement to provide a statement of available evidence, given the "accelerated timeframes
for disputes" under Article 4 and the "complex factual questions" that these disputes raise. 126
It has underlined that this requirement is "distinct f rom – and not satisfied by compliance with –
the requirements of Article 4.4 of the DSU". 127 In other words, it is additional to "giving the
reasons for the request for consultations and identifying the measure and the legal basis for the
complaint under Article 4.4 of the DSU".128
7.85. At the same time, the statement "is the starting point for consultations, and for the
emergence of more evidence concerning the measures by reason of the clarification of the
'situation'".129 The statement "informs the beginning of the dispute settlement process", and "does
not limit the scope of evidence and argument for the entire proceeding". 130 As a result, in
assessing the sufficiency of the statement, which must be done "on a case by case basis" 131, it is
"important to bear in mind th at the requirement to submit a statement of available evidence
applies in the earliest stages of WTO dispute settlement".132
7.4.2 Whether the statement of available evidence meets the requirements of
Article 4.2 of the SCM Agreement
7.86. In the present case, the Unit ed States' statement of available evidence lists: all the legal
instruments listed in the body of the request for consultations, and subsequently in the panel
request133; and two publications of the Ministry of Commerce and Industry of India,
namely (a) "Highlights of the Foreign Trade Policy 2015 -2020 Mid Term Review

123 Panel Report, Australia – Automotive Leather II, para. 9.19.
124 Appellate Body Report, US – Upland Cotton, para. 308.
125 Panel Report, Australia – Automotive Leather II, para. 9.18.
126 Appellate Body Report, US – FSC, para. 160.
127 Appellate Body Report, US – FSC, para. 161.
128 Appellate Body Report, US – FSC, para. 161.
129 Appellate Body Report, US – Upland Cotton, para. 308 (referring to Panel Report, US – Upland
Cotton, para. 7.100). (emphasis added)
130 Panel Report, Australia – Automotive Leather II, para. 9.29. See also ibid. para. 9.27. Also,
Article 4.2 of the SCM Agreement "does not, on its face, require disclosure of arguments". (Ibid. para. 9.18).
131 Appellate Body Report, US – Upland Cotton, para. 308.
132 Appellate Body Report, US – Upland Cotton, para. 308 (referring to Panel Report, Australia –
Automotive Leather II, para. 9.19).
133 These are Instruments Nos. 1-27 in the panel request, discussed in Communication dated
22 January 2019 from the Panel to the parties concerning the Panel's terms of reference, the applicability of
Article 4 of the SCM Agreement, and the statement of available evidence, (Annex D-2), section 2.3.1 and
annex A. The numbering of the same legal instruments in the body of the two requests and in the statement of
available evidence, while overlapping in part, is not the same. The Panel therefore refers to "Instruments", with
the corresponding numbering, when referring to the panel request and to the body of the request for
consultations; and to "Items", with the corresponding numbering, when referring to the statement of available
evidence submitted together with the request for consultations.
A number of these Instruments/Items were also submitted as exhibits by the parties. For those that
were not also submitted (or not submitted in their entirety) as exhibits, with a communication dated
15 July 2019, the Panel transmitted to the parties the electronic files it downloaded from the web pages listed
in its Communication dated 22 January 2019 from the Panel to the parties concerning the Panel's terms of
reference, the applicability of Article 4 of the SCM Agreement, and the statement of available evidence,
(Annex D-2), annex A, at the date of access stated therein. On 19 July 2019, the United States submitted
versions of these documents as Exhibits USA-74 to USA-84. On 26 July 2019, India submitted a replacement
version of Exhibit USA-84 (Exhibit IND-23).

(5 December 2017)" (the Highlights); and (b) an accompanying press release entitled "Release of
the Mid -Term Review of Foreign Trade Policy 2015 -2020 – Annual Incentives Increased by 2%
amounting to over Rs 8,000 crore for Labour Intensive/MSME sectors (5 December 2017)" (the
Press Release).134
7.87. India argues that this statement falls short of the requirements of Article 4.2 of the
SCM Agreement.135 Specifically, India argues that the statement (a) includes no evidence of the
character of the measure as a subsidy 136; (b) "reproduces a verbatim list" of the legal instruments
cited in the request for consultations 137; and (c) provides no "basis for the[] identified
programmes/schemes providing a subsidy" beca use it does "not indicate any specific chapter or
paragraph" of the cited legal instruments. 138 In addition, India considers that the lack of
"substantive difference" between the request for consultations and the panel request is further
evidence of the Unit ed States' failure to appreciate the substantive standard in Article 4.2 of the
SCM Agreement.139
7.88. The United States responds that India confuses evidence with arguments. 140 Article 4.2
requires a statement of the former, not the latter. 141 The United States considers that it has
demonstrated in its first written submission that the cited evidence "is indeed evidence regarding
the existence and nature of the subsid[y] in questi on".142 Specifically, the statement "identified
twenty-five separate legal instruments that gave the United States reason to believe that there are
five Indian export subsidy programs that are inconsistent with Articles 3.1(a) and 3.2 of the
SCM Agreement", and that "are the primary evidentiary basis for the U.S. claims".143
7.89. We now turn to consider the items in the statement of available evidence in light of the legal
standard and the arguments of the parties.
7.90. Item No. 1 in the statement of available evidence consists of the Highlights of the
Foreign Trade Policy (FTP) mid-term review, issued by the Government of India in
December 2017.144 This document describes some of the changes made to the FTP as part of the
mid-term review, and refers in particular to the first, second, and third schemes 145 listed in the

134 Request for consultations, p. 4 (statement of available evidence). SAE Item 1 and SAE Item 2 in
Communication dated 15 July 2019 from the Panel to the parties relating to the keeping of the record of the
Panel. The Panel located these documents
at: https://www.eoimadrid.gov.in/archives/documents/whatsnews/fthl17-051217.pdf and
http://pib.nic.in/newsite/PrintRelease.aspx?relid=174117, respectively (both accessed on 28 November 2018).
The first of the two links has since stopped working, and the corresponding document can now be accessed at:
https://www.eoimadrid.gov.in/pdf/fthl17-051217.pdf (accessed on 24 June 2019).
With a communication dated 15 July 2019, the Panel transmitted to the parties the electronic files it
downloaded on 28 November 2018 from the first two web pages listed above. On 19 July 2019, the
United States submitted these documents as Exhibits USA-85 and USA-86.
135 India's first written submission, paras. 16-18. India also expressed concerns that the request for
consultations failed to meet the requirements of the SCM Agreement (and of the DSU) at the DSB meeting at
which the Panel was established. DSB, Minutes of the meeting held on 28 May 2018, WT/DSB/M/413,
para. 7.3.
136 India's first written submission, paras. 96 and 100. See also India's opening statement at the
meeting of the Panel, paras. 33-34; and closing statement at the meeting of the Panel, para. 7.
137 India's first written submission, paras. 95 and 97. See also India's response to Panel question
No. 26, fourth para.
138 India's first written submission, para. 101. See also India's responses to Panel question No. 26,
139 India's first written submission, paras. 102-103. See also India's opening statement at the meeting
of the Panel, para. 35.
140 United States' second written submission, paras. 41-43.
141 United States' second written submission, paras. 42-43 (referring to Panel Report, Australia –
Automotive Leather II, para. 9.18).
143 United States' second written submission, para. 44.
144 See fn 134 above.
145 These are sometimes referred to as "programmes" and sometimes as "schemes". The two terms are
used interchangeably in this context. In the body of this report, we have chosen to refer to them only as
"schemes". We note however that in our Communication dated 22 January 2019 from the Panel to the parties
concerning the Panel's terms of reference, the applicability of Article 4 of the SCM Agreement, and the
statement of available evidence, (Annex D-2), we used the term "programme". The same considerations also
apply to the fourth and fifth schemes, discussed further below.

request for consultations, i.e. the EOU and Sector-Specific Schemes, MEIS, and the EPCG Scheme,
respectively.
7.91. Regarding MEIS, the Highlights note that it "is a major export promotion scheme which
seeks to promote export of notified goods manufactured/produced in India"; that "MEIS incentives
are available at 2, 3, 4 and 5% of the [free on board] value of exports"; and that incentives in
two textiles sub-sectors, as well as "for exports by MSMEs / labour inten sive industries" have been
increased, involving additional outlays of "Rs. 2743 Crore" and "Rs. 4567 Crore", respectively. 146
It further notes that the validity of scrips under MEIS has been extended by six months and the
tax rate for their transfer reduced to zero147; and more generally that the "[s]cope and incentives
as a percentage of exports under … MEIS … [have been] enhanced". 148 Regarding the EOU and
Sector-Specific Schemes, MEIS and EPCG Scheme, the Highlights state that these are
"continued".149
7.92. Item No. 2 in the statement of available evidence is a press release that accompanied the
release of the FTP mid -term review. This press release explains, among other things, that "[t]he
FTP will focus on exports from labour intensive and MSME sectors by way of increased incentives in
order to increase employment opportunities" 150, and that "[w]hile restoring the benefits under the
export promotion schemes of duty free imports under Advanced Authorisation, Export Promotion
Capital Goods and 100 percent Export Oriented Units … the FTP review has focused on increasing
the incentives for labour intensive MSME sectors" .151 It then goes on to describe, like the
Highlights, the specific increases in the rate of incentives and the resulting additional outlays, as
well as providing a breakdown by sector of some of the resulting incentives.152
7.93. Item No. 3 in the statement of available evidence is the FTP, which is the same as
Instrument No. 1 in the request for consultations and in the panel request.153
7.94. Chapter 6 of Item No. 3 relates to the EOU and Sector -Specific Schemes. Section 6.00 of
the FTP describes the units that may benefit from these schemes, as follows: "[u]nits undertaking
to export their entire production of goods and services (except permissible sales in DTA [domestic
tariff area])". Sections 6.01, 6.11, and 6.12 set forth exemptions from duties and taxes for import
or procurement of goods, as well as other entitlements of units under the EOU and Sector -Specific
Schemes.
7.95. Chapter 3 of Item No. 3 relates to MEIS. Section 3 .02 of the FTP, on "Nature of Rewards",
explains that "[d]uty credit scrips shall be granted as rewards under MEIS" and "shall be freely
transferable", and goes on to describe the three types of uses to which these duty scrips can be
put, i.e. payment of c ustoms duties on certain goods, payment of excise on certain goods, and
payment of certain other dues such as for shortfalls in export obligation. Section 3.04 of the FTP,
on "Entitlement under MEIS", explains that "[e]xports of [certain goods to certain m arkets] shall
be rewarded under MEIS"; that the "basis of calculation of reward" is "FOB value of exports"; and
that certain "exports categories / sectors" are ineligible. The relevant goods and markets for
purposes of Section 3.04 are set out in Item No. 8 of the statement of available evidence
(Instrument No. 7 in the request for consultations and the panel request), as amended by Items
No. 9-16 (Instruments No. 8-15 in the request for consultations and the panel request).
7.96. Chapter 5 of Item No. 3 relates to the EPCG Scheme. Section 5.01 of the FTP explains that
this scheme: "allows import of capital goods … at zero customs duty"; allows for exemption from
certain other taxes; and in some cases allows for advantages also in connection with the
procurement of capital goods "from indigenous sources". Section 5.01 also provides that "[i]mport
under EPCG Scheme shall be subject to an export obligation". Section 5.04 sets out the conditions

146 Highlights, p. 4.
147 Highlights, p. 5.
148 Highlights, p. 12.
149 Highlights, p. 13.
150 Press Release, p. 1.
151 Press Release, p. 1.
152 Press Release, p. 2.
153 See fn 133 above, and Communication dated 22 January 2019 from the Panel to the parties
concerning the Panel's terms of reference, the applicability of Article 4 of the SCM Agreement, and the
statement of available evidence, (Annex D-2), paras. 2.27-2.36, 2.56-2.59, and 2.69-2.70.

applying to the fulfilment of this export obligation. As a general rule, it provides that the export
obligation "shall be fulfilled by the authorisation holder through export of goods which are
manufactured by him or his supporting manufacturer / services rendered by him, for which the
EPCG authorization has been granted". 154 It further provides that the export obligation "shall be,
over and above, the average level of exports achieved by the applicant in the preceding three
licensing years for the same and similar products within the overall [export obligation] period",
with some exceptions.155
7.97. Items Nos. 4-20, which correspond to Instruments Nos. 2-5, 7-15, and 17-20 in the request
for consultations and in the panel request 156, set out details for the operation of the EOU and
Sector-Specific Schemes, MEIS and EPCG Scheme, amendments to those schemes and, in the case
of MEIS, the goods and markets of export that give rise to rewards under the scheme.
7.98. Items Nos. 21-26, which correspond to Instruments Nos. 21-26 in the request for
consultations and in the panel request, relate to the fo urth scheme listed in the request for
consultations, i.e. the SEZ Scheme. In particular, Chapter VI of Item No. 21 (the Special Economic
Zones Act (SEZ Act)) sets out "Special fiscal provisions for special economic zones", applying to
developers and entrep reneurs for "authorised operations" under the Act. 157 It provides for
exemptions from customs duties and other taxes that would otherwise be due under the
1962 Customs Act, the 1975 Customs Tariff Act , the 1944 Central Excise Act, the 1985 Central
Excise Tariff Act, the 1956 Central Sales Tax Act , and other legislation.158 It further provides that
the 1961 Income Tax Act applies to developers and entrepreneurs for authorised operations
"subject to … modifications" set out in Item No. 21, that is, it provides that special rules on income
tax apply to Special Economic Zones 159; these provisions are also reflected in Item No. 26, the
1961 Income Tax Act.
7.99. Item No. 22 (the Special Economic Zones Rules (SEZ Rules)) details the conditions subject
to which entrepreneurs and developers are entitled to exemptions, drawbacks, and concessions.
Among other conditions, it requires "positive net foreign exchange earning" as a condition for
approving a Unit in an SEZ 160, and as a commitment that every developer and en trepreneur must
undertake to be entitled to exemptions, drawbacks, and concessions. 161 In extreme summary, the
positive net foreign exchange (NFE) earning requires the free on board (FOB) value of exports to
exceed the cost insurance freight (CIF) value of imports during specified time periods; Item No. 22
provides a detailed definition of this requirement.162
7.100. Items Nos. 23 and 24 are amendments to Item No. 22. Item No. 25 provides that all
goods or services imported by a developer or entrepreneur in an SEZ are exempt from the
integrated tax that would otherwise be due on them under the 1975 Customs Tariff Act.
7.101. Item No. 27 relates to the fifth scheme listed in the request for consultations, i.e. DFIS.
Specifically, it is the only legal instrument listed in the r equest for consultations as reflecting that
scheme. It sets forth exemptions from or reductions to customs duties on the importation of
certain goods, subject to certain conditions.163
7.102. The United States' request for consultations singled out nine conditions , as did,
subsequently, the panel request. These nine conditions provide that the value of the imports

154 Subsection 5.04(a) of the Foreign Trade Policy, (Exhibit USA-3).
155 Subsection 5.04(b) of the FTP.
156 See fn 133 above and Communication dated 22 January 2019 from the Panel to the parties
concerning the Panel's terms of reference, the applicability of Article 4 of the SCM Agreement, and the
statement of available evidence, (Annex D-2), paras. 2.37, 2.60, 2.71 (for Instrument No. 2), 2.38-2.39, 2.61,
2.72 (for Instrument No. 3), 2.40, 2.62, 2.73 (for Instruments Nos. 4 and 5), 2.63 (for Instruments
Nos. 7-15), 2.74 (for Instrument No. 17), 2.75 (for Instrument No. 18), 2.76 (for Instrument No. 19),
and 2.77 (for Instrument No. 20).
157 Subsection 26(1)(a) of the Special Economic Zones Act, (Exhibit USA-22).
158 Section 26 of the SEZ Act.
159 Section 27 and Second Schedule of the SEZ Act.
160 Subsection 18(2)(i) of the Special Economic Zones Rules, (Exhibit USA-28).
161 Rule 22(1)(i) of the SEZ Rules.
162 Rule 53 of the SEZ Rules.
163 Notification No. 50/2017, (Exhibit USA-36), p. 1.

benefiting from the duty exemptions or reductions is capped at a certain percentage (ranging
from 1% to 25%, depending on the condition) of the value of exports during the preceding
financial year.164 Six of these nine conditions also require that the imported goods be used in the
manufacture of goods for export.165
7.103. We now turn to the question whether the list of items just described is a "statement of
available evidence with regard to the existence and nature of the subsidy in question", in light of
India's arguments.166 To recall, India's first argument is that the request for consultations includes
no evidence of the character of the measure as a subsidy, as is required by Article 4.2 of the
SCM Agreement.167
7.104. As set out above, the items listed in the statement of available evidence describe, at
least: an exemption from taxes, or the granting by the government of freely transferable "scrips"
to be used to satisf y certain liabilities; and conditions for obtaining these exemptions and scrips,
which, in each case, include some requirement to export. Most of the listed items are legislation or
implementing regulations promulgated by India.
7.105. In this way, the listed items evidence the possible existence of a foregoing of government
revenue, and of the government's granting of instruments, called "scrips", that can be used to
satisfy liabilities vis-à-vis the government. Further, since the liste d items provide for
(a) exemptions from otherwise applicable duties and taxes; and (b) transferable instruments that
may be used to satisfy obligations to pay customs duties, excise, and other dues, they also
evidence the possible existence of a benefit, a nd thus a possible subsidy within the meaning of
Article 1 of the SCM Agreement.168 This evidence therefore relates not only to the existence of the
possible subsidy but also to its nature as a subsidy.
7.106. Moreover, because they set out conditions for benefiti ng from the tax exemptions or from
the award of scrips that include requirements to export, the listed items also evidence the possible
export contingency of the measures in question, within the meaning of Article 3.1(a) of the
SCM Agreement. This evidence therefore relates also to the nature of the possible subsidy as a
prohibited export subsidy.
7.107. As a result, we consider that the statement indicates available evidence both of the
existence of the possible subsidies and of their nature as possible subsidie s and, indeed, as
possible export -contingent subsidies. We therefore disagree with India's position that the
statement of available evidence relates to the existence of the measure but not to its character as
a subsidy.169
7.108. We now turn to consider India's second argument, namely, that the statement is
insufficient because it reproduces "verbatim" the list of legal instruments provided to satisfy the
requirement to identify the measures under Article 4.4 of the DSU.170
7.109. As India argues, the requirements in Artic le 4.2 of the SCM Agreement are additional to
those in Article 4.4 of the DSU, and not satisfied by compliance with the latter requirements. 171
In this case, 25 of the 27 items of evidence in the statement of available evidence are legal

164 Communication dated 22 January 2019 from the Panel to the parties concerning the Panel's terms of
reference, the applicability of Article 4 of the SCM Agreement, and the statement of available evidence,
(Annex D-2), paras. 2.104-2.107.
165 These are Conditions Nos. 10, 21, 28, 32, 33, and 101. (Communication dated 22 January 2019 from
the Panel to the parties concerning the Panel's terms of reference, the applicability of Article 4 of the
SCM Agreement, and the statement of available evidence, (Annex D-2), paras. 2.104-2.107).
166 India's objections to the statement of available evidence do not appear to relate to existence: see
e.g. India's first written submission, para. 96 ("merely demonstrating the existence of a measure … does not
satisfy the mandate to evidence 'character'").
167 See para. 7.87 above; and India's first written submission, paras. 96 and 100.
168 The Panel refers to a "possible" subsidy because whether the challenged measures are ultimately
found to be a subsidy is a different and further enquiry.
169 See para. 7.87 above; and India's first written submission, paras. 96 and 100.
170 India's first written submission, para. 97. See also para. 7.87 above; and first written submission,
para. 95.
171 India's first written submission, para. 95; Appellate Body Report, US – Upland Cotton, para. 302.

instruments cited in the United States' request for consultations to identify the measures.
The United States argues that these legal instruments "are the primary evidentiary basis for
the U.S. claims"172, and the Panel has ascertained, as set out above, that these legal instru ments
are evidence relating both to the existence and nature of the measures as subsidies.
7.110. This factual situation raises the question whether the near-identity between the request for
consultations and the statement of available evidence included in it de monstrates, in itself, the
insufficiency of the statement of available evidence.
7.111. Article 4.2 of the SCM Agreement requires a request for consultations to "include a
statement of available evidence with regard to the existence and nature of the subsidy in
question". As has been repeatedly found, this requirement is different from, and additional to, the
requirement to identify the measures at issue and give an indication of the legal basis of the
complaint, set out in Article 4.4 of the DSU. This however me ans that both sets of requirements
must be satisfied; it does not necessarily mean that the same item cannot, in any case, serve both
to identify the measure at issue and to provide evidence of the existence and nature of a subsidy.
In this dispute, as noted above, the listed items appear to satisfy the requirements of Article 4.2 of
the SCM Agreement.173 The fact that the same items also serve to identify the challenged
measures, in itself, does not render insufficient the statement of available evidence.
7.112. India's third argument is that the statement of available evidence is insufficient because it
does "not indicate any specific chapter or paragraph which would result in a violation of the
SCM Agreement", which is an "implicit failure to offer any … basis [f or] the existence of a possible
subsidy".174 The United States responds that India confuses evidence with arguments.175
7.113. Pursuant to Article 4.2 of the SCM Agreement, the complainant must "state" the
"evidence" it has available as to the existence and nature o f the challenged subsidy. This did not
require the complainant in this case to indicate the "specific chapter or paragraph" of the cited
items of evidence. The complainant stated the evidence it was relying on, so as to meet the
requirements of Article 4.2. Moreover, the body of the text of the request for consultations, which
precedes and introduces the text of the statement of available evidence, provided sufficient
information to put the respondent on notice as to which aspects of the legal instruments c ited as
evidence are relevant to this dispute.176
7.114. As examples of how the cited legal instruments fail to provide evidence of the existence
and nature of the challenged subsidies, India refers to (a) the Income Tax Act (Item No. 26),
(b) Items Nos. 21 to 24, and (c) Items Nos. 1 to 6.177
7.115. Regarding the Income Tax Act, India argues that "when read alone, [it does] not even
vaguely indicate that [it] refer[s] to prohibited subsidies", and that the United States "has failed"
"to demonstrate how the Indian Income Tax Act may be characterized as a subsidy".178
7.116. First, we disagree with India that the Income Tax Act must be "read alone". The 1961
Income Tax Act, which is listed in the statement of available evidence, appears in the context of a
request for consultations where the same Income Tax Act is cited with reference to a specific
scheme, namely, Special Economic Zones, and together with a number of related instruments. 179

172 United States' second written submission, para. 44.
173 Perhaps unsurprisingly, given the largely de jure nature of the challenge.
174 India's first written submission, para. 101. See also India's response to Panel question No. 27,
first para. ("at the very least, the statement of available evidence must have included specific provisions within
the legislation that are relevant to the characterization of the measure as a prohibited subsidy").
175 United States' second written submission, paras. 41-43.
176 As India acknowledges, the text of the request for consultations is almost identical to the text of the
panel request. (India's first written submission, para. 102). With reference to the panel request, which is
identical in relevant part to the request for consultations, see Communication dated 22 January 2019 from the
Panel to the parties concerning the Panel's terms of reference, the applicability of Article 4 of the
SCM Agreement, and the statement of available evidence, (Annex D-2), paras. 2.41, 2.64, 2.78, 2.91,
and 2.109.
177 India's response to Panel question No. 26, fifth and sixth paras.
178 India's response to Panel question No. 26, fifth para.
179 Consultations request, p. 3.

Among these legal instruments, the SEZ Act, which establishes the scheme in question, provides
that the Income Tax Act "shall apply … subject to the modifications specified in the Second
Schedule".180 Further, the Second Schedule lists the "Modifications to the Income -Tax Act, 1961",
i.e. the provisions of the Income Tax Act that are added or modified by the SEZ Act.181 Therefore,
the 1961 Income Tax Act is far from having to be "read alone".
7.117. Second, regarding India's argument that the United States "has failed" "to demonstrate
how the Indian Income Tax Act may be characterized as a subsidy" 182, we recall that the
requirement is to provide a statement of the evidence, not "disclosure of arguments". 183 We note
that the provisions on special economic zones in the 1961 Income Tax Act, identified in the Second
Schedule of the SEZ Act, relate to tax exemptions and deductions, and some explicitly provide that
the exemption or deduction in question relates to "export". 184 Thus, together with the other listed
items, they give "reason to believe" 185 that a subsidy exists, has the character of a subsidy, and
indeed has the character of a prohibited subsidy.186
7.118. Regarding Items Nos. 21 to 24, India argues that they do "not indicate that they refer to
subsidies".187 However, Items Nos. 21 to 24 provide for the establishment and operation of
Special Economic Zones and set out , inter alia, special fiscal provisions for such zones; conditions
under which participants are entitled to exemptions, drawbacks, and concessions; and rules on the
NFE earnings requirement. 188 Thus, India's view that these Items do not "refer to subsidies"
appears to be grounded in India's position on the merits of the present case, rather than in an
assessment of Items Nos. 21 to 24 from the perspective of Article 4.2 of the SCM Agreement.
7.119. Regarding Items Nos. 1 to 6, India argues that "cited randomly with no reference to
specific provisions within the legislation or the specific program being challenged also fail to meet
the higher threshold in Article 4.2 of the SCM Agreement".189 Once again, these items are neither
"cited randomly" nor "with no reference to … the specific program being challenged". Instead, in
the body of the request for consultations, Items Nos. 3 to 6 are listed with reference to the EOU
and Sector-Specific Schemes, MEIS, and EPCG Scheme; and Items Nos. 3 and 5 contain a chapter
expressly devoted to each of those schemes, setting out the bulk of the relevant provisions
governing those schemes, including provisions giving reason to believe that India grants subsidies
that are export contingent.190
7.120. Therefore, the Panel does not agree with Indi a's arguments that, by listing these items,
the complainant failed to state evidence of the existence of the challenged subsidies and of their
nature as subsidies.
7.121. India's fourth and last argument is that "[a]dditionally … there is no substantive differen ce
between the 'Request for Consultation' … and the Request for the Establishment of Panel". 191

180 Section 27 of the SEZ Act.
181 Second Schedule of the SEZ Act. See also Communication dated 22 January 2019 from the Panel to
the parties concerning the Panel's terms of reference, the applicability of Article 4 of the SCM Agreement, and
the statement of available evidence, (Annex D-2), para. 2.89 and fn 146.
182 India's response to Panel question No. 26, fifth para.
183 See para. 7.83 above.
184 Income Tax Act, Section 10AA, accessed at the link set out in Communication dated 22 January 2019
from the Panel to the parties concerning the Panel's terms of reference, the applicability of Article 4 of the
SCM Agreement, and the statement of available evidence, (Annex D-2), annex A, Instrument No. 26.
See fn 133 above.
185 See para. 7.82 above.
186 See also paras. 7.104-7.106 above.
187 India's response to Panel question No. 26, sixth para.
188 See also paras. 7.98-7.100 above, and Communication dated 22 January 2019 from the Panel to the
parties concerning the Panel's terms of reference, the applicability of Article 4 of the SCM Agreement, and the
statement of available evidence, (Annex D-2), paras. 2.83-2.86.
189 India's response to Panel question No. 26, sixth para.
190 See paras. 7.93-7.97 above. On Items Nos. 1 and 2, see paras. 7.90-7.92 above. Item No. 6 (on
which see also para. 7.97 above), which corresponds to Instrument No. 4 in the request for consultations and
in the panel request, is a one-page document setting forth changes to appendix 6-B to the FTP, which relates
to the EOU/EHTP/BTP Schemes.

According to India, this is evidence that the complainant also disregarded the difference in
substantive standards between Article 4.2 of the SCM Agreement and Article 6.2 of the DSU.192
7.122. It is true that "precise and exact identity" between the request for consultations and the
panel request is not required193, and that there is often an evolution between the former and latter
documents. However, nothing prevents compl ainants from presenting a panel request that is
identical to their request for consultations, provided that each of these two documents meets the
requirements set out in Articles 4.4 and 6.2 of the DSU and other applicable provisions.
7.123. Thus, to sum up, a re view of the statement of available evidence indicates that the
statement of available evidence is sufficient to meet the requirements of Article 4.2 of the
SCM Agreement, because it "state[s] … available evidence with regard to the existence and nature
of the subsidy in question" 194; and India's arguments considered so far have not established
otherwise.
7.124. In the context of the substantive meeting with the parties, the Panel asked the
United States to articulate how each item in its statement of available evid ence related to the
existence of the alleged subsidy or its nature as a subsidy, and to point to the relevant provisions
or paragraphs of the listed items.195 The Panel then gave India the opportunity to comment on the
United States' response at the hearing and in writing.
7.125. While the Panel has based its assessment of the sufficiency of the statement of available
evidence on the statement itself, as contained in the United States' request for consultations, the
Panel notes that the United States' response to t he Panel's question, too, illustrates that the
25 legal instruments cited in the statement, themselves, provide evidence "with regard to the
existence and nature of the subsidy in question" 196, because the language of those legal
instruments gives reason to believe that a subsidy exists, has the character of a subsidy, and is
export contingent.197
7.126. In its comments on the United States' response, India asserts, first, that the provisions
cited by the United States support India's argument that the challenged sch emes fall under
footnote 1 of the SCM Agreement.198 The Panel considers this to be a substantive argument
regarding the merits of the dispute, and not an argument on the sufficiency of the statement of
available evidence under Article 4.2 of the SCM Agreement.
7.127. Second, India argues that the United States has failed to engage with the nature of the
legal instruments in question and, as an example, India writes that "the United States has not
even acknowledged that [Item No. 12] notifies ITC codes that were not included in the harmonised
list".199 This comment bears no relevance on the assessment under Article 4.2 of the
SCM Agreement. The document in question makes amendments to the list of goods the export of
which gives rise to rewards under MEIS200; observing, or not, that these amendments relate to the
Indian Tariff Code (ITC) classification of the products says nothing on the sufficiency of the
statement of available evidence in this dispute.
7.128. Third, India argues that the United States has selectively or incorre ctly quoted portions of
the listed evidence. As an example, India refers to Item No. 22 (the SEZ Rules), for which the
United States has listed, among others, Rule 9 of the SEZ Rules; India observes that Rule 9
pertains to exemptions provided to SEZ develo pers, and that the United States clarified in the
course of the hearing that it is only challenging financial contributions provided to SEZ Units (not
developers).201 India's factual observation is correct; however, it does not render the statement of

192 India's first written submission, paras. 102-103.
193 Appellate Body Report, Brazil – Aircraft, para. 132.
194 Article 4.2 of the SCM Agreement.
195 Advance Panel question No. I, and Panel question No. 25.
196 Article 4.2 of the SCM Agreement.
197 United States' response to Panel question No. 25, appendix 1. The United States first provided
appendix 1 in the course of the oral hearing.
198 India's comments on the United States' response to Panel question No. 25, first para.
199 India's comments on the United States' response to Panel question No. 25, second para.
200 In fact, the United States notes this in its response to Panel question No. 25, appendix 1.
201 India's comments on the United States' response to Panel question No. 25, third and fourth paras.

available evidence insufficient. The United States' listing of provisions from Item No. 22, in answer
to the Panel's question, is prefaced with the phrase "[n]on -exhaustive excerpts of interest to a
subsidy analysis include", and then lists the Rule referred to by India, together with other Rules
whose substantive relevance to the United States' challenge India does not contest.202 It is correct
that in response to questioning from the Panel at the hearing and after the hearing, the
United States clarified that it is not challenging financial contributions granted to
SEZ developers.203 This means that the United States included in its response to the Panel
question a provision that it has ultimately chosen to exclude from its challenge; but it does not
mean that the s tatement of available evidence was not sufficient under Article 4.2 of the
SCM Agreement to sustain that portion of its challenge that the United States ultimately pursued.
7.129. Therefore, the exchanges with and between the parties in answer to Panel question N o. 25
do not modify the Panel's preliminary conclusions in paragraphs 7.107 and 7.123 above, that the
statement of available evidence included in the request for consultations was sufficient.
7.130. We therefore conclude that the statement of available evidence met the requirements of
Article 4.2 of the SCM Agreement.
7.5 The measures at issue
7.131. Having found that Article 27 of the SCM Agreement no longer excludes the challenged
measures from the application of Articles 3.1(a) and 4 of the SCM Agreement, and that the
United States' statement of available evidence met the requirements of Article 4.2 of the
SCM Agreement, we proceed to examine the United States' claims of inconsistency with
Articles 3.1(a) and 3.2 of the SCM Agreement. As an introduction to that analysis, this section
provides a brief description of each of the measures at issue.204
7.5.1 Export Oriented Units and Sector-Specific Schemes
The EOU/EHTP/BTP Schemes are three schemes for which India's FTP and Handbook of
procedures (HBP) set forth common disciplines, including conditions for participating in the
schemes and a range of "entitlements" 205 granted to participating enterprises
("EOU/EHTP/BTP Units", or "Units"). Two of these entitlements are at issue in this dispute. First,
EOU/EHTP/BTP Units can import goods without payment of any customs duty. 206 This exemption
from customs duties applies to "all types of goods" 207 required for the Units' activities, expressly
including capital goods. 208 Second, EOU/EHTP/BTP Units can procure excisable goods 209 free of
central excise duties.210

202 United States' response to Panel question No. 25, appendix 1, pp. 46-47.
203 United States' response to Panel questions Nos. 74-76, paras. 119-121.
204 We also refer to our overview of the relevant legal instruments in Communication dated
22 January 2019 from the Panel to the parties concerning the Panel's terms of reference, the applicability of
Article 4 of the SCM Agreement, and the statement of available evidence, (Annex D-2), paras. 2.27-2.40 (for
the EOU/EHTP/BTP Schemes), 2.56-2.63 (for MEIS), 2.68-2.77 (for the EPCG Scheme), 2.83-2.89 (for the
SEZ Scheme), and 2.101-2.107 (for DFIS).
205 Sections 6.01, 6.11 and 6.12 of the FTP, (Exhibit USA-3). Exhibit USA-3 contains two versions of
the FTP. The first part of Exhibit USA-3 contains excerpts from the FTP in force as of 5 December 2017; the
second part of Exhibit USA-3 contains the full version of the Foreign Trade Policy before it was amended in
December 2017, i.e. an outdated version of the FTP.
206 Section 6.01(d)(ii) of the FTP. Importation includes importation from abroad and procurement from
bonded warehouses in the Domestic Tariff Areas (DTA) in India or international exhibitions held in India.
(Idem). The FTP defines "Domestic Tariff Area (DTA)" to mean the "area within India which is outside SEZs and
EOU/EHTP/STP/BTP" (definition 9.16 in chapter 9 of the FTP).
207 Section 6.01(d)(i) of the FTP.
208 Section 6.01(d)(i) of the FTP. Section 6.04 of the Handbook of procedures, (Exhibit USA-5), sets
forth a non-exhaustive list of "[g]oods permitted to be imported / procured from DTA" under the
EOU/EHTP/BTP Schemes, which includes items such as raw materials, components, capital goods (including
certain equipment and tools), and "[a]ny other items" upon approval. A definition of "[c]apital goods" is set
forth in definition 9.08 of Chapter 9 of the FTP.
209 On the current scope of "excisable goods", see para. 7.229 below.
210 Section 6.01(d)(iii) of the FTP.

Units must commit "to export their entire production of goods and services" 211, subject to
certain limited exceptions. 212 Further, each Unit must be a positive NFE earner 213, a requirement
which is met when a Unit's total value of exports exceeds its total value of imports.214
The schemes set forth provisions to monitor compliance with the NFE requirement. 215
Failure to ensure posi tive NFE or to abide by other obligations under the schemes may result in
sanctions, including penalties, penal action and the cancellation of the status of an enterprise as
an EOU/EHTP/BTP Unit.216
The stated objectives of the EOU/EHTP/BTP Schemes are "to p romote exports, enhance
foreign exchange earnings, attract investment for export production and employment
generation".217
7.5.2 Export Promotion Capital Goods Scheme
The EPCG Scheme exempts participants 218, upon authorisation, from paying customs
duties219 on the importation of capital goods.220
Importation under the EPCG Scheme is subject to two export obligations. First, over a
six-year period, a scheme participant must achieve exports of the goods specified in the EPCG
authorization equalling at least six times the duties, taxes, and cess 221 saved on capital goods. 222
This is referred to as the "specific export obligation".223
Second, with limited exceptions 224, a scheme participant must maintain exports of those
same goods above the average level of its exports of the same or similar products during the
three-year period preceding the EPCG authorization. 225 This is referred to as the "average export
obligation".226

211 Section 6.00(a) of the FTP; see also Appendices and Aayat Niryat forms, (Exhibit USA-6),
appendix 6D, para. (i).
212 Section 6.08 of the FTP.
213 Section 6.04 of the FTP; Section 6.10(a) of the HBP; Second Schedule of the SEZ Act; and
Appendices and Aayat Niryat forms, (Exhibit USA-6), appendix 6D, para. (ii) and appendix 6E, para. 1.
214 The details concerning the calculation of NFE, including the calculation formula and relevant
definitions, are set out in Section 6.10(a) of the HBP, and are addressed in our discussion of export
contingency (section 7.10.2).
215 Section 6.20 of the FTP; Section 6.12 of the HBP; and Appendices and Aayat Niryat forms,
(Exhibit USA-6), appendix 6E, para. 2 and appendix 6F.
216 Sections 6.05(c) and 6.18(b) of the FTP; Appendices and Aayat Niryat forms, (Exhibit USA-6),
appendix 6D, paras. (ii) and (ix), appendix 6F, para. 3(ii), and appendix 6E, para. 7.
217 Section 6.00(b) of the FTP.
218 Participation is open to "manufacturer exporters with or without supporting manufacturer(s),
merchant exporters tied to supporting manufacturer(s) and service providers". (Section 5.02(a) of the FTP).
219 The Scheme also used to set forth exemptions from the Integrated Goods & Services Tax (IGST) and
Compensation Cess. (Section 5.01(a) of the FTP; India's first written submission, para. 296). These
exemptions appear to have expired on 31 March 2018 and are not part of our analysis and findings, see fn 373
below.
220 Sections 5.01(a) and 5.04(a) of the FTP. Capital goods for purposes of the EPCG Scheme are, per
Section 5.01(i) of the FTP, those defined as capital goods in Chapter 9 of the FTP and certain items specified in
Section 5.01(a)(ii)-(iv).
Alternatively, if exporters pay for duties and other charges on import of capital goods upfront and in full
in cash, they receive freely transferable duty credit scrips ("Post Export EPCG Duty Credit Scrips") remitting
the basic customs duty. (Section 5.12 of the FTP). These scrips are not at issue in this dispute.
221 In India, "cess" designates a tax that is levied to raise funds for a specific purpose. The Education
Cess, for instance, collects funds to finance educational institutions. (United States' first written submission,
fn 119).
222 Section 5.01(c) of the FTP; Section 5.14(a) of the HBP.
223 E.g. Section 5.09 of the FTP.
224 Section 5.13 of the HBP.
225 Section 5.04(b) of the FTP; Section 5.12 of the HBP; and India's responses to Panel questions
Nos. 51 and 52.
226 E.g. Section 5.09 of the FTP; India's response to Panel question No. 53.

The scheme provides an "incentive for early … fulfilment" of these export obligations: when
"75% or more of the spe cific export obligation and 100% of Average Export Obligation till date"
are met within half of the required period, the "remaining export obligation shall be condoned".227
As part of the process to apply for EPCG authorisation, applicants must provide a
certification by a chartered engineer of the "nexus" between the capital goods to be imported and
the manufacture of products for export 228, certifying that the capital goods in question are
"required" to manufacture specified "export product(s)".229
Once authori sation is granted, participants' compliance with their export obligations is
subject to regular monitoring. 230 Half of the specific export obligation must be fulfilled during the
first four years 231, failing which an enterprise must pay customs duties correspo nding to the
unfulfilled export obligation.232 Failure to meet the export obligations or to comply with any other
applicable requirements may result in penal action.233
The stated objectives of the EPCG Scheme are to "facilitate import of capital goods for
producing quality goods and services and enhance India's manufacturing competitiveness".234
7.5.3 Special Economic Zones Scheme
India's SEZ Act and SEZ Rules, as amended 235, are the two main legal instruments setting
forth the framework for the SEZ Scheme. The SEZ Act "provide[s] for the establishment,
development and management of the Special Economic Zones for the promotion of exports and for
matters connected therewith or incidental thereto". 236 Among other things, the SEZ Act and
SEZ Rules regulate the bodies charged with approving and administering SEZs, and set forth the
procedures for establishing SEZs, provisions on the operation of SEZs, special fiscal provisions for
SEZs, and the conditions applying to those special provisions.
India has submitted that an SEZ is a "distinct"237 "geographical region which provides for
more liberal economic measures to be applicable to the Unit s set up within it, as compared to the
rest of India".238 Further, India has pointed out that the SEZ Act defines the "domestic tariff area"
(DTA) as the whole of India excluding SEZs, and that "export" for purposes of the SEZ Act includes
not only "the taking of goods … out of India, from a[n SEZ]" and the supp ly of goods between
different Units 239 within an SEZ, but also the supply of goods from the DTA to a Unit or
developer240 within an SEZ.241
Of the special fiscal provisions applying to SEZs 242, the following are at issue in this
dispute:

227 Section 5.09 of the FTP.
228 Section 5.03(a) of the HBP.
229 Appendices and Aayat Niryat forms, (Exhibit USA-6), appendix 5A ("Format of Chartered Engineer
Certificate for Nexus under EPCG Scheme"). Similarly, the authorization holder must submit a certificate from
the customs authority or a chartered engineer confirming the installation of the imported capital good at the
premises of the authorization holder. (Section 5.04(a) of the HBP).
230 Section 5.15 of the HBP.
231 Section 5.14(a) of the HBP.
232 Section 5.14(c) of the HBP.
233 Section 5.26 of the HBP.
234 Section 5.00 of the FTP.
235 SEZ Rules, (Exhibit USA-28), incorporating amendments to the SEZ Rules up to July 2010.
Subsequent amendments were made to the SEZ Rules on 19 September 2018, (Exhibit USA-60), and on
8 March 2019.
236 Preamble of the SEZ Act.
238 India's first written submission, para. 326; request for review, para. 23. See also Annex A-2,
paras. 3.2-3.4.
239 See para. 7.149 below, defining SEZ "Units".
240 See para. 7.147 below, defining SEZ "developers".
241 India's first written submission, para. 326; request for review, para. 23. Sections 2(i) and 2(m) of
the SEZ Act. See also Annex A-2, paras. 3.2-3.4.
242 Set forth in the SEZ Act, SEZ Rules and elsewhere: e.g. fn 244 below.

a. the exemption of "every Developer and … entrepreneur" from customs duties on imports
into, and exports from, "a Special Economic Zone or a Unit"243;
b. the exemption of "all goods … imported by a unit or a developer in the Special Economic
Zone" from India's Integrated Goods and Services Tax (IGST)244; and
c. the deduction, from the corporate income tax base of an entrepreneur, of the export
earnings of the entrepreneur's SEZ Unit.245
7.146. These provisions refer to "developers", "entrepreneurs", and "Units", which are the
principal economic actors setting up, and operating within, SEZs.
7.147. A "developer" is a person or state government that has been granted a letter of approval
to set up an SEZ246: developers set up SEZs and develop and maintain their infrastructure.247
7.148. An "entrepreneur" is a person who has been granted a letter of approval to set up a Unit
and undertake the operations authorized by that letter of approval 248: entrepreneurs thus set up
Units, and manufacture goods and render services through the Unit.249
7.149. A "Unit" is defined, somewhat circ ularly, as "a Unit set up by an entrepreneur in a Special
Economic Zone".250 Units are central to the operation of SEZs, because the manufacturing of goods
and rendering of services in SEZs (except those incidental to setting up the SEZ itself) take place
within the Units.251
7.150. As will be elaborated further in discussing export contingency, Units are required in
particular to achieve a positive NFE. 252 Under the SEZ Scheme, NFE is the difference between, on
the one hand, FOB value of exports, plus a number of cert ain other eligible "supplies", and, on the
other hand, CIF value of imports, plus the value of goods obtained from certain other sources. 253
Compliance with the positive NFE requirement is subject to monitoring 254, and a Unit's failure to
meet the requirement makes the entrepreneur "liable for penal action" and leads to cancellation of
the Unit's approval.255
7.151. Regarding the scheme's objectives, as noted at the outset, the preamble of the SEZ Act
refers to "the promotion of exports and … matters connected therewith or incidental thereto". 256
At the same time, India emphasizes that "the objective of the SEZ Scheme cannot be reduced to
the promotion of exports": instead, India explains that the SEZ Act aims to achieve the "overall

243 Chapeau in Section 26(1), Sections 26(1)(a) (for imports) and 26(1)(b) (for exports) of the SEZ Act.
244 Notification No. 15/2017, (Exhibit USA-27). The United States has described IGST as a multi-stage
value added tax, with a rate ranging from 0.25% to 28%. (United States' first written submission, para. 116).
India has not contested the United States' description of IGST. See also the Integrated Goods and Services Tax
Act, (Exhibits USA-32 and IND-14).
245 Second Schedule of the SEZ Act.
246 Subsections 2(g), 3(2)-3(4) and 3(10) of the SEZ Act. Developers and co-developers develop and
maintain the necessary infrastructure for an SEZ, but do not engage in any export activity. (India's response to
Panel question No. 74).
247 India's response to Panel question No. 74, p. 58.
248 Subsections 2(j) and 15(9) of the SEZ Act.
249 India's response to Panel question No. 75, p. 58.
250 Subsection 2(zc) of the SEZ Act.
251 India's responses to Panel questions Nos. 74-75, p. 58. The United States' challenge only relates to
the tax exemptions and deductions in question as they relate to Units. Thus, it does not extend to benefits
provided to developers to set up or maintain the SEZs. (United States' response to Panel question No. 74,
para. 119.)
252 Rule 53 of the SEZ Rules.
253 Rule 53 of the SEZ Rules.
254 Rules 22(3) and 54(1) and Form I of the SEZ Rules.
255 Form G of the SEZ Rules, setting out the letter of approval to be issued pursuant to Rule 19 of the
SEZ Rules.
256 Preamble of the SEZ Act.

economic development of areas within it s territorial control[, which] is crucial to the sovereign
functions of a country".257
7.152. India refers, in particular, to Section 5 of the SEZ Act, which sets forth the considerations
that must guide "[t]he Central Government" in discharging its functions under the Act. These
considerations are: the "generation of additional economic activity", the "promotion of exports",
the "promotion of investment", the "creation of employment opportunities", the "development of
infrastructure facilities", and the "maintenance of sovereignty and integrity of India, the security of
the State and friendly relations with foreign States".258
7.5.4 Duty-Free Imports for Exporters Scheme
7.153. We found that the panel request identified, as a measure, alleged export subsidies
provided under Conditions 10, 21, 28, 32, 33, 36, 60, 61, and 101 of Notification No. 50/2017.259
These are the caps on the rate of import duty set out in line items 104, 229, 288, 312, 313, 327,
430, 431, and 612, respectively, of Notification No. 50/2017.260
7.154. The United States refers to these as the duty-free imports for exporters scheme (DFIS).261
According to India, this measure is not a cohesive scheme, but just "a grouping of individual duty
stipulations".262 Indeed, we note that the nine stipulations at issue are nine individual line items,
with their respective Conditions, scattered among more than 600 other customs duty stipulations
in Notification No. 50/ 2017, and they do not appear to coalesce into a cohesive scheme.
Nonetheless, India, too, refers to this measure as DFIS 263, and we, too, will refer to the nine duty
stipulations that we have found to fall within our terms of reference as "DFIS".
7.155. Each of these nine duty stipulations provides that the import duty for specified goods is
capped at zero ("nil"), provided that the corresponding Condition is met.
7.156. The following table lists the challenged line item capping the import duty at zero, and the
corresponding duty-exempt goods and Condition number.

257 India's first written submission, para. 322.
258 Section 5 of the SEZ Act.
259 Communication dated 22 January 2019 from the Panel to the parties concerning the Panel's terms of
reference, the applicability of Article 4 of the SCM Agreement, and the statement of available evidence,
(Annex D-2), para. 2.109.
260 Communication dated 22 January 2019 from the Panel to the parties concerning the Panel's terms of
reference, the applicability of Article 4 of the SCM Agreement, and the statement of available evidence,
(Annex D-2), paras. 2.104-2.107 and fns 165 and 171-173; Notification No. 50/2017, (Exhibit USA-36);
Excerpts from Notification No. 50/2017, (Exhibit USA-38); and United States' first written submission,
para. 146.
261 E.g. United States' first written submission, para. 140; panel request, p. 3 ("duty-free imports for
exporters program").
262 India's first written submission, para. 382; second written submission, para. 191. See also
e.g. Council for Leather Exporters Guidelines, (Exhibit IND-11).

Table 1: Line items and Conditions in Notification No. 50/2017 challenged by the
United States264
Line item Duty-exempt goods265 Condition
104 36 items, or groups of items, used in the processing of sea -food,
such as breadcrumbs, flavouring oil, food colours, citric acid, and
milk protein
10
229 27 items, or groups of items, for use in the manufacture of
handicrafts, such as electric parts, hinges, animal hair materials
for brushes, glass sheet, air and electric operated screw driver
with hose and couplings, and moisture measuring tools
21
288 Lining and inter-lining materials for use in the manufacture of
textile or leather garments
28
312 42 items, or groups of items, for use in the manufacture of
leather or synthetic footwear or other leather products, such as
buckles, buttons and snap fasteners, elastic tape, lining,
adhesives, heels, and fittings
32
313 18 items, or groups of items, for use in the manufacture of
handloom, cotton or man -made made-ups, such as lace, elastic
tape, tassel, and sewing threads
33
327 Samples of hand knotted carpets 36
430266 125 items, or groups of items, for use in the manufacture of
commodities in the pharmaceutical and biotechnology sector,
such as cell cultivation devices, low temperature freezers,
spectrophotometers, centrifuges, x -ray diffraction equipment,
automated sampling devices, and gas generators
60(ii)
431 119 items, or groups of items, for research and development in
the agro -chemical sector, such as analytical balances,
anemometers, centrifuges, dry ice makers, health monitoring
equipment, and incubators
61
612 21 items, or groups of items, for use in the manufacture of
sports goods, such as butyl bladders for inflatable balls, cork
bottoms, table tennis rubber, and stitching thread for inflatable
balls or sports gloves
101

7.157. Conditions 10, 21, 28, 32, 33, and 101 require the duty -exempt goods to be imported for
use in the manufacture of specified final products for export. Further, they require that the value
of the duty-exempt imported goods not exceed a certain percentage, ranging from 1% to 5%, of
the FOB value of exports of those same final products during the preceding financial year.
7.158. In contrast, Conditions 36, 60(ii), and 61 do not contain a requirement that duty -exempt
goods be used for manufacture in export production. However, similar to the other six conditions
just described, they do peg the value of qualifying imports to past exports. Specifically,
Condition 36 requires that the total value of duty-exempt imports of samples of carpets not exceed
1% of the FOB value of carpets exported during the previous financial year; whereas Conditions
60(ii) and 61 require that the value of duty -exempt goods not exceed 25% and 1%, respectively,
of the FOB value "of exports" during the preceding financial year.

264 United States' first written submission, para. 146; Notification No. 50/2017, (Exhibit USA-36); and
Excerpts from Notification No. 50/2017, (Exhibit USA-38).
265 Enumerated in the respective line item or in the relevant List in the Annexure to
Notification No. 50/2017, (Exhibit USA-36).
266 Line item 430 includes two components, subject to Conditions 60(i) and 60(ii), respectively. The
first exempts from duties goods imported for research and development purposes, subject to fulfilling
Condition 60(i), which does not – unlike other conditions – limit the imports that can benefit from duty-free
treatment to a certain percentage of past exports. The United States clarified that its challenge does not
extend to this first component of line item 430 (United States' comments on India's response to Panel question
No. 80, para. 158), which we therefore do not address.

7.159. All nine conditions also require the importer to p roduce a certificate from the competent
export promotion council or, in the case of Conditions 60(ii) and 61, from the Joint Director
General of Foreign Trade, stating (a) the value of relevant exports during the preceding financial
year, and (b) the value of goods already imported under Notification No. 50/2017 during the
current financial year.
7.160. Thus, for most of these duty stipulations, the competent export promotion council is given
an important role, satisfying itself as to the accuracy of the data on past exports and on imports
made under Notification No. 50/2017 and, on that basis, issuing the certificates that are necessary
in order to benefit from zero customs duties under DFIS. 267 In at least one c ase, the competent
export promotion council requires the manufacturer -exporter to certify that the imported items
"will not be put to any other use or sold in the market except in the manufacture of Leather
Garments for exports", and that it "understand[s] fully that any violation of … Notification …
No. 50/2017 … shall be construed as malpractice" and results in liability "to penal and/or any other
action" under applicable legislation.268
7.5.5 Merchandise Exports from India Scheme
MEIS provides a "reward" for "exports of notified goods/products … to notified markets".269
This reward consists of "Duty Credit Scrips", which are paper -based notes that can be used to pay
for (i) basic and additional customs duties on the importation of goods 270, (ii) central excise duties
on domestically procured goods 271, and (iii) certain other charges and fees owed to the
Government, such as basic and additional customs duties owed as a consequence of failing to fulfil
one's export obligations under other schemes.272 Scrips are "freely transferable".273
The value of the scrips that a recipient is entitled to is calculated by multiplying the
FOB value of the recipient's exports of a particular ("notified") good to a particular ("notified")
destination country market with the applicable "rate(s) of reward" assigned to that good and
market.274
"Notified" goods and markets as well as the applicable reward rates are set out in
Appendix 3B to the FTP. 275 This Appendix divides export destination countries into three "country
groups".276 It then lists the covered "notified" goods, indicating, for each notified good, the
"MEIS reward rate" applying to exports of the good in question to each of the three countr y
groups.277 For each covered product, it therefore indicates three rates, the choice between the
three being determined by the country to which the exports giving rise to the reward were made.
Depending on the product and destination country, the reward rates range from 0% to 5%.
The stated objectives of MEIS are "to provide rewards to exporters to offset infrastructural
inefficiencies and associated costs" 278, and specifically "to promote the manufacture and export of
notified goods/products".279

267 Notification No. 50/2017, (Exhibit USA-36), Conditions 10, 21, 28, 32, 33, 36, and 101;
India's first written submission, para. 390; second written submission, paras. 191-194; opening statement at
the meeting of the Panel, para. 110; and Council for Leather Exporters Guidelines, (Exhibit IND-11).
268 Council for Leather Exporters Guidelines, (Exhibit IND-11), Annexure III, "Specimen of affidavit to be
submitted by manufacturer-exporter of leather garments or merchant exporter tied-up with manufacturer
exporter for import of lining and interlining materials in terms of serial No. 288 of Customs Notification (Tariff)
No. 50/2017 dated 30.06.2017".
269 Section 3.04 of the FTP.
270 Section 3.02(i) of the FTP.
271 Section 3.02(ii) of the FTP.
272 Sections 3.02(iv) and 3.18 of the FTP.
273 Section 3.02 of the FTP.
274 Section 3.04 of the FTP.
275 Public Notice 2/2015-2020, (Exhibit USA-11), Appendix 3B.
276 Public Notice 2/2015-2020, (Exhibit USA-11), Appendix 3B, table 1.
277 Public Notice 2/2015-2020, (Exhibit USA-11), Appendix 3B, table 2.
278 Section 3.00 of the FTP.
279 Section 3.03 of the FTP.

7.6 Footnote 1 of the SCM Agreement
7.165. The United States challenges the five sets of measures described in the previous section as
prohibited export subsidies under the SCM Agreement. India argues, however, that four of those
sets of measures (i.e. those under the EOU/EHTP/BTP Schemes, the EPCG Scheme, DFIS, and
MEIS) must be deemed not to be a subsidy, because they meet the conditions of footnote 1 of the
SCM Agreement.280
7.166. We therefore begin by examining whether these four sets of challenged measures meet
the conditions of footnote 1. We first set out the applicable legal standard (section 7.6.1); we then
apply it, in turn, to each of the four sets of measures in question, namely, certain exemptions
under the EOU/EHTP/BTP Schemes (section 7.6.2), the EPCG Scheme (section 7.6.3), and
DFIS (section 7.6.4), and the provision of scrips under MEIS (section 7.6.5).
7.6.1 The applicable legal standard under footnote 1
7.167. Footnote 1 of the SCM Agreement, appended to Article 1, provides that certain measures
"shall not be deemed to be a subsidy".
7.168. The footnote has two main parts. The first clause of the footnote directs the i nterpreter to
read the remainder of the footnote "[i]n accordance with the provisions of" the Note to Article XVI
of the GATT 1994 281 and of Annexes I to III of the SCM Agreement. The second part of the
footnote describes the two groups of measures that "sha ll not be deemed to be a subsidy",
provided they are also in accordance with the Note to Article XVI and Annexes I to III.
7.169. These two groups of measures are (a) "the exemption of an exported product from the
duties or taxes borne by the like product when de stined for domestic consumption"; and (b) "the
remission of such duties or taxes in amounts not in excess of those which have accrued". 282 We
understand the difference between these two groups of measures to be that, in the case of
exemptions, the duty or tax liability never arises283, whereas, in the case of remissions, the liability
first arises, but is later remitted284, including by returning the payment if one was already made.285
7.170. Thus, the description of these two groups of measures in footnote 1 contains four
definitional elements, namely, there must be (1) an exemption or remission (2) of duties or taxes
(3) on an exported product, (4) not in excess of the duties and taxes which have accrued.286

280 Regarding the remaining set of measures, i.e. the alleged subsidies under the SEZ Scheme, see
fn 303 below.
281 The language of footnote 1 includes the full text of the Note.
282 Footnote 1 of the SCM Agreement. (emphasis added)
283 The ordinary meaning of "exemption" includes "[t]he action of exempting, or the state of being
exempted (see exempt v. 4) from a liability, obligation, penalty, law, or authority" and, in turn, the ordinary
meaning of the verb "exempt" includes "[t]o grant to (a person, etc.) immunity or freedom from a liability to
which others are subject: a. from (the payment of) a fine, tax, etc". (Oxford Dictionaries online, definition of
"exemption", n., meaning 2.a, https://www.oed.com/view/Entry/66070?redirectedFrom=exemption#eid
(accessed 7 June 2019), and "exempt", v., meaning 4.a,
https://www.oed.com/view/Entry/66066?rskey=p32DCg&result=2&isAdvanced=false#eid (accessed
5 June 2019)).
284 The ordinary meaning of "remission" includes "[r]elease from the obligation of a debt or payment",
and "[t]he cancellation or reduction of a debt, payment, etc.". (Oxford Dictionaries online, definition of
"remission", n., meanings 3.a, 4.a., https://www.oed.com/view/Entry/162216?redirectedFrom=remission#eid
(accessed 7 June 2019)).
285 The Panel in EU – PET (Pakistan) did not find there to be a need, in that case, to precisely demarcate
the line between the two categories of measures covered by the footnote, observing:
Although the two situations described in footnote 1 may be related, we see no reason why the
issues at stake in this dispute cannot be effectively resolved with particular reference to the
second.
(Panel Report, EU – PET (Pakistan), fn 93.)
As noted in fn 286 below, Annexes I(g), I(h), and I(i), together with the definitions in footnote 58, do
not emphasize the distinction between the two categories of measures.
286 In footnote 1, the "not in excess" language appears only in the clause relating to remissions, and it is
indeed difficult to conceive of an exemption from more than what one would be liable for in the absence of the

7.171. Footnote 1 also provides that the footnote must be r ead in accordance with the Note to
Article XVI of the GATT 1994 and Annexes I to III of the SCM Agreement. As has already been
observed, "the words 'in accordance with' in footnote 1 may be understood as implying that
footnote 1 is to be read 'in agreement', 'in conformity', or 'in harmony ' with all of the provisions
referred to therein".287 That is, footnote 1, the Ad Note, and the Annexes must be read together.
7.172. The text of the Note to Article XVI is repeated in its entirety in footnote 1 itself. Therefore,
the cross-reference to that provision does not add to the text of the footnote; however, it reminds
the interpreter that Article XVI of the GATT 1994 forms part of the context of footnote 1.
7.173. Annex I contains the illustrative list of export subsidies. Items (g), (h), and (i) list, as
export subsidies, the exemption, remission, deferral, or drawback of certain indirect taxes and
import charges on exported products, in certain defined circumstances. 288 Because footnote 1
must be read in accordance with Annex I, a measure falling within the definition of any of items
(g), (h), or (i) would not benefit from the shelter of footnote 1.
7.174. Thus, item (g) identifies as a prohibited export subsidy:
The exemption or remission, in respect of the production and distribution of exported
products, of indirect taxes in excess of those levied in respect of the production and
distribution of like products when sold for domestic consumption.289
7.175. As a result, to meet the conditions of footnote 1, any exemption or remission of "indirect
taxes" "in respect of the production and distribution of exported products" must not be "in excess
of those levied in respect of the production and distribution of like products when sold for domestic
consumption", as it would otherwise not be "in accordance with" Annex I(g).
7.176. Turning to item (h) , this identifies as a prohibited export subsidy the exemption,
remission, or deferral of prior -stage cumulative indirect taxes on goods and services used in the
production of exported products, when the same is in excess of the exemption, remission or
deferral of "like … taxes" on goods and services used in the production of like products destined for
domestic consumption. As a result, such an exemption would not benefit from the shelter of
footnote 1, because it would not be "in accordance with" Annex I(h).
7.177. At the same time, Annex I(h) carves out from that prohibited export subsidy the situation
in which the "exemption, remission or deferral" relates to "prior -stage cumulative indirect taxes …
levied on inputs tha t are consumed in the production of the exported product (making normal
allowance for waste)".290 As a result, an exemption, remission, or deferral that complies with this
condition, and is otherwise in accordance with footnote 1, is not deemed to be a subsidy.
7.178. Similarly, under footnote 1 read together with Annex I(i), for a "remission or drawback"
(which "includes … exemption or deferral" 291) of import charges to benefit from the shelter of
footnote 1, such remission or drawback must not be "in excess of [import charges] levied on
imported inputs that are consumed in the production of the exported product".292
7.179. Further, footnote 58, which is appended to each of Annexes I(g), I(h), and I(i), elaborates
on the scope of the terms "remission", and "remission or drawback", as well as providing
definitions for the types of duties and taxes referred to in Annexes I(g), I(h), and I(i). When

exemption. At the same time, Annexes I(g), I(h), and I(i), invoked by India in this dispute, set out clauses that
refer to two or more of exemptions, remissions, deferrals and drawbacks, together; further footnote 58
explains that "'[r]emission' of taxes includes the refund or rebate of taxes", and "'[r]emission or
drawback' includes the full or partial exemption or deferral of import charges"; in line with this, while noting
the distinction between exemptions and remissions, we do not emphasize it further in this outline of the legal
standard.
287 Appellate Body Report, EU – PET (Pakistan), para. 5.105.
288 Items (e) and (f), which have not been invoked in this case, relate instead to the exemption or
remission of direct taxes and deductions from the base from which to calculate such taxes.
289 Fn omitted.
290 Annex I(h) of the SCM Agreement. (emphasis added)
291 Footnote 58 of the SCM Agreement.
292 Annex I(i) of the SCM Agreement. (emphasis added)

Annexes I(g), I(h), and I(i) are read together with footnote 58, each of these covers both
remissions and exemptions.293
7.180. Thus, to summarize, when footnote 1 is read together with Annexes I(g), I(h), and I(i),
each of these paragraphs of Annex I first identifies the nature of the remission or exemption at
issue294, and then sets fo rth a requirement that the remission or exemption not exceed the
benchmark set out in the item in question.
7.181. Next, footnote 1 must also be read "in accordance with" Annex II to the SCM Agreement.
Annex II sets forth "Guidelines on Consumption of Inputs in the Production Process". As Annex II
itself recalls, both items (h) and (i) in Annex I refer to "inputs that are consumed in the production
of the exported product" 295, and the Guidelines in Annex II relate to the examination, for that
purpose, of "whether inputs are consumed in the production of the exported product".296
7.182. Part II of these Guidelines is expressly directed at this examination "as part of a
countervailing duty investigation".297 This, however, does not make Annex II irrelevant outside the
context of countervailing duty investigations. While some of the provisions in this Annex (such as
those envisaging that the investigating authority carry out "certain practical tests") are not directly
applicable outside the context of countervailing duty investig ations, Annex II helps inform the
understanding of footnote 1 also beyond the context of countervailing duty investigations.
7.183. Footnote 61, appended to Annex II, defines "inputs that are consumed in the production of
the exported product", providing that:
Inputs consumed in the production process are inputs physically incorporated, energy,
fuels and oil used in the production process and catalysts which are consumed in the
course of their use to obtain the exported product.298
7.184. Annex II(II)(3) provides further g uidance on the interpretation of this phrase, by
stipulating that:
Investigating authorities should treat inputs as physically incorporated if such inputs
are used in the production process and are physically present in the product exported.
The Members note that an input need not be present in the final product in the same
form in which it entered the production process.299
7.185. Finally, footnote 1 refers to Annex III to the SCM Agreement. Annex III sets forth
guidelines for the examination of "substitution drawb ack systems", which are a particular type of
drawback system envisaged in Annex I(i). While the present dispute does not concern the issue of
substitution drawback systems, Annex III, too, informs the understanding of footnote 1 of the
SCM Agreement.300
7.186. In reading footnote 1 together with the provisions of the Annexes that are directly relevant
in this case, we therefore identify four steps for our analysis of whether the measures in question
meet the conditions of footnote 1. We summarize these steps in the table below.

293 In light of footnote 58, Annex I(g) includes the exemption, remission, refund, or rebate of indirect
taxes; Annex I(h) includes the exemption, remission, deferral, refund, or rebate of prior-stage cumulative
indirect taxes; and Annex I(i) includes the remission, drawback, exemption, or deferral of import charges.
294 It does so through elements that are parallel to those we have identified as elements 1 to 3 in
para. 7.170 above. In particular, each of Annexes I(g), I(h), and I(i) identifies the type of duties or taxes
concerned (which we have referred to as element 2) and clarifies the required relationship to the exported
product (which we have referred to as element 3).
295 Annex II(I)(2) of the SCM Agreement.
296 Chapeau of Annex II(II) of the SCM Agreement.
297 Chapeau of Annex II(II) of the SCM Agreement.
298 Emphasis added.
299 Emphasis added.
300 Appellate Body Report, EU – PET (Pakistan), para. 5.111 and fn 246.

Table 2: Steps in the Panel's analysis under footnote 1 and Annexes I(g), I(h), and I(i)
 Footnote 1 Annex I(g) Annex I(h) Annex I(i)
(1) Exemption or
remission
Exemption or remission,
including (footnote 58)
refund or rebate
Exemption, remission,
or deferral, including
(footnote 58) refund or
rebate
Remission or drawback,
including (footnote 58)
full or partial exemption
or deferral
(2) of duties or taxes of indirect taxes (defined
in footnote 58)
of prior-stage
cumulative indirect
taxes
(defined in footnote 58)
of import charges
(defined in footnote 58)
(3) on an exported
product
in respect of the
production and
distribution of exported
products
on inputs that are
consumed in the
production of the
exported product
(defined in footnote 61;
see also Annex II)
on imported inputs that
are consumed in the
production of the
exported product
(defined in footnote 61;
see also Annex II)
(4) not in excess of
the duties and
taxes which have
accrued
not in excess of those
levied in respect of the
production and
distribution of like
products when sold for
domestic consumption
(not in excess of those)
levied on those inputs301
not in excess of those
levied on those inputs
(or on substitute inputs
in case of substitution
drawback, on which see
Annex III)302
7.187. As with any framework for analysis, we are mindful that these steps are not isolated from
each other, and that each measure must be viewed as a whole in assessing its consistency with
footnote 1.
7.188. With this in mind, we now turn to examine whether the four measures at issue meet the
conditions of footnote 1, read together with the relevant Annexes to the SCM Agreement. To recall,
if they do, they are "not … deemed to be a subsidy".303
7.6.2 Whether the Export Oriented Un its and Sector-Specific Schemes meet the
conditions of footnote 1
7.189. India argues that the exemptions from customs and excise duties under the
EOU/EHTP/BTP Schemes meet the conditions of footnote 1 of the SCM Agreement.304 Specifically,

301 Annex II(I)(2) describes this requirement as not "in excess of the amount of such taxes actually
levied on inputs that are consumed in the production of the exported product".
302 Annex II(I)(2) describes this requirement as not "in excess of those actually levied on inputs that are
consumed in the production of the exported product".
303 Thus, when all the relevant conditions are met, footnote 1 excludes a measure from the definition of
a subsidy, and therefore from the application of the prohibition on export subsidies in Article 3 of the
SCM Agreement. It therefore acts, vis-à-vis Article 3, as an excluding provision. We have discussed excluding
provisions in paras. 7.7-7.12 above. We allocate the burdens under footnote 1 accordingly.
We note that for the SEZ Scheme, neither party has raised footnote 1 of the SCM Agreement. For this
scheme, India chose not to address at all the United States' arguments on the existence of a subsidy under
Article 1 (on the basis that the United States had not established export contingency), and did not raise
footnote 1 of the SCM Agreement in this context. India's first written submission, para. 329; second written
submission, paras. 187-189. In response to a question from the Panel, India confirmed its choice not to
address the question of the existence of a subsidy; in response to another question, India "accept[ed] its
burden of raising footnote 1." India's responses to Panel questions Nos. 64 and 90. In these circumstances, the
Panel does not consider it appropriate to examine the applicability of footnote 1 to the SEZ Scheme.
304 We limit our examination to the exemptions from customs and excise duties under the
EOU/EHTP/BTP Schemes. In its first and second written submissions, the United States only articulated a
challenge with respect to these exemptions. (United States' first written submission, paras. 38, 40-41, 44, and
46; second written submission, paras. 79 and 92). It did not articulate a challenge in respect of the exemptions
from IGST and compensation cess, despite mentioning compensation cess in its introductory overview of the
measures. (United States' first written submission, para. 37). Only after its second written submission did the
United States refer also to the exemptions from IGST and compensation cess in its arguments on the merits.
(United States' opening statement at the meeting of the Panel, para. 10; response to Panel question No. 48,
paras. 75 and 77-78).

according to India, the exemption from customs duties meets the conditions of footnote 1 read
together with Annex I(i)305 or, alternatively, with Annex I(g).306 And the exemption from central
excise duties meets the conditions of footnote 1 read together with Annex I(h).307 We examine
these in turn.
7.6.2.1 Whether the customs dut y exemption meets the conditions of footnote 1 read
together with Annex I(i)
7.190. We begin by examining whether the exemption from customs duties meets the conditions
of footnote 1 read together with and Annex I(i) of the SCM Agreement.
7.191. We recall our discussion of the legal standard under footnote 1 and the relevant
Annexes in the previous section. In accordance with that discussion, to ascertain whether the
challenged customs duty exemption under the EOU/EHTP/ BPT Schemes is not "deemed to be a
subsidy" by virtue of footnote 1 together with Annex I(i), we will examine whether the exemption
constitutes:
(1) a remission, drawback, exemption or deferral;
(2) of import charges;
(3) on imported inputs that are consumed in the production of the exported product;
(4) not in excess of those levied on those inputs.308
7.192. It is not disputed that the customs duty exemption under the EOU/EHTP/BTP Schemes
constitutes (1) an exemption or remission309 (2) of import charges.310

We note that the Panel's Working Procedures and timetable envisaged a single substantive meeting,
after the filing of the first and second written submissions; and, as a result of this, the Panel's Working
Procedures required the parties to present the facts of the case and their arguments in their first written
submission. (Working Procedures (Annex A-1), para. 3(1)(a)). We further note that the United States
requested, and insisted on, proceedings with a single substantive meeting, or even with no substantive
meeting at all, despite India's opposition; and throughout the proceedings, the United States insisted that the
Panel hold a single substantive meeting. Considering all these circumstances together, we see no reason to
allow a departure from the requirement in the Panel's Working Procedures that each party articulate its prima
facie case in the first written submission, by allowing the United States to pursue new elements of the
challenged measures at the stage of the single substantive meeting, after the filing of both the first and
second written submissions. Further, pursuant to the revised FTP which came into force on 5 December 2017,
the exemption from IGST and compensation cess only applied through the end of March 2018.
(Section 6.01(d)(ii) of the FTP). For these reasons, we will not consider further the United States' arguments
concerning the exemptions from IGST and compensation cess.
305 India's first written submission, paras. 197-202 and 210-211; second written submission, para. 79;
and opening statement at the meeting of the Panel, para. 57.
306 India's first written submission, paras. 206-209.
307 India's first written submission, paras. 203-205; second written submission, para. 79; and opening
statement at the meeting of the Panel, para. 57.
308 Schemes meeting the first three conditions, but allowing for excess remission, have been found to be
a subsidy only to the extent of the excess remission. (Appellate Body Report, EU – PET (Pakistan),
para. 5.134).
309 In answering a question from the Panel, India described the schemes as providing for the remission
of, rather than exemption from, duties or taxes. (India's response to Panel question No. 46, first and
second para.). The Panel recalls its understanding that in the case of an exemption, the duty or tax liability
does not arise, whereas in the case of a remission, the liability first arises, but is later remitted, including by
returning the payment if one was already made. (See para. 7.169 above). Under the challenged schemes,
India itself has explained that importation is duty-free, and liability for the customs duties only arises if
ultimately the goods are sold in the domestic tariff area. (See e.g. India's second written submission,
para. 75). Therefore, the Panel considers that the schemes are properly characterized as providing for the
exemption from duties, rather than for the remission of duties.
310 The exemption is set forth in Section 6.01(d)(ii) of the HBP. The United States described the
exemption and the relevant import charges in its first written submission, paras. 37-40 and its response to
Panel question No. 48, para. 76. India's reliance on footnote 1 and Annex I(i) is premised on the position that
the relevant aspect of the EOU/EHTP/BTP Schemes sets out exemptions from import charges. (India's first

7.193. Regarding the third element set out above, India argues that the customs duty exemption
for goods imported under the EOU/EHTP/BTP Schemes is only available for "approved activities",
which are limited to the production of goods (or services) for export. Therefore, according to India,
the exemption is limited to inputs consumed in the production of exported products and thus
meets the conditions of footnote 1 read together with Annex I(i).311 India adds that in the limited
circumstances in which sales to the domestic tariff area are permitted, such sales "are subject to
payment of duties as well as reversal of customs duties", which are "aggregated on the basis of
[Standard Input Output Norms ] or other norms established by the Nor ms Committee, to ensure
that the amounts to be reversed are the amounts that were actually due".312
7.194. However, the United States argues that the schemes do not meet the third element set out
above. According to the United States, the EOU/EHTP/BTP Schemes are n ot at all designed to
ensure, and do not ensure, that the duty -free treatment is afforded only to inputs "consumed in
the export production process", as required by footnote 1 with Annex I(i).313
7.195. The United States articulates a number of ways in which, in i ts view, the
EOU/EHTP/BTP Schemes fail to limit the import duty exemption to inputs consumed in the
production of exported products. In particular, first, the United States argues that the schemes
make the exemption available for the importation of goods w hose very nature means that they do
not constitute inputs consumed in the production of products. According to the United States, this
is the case of capital goods 314 and of certain other goods named in the applicable legal
instruments.315 Second (and related to the previous point), the United States points out that the
schemes also make the exemption available for the importation of "any other items", with no
requirement that such items be inputs consumed in the production of exported products. 316 Third,
the sch emes also exempt from customs duties the importation of "certain specified goods for
creating a central facility"; according to the United States, this means that those goods are not
intended (and not required) to be consumed in the production of exported products.317
We examine these arguments, and India's response, in turn.318

written submission, paras. 197-202 and 210-211; second written submission, paras. 69-79; and opening
statement at the meeting of the Panel, paras. 51-57).
311 India's first written submission, para. 198; second written submission, para. 73; and responses to
Panel questions Nos. 43, 44, and 45, pp. 34-36.
312 India's second written submission, para. 75. See also e.g. opening statement at the meeting of the
Panel, paras. 53-57.
313 United States' second written submission, para. 82. See also ibid. paras. 67, 81-86, and 59; opening
statement at the meeting of the Panel, paras. 48 and 49; closing statement at the meeting of the Panel,
para. 3; response to Panel question No. 40, para. 57; and comments on India's response to Panel question
No. 43, para. 94.
314 United States' second written submission, paras. 83-86; response to Panel question No. 40, para. 57.
315 United States' response to Panel question No. 40, para. 57. See also response to Panel question
No. 39, para. 56.
316 United States' response to Panel question No. 40, para. 58; comments on India's response to Panel
question No. 43, para. 98.
317 United States' second written submission, para. 89; response to Panel question No. 40,
para. 59; comments on India's response to Panel question No. 43, para. 97; and Section 6.01(f) of the FTP.
The United States also argues that the requirement, in the schemes, that imported goods shall be
"utilized" for export production "is not equivalent to requiring them to be 'consumed in' the exported product".
(United States' response to Panel question No. 40, paras. 61 and 63; second written submission, paras. 82-86;
comments on India's response to Panel question No. 43, para. 95; and Section 6.01(d)(i) of the FTP). We do
not consider that WTO law prescribes the specific terminology that Members must use in implementing their
WTO obligations in domestic legal instruments. Therefore, we do not consider that the use of the word
"utilized" in the challenged schemes, in itself, demonstrates an inconsistency with footnote 1 read together
with Annex I(i).
318 We note that India also argues that the United States has failed to establish the fourth element, that
is, the existence and degree of an excess exemption. However, the United States explains that this response
from India misses the point, because "[b]efore reaching the question of whether a remission was in excess of
the import charges levied, one must first determine whether, as part of the drawback scheme, imported inputs
were consumed in the production of an exported product". (United States' second written submission,
para. 82). We agree with the United States that the question whether the duty-exempt goods are at all inputs
consumed in the production of the exported product (third element) is one that precedes the question of
excess remission (fourth element). We find, below, that the third element is not met.

7.6.2.1.1 The nature of certain goods covered by the exemptions
7.196. The parties disagree on whether a number of goods whose importation is exempt from
customs duties under the EOU/EHTP/BTP Schemes are inputs consumed in the production of an
exported product, in accordance with footnote 1 read together with Annex I(i).
7.197. The FTP provides that EOU/EHTP/BTP Units may import without payment of customs duties
"all types of goods, including capital goods, r equired for its activities" 319, and sets forth the
following definition of capital goods:
"Capital Goods" means any plant, machinery, equipment or accessories required for
manufacture or production, either directly or indirectly, of goods or for rendering
services, including those required for replacement, modernisation, technological
up-gradation or expansion. It includes packaging machinery and equipment,
refrigeration equipment, power generating sets, machine tools, equipment and
instruments for testing, research and development, quality and pollution control.320
7.198. The HBP contains a more detailed, non -exhaustive listing of goods "permitted to be
imported" (or procured from the domestic tariff area). 321 This list includes a large number of items
that the HBP itself labels as "capital goods", including for example diesel generator sets, captive
power plants, modular office furniture, and many others 322, as well as "[r]aw materials for making
capital goods for use within unit". 323 In addition, the list incl udes "other[]" items such as, for
example, prototypes, drawings, and office equipment including multi -line telephone systems, fax
machines, and servers.324
7.199. The SCM Agreement, at footnote 61, defines inputs consumed in the production process as
comprising three categories of goods, as follows:
Inputs consumed in the production process are [1] inputs physically incorporated,
[2] energy, fuels and oil used in the production process and [3] catalysts which are
consumed in the course of their use to obtain the exported product.325
7.200. The structure of the sentence, with the phrase "inputs consumed in the production
process", followed by the verb "are", followed in turn by the three categories of goods, conveys
that the three listed categories exhaust the scope of "inputs consumed in the production process".
7.201. As regards "inputs physically incorporated", Annex II(II)(3) further provides that
"[i]nvestigating authorities should treat inputs as physically incorporated if such inputs are used in
the production process and are physically present in the product exported", even in a different
form.
7.202. As defined in the legislation governing the EOU/EHTP/BTP Schemes, capital goods are
"plant, machinery, equipment or accessories", which are "required for manufacture or production,
either directly or indirectly". 326 These include, according to the same legislation, packaging

319 Section 6.01(d)(i) of the FTP.
320 Section 9.08 of the FTP.
321 Section 6.04 of the HBP.
322 Section 6.04(b) of the HBP. There is some divergence on whether certain goods are capital goods.
For example, the HBP lists office furniture as a capital good, whereas the United States has submitted that
office furniture is not a capital good. (Section 6.04(b) of the HBP; United States' response to Panel question
No. 39, para. 56). This divergent characterization extends to other items benefiting from duty exemptions,
such as security systems, projectors, and data transmission cables. (Section 6.04(b) of the HBP;
United States' responses to Panel questions Nos. 39-40, paras. 56-57). For purposes of WTO law, however, the
relevant question is not whether the goods are capital goods, but whether they are inputs consumed in the
production of the exported product.
323 Section 6.04(c) of the HBP.
324 Section 6.04(d) of the HBP.
325 Emphasis added.
326 See paras. 7.197-7.198 above. This definition is consistent with a widely shared notion of capital
goods as tangible and durable assets, such as buildings, machinery, equipment, vehicles and tools, used to
produce goods or services. For example, dictionary definitions include "the buildings, machines, and equipment

machinery, power generating sets, testing equipment, fork lifts, and many others. By their very
nature, these goods are not "physically incorporated" in the goods or services they are used to
produce, as envisaged in footnote 61, nor are they "physically present", even in a different form,
in the final product, as envisaged in Annex II(II)(3). Capital goods also do not fall under any of the
other listed categories in footnote 61, because they are not energy, fuels, oil, or catalysts.
7.203. Similarly, certain other items expressly listed in Section 6.04 of the HBP are not energy,
fuels, oil, or catalysts, and are also not of a nature as to be "physically incorporated" in the
product they are used to produce.327
7.204. On this basis, we reach the preliminary conclusion that capital goods as defined in the FTP,
and certain other goods the importation of which is free of customs duties under the
EOU/EHTP/BTP Schemes, are not "inputs consumed in the production of the exported product", for
purposes of Annex I(i). India however makes a number of contrary arguments, which we now turn
to consider.
7.205. Regarding capital goods, India argues that they fall within the definition of inputs
consumed in the production of the exported product, within the meaning of Annex I(i).328
7.206. First, India argues that imported capital goods are inputs within the meaning of Annex I(i)
because they "contribute to the cost of the final exported product".329 India notes that a duty
drawback scheme is meant to offset the cost impact of import duties on inputs incorporated in
exported products . According to India , since capital goods contribute to the final cost of the
exported product, capital goods must therefore fall within the meaning of inputs covered by
Annex I(i) with footnotes 1 and 61.
7.207. However, footnote 1 with Annex I(i) only allows for the exemption from customs duties on
"inputs that are consumed in the production of the exported product". Contributing to a
product's cost is not the same as being "consumed" in the production of that product. Indeed,
under the definition provided by f ootnote 61, whether goods are "consumed" does not depend on
whether they contribute to the cost of the final product.
7.208. Second, India notes that the EOU/EHTP/BTP Schemes set forth depreciation rates for
computers, computer peripherals, and other c apital goods. According to India, this shows that the
schemes "calculate[] the manner in which capital goods are 'physically incorporated ' in the
production process of exported products".330
7.209. Depreciation is an accounting method for allocating the cost of a tangible asset over its
useful life and accounts for the asset's decline in value.331 Depreciation rules reflect the notion that
capital goods are durable assets for repeated use in the production of other goods . The value of

that are used to produce products or provide services", and "economic goods (e.g. railways, ships, machinery,
buildings) destined for use in production (as opposed to consumers' goods)". (Cambridge dictionary online,
definition of "capital goods", https://dictionary.cambridge.org/us/dictionary/english/capital-goods (accessed
1 February 2019); Oxford English Dictionary online, definition of "capital goods" in capital, adj. and n., S3,
http://www.oed.com/view/Entry/27450?redirectedFrom=capital+goods#eid216882892 (accessed
16 April 2019) (emphasis original)).
327 E.g. "[r]aw materials for making capital goods for use within unit", and prototypes. See para. 7.198
above.
328 India's first written submission, para. 199; second written submission, paras. 49-55.
329 India's first written submission, para. 199.
330 India's first written submission, para. 201. See also ibid. para. 200; second written submission,
paras. 53-54 and 78; and Section 6.37 of the HBP.
331 Depreciation is defined as "the amount by which something, such as a piece of equipment, is reduced
in value in a company's financial accounts, over the period of time it has been in use. The loss in value reduces
a company's profits, and the amount of tax it must pay", and "fall in the market value of an (esp. durable)
asset, brought about by age, wear and tear, etc.; a conventional allowance made for this in balance sheets,
etc.". (Cambridge dictionary online, definition of "depreciation",
https://dictionary.cambridge.org/us/dictionary/english/depreciation (accessed 1 February 2019); Oxford
dictionary online, definition of "depreciation"
https://www.oed.com/view/Entry/50423?redirectedFrom=depreciation#eid (accessed 11 June 2019)).

capital goods decreases during their life cycle as reflected in the depreciation rates .332 However,
the fact that a good depreciates in value does not mean that it is "physically incor porated" into
another product, nor does the existence of depreciation rules evidence physical incorporation .
In fact, the very reason why depreciation rules are necessary is precisely that capital goods are
not consumed in the production process – i.e. the opposite of India's argument. We therefore
reject India's arguments based on the use of depreciation rules.
7.210. Third, India notes that footnote 61 of the SCM Agreement, which defines inputs consumed
in the production process, includes in that definition catalysts, which undergo no permanent
chemical change. According to India, it would therefore be "counter -intuitive" not to include in the
same definition capital goods, which depreciate over time and use.333
7.211. However, as noted above, footnote 61 sets forth an exhaustive definition of inputs
consumed in the production process, and not merely an illustrative list of such inputs. In setting
forth the three categories of goods that are "inputs consumed in the produ ction process", the
drafters explicitly chose to list catalysts in addition to inputs that are physically incorporated 334,
and not capital goods. 335, 336 Thus, the fact that catalysts are listed in footnote 61 does not
overcome the fact that capital goods are not.
7.212. Fourth, India argues that to establish that the duty-exempt goods are not inputs consumed
in the production of the exported product, the United States must provide "a technical, data-driven
analysis", in accordance with Annex II of the SCM Agreement.337 India has also argued that to
satisfy this burden, the United States must carry out a countervailing duty investigation. 338 India
presents this as a cross -cutting argument, pertaining to the legal interpretation of footnote 1 and
Annex II339, and therefore valid also for the EPCG Scheme, MEIS, and DFIS.340
7.213. Annex II sets out "guidelines on consumption of inputs in the production process", for
purposes of Annexes I(h) and I(i). As set out at para graphs 7.181-7.184, footnote 1 must be read
"in accordance with" Annex II.
7.214. However, India errs in the manner in which it seeks to rely on Annex II. First, the issue
before us is whether the goods that can be imported duty -free under the EOU/EHTP/BTP Schemes
are of a kind that can even qualify as inputs consumed in the production of an exported product.
That is, we are faced with the threshold question of whether footnote 1 applies to the schemes at
issue, and in particular with what we have described as the third element in the test under

332 For example, the depreciation rates for "other capital goods" in the EOU/EHTP/BTP Schemes
are: 4% for every quarter in first year, 3% for every quarter in second and third year, 2.5% for every quarter
in fourth and fifth year, 2% for every quarter thereafter. (Section 6.37(b) of the HBP).
333 India's second written submission, para. 54.
334 We note that contrary to India's argument, nothing in footnote 61 suggests that catalysts are
considered to be "physically incorporated" in the exported product.
335 The Tokyo Round precursors to Annexes I(i) and I(h) of the SCM Agreement referred to "goods that
are physically incorporated". During the Uruguay Round negotiations, proposals were made to replace the
"physical incorporation test" and include goods, inputs or "auxiliary materials" not physically incorporated, such
as capital goods, energy, and fuel. Ultimately, the drafters replaced the references in the Illustrative List to
goods "physically incorporated" with "inputs that are consumed in the production of the exported product", and
introduced footnote 61 to define "inputs consumed in the production process" as including not only physically
incorporated inputs but also energy, fuels, oil, and catalysts. They did not however include capital goods in this
definition.
336 In their arguments, India and the United States also point to the discussions among WTO Members
on the definition of "inputs consumed in the production process", including concerning the treatment of capital
goods. (India's second written submission, fns 7 and 52; United States' opening statement at the meeting of
the Panel, paras. 43-46). These discussions took place as part of the work on Implementation-Related Issues
and Concerns as well as in the context of the Negotiating Group on Rules. These discussions, however,
evidence the different points of view of various Members, and not the common understanding of WTO Members
concerning the inclusion of capital goods in the definition of "inputs consumed in the production process".
337 India's second written submission, para. 72. See also India's first written submission, paras. 131-134
and 201; second written submission, para. 39; opening statement at the meeting of the Panel, paras. 46-47;
and comments on the United States' response to Panel question No. 36, fifth para.
338 E.g. India's second written submission, para. 39; comments on the United States' response to Panel
question No. 36, fifth para.
339 E.g. India's first written submission, paras. 131-134.
340 Our observations in paras. 7.213-7.215 also apply to these three other schemes.

footnote 1. Instead, the "quantitative analysis of the amounts and prices of the inputs
consumed"341 proposed by India presupposes (through the reference to "inputs consumed") the
existence of a scheme that meets the first three elements of the test under footnote 1, and it
asks: is there excess remission and, if so, in what amount (fourth element)?
7.215. Second, Annex II(II) does not stand for the proposition, put forward by India, that "any
contention regarding whether or in what quantity inputs are 'consumed' … in a duty drawback …
scheme is to be examined by an investigating authority". 342 It is true that Pa rt II of Annex II is
expressly addressed to "investigating authorities" "as part of a countervailing duty
investigation".343 This provision could apply, therefore, in the context of a countervailing duty
investigation conducted pursuant to Part V of the SCM Agreement. However, this does not mean
that a complainant is obliged to carry out a countervailing duty investigation before it can
challenge a measure that might fall under Annex II. While footnote 35 of the SCM Agreement
makes it clear that the provisions of Part II and III "may" be invoked in parallel with the provisions
of Part V, there is no suggestion that Parts II and V must always be invoked in parallel.
7.216. Therefore, India has not rebutted the United States' showing that the
EOU/EHTP/BTP Schemes exem pt from customs duties inputs that are not consumed in the
production of the exported products, namely, capital goods and certain other goods listed in
Section 6.04 of the HBP that, like capital goods, are not energy, fuels and oil, catalysts, or inputs
physically incorporated in the exported product. Therefore, this duty exemption does not meet the
conditions of footnote 1 read together with Annex I(i) to the SCM Agreement.
7.6.2.1.2 "Any other items"
7.217. In addition, we recall that the schemes also allow the exemption from customs duties,
upon application, for the importation of "[a]ny other item[]" not expressly listed in Section 6.04 of
the HBP.344 The United States argues that this too evidences that the duty exemption is not limited
to inputs consumed in the productio n of exported products. 345 India responds that the competent
authority has the discretion to dismiss applications and the United States had not demonstrated
that it would not use that discretion to dismiss applications not meeting the requirements of
footnote 1.346
7.218. We have found that the FTP and HBP expressly provide for the duty -free importation of
items that do not qualify as inputs consumed in the production of an exported product, and we are
therefore not persuaded by India's response. We also note that th e letter of permission relied on
by India provides that "[i]mport/local purchase of all items except those listed in prohibited list for
import/export will be permitted". 347 As a result, we are not persuaded that under the challenged
schemes, the competent a uthority would dismiss applications that are not compliant with
footnote 1. Therefore, the schemes fail to meet the conditions of footnote 1 and Annex I(i) also to
the extent that the competent authority approves the duty-free importation of other items that are
not inputs consumed in the production of the exported product.
7.6.2.1.3 Goods imported "for creating a central facility"
7.219. The EOU/EHTP/BTP Schemes, under Section 6.01(f) of the FTP, also exempt from customs
duties the importation of "certain specified goods for creating a central facility". According to the

341 India's second written submission, para. 39.
342 India's second written submission, para. 39.
343 Chapeau of Annex II(II) of the SCM Agreement.
344 Section 6.04(f) of the HBP.
345 United States' response to Panel question No. 40, para. 58; comments on India's response to Panel
question No. 43, para. 98.
346 India's comments on United States' response to Panel question No. 40, first para. (referring to
Appendices and Aayat Niryat forms, (Exhibit USA-6), appendix 6D "Format for Letter of Permission").
347 Appendices and Aayat Niryat forms, (Exhibit USA-6), appendix 6D "Format for Letter of Permission".
India submitted copies of issued letters of permission for illustration. (Letter dated 16 March 2017 from
the GOI to an enterprise to be set up as EOU, (Exhibit IND-21)). These copies contain the same clause as
foreseen in the template letter. Neither the template, nor the actual letters indicate that "any other items"
under Section 6.04(f) may not pertain to goods other than "imported inputs that are consumed in the
production of the exported product".

United States, this provides further evidence that the schemes exempt from customs duties goods
other than inputs consumed in th e production of an exported product, and that therefore they do
not meet the conditions of footnote 1 read together with Annex I(i).348
7.220. We recall h owever that the United States only challenges the exemptions under
Section 6.01(d), and not the exemption set f orth in Section 6.01(f). 349 We therefore do not
consider this argument to be relevant to our analysis of the challenged exemptions.
7.6.2.2 Whether the customs dut y exemption meets the conditions of footnote 1 read
together with Annex I(g)
7.221. We now examine whether the challenged customs dut y exemption under the
EOU/EHTP/BTP Schemes meets the conditions of footnote 1 read together with Annex I(g).350
As set out above, we do so by ascertaining whether this measure constitutes (1) an exemption or
remission (2) of indirect taxes (3) in respect of the production and distribution of exported
products, (4) not in excess of those levied in respect of the production and distribution of like
products when sold for domestic consumption.351
7.222. Annex I(g) applies to exemptions or remissions of "indirect taxes". Footnote 58, appended
to Annex I(g), defines the term "indirect taxes" to "mean sales, excise, turnover, value added,
franchise, stamp, transfer, inventory and equipment taxes, border taxes and all taxes other than
direct taxes and import charges".352 Footnote 58 also defines the term "import charges" as "tariffs,
duties, and other fiscal charges not elsewhere enumerated in this note that are levied on imports".
Since customs duties thus fall within the definition of "import charges", footnote 58 makes it clear
that the customs duties from which the EOU/EHTP/BTP Schemes provide an exemption do not
constitute "indirect taxes" within the meaning of Annex I(g). Accordingly, the customs duty
exemption provided by the EOU/EHTP/BTP Schemes does not meet the conditions of footnote 1
read together with Annex I(g).
7.6.2.3 Whether the central excise dut y exemption meets the conditions of footnote 1
read together with Annex I(h)
7.223. We now examine whether the exemption from central excise duties unde r the
EOU/EHTP/BTP Schemes meets the conditions of footnote 1 read together with Annex I(h). We do
so by ascertaining whether this measure constitutes (1) an exemption, remission or deferral (2) of
prior-stage cumulative indirect taxes (3) on inputs that a re consumed in the production of the
exported product, (4) levied on those inputs.353
7.224. The United States does not contest that the central excise duty exemption meets the
first element set out above, i.e. it involves an exemption.354
7.225. Turning to the second elem ent set out above, the exemption must pertain to "prior -stage
cumulative indirect taxes". Excise is expressly included in the definition of "indirect taxes" in
footnote 58 of the SCM Agreement. Footnote 58 further defines "prior stage" indirect taxes as
taxes "levied on goods or services used directly or indirectly in making the product ", and
"cumulative" indirect taxes as " multi-staged taxes levied where there is no mechanism for
subsequent crediting of the tax if the goods or services subject to tax at on e stage of production
are used in a succeeding stage of production".
7.226. India explained, and the United States did not contest, that Indian central excise duties are
an indirect tax within the meaning of footnote 58 and, absent any subsequent crediting

348 United States' second written submission, para. 89; response to Panel question No. 40,
paras. 59-60; and comments on India's response to Panel question No. 43, para. 97.
349 United States' first written submission, paras. 38 and 40 and fns 57 and 61; second written
submission, para. 79 and fn 82.
350 India's first written submission, paras. 206-209.
351 See para. 7.186 above.
352 Emphasis added.
353 See para. 7.186 above.
354 United States' second written submission, paras. 79-90.

mechanism under India's Central Excise Tax Act, fall within the meaning of prior -stage cumulative
taxes.355 On this basis, we assume that the second element set out above is met.
7.227. We now turn to the third element in our analysis of footnote 1 read together with
Annex I(h), i.e. whether the central excise duty exemption is granted on " inputs that are
consumed in the production of the exported product".
7.228. The United States argues that the exemption from central excise duty is not limited to
inputs consumed in the production of the exported product, for the same reasons applying,
mutatis mutandis, to the exemption from customs duty.356 To recall, the United States argued that
certain goods benefiting from the exemptions are of such a nature that they cannot be inputs
consumed in the production of an exported product 357, that the exemptions are also available to
acquire goods for creating a central facility358, and that the EOU/EHTP/BTP Schemes do not require
the duty-exempt goods to be consumed as inputs in the production of the exported product.359
7.229. We begin with the nature of the duty -exempt goods. We have found, above, that the
goods eligible for customs duty exemp tions under the EOU/EHTP/BTP Schemes include goods that
are not capable of constituting inputs consumed in the production of an exported product within
the meaning of Annex I. 360 We note, however, that the exemption "from duty of excise", at issue
here, appl ies to the procurement of "excisable goods". 361 The 1944 Central Excise Tax defines
excisable goods as those listed in its Fourth Schedule, and salt. 362 The goods listed in the Fourth
Schedule are tobacco products ranging from unmanufactured tobacco to cigaret tes, tobacco
substitutes, and mineral products including petroleum oils, oils obtained from bituminous minerals,
and gaseous hydrocarbons.363 The United States has not established that any of these goods is of
a nature that makes it incapable of being an inp ut consumed in the production of the exported
product, either as an input that is "physically incorporated" in the exported product or as "energy,
fuels and oil used in the production process".364
7.230. Next, the United States argues that goods for creating a cen tral facility are not inputs
consumed in the production of an exported product. While we agree with the United States' factual
proposition, we note that the exemption the United States is challenging is not the one on goods
acquired for creating a central facility.365
7.231. Finally, the United States argues more generally that the EOU/EHTP/BTP Schemes do not
limit the central excise duty exemption to inputs consumed in the production of an exported
product. The Schemes do not set out such a requirement expressly. I n the context of the customs
duty exemptions, we have rejected the equivalent US argument, noting, in particular, that the
Schemes require the "imported" goods to be "utilized for export production" and that the fact that
the Schemes use this wording, rath er than the wording "inputs consumed", does not in itself
establish that the Schemes do not meet the conditions of footnote 1. 366 However, the relevant
language applicable to the exemption from central excise duties differs from that applying to
customs duties. While the FTP requires goods " imported" free of customs duties to "be utilized for

355 India's first written submission, para. 204.
356 United States' second written submission, paras. 87-90. See para. 7.195 and fn 317 above.
357 See para. 7.195 and sections 7.6.2.1.1 and 7.6.2.1.2 above.
359 See fn 317 above.
360 Sections 7.6.2.1.1 and 7.6.2.1.2 above.
361 Section 6.01(d)(iii) of the FTP. The FTP defines "[e]xcisable goods" to mean "any goods produced or
manufactured in India and subject to duty of excise under Central Excise and Salt Act 1944 (1 of 1944)".
(Definition 9.19 in chapter 9 of the FTP).
362 Central Excise Act (1944) as amended, (Exhibit USA-88), Section 2(d).
363 Central Excise Act (1944) as amended, (Exhibit USA-88), Fourth Schedule. The Central Excise Tariff
Act (1985) and its First Schedule, submitted as Exhibits USA-62 and USA-63, have been repealed.
(India's communication dated 19 July 2019; see also comments on the United States' response to Panel
question No. 42.)
364 Footnote 61 of the SCM Agreement.
365 Section 7.6.2.1.3 above.
366 See fn 317 above.

export production" 367, the FTP does not set forth such a requirement for goods procured
domestically without payment of central excise duties.
7.232. India argues that the goods exempted from central excise duty are necessarily inputs
consumed in the production of exported products as a result of the requirement for Units to export
their entire production. 368 However, as India itself recognizes, Units are allowed to sell on the
domestic market, albeit subject to a number of limiting conditions. 369 India points out that
pursuant to Sections 6.08(a)(i) and (v) of the FTP, to the extent that Units are allowed to sell on
the domestic market, such sales are "subject to payment of duties as well as reversal of customs
duties".370
7.233. In that regard, w e note that pursuant to Sections 6.08(a)(i) and (v) of the FTP, domestic
market sales by EOU/EHTP/BTP Units are subject to "payment of excise duty, if applicable".371 As a
result of these provisions, if the product being sold domestically is subject to central excise duties
(e.g. cigarettes), then indeed the effect of the central excise duty exemption on goods acquired to
produce it (e.g. tobacco) is undone through the payment of excise duty on the product sold
domestically (in our example, through the payment of excise duty on the cigarettes) . However, if
the product being sold domestically is not subject to central excise duties (e.g. computers), then
the domestic sale in question is not itself subject to payment of excise duty within the meaning of
Sections 6.08(a)(i) and (v).
7.234. However, during the interim review, India clarified that pursuant to Section 6.08(a)(vi) of
the FTP, even when the finished good being sold in the DTA is not itself subject to excise duty, that
sale triggers the obligation on the part of EOU/EHTP/BTP Units to pay the excise duty initially
foregone on any inputs used to produce the good in question.372
7.235. Therefore, the United States has not established that the exemption from the central
excise duty is not limited to inputs consumed in the production of an exported product, and that,
for this reason, it does not meet the conditions of footnote 1 read together with Annex I(h).
7.6.2.4 Conclusion
7.236. We find that the exemption from customs duties under the EOU/EHTP/BTP Schemes does
not meet the conditions set out in footnote 1 read together with Annexes I(g), I(h), and I(i).
We also find that t he United States has not established that the exemption fro m central excise
duty under the EOU/EHTP/BTP Schemes does not meet the conditions of footnote 1 read together
with Annex I(h).
7.6.3 Whether the customs duty exemption under the Export Promotion Capital Goods
Scheme meets the conditions of footnote 1
7.237. India argue s that the exemption from customs duties 373 on the importation of capital
goods, under the EPCG Scheme, meets the conditions of footnote 1 read together with
Annex I(i).374 In this section, we examine whether this is the case.

367 Section 6.01(d)(i) of the FTP. (emphasis added)
368 E.g. India's first written submission, para. 198, and second written submission, para. 73.
369 Section 6.08 of the FTP; see also e.g. India's second written submission, para. 75.
370 India's second written submission, para. 75, referring to Section 6.08(a)(v) of the FTP.
371 Sections 6.08(a)(i) and (v) of the FTP. This is different from the language used in the same
provisions for customs duties, i.e. "reversal of duties of Customs".
372 Section 6.08(a)(vi) of the FTP. See India's opening statement at the interim review meeting,
para. 21; and responses to Panel questions Nos. 95-101. See also Annex A-2, paras. 5.12-5.20.
373 We limit our review to the exemption from customs duties. In its first and second written
submissions, the United States did not articulate a challenge with respect to exemptions from IGST and
compensation cess under the EPCG Scheme (United States' first written submission, paras. 72, 73 and 76-77;
second written submission, paras. 125 and 131-132), although India did present arguments on those
exemptions. (India's first written submission, paras. 299-303; second written submission, para. 133). Only
after its second written submission did the United States refer also to the exemptions from IGST and
compensation cess in its arguments on the merits. (United States' opening statement at the meeting of the
Panel, para. 20; response to Panel question No. 50, paras. 81 and 83-84).

7.238. We recall our discussion of the l egal standard under footnote 1 read together with
Annex I(i) in section 7.6.1. As summarized in paragraphs 7.186 and 7.191 above, for the
challenged customs duty exemption not to be "deemed to be a subsidy" by virtu e of footnote 1
together with Annex I(i), it must constitute (1) a remission, drawback, exemption or deferral (2) of
import charges (3) on imported inputs that are consumed in the production of the exported
product, (4) not in excess of those levied on those inputs.
7.239. The parties do not dispute that the EPCG Scheme provides for an exemption from customs
duties on importation, thus meeting the first two elements set out above.
7.240. Regarding the third element, the United States contends that the customs duty exempt ion
does not relate to the importation of inputs that are consumed in the production of the exported
product.375 The United States provides two arguments as a basis for this contention. First, the
duty-exempt goods are capital goods, and therefore incapable of serving as "inputs consumed" in
the production of the exported product. 376 Second, although beneficiaries are subject to an export
obligation377, they are not required to use the imported goods in connection with the manufacture
of exported products.378
7.241. Regarding the capital goods issue, India repeats the arguments already considered when
examining the EOU/EHTP/BTP Schemes. 379 India also refers to Members' work on
Implementation-Related Issues and Concerns as evidence of a political will to include capital goods
among inputs consumed in the production process. 380 As for the United States' second argument,
India responds that "the requirement to use the imported capital goods only in the production of
exported products is verified during the application process".381
7.242. The FTP provides that the customs duty exemption at issue applies to the importation of
"capital goods".382 The FTP provides that, for the purpose of the EPCG Scheme, "capital goods"
include: capital goods as defined in Chapter 9 of the FTP383, i.e. the same definition applying under
the EOU/EHTP/BTP Schemes, discussed above; "[c]omputer systems and software which are a
part of the Capital Goods being imported" 384; "[s]pares, moulds, dies, jigs, fixtures, tools &
refractories"385; and "[c]atalysts for initial charge plus one subsequent charge".386

For the same reasons set out with reference to the EOU/EHTP/BTP Schemes in fn 304 above, we will not
consider further the United States' arguments concerning the exemptions from IGST and compensation cess.
(Regarding the expiry of these exemptions under the EPCG Scheme at the end of March 2018, see
Section 5.01(a) of the FTP).
374 India's first written submission, paras. 304-308 and 311; second written submission, paras. 132
and 134-137. India suggested that the exemption from customs duties also meets the conditions of footnote 1
read together with Annex I(g) (India's first written submission, para. 300); in that regard, we refer to our
findings above, at para. 7.222, that customs duties are not "indirect taxes" and that Annex I(g) thus does not
apply.
375 United States' second written submission, paras. 118-123. See also ibid. paras. 65-71 and 76.
376 United States' second written submission, para. 119.
377 See paras. 7.137-7.138 above, and paras. 7.502-7.504 and 7.506 below.
378 United States' first written submission, paras. 122-123.
379 India's first written submission, paras. 306 and 308; second written submission, para. 134.
380 India's first written submission, para. 307 (referring to WTO, General Council Decision on
Implementation-Related Issues and Concerns of 15 December 2000, and the report thereon of the Chairman of
the Committee on Subsidies and Countervailing Measures of 3 August 2001, WT/L/384, (Exhibit IND-9); and
WTO, Committee on Subsidies and Countervailing Measures, "Chairman's Report on the
Implementation-Related Issues referred to the Committee on Subsidies and Countervailing Measures in the 15
December 2000 Decision of the General Council", G/SCM/34 (3 August 2001), (Exhibit IND-10)).
381 India's second written submission, paras. 135-136 (referring to, among others, Appendices and
Aayat Niryat forms, (Exhibit USA-6), appendix 5A). We note that, indeed, applicants must provide a certificate
by a chartered engineer that "the Capital Good(s) proposed to be imported … is/are required for use … for
manufacture of the export product(s)". (Appendices and Aayat Niryat forms, (Exhibit USA-6), appendix 5A).
382 Section 5.01 of the FTP.
383 Section 5.01(a)(i) of the FTP.
384 Section 5.01(a)(ii) of the FTP.
385 Section 5.01(a)(iii) of the FTP.
386 Section 5.01(a)(iv) of the FTP.

7.243. We refer to our discussion in paragraphs 7.196-7.217 above. With the exception of the last
item in the definition of capital goods for purposes of the EPCG Scheme, i.e. "catalysts" 387, the
goods that can be imported duty -free under the EPCG Scheme, therefore, are not energy, fuels
and oil, catalysts, or i nputs physically incorporated in the exported product. Instead, they are
machines, tools, and equipment (as well as components thereof or software therefor) that may be
used to produce goods but are not physically incorporated in the goods produced. Theref ore, they
are not inputs "consumed" in the production of the exported product and, as a result, the
exemption from customs duties under the EPCG Scheme does not meet the conditions of footnote
1 read together with Annex I(i).
7.244. India relies on the same rebut tal arguments that we have considered, and dismissed, in
paragraphs 7.206-7.207 and 7.210-7.215 above. The same considerations set out there apply to
the prese nt scheme, whose scope of application is in part identical 388 to that of the
EOU/EHTP/BTP Schemes, and in part includes goods of a similar nature, i.e. goods that are not
physically incorporated in the product for whose manufacture they are used, as well as not being
energy, fuels and oil, or catalysts.
7.245. In addition to repeating those arguments, India relies on Members' work on
Implementation-Related Issues and Concerns as evidence of a political will to include capital goods
among inputs consumed in the production process.389
7.246. The Panel notes that Members decided, in 2000, that the Committee on Subsidies and
Countervailing Measures (SCM Committee) would "examine as an important part of its work the
issue[] … of the definition of 'inputs consumed in the producti on process', taking into account the
particular needs of developing-country Members".390 In the report that India itself relies upon, the
chairperson of the SCM Committee noted the divergent views of Members on the matter, and
observed that "[s]ome Members h a[d] noted that footnote 61 was specifically negotiated to
exclude capital goods and therefore could not lend itself to interpretation as including such
goods".391 The Panel does not view this as showing that footnote 61 includes capital goods.
7.247. We therefore find that the customs duty exemption under the EPCG Scheme does not meet
the conditions of footnote 1 read together with Annex I(i), because it provides for the importation
of goods that are not "inputs consumed" in the production of the exported product.
7.6.4 Whether the customs duty exemptions under the Duty -Free Imports for Exporters
Scheme meet the conditions of footnote 1
7.248. India argues that the DFIS exemptions from customs duties meet the conditions of
footnote 1 read together with Annex I(i) and, therefore, are not subsidies.392
7.249. For the DFIS exemptions not to be "deemed to be a subsidy" by virtue of footnote 1 read
together with Annex I(i), they must constitute (1) a remission, drawback, exemption or deferral
(2) of import charges (3) on imported inputs that a re consumed in the production of the exported
product, (4) not in excess of those levied on those inputs.393

387 Footnote 61 of the SCM Agreement includes in the definition of "inputs consumed in the production
process" "catalysts which are consumed in the course of their use to obtain the exported product". Neither
party has addressed the question whether the catalysts that can be imported duty-free under the
EPCG Scheme meet the definition of catalysts in footnote 61 and, in any event, we do not understand the
United States' challenge to extend to catalysts. (See e.g. United States' second written submission, paras. 84,
116, and 119 ("capital equipment")). Therefore, we do not include catalysts in the scope of our finding, below,
that the duty exemption at issue does not pertain to inputs "consumed" in the production of the exported
product because of the nature of the goods in question.
388 For capital goods as defined in Section 9.08 of the FTP. See also Section 5.01(a)(i) of the FTP.
389 See para. 7.241 above.
390 General Council decision WT/L/384, (Exhibit IND-9), para. 6.3 (referred to in India's first written
submission, fn 254).
391 SCM Committee decision G/SCM/34, (Exhibit IND-10), p. 2. See also ibid. paras. 14 and 11-31, and
India's first written submission, para. 307 and fn 255.
392 India's first written submission, paras. 388-394; second written submission, paras. 199-202.
393 See para. 7.186 above.

7.250. We begin with the first two elements set out above, namely, the existence of an
(1) exemption or remission (2) from import charges. As set out in sec tion 7.5.4 above, DFIS caps
at zero the customs duties on importation of certain specified goods, provided the requirements in
the applicable Condition are met. More precisely, through DFIS, "the Central Government …
exempts [the specified goods] … from so much of the duty of customs leviable thereon under the
[First Schedule of the 1975 Customs Tariff Act] as in excess of [zero]". 394 Further, as clarified by
footnote 58 of the SCM Agreement, "duties … levied on imports" are "import charges" for purposes
of Annex I(i). Therefore, DFIS meets the first two conditions in footnote 1 read together with
Annex I(i), i.e. it constitutes an exemption from import charges.
7.251. Regarding the third element in the analysis under footnote 1 read together with Annex I(i),
the United States argues, first, that the DFIS exemptions cover the importation of certain goods
that, by their nature, cannot be consumed in the production process. 395 In this regard, the parties
rely on the arguments already considered when discussing the EOU/EHTP/BTP and
EPCG Schemes.396
7.252. Second, the United States argues that DFIS does not require the use of the imported
goods as inputs in the production of exported products.397 According to India, however, the criteria
in the measure, enforced by the competent bodies, ensure the duty exemption is limited to inputs
consumed in the production process.398
7.6.4.1 The nature of certain goods covered by the exemptions
7.253. The United States asserts that all the goods that can be imported duty free under
Conditions 60(ii) (line item 430) 399 and 61 (line item 431) 400 are capital goods consisting of
equipment, machinery and tools. The United States argues that, even assuming these goods are
used in the production of the exported product, they are not physically incorporated into it. 401
India agrees that, as a matter of fact, all the goods falling under Conditions 60(ii) and 61 "may be
qualified as capital goods". 402 However, India considers that, as a ma tter of law, capital goods
used in the production of an exported product are "inputs … consumed" in the production of the
exported product within the meaning of Annex I(i).403
7.254. The parties rely on their arguments concerning the issue of capital goods which we have
already considered when examining the EOU/EHTP/BTP and EPCG Schemes. 404 As we have

394 Notification No. 50/2017, (Exhibit USA-36), p. 1 ("from so much… as is in excess of … the standard
rate specified in the corresponding entry in column (4)", which, for the duty stipulations comprising DFIS, is
"nil" (nothing), i.e. zero).
395 United States' second written submission, para. 167; opening statement at the meeting of the Panel,
para. 57; response to Panel question No. 80, para. 133 and appendix 2; and response to Panel question
No. 81, para. 135.
396 For the United States, see previous footnote. For India, see second written submission,
paras. 201-202; comments to the United States' response to Panel question No. 79.
397 United States' second written submission, para. 166; opening statement at the meeting of the Panel,
paras. 36-39, and 57; responses to Panel questions Nos. 79, 81 and 82; and comments on India's responses to
Panel question No. 82.
398 E.g. India's first written submission, para. 390; second written submission, paras. 191-194.
399 These are the goods in Lists 21 and 22 of Notification No. 50/2017, (Exhibit USA-36), i.e. 125 items
for use in the manufacture of commodities in the pharmaceutical and biotechnology sector, such as, for
example, cell cultivation devices, low temperature freezers, spectrophotometers, centrifuges, x-ray diffraction
equipment, automated sampling devices, and gas generators.
We recall that the United States only challenges the duty-free treatment provided under
Condition 60(ii), and not under Condition 60(i). (See fn 266 above).
400 These are the goods in List 23 of Notification No. 50/2017, (Exhibit USA-36), i.e. 119 items for
research and development purposes in the agro-chemical sector, such as, for example, analytical balances,
anemometers, centrifuges, dry ice makers, health monitoring equipment, and incubators.
401 United States' response to Panel question No. 80, para. 132 and Appendix 2.
402 India's response to Panel question No. 80. In the same response, India argues that the relevant duty
exemption is not export contingent, a point we consider in para. 7.541 below.
403 United States' second written submission, para. 167; India's first written submission, paras. 388 and
390; and response to Panel question No. 80, first para.
404 United States' opening statement at the meeting of the Panel, para. 57; comments on
India's response to Panel question No. 80, para. 157; India's second written submission, para. 201; response
to Panel question No. 80, third para.; and comments on the United States' response to Panel question No. 80.

explained in that context, equipment, machinery and tools that are used in the production of a
product but are not "physically incorporated", i.e. physically present, ev en in a different form, in
the final product 405, are not "inputs … consumed" within the meaning of Annex I(i). 406 Therefore,
the duty exemptions available under Conditions 60(ii) and 61 do not meet the conditions of
footnote 1. Specifically, they do not meet the third element in our analysis, namely, that the duty -
exempt goods must be "inputs … consumed" in the production of the exported product.
7.255. The United States also argues that six of the 27 items (or groups of items) that can be
imported duty -free under Con dition 21 (line item 229) constitute tools that are not "inputs …
consumed" within the meaning of Annex I(i). 407 India, too, factually describes five of these six
items as "capital goods", but repeats that capital goods are inputs consumed in the production of
the exported product. 408 As already explained, "inputs … consumed" within the meaning of
Annex I(i) are inputs "physically incorporated", "energy, fuels and oil", or "catalysts". The tools in
question fall in none of these categories. Therefore, to the extent that it exempts from customs
duties the importation of these six items, the duty exemption under Condition 21 does not meet
the conditions of footnote 1.
7.256. Further, the United States argues that one of the 36 items that can be imported duty -free
under Condition 10 (line item 10 4)409, namely, food tenderizers for use in processing seafood
products for export, may also not qualify as an input consumed in the production of the seafood
products in question. 410 The evidence submitted by the United States indicates that at least one
type of tenderizer involves a tool for mechanical tenderization, which would therefore not be
physically incorporated into the processed seafood product, and is also not "energy, fuels and oil",
or a "catalyst[]". 411 Therefore, to the extent that it exempts from customs duties the importation
of such tenderizers, the duty exemption under Condition 10 does not meet the conditions of
footnote 1.
7.6.4.2 Whether the imported goods must be used as inputs consumed in the
production of an exported product
7.257. The United States argu es that DFIS does not require that the imported goods be used as
inputs in the production of exported products. 412 In response to questioning from the Panel, the
United States "recognize[d] that [unlike Conditions 60 and 61, already disposed of above,413] other
conditions contain language regarding the processing/manufacturing of the imported good in the
exported product".414 Indeed, six of the challenged Conditions, namely, Conditions 10, 21, 28, 32,
33, and 101, expressly require the duty -exempt goods to be imp orted for use in the manufacture
of specified final products for export.415

405 And are not "energy, fuels and oil", or "catalysts". Footnote 61 of the SCM Agreement.
406 See paras. 7.199-7.216 above.
407 United States' response to Panel question No. 80, Appendix 2. These are: air and electric operated
screw driver with hose and couplings; tool bits, for motorizer and screw driver; glue applicator; moisture
measuring tool; air operated guns and tools for inserting fasteners for brands, flexi points, pins, staples, nails
and hinges; and power operated mitre saw.
408 India's response to Panel question No. 80. The item left out of India's listing of capital goods, as
compared to the United States', is "tool bits, for motorizer and screw driver". In the view of the Panel, on the
face of the evidence, these "tools bits", when used for the manufacture of handicrafts (as required by
Condition 21), are also not "physically incorporated" into the production of the exported product (i.e. the
handicraft).
409 These goods are in List 1 of Notification No. 50/2017, (Exhibit USA-36).
410 United States' response to Panel question No. 80. India has been silent with regard specifically to this
item.
411 A "food tenderizer" does not always involve a tool or device for mechanical tenderization, as there
may also be other ways of tenderizing food, such thermal or enzymatic tenderization. See
https://www.foodsharkmarfa.com/best-meat-tenderizers/ (accessed 8 May 2019) referred to in the
United States' response to Panel question No. 80, Appendix 2, p. 59, fn 208 (Exhibit USA-90).
412 United States' second written submission, para. 166; opening statement at the meeting of the Panel,
para. 57.
413 See para. 7.254 above.
414 United States' response to Panel question No. 79, para. 126.
415 Notification No. 50/2017, (Exhibit USA-36), Conditions 10(a), 21(a), 28(a), 32(a), 33(a),
and 101(a).

7.258. The United States argues that, despite the requirement in certain Conditions that the
exemption should only apply in respect of inputs used in the manufacture of final products for
export, the exemption or remission 416 of import charges is "disconnected" from the charges
actually levied on imported inputs consumed in the production of the exported product. 417
According to the United States, this is because "the amount of duty exemption … is uniform across
broad categories of exports based on the FOB value of exports" 418, which shows that the
exemption is rather a "reward contingent upon the exporter's export performance".419
7.259. India counters that the challenged duty stipulations exempt inputs from customs duties,
and that therefore "the value of this exemption is necessarily not in excess of those [duties] levied
on the inputs" .420 As for the pegging of the duty exemption to the value of exports during the
previous year421, India asserts that this, too, serves to ensure that the duty exemptions afforded
under DFIS do not exceed the value of the duty liability on inputs consumed in the production of
the exported product. 422 India also argues that the existence of this ceiling on duty exemptions,
which is based on the value of past exports, does not otherwise affect the operation of DFIS. 423
And, finally, India notes that the United States' argument that DFIS rewards export performance is
misplaced, because the question under Article 1 and footnote 1 of the SCM Agreement is whether
there is a subsidy, and not (yet) whether the subsidy is export contingent.424
7.260. We begin with Conditions 10, 21, 28, 32, 33, and 101. 425 One element of each of these
Conditions requires that the duty -exempt goods themselves be used in the production of the
exported product, as summarized in the table below.
Table 3: Link to production of exported products in Conditions 10, 21, 28, 32, 33,
and 101
Condition Link to production of exported product426
10 "If,- (a) the goods are imported by an exporter of sea -food products for use in processing
sea-food products for export …"
21 "If,- (a) the goods are imported,-
… for use in the manufacture of handicrafts for export …"
28 "If, (a) the goods are imported,
… for use in the manufacture of textile garments or leather garments for export …"
32 "If (a) The goods are imported … for use in manufacture of [leather footwear or synthetic
footwear or other leather products] for export …"
33 "If,- (a) the goods are imported … for use in the manufacture of [handloom made ups or cotton
made-ups or man-made made ups] for export …"
101 "If,- (a) the goods are imported … for use in the manufacture of sports goods for export …"

416 The United States refers to the duty stipulations comprising DFIS in several different ways, namely
as remissions, drawbacks and exemptions. We consider them to be an exemption: see paras. 7.169 and 7.250
above, and fn 429 below.
417 E.g. United States' responses to Panel questions Nos. 79 and 82, paras. 127-129 and 141.
418 United States' response to Panel question No. 79, para. 129.
419 United States' response to Panel question No. 79, para. 129. See also United States' second written
submission, para. 163; opening statement at the meeting of the Panel, para. 57.
420 India's comments on the United States' response to Panel question No. 82.
421 See paras. 7.157-7.159 above.
422 India's first written submission, para. 390; second written submission, paras. 191-198.
423 India's response to Panel question No. 82.
424 India's second written submission, para. 197.
425 To recall, Conditions 10, 21, 28, 32, 33, and 101 expressly require that the use of the duty-exempt
goods be limited to the manufacture of the specified exported products; Condition 36, which we discuss
separately below, does not. As for Conditions 60(ii) and 61, we have exhaustively addressed these in
para. 7.254 above.
426 Notification No. 50/2017, (Exhibit USA-36) and Excerpts from Notification No. 50/2017,
(Exhibit USA-38).

7.261. On the face of the measure, each iteration of this first element appears to correspond to
the condition, in footnote 1 read together with Annex I(i), that a duty exemption be limited to
duties on inputs consumed in the production of the exported product.427
7.262. A second element of each of these Conditions, which we refer to as the "backward -looking
element", requires that the va lue of the duty -exempt imported goods not exceed a certain
percentage, ranging from 1% to 5%, of the FOB value of exports of those same final products
during the preceding financial year.428
7.263. These two elements are cumulative, i.e. they both limit the amount of the exemption from
customs duties that is available to an importer. On the face of the measure, if the
backward-looking element entitles a recipient to import duty -free inputs that are worth 5, but the
recipient imports inputs that are worth 1, the theo retical entitlement to import 5 is of no avail
(i.e. it does not expand the scope of the duty-free entitlement): only 1 will be duty-exempt.429
7.264. The United States' arguments, to the effect that the duty exemption is "disconnected" from
the duties actually le vied on imported inputs, look exclusively at the backward -looking element.
Those arguments ignore the first element discussed above, i.e. the requirement that the imported
goods be used in the manufacture of the specified products for export.430
7.265. In light of this requirement, the United States has not shown to this Panel that the six duty
stipulations at issue do not meet the conditions of footnote 1. The Panel will therefore not examine
these six duty stipulations under Article 3 of the SCM Agreement.431
7.266. Last, we turn to Condition 36, which provides for the duty -free importation of carpet
samples by exporters of carpets. There is nothing limiting this duty exemption to inputs consumed
in the production of the exported product, and indeed carpet samples are neit her inputs physically
incorporated in the exported product, nor energy, fuels, oil, or catalysts. Therefore, Condition 36 is
not excluded from the definition of a subsidy by virtue of footnote 1.
7.6.4.3 Conclusion
7.267. Based on the arguments and evidence before us, we find that Conditions 60(ii), 61, and
36, in their entirety, and Conditions 10 and 21, for one and six items respectively432, do not accord
with footnote 1. For all other items under Conditions 10 and 21, and for Conditions 28, 32, 33, and
101, the United States has not demonstrated that the challenged duty stipulations fail to meet the
conditions of footnote 1.

427 As set out in the table, these six conditions in Notification No. 50/2017 require "use" in the
manufacture or processing. As seen in paras. 7.255-7.256 above, for six items under Condition 21, and one
item under Condition 10, "use" is not consumption, as is instead necessary under footnote 1 read together with
Annex I(i). For the remaining items under Conditions 10 and 21, and for all items under the other Conditions
listed in this table, however, our review of the listed items leads us to conclude that the only way in which they
can be "used" in the manufacture or processing of the products concerned is by being consumed, within the
meaning of Annex I(i). By way of example, this is the case of "breadcrumbs" used in processing of seafood
(under Condition 10), and table tennis rubber for use in the manufacture of sports goods (under
Condition 101). The United States has not argued otherwise.
428 Notification No. 50/2017, (Exhibit USA-36); Excerpts from Notification No. 50/2017,
(Exhibit USA-38).
429 As India points out, the scheme provides for a duty exemption. And as we have seen earlier, a duty
exemption operates ex ante, i.e. it entails that the duty liability never arises. Therefore, as India puts it, "the
value of this exemption is necessarily not in excess of those [duties] levied on the inputs". (India's comments
on the United States' response to Panel question No. 82; and para. 7.169 above).
430 This despite the fact that in response to a question from the Panel, the United States concedes that
all Conditions (except for Conditions 60 and 61, which are not at issue here) "contain language regarding the
processing/manufacturing of the imported good in the exported product" (United States' response to Panel
question No. 79, para. 126).
431 Except for one item under Condition 10 and six items under Condition 21. See paras. 7.255-7.256
and fn 426 above.
432 See fns 407 and 408, and para. 7.256 above.

7.6.5 Whether the Merchandise Exports from India Scheme meets the conditions of
footnote 1
7.268. India contends that MEIS scrips are refunds for past payments of indirect taxes, consistent
with the conditions of footnote 1 read together with Annexes I(g) and I(h) 433; or, alternatively,
that their use results in the remission of import charges, consistent with footnote 1 read together
with Annex I(i).434
7.6.5.1 Whether MEI S scrips meet the conditions of footnote 1 read together with
Annexes I(g) and I(h)
7.269. We begin by assessing whether MEIS scrips meet the conditions of footnote 1 read
together with Annexes I(g) and I(h).
7.270. We recall our discussion of the legal standard under footnote 1 and the relevant Annexes
in section 7.6.1 above. In accordance with that discussion, whether MEIS scrip s are not "deemed
to be a subsidy" by virtue of footnote 1 read together with Annexes I(g) and I(h), respectively,
depends on whether MEIS scrips meet the following four cumulative elements:
Under Annex I(g) –
(1) They constitute an exemption or remission, including a refund or rebate;
(2) of indirect taxes;
(3) in respect of the production and distribution of exported products;
(4) not in excess of those levied in respect of the production and distribution of like
products when sold for domestic consumption.
Under Annex I(h) –
(1) They constitute an exemption, remission, or deferral, including a refund or rebate;
(2) of prior-stage cumulative indirect taxes;
(3) on inputs that are consumed in the production of the exported product;
(4) not in excess of those levied on those inputs.
7.271. As we will see below, the parties disagree that even the first of these four elements is met.
7.272. Pursuant to the FTP Chapter on MEIS, India grants "Duty Credit Scrips" as a reward for
exports.435 The value of scrips that a r ecipient is entitled to is determined by multiplying the
FOB value of exports of "notified" goods to "notified" markets by the "rates of reward" assigned to
those goods and markets. 436 The recipient of the scrips can then use them to offset certain

433 India's first written submission, paras. 231-236 and 263-278; second written submission,
paras. 96-98 and 104-113; opening statement at the meeting of the Panel, paras. 65-73; responses to Panel
questions No. 57, No. 60, and No. 62; and comments on the United States' response to Panel question No. 55.
434 India's second written submission, paras. 114-118; opening statement at the meeting of the Panel,
para. 76.
435 Sections 3.02 and 3.04 of the FTP.
436 Section 3.04 of the FTP. "[N]otified" goods and markets are set out in Appendix 3B. Appendix 3B
groups export destination countries into three "country groups". Appendix 3B then lists, over 332 pages, the
"MEIS-Reward Rate" for each covered product; specifically, for each covered product, it lists three rates, the
choice between the three being determined by the country to which the exports giving rise to the reward were
made. (Public Notice 2/2015 2020, (Exhibit USA-11), Appendix 3B, tables 1 and 2).

liabilities vis-à-vis the government, including customs and excise duties 437; in addition, the scrips
are "freely transferable".438
7.273. Although the value of the scrips is a fixed percentage of exports, India argues that the
scrips in fact are a mechanism chosen by India t o refund two categories of indirect taxes, namely:
indirect taxes in respect of the production and distribution of the exported products, in accordance
with footnote 1 and Annex I(g); and prior -stage cumulative indirect taxes on inputs consumed in
the production of the exported products, in accordance with footnote 1 and Annex I(h).439
7.274. India explains that the value of these taxes necessarily represents a percentage of the
value of the exports in question: in India's words, these taxes are thus "embedded" in the value of
the exports.440
7.275. The Panel asked India to explain how it determined the different reward rates, and to
provide the evidence supporting its answer.441 India responded that it sets the rates at a level that
"approximate[s] but [is] less than" the ta xes to be refunded. 442 According to India, relying on a
uniform but low rate allows it to avoid the "administratively cumbersome" task of "calculat[ing] the
precise refund for every product and every export".443
7.276. As an "example", India provided a table that, ac cording to India, contains "actual
information" for exporter "ABC" on "the total cost of embedded indirect taxes on electricity, freight
and fuel" per metric ton of its exports under Harmonised System code 73259100 during financial
year 2016-2017.444 The table states the alleged cost incurred by exporter "ABC" for specified taxes
on electricity, fuel and freight, and concludes by stating that these taxes amounted to 6.10% of
the FOB value of the corresponding exports. 445 India then points out that the value of scrips that
ABC would have been eligible for under the applicable MEIS reward rates would have been 3% of
the value of exports, i.e. less than 6.10%.446
7.277. According to the United States, the record evidence belies the argument that scrips are a
refund of indirect taxes already paid, and this argument is "a fiction". 447 The United States argues
that there is no connection between taxes actually paid and the value of scrips 448; that the FTP
expressly describes scrips as a reward for exports, and bases the rate of re ward on the product
exported and the country it was exported to; 449 that India does not even ask scrip recipients for
information that would allow it to determine the amount of indirect taxes paid on exported
products;450 that the taxes to be refunded under fo otnote 1 and Annex I(g) and (h) are actual
taxes, not averages or estimates (and that in any event under MEIS India does not even estimate
taxes already paid)451; and that "one happenstance example" in which the applicable MEIS reward

437 Sections 3.02 and 3.18 of the FTP. For a fuller description, see para. 7.161 above.
438 Section 3.02 of the FTP.
439 India's first written submission, paras. 231, 232, 268, 273, and 275; second written submission,
para. 105; and opening statement at the meeting of the Panel, para. 73. According to India, the taxes so
refunded include taxes on electricity and fuel, stamp duty, entry tax, road tax, and others. (India's first written
submission, paras. 231, 232, 268, and 269; second written submission, paras. 105 and 106; and response to
Panel question No. 57).
440 India's first written submission, paras. 232, 235, and 277; second written submission,
paras. 105-106 and 109; opening statement at the meeting of the Panel, paras. 65-66; and response to Panel
question No. 60.
441 Panel question No. 60 after the substantive meeting with the parties. The Panel also asked this
question orally during the substantive meeting.
442 India's response to Panel question No. 60, first para.
443 India's response to Panel question No. 60, fifth para. See also e.g. India's first written submission,
paras. 232 and 279.
444 India's response to Panel question No. 60, third para.
445 India's response to Panel question No. 60, table.
446 India's response to Panel question No. 60, fourth and fifth paras.
447 E.g. United States' second written submission, paras. 108-109; comments on India's response to
Panel questions Nos. 56 and 60, paras. 122 and 133-134.
448 E.g. United States' second written submission, para. 109; comments on India's response to Panel
questions Nos. 56 and 60, paras. 122 and 133-134.
449 E.g. United States' comments on India's response to Panel question No. 60, para. 133.
450 E.g. United States' opening statement at the meeting of the Panel, paras. 51-53. See also
United States' comment on India's response to Panel question No. 60, para. 133.
451 E.g. United States' response to Panel question No. 37, paras. 50-53.

rate is lower than the ratio between indirect taxes paid and value of exports does not show that
MEIS scrips are actually a tax refund.452
7.278. Therefore, regardless of whether the type of taxes referred to by India are relevant
indirect taxes, the parties disagree on whether, in awar ding MEIS scrips, India is at all providing a
"remission"453 of such taxes. According to India, the award of scrips is a remission of indirect taxes
on products exported in the past; but according to the United States, it is merely a reward for past
exports, and India is "refram[ing] these rewards post hoc as reimbursed indirect taxes".454
7.279. To recall, the scrips in question are "rewards under MEIS" 455, and Section 3.04 of the FTP
describes the trigger for, and the basis for calculating, such rewards. Pursuant to Section 3.04, the
basis for calculating the reward is the FOB value of exports of "notified" goods to notified markets,
which must then be multiplied by the applicable rate of reward set out in Appendix 3B.
7.280. Appendix 3B sets forth the notified markets, div iding them into three groups; it then sets
out the notified goods, indicating, for each notified good, the MEIS reward rate applying to exports
of the good in question to each of the three country groups. 456 Depending on the product and
destination country, the reward rates range from 0% to 5%. We thus learn, for example, that for
exports of butter, the MEIS reward rate is 2% if the butter is exported to country group B, and
0% if the butter is exported to country groups A and C; on the other hand, the rate o f reward for
desiccated coconut is 5% for export to any of the three country groups.457
7.281. India has not pointed to anything in the FTP, in Appendix 3B, or in any other evidence on
the record, indicating that indirect taxes paid in connection with the exported product were the
basis for the award of MEIS scrips, nor has the Panel found any such indication in its review of the
evidence.458 Instead, the legal instruments providing for MEIS very plainly establish that the value
of scrips is determined by multiplying past exports by the percentage set forth in Appendix 3B for
the particular product-country combination.
7.282. Nor is there any record evidence that the rates set out in Appendix 3B were in fact
determined on the basis of indirect taxes actually paid. To the co ntrary, the Panel notes that the
scheme envisages different rates for the same product, depending on the country to which the
product was exported. 459 It would be difficult to see why MEIS differentiates among destination
markets if it served as the basis for refunding previously accrued indirect taxes.
7.283. In a similar vein, the Panel notes that in its Highlights of the Foreign Trade Policy
2015-2020, Mid Term Review, India explained that it increased the rate of reward for ready -made
garments and made -ups from 2% to 4%, and that it granted an "[a]cross the board increase of
2% in existing MEIS incentive for export by MSMEs / labour intensive industries". 460 Nothing in
that document or elsewhere links the increase in the MEIS rates to the level of indirect taxes paid
on the exported products and, in the absence of any such link, it is again difficult to reconcile this
decision to increase reward rates with the characterization of MEIS scrips as remitting or refunding
indirect taxes.

452 United States' comments on India's response to Panel question No. 60, para. 139.
453 We refer to our discussion on the notions of "exemption" and "remission" in para. 7.169 above. Here
India argues that the taxes are first paid, and then refunded or rebated in the form of MEIS scrips; therefore,
the question is whether there is a remission (which, according to footnote 58, includes a "refund or rebate"),
not whether there is an exemption.
454 United States' second written submission, para. 109.
455 Section 3.02 of the FTP.
456 Public Notice 2/2015 2020, (Exhibit USA-11), Appendix 3B, tables 1 and 2.
457 Public Notice 2/2015 2020, (Exhibit USA-11), Appendix 3B, table 2, HS codes 040510 and 08011100.
458 As the United States points out, India does not even seek information on indirect taxes paid, as part
of the application process for MEIS scrips. (United States' opening statement at the meeting of the Panel,
para. 52). See also Appendices and Aayat Niryat forms, (Exhibit USA-6), appendix ANF-3A ("Application Form
for Merchandise Exports from India Scheme (MEIS)").
459 Appendix 3B, table 2, contains, for the "MEIS reward rate" for each notified product, three columns,
one for the rate applicable to each of the three country groups. For a number of goods, the rates do indeed
differ by country of export. (Public Notice 2/2015 2020, (Exhibit USA-11), Appendix 3B, table 2.)
460 Excerpt from Highlights of the Foreign Trade Policy Review, 2015-2020, mid-term review
(December 2017), (Exhibit USA-20), also in Highlights of the Foreign Trade Policy Review, 2015-2020,
mid-term review (December 2017), (Exhibit USA-85), p. 4.

7.284. As noted earlier, the Panel asked India to explain, with supporting evidence, how it
determined "the different reward rates". In response, India provided a table that it described as
setting forth the indirect tax expenses of exporter "ABC", during financial year 2016 -2017, on a
particular exported product.461
7.285. The Panel notes that although it explicitly requested, in its question, "evidence supporting
[India's] answer", Ind ia entirely failed to provide any evidence supporting (a) the allegations of
fact in the table or even (b) the relevance of exporter ABC's alleged costs to MEIS. In any event,
even accepting the information on ABC provided by India, this information merely establishes that,
for ABC, in financial year 2016 -2017 and for the product in question, the level of indirect taxes at
issue was higher than the level of the MEIS reward rate. It does not establish that MEIS serves to
remit those taxes.
7.286. The characterization of MEIS in the underlying domestic legal instrument s, while alone not
dispositive, further confirms the conclusion that MEIS does not remit indirect taxes. For example,
the FTP provides that "[d]uty credit scrips shall be granted as rewards under MEIS" 462, and that
"[e]xports of notified goods/products … to notified markets … shall be rewarded under MEIS". 463
The HBP speaks of an "application for claiming rewards under MEIS on exports". 464 And
Appendix 3B refers throughout to "reward rates". Nowhere does any of these legal instruments
refer to any notion of MEIS remitting indirect taxes.
7.287. India refers to Section 3.00 of the FTP, according to which the objective of the two
schemes in Chapter 3 of the FTP, which include MEIS, is "to offset infrastructural ineffic iencies and
associated costs". India argues that these inefficiencies and costs include the indirect taxes that,
according to India, MEIS refunds. 465 However, first, we note that the complete text of the
description of the MEIS objective in the FTP reads as follows:
Exports from India Schemes
3.00 Objective
The objective of schemes under this chapter is to provide rewards to exporters to
offset infrastructural inefficiencies and associated costs.
…
Merchandise Exports from India Scheme (MEIS)
3.03 Objective
Objective of … MEIS is to promote the manufacture and export of notified
goods/products.
7.288. Thus, even when we consider, as directed by India, the stated objectives of the scheme,
we see that the emphasis is on "rewarding", or "promoting", exports, and nothing is said about
refunding taxes already paid. Moreover, the language excerpted by India refers to offsetting
"infrastructural inefficiencies", which are not the same as "indirect taxes". We are therefore unable
to agree with India that the reference to "off set[ting] infrastructural inefficiencies" in Section 3.00
of the FTP should lead us to conclude that, despite the text, structure and design of MEIS, this
scheme's underlying objective is in fact to refund indirect taxes connected to the exported
products.
7.289. Based on the foregoing, we find that MEIS does not "remit" or "refund" indirect taxes and
therefore does not meet the first of the conditions set out in footnote 1 read together with
Annex I(g) or I(h).

461 India's response to Panel question No. 60.
462 Section 3.02 of the FTP.
463 Section 3.04 of the FTP.
464 Section 3.01(b) of the HBP.
465 India's first written submission, para. 231.

7.6.5.2 Whether MEIS scrips meet the conditions of footnote 1 read together with
Annex I(i)
7.290. We now turn to India's arguments in respect of footnote 1 and Annex I(i). As an
alternative to its arguments under footnote 1 and Annexes I(g) and I(h), India argues that when
MEIS scrips are used to pay for customs duties o n importation, or to regularize a default in an
export obligation, this "results in" a remission of import charges that meets the conditions of
footnote 1 read together with Annex I(i).466
7.291. To ascertain whether a measure must "not be deemed to be a subsidy" by virtue of
footnote 1 read together with Annex I(i), we examine whether it constitutes (1) a remission or
drawback, including full or partial exemption or deferral, (2) of import charges (3) on imported
inputs that are consumed in the production of the e xported product, (4) not in excess of those
levied on those inputs.467
7.292. Even assuming that MEIS scrips, when used to pay for customs duties 468, do operate as
remitting import charges, MEIS scrips fail the third of the four elements set out above, namely,
that t he import charges must be on imported inputs consumed in the production of exported
products.
7.293. MEIS in no way limits the import charges that may be paid for with scrips to import
charges on inputs consumed in the production of the exported product. Instead , the FTP provides
expressly that scrips may be used to pay for import charges on the "import of inputs or goods,
including capital goods". 469 Therefore, MEIS does not meet, at least, the third condition of
footnote 1 read together with Annex I(i). Indeed, I ndia elsewhere acknowledges that "the use of
the MEIS scrips … does not require the import of inputs to be consumed in the production of an
exported product".470
7.6.5.3 Conclusion
7.294. Therefore, we find that MEIS scrips do not meet the conditions set out in footnote 1 read
together with Annexes I(g), I(h), and I(i).
7.7 Revenue foregone under Article 1.1(a)(1)(ii)
7.295. This section addresses the United States' argument that, under four of the challenged
schemes, India provides a financial contribution by foregoing government rev enue that is
otherwise due, within the meaning of Article 1.1(a)(1)(ii) of the SCM Agreement. More specifically,
in respect of the EOU/EHTP/BTP Schemes, the EPCG Scheme, the SEZ Scheme, and DFIS471, the

466 India's second written submission, paras. 114-119.
467 See paras. 7.186 and 7.191 above.
468 Sections 3.02(i), 3.02(iv) and 3.18(a) of the FTP expressly provide that MEIS scrips can be used to
pay for customs duties. In addition, also regarding payments for shortfalls in export obligations pursuant to
Section 3.18(b) of the FTP, India appears to argue that paying for such shortfalls ultimately results in paying
customs duties on goods imported under the schemes at issue and therefore "results in a remission of these
import charges". (India's second written submission, para. 117) See also India's response to Panel question
No. 61. A shortfall in an export obligation is the difference between a participant's actual export performance
for a year and its applicable export obligation.
469 Section 3.02(i) of the FTP. (emphasis and underlining added)
470 India's response to Panel question No. 59: "[t]he refund (by way of scrips) can be used for the
specified uses listed in Paragraph 3.02 of the FTP. The use of the MEIS scrips (refund of taxes already paid on
exported products) does not require the import of inputs to be consumed in the production of an exported
product." Moreover, "[s]ince the scrip is only received upon the export of the product (post facto), the scrip
can only [be] used for payment of duties on subsequently imported/procured inputs, and the award of the scrip
can never be tied to the subsequently imported/procured inputs". (India's second written submission,
para. 107).
471 As set out earlier, we refer to the nine duty stipulations that we have found to fall within our terms of
reference as "DFIS". However, in what remains of our analysis, our references to DFIS are limited to
Conditions 60(ii), 61, and 36, in their entirety, and Conditions 10 and 21, for one and six items respectively.
(See paras. 7.154 and 7.267 above).

United States alleges that India foregoes government re venue because each of these schemes
provides certain exemptions or deductions from taxes and customs duties.472
7.296. We first describe the legal standard under Article 1.1(a)(1)(ii) of the SCM Agreement and
then apply it to the four schemes at issue.
7.7.1 The applicable legal standard under Article 1.1(a)(1)(ii)
7.297. Article 1.1(a)(1)(ii) of the SCM Agreement provides that a financial contribution in the form
of revenue foregone exists if "government revenue that is otherwise due is foregone or not
collected (e.g. fiscal incentives such as tax credits)".
7.298. The words "foregone", "not collected" and "otherwise du e" indicate that "the government
has given up an entitlement to raise revenue that it could 'otherwise' have raised ".473 This
entitlement cannot be one that is "abstract", because "[a] Member, in principle, has the sovereign
authority to tax any particular c ategories of revenue it wishes". 474 Therefore, to ascertain whether
there is foregoing of revenue otherwise due, there must be "some defined, normative benchmark
against which a comparison can be made between the revenue actually raised and the revenue
that would have been raised 'otherwise'".475
7.299. As an analytical tool to apply this legal standard, WTO adjudicators have articulated a
"three-step test".476
7.300. The first step is to identify the tax treatment that applies to the alleged subsidy recipients,
i.e. the tax treatment that is being challenged.477
7.301. The second step is to identify the treatment that will serve as the benchmark for
comparison. Given that "Members, in principle, have the sovereign authority to determine their
own rules of taxation" 478, the benchmark for comparison "must be the tax rules applied by the
Member in question"479 to "situations which it is legitimate to compare".480
7.302. We note that the measures in relation to which this test was first articulated related to the
taxation of income. As a result as pa rt of this second step of the test, adjudicators have typically
referred to the need to identify "comparable income of comparably situated taxpayers".481 Not all

472 The parties do not dispute that the alleged foregoing of revenue is "by a government" within the
meaning of Article 1.1(a)(1), which includes any organ of a Member at any level of government. As will be
seen below, the duties and taxes that are allegedly foregone are owed to the "government" within the meaning
of this provision, and the measures pursuant to which such duties and taxes are allegedly foregone are
legislative and administrative instruments adopted by the "government". Therefore, to the extent it is
established that there is revenue foregone, we are satisfied that such foregoing of revenue is "by a
government".
473 Appellate Body Reports, US – Large Civil Aircraft (2nd complaint), para. 806; US – FSC, para. 90.
474 Appellate Body Report, US – FSC, para. 90.
475 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 806 (quoting Appellate Body
Report, US – FSC, para. 90).
476 Appellate Body Reports, US – Large Civil Aircraft (2nd complaint), paras. 812-814; Brazil – Taxation,
paras. 5.162 and 5.196; and Panel Report, US – Tax Incentives, paras. 7.48-7.51.
477 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 812. We note that footnote 58
of the SCM Agreement distinguishes customs duties and other import charges from taxes. However, when
speaking of "tax treatment", we use the term "tax" in a broader sense that also encompasses customs duties.
478 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 808.
479 Appellate Body Reports, US – FSC, para. 90; US – Large Civil Aircraft (2nd complaint), para. 813.
480 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 809 (quoting Appellate Body
Report, US – FSC (Article 21.5 – EC), para. 90). For example, "if the measure at issue involves income earned
in sales transactions, it might not be appropriate to compare the treatment of this income with employment
income"; and "if the measure at issue is concerned with the taxation of foreign-source income in the hands of a
domestic corporation, it might not be appropriate to compare the measure with the fiscal treatment of such
income in the hands of a foreign corporation". (Appellate Body Report, US – FSC (Article 21.5 – EC),
paras. 90 and 92).
481 Appellate Body Reports, US – Large Civil Aircraft (2nd complaint), para. 813 (emphasis added);
Brazil – Taxation, para. 5.163 (emphasis added). More precisely, in US – Large Civil Aircraft (2nd complaint),
the tax in relation to which the Appellate Body thus articulated the legal test was a tax imposed on the "gross
receipts of all businesses operating in Washington", where gross receipts "refer[red] to the gross proceeds of

instances of revenue foregone, however, involve the taxation of income. For example, tax may be
levied (or foregone) on the importation of a good, without reference to the taxpayers' income.
In such an example, the relevant fiscal situation will not be "income" but the importation of goods.
Therefore, in identifying the fiscal treatment which it is l egitimate to compare, we consider it
important not to refer mechanically to "income", and instead to keep in mind the nature of the
measure at issue in each case.
7.303. To identify the tax treatment afforded by the Member in question to "fiscal situations which
it is legitimate to compare" 482, we are required "to develop an understanding of the tax structure
and principles that best explains that Member 's tax regime, and to provide a reasoned basis for
identifying [the benchmark]".483 At the same time, we note that the rules of taxation of a Member
are not part of the applicable law in WTO dispute settlement, and that therefore a panel is
necessarily limited in its analysis to the facts properly before it.
7.304. The third step is to compare the challenged tax treatmen t with the benchmark tax
treatment. This comparison allows a panel to determine whether, in light of the responding
Member's treatment of the fiscal situations which it is legitimate to compare, the government is
foregoing revenue otherwise due.484
7.305. The requ irement to compare "the challenged treatment … to an objectively identifiable
benchmark … does not presuppose … that such a comparison should necessarily be made between
the group of the entities that allegedly benefits from a subsidy, on the one hand, and the group of
all the other entities, on the other hand" .485 Thus, the fact that some taxpayers in the benchmark
group do not pay "the full amount of the relevant tax … would not necessarily mean that there is
no revenue foregone with respect to the taxpayers benefiting from a subsidy".486
7.306. The Appellate Body has held that, as part of this three -step test, adjudicators must
"consider[] … the objective reasons behind" the challenged tax treatment. 487 This observation was
first made in US – Large Civil Aircraft (2 nd complaint), in the context of a measure which lowered
the tax rate previously applied, and in connection to which the respondent argued that the
underlying aim was to counteract certain alleged distortions in the tax system and thus
"approximate", for the entities concerned, "the average effective tax rate". 488 The Appellate Body
considered this alleged reason behind the tax treatment, and found that it appeared "to be more in
the nature of an ex post explanation" and "the Panel record [did] not support [it]".489
7.307. In US – Tax Incentives, the panel looked into the reasons for the challenged tax treatment
and found that there was "no evidence" that the resulting difference in tax treatment was
"reflective of any organizing principle of the [Business and occupation ] tax system"; instead, the
"express reason" for the different tax treatment was to "incentiviz[e] the maintenance and growth

sales, the gross income of a business, or the value of products, depending upon which is applicable".
(Panel Report, US – Large Civil Aircraft (2nd Complaint), para. 7.47).
482 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 809.
483 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 813. Moreover, in identifying
this benchmark (like with other questions of legal characterization), a panel is not bound by the arguments
raised by the respondent whose tax regime is at issue. (Appellate Body Reports, Brazil – Taxation,
para. 5.171).
484 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 814.
485 Appellate Body Reports, Brazil – Taxation, para. 5.209. (emphasis original)
486 Appellate Body Reports, Brazil – Taxation, para. 5.209.
487 Specifically, the Appellate Body has noted that the first step in the three-step analysis also "entail[s]
consideration of the objective reasons behind that treatment", and that these reasons must then be taken into
account as part of the third step in the analysis, when comparing the challenged treatment with the benchmark
treatment. (Appellate Body Reports, US – Large Civil Aircraft (2nd complaint), paras. 812 and 814; Brazil –
Taxation, para. 5.162 and fn 542. See also Panel Reports, US – Tax Incentives, e.g. paras. 7.49, 7.51,
7.61-7.63, 7.79-7.82, 7.87, 7.94, 7.102, 7.107, 7.115, and 7.131, and Brazil – Taxation, paras. 7.394-7.395,
7.401, 7.407-7.413, 7.486-7.487, and 7.841).
488 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 819 and 829 (the alleged
distortion was so-called "pyramiding": ibid. para. 829).
489 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 829 and 830, respectively.

of Washington State's aerospace industry". 490 Consideration of these reasons therefore did not
detract from a finding that the respondent was foregoing revenue otherwise due.491
7.308. Similarly, the panel in Brazil – Taxation considered the reasons for the challenged tax
treatment. For example, with respect to one set of challenged schemes, the panel found that "the
alleged reasons relate[d] to the objectives of setting up and developing technology -based
industries in Brazil, and giving access to [information technology] products to the population". 492
The panel therefore concluded that these alleged reasons did not "impact" 493 its findings of
revenue foregone.
7.309. Thus, in summary, adjudicators before us have looked into whether "objective reasons"
behind the challenged treatment explained that treatment other than as revenue foregone.
7.310. India considers that for measures that do not "fall within the am bit of … footnote 1", the
three-step test is the appropriate framework to analyse revenue foregone. 494 However, f or the
EOU/EHTP/BTP Scheme s, EPCG Scheme, and DFIS 495, India makes the cross -cutting argument
that, since the challenged measures fall under footno te 1, the appropriate framework for analysis
is not a three-step test under Article 1.1(a)(1)(ii), as set out above. Instead, India argues that the
Panel must compare the duties or taxes accrued with the duty or tax exemption .496 This is the
comparison carried out to determine whether there is revenue foregone under measures that do
fall within the scope of footnote 1 : with exemption or remission schemes falling under footnote 1,
only the excess remission is a financial contribution .497 But to the extent we examine them below,
we have found that the challenged measures fall outside the scope of footnote 1. 498 Therefore,
"excess" remission under footnote 1 is not the applicable legal standard.
7.7.2 Whether India foregoes revenue otherwise due under the Export Oriented Units
and Sector-Specific Schemes
7.311. The United States argues that EOU/EHTP/BTP Units are exempt from the payment of
customs duties that would otherwise be due in the absence of the measure , and that, this way,
India foregoes revenue otherwise due within the meaning of Article 1.1(a)(1)(ii).499
7.312. India, on the other hand, argues that the EOU/EHTP/BTP Schemes fall under footnote 1 of
the SCM Agreement, and that therefore "the appropriate comparison analysis is … a comparison of
duties th at accrued as opposed to those that were exempted".500 In paragraph 7.310 above,
however, we have already rejected India's argument in this regard, because we are exami ning
whether the challenged measures under the EOU/EHTP/BTP Schemes are a subsidy precisely to
the extent that we have already found them to fall outside the scope of footnote 1.
7.313. We therefore examine whether India foregoes revenue otherwise due under the
EOU/EHTP/BTP Schemes, using the analytical framework discussed in the previous section.

490 Panel Report, US – Tax Incentives, para. 7.79. See also e.g. paras. 7.80-7.82 and 7.87.
491 Panel Report, US – Tax Incentives, para. 7.79. See also e.g. paras. 7.80-7.82 and 7.87.
494 India's response to Panel question No. 35, last para.
495 India makes the same argument also with regard to MEIS. However, the United States has chosen to
challenge the alleged subsidies under MEIS as a direct transfer of funds, and we find that they are indeed a
direct transfer of funds. (See section 7.8 below).
496 See paras. 7.312, 7.329, and 7.405 below.
497 Appellate Body Report, EU – PET (Pakistan), para. 5.134.
498 See paras. 7.236, 7.247, and 7.267 above.
499 United States' first written submission, paras. 40-41; second written submission, para. 92; and
response to Panel question No. 48, paras. 76 and 79.
500 India's first written submission, paras. 212-213; second written submission, para. 80 (referring to
Appellate Body Report, EU – PET (Pakistan), para. 5.79); responses to Panel questions No. 35, pp. 23-28,
No. 36, pp. 28-31 and No. 47, p. 38; and comments on the United States' responses to Panel question No. 48,
p. 16.

7.7.2.1 First step: Applicable treatment
7.314. We begin by identifying the tax treatment that allegedly constitutes a financial
contribution. Section 6.01(d) of the FTP provides, in relevant part:
(i) An EOU/EHTP/STP/BTP unit may import and/or procure, from DTA or bonded
warehouses in DTA/international exhibition held in India, all types of goods, including
capital goods, required for its activities, provided they are not prohibited items of
import in the ITC (HS) subject to conditions given at para (ii) & (iii) below. …
(ii) The imports and/ or procurement from bonded warehouse in DTA or from
international exhibition held in India shall be without payment of duty of custo ms
leviable thereon under the First Schedule to the Customs Tariff Act, 1975 and
additional duty, if any, leviable thereon under Section 3(1), 3(3) and 3(5) of the said
Customs Tariff Act. …
7.315. Thus, for Units under the EOU/EHTP/BTP Schemes, the importation or purchase of goods is
not subject to payment of the customs duties that would otherwise be leviable on those same
transactions under the 1975 Customs Tariff Act.
7.316. Before turning to the second step in the analysis, we consider the "objective reasons"
behind this tax treatment. 501 The underlying legislation states that the objectives of the
EOU/EHTP/BTP Schemes "are to promote exports, enhance foreign exchange earnings, and attract
investment for export production and employment generation ".502 With regard to the objective of
promoting exports, we also note that the EOU/EHTP/BTP Schemes impose on participants an
export obligation and a NFE requirement. 503 These elements of the schemes further confirm that
the promotion of export performance is the central reason behind the tax treatment at issue.504
7.7.2.2 Second step: Benchmark for comparison
7.317. As a second step, we identify the benchmark for comparison, i.e. the "fiscal situations
which it is legitimate to compare". 505 We recall that the challenged tax treatment consists of
customs duties (not) levied on the importation of goods. The fiscal situation which it is legitimate
to compare, therefore, must be identified within India's regime for customs duties on the
importation and domestic procurement of goods.506
7.318. In respect of import duties, Section 12 of India's 1962 Customs Act provides:
Except as otherwise provided in this Act, or any other law for the time being in force,
duties of customs shall be levied at such rates as may be specified under [the
Customs Tariff Act, 1975 (51 of 1975)], or any other law for the time being in force,
on goods imported into, or exported from, India.507
7.319. In accordance with Section 12 of the 1962 Customs Act, t he First Schedule of India's 1975
Customs Tariff Act 508 sets forth the rat e of im port duty for the listed products. India's national
tariff schedule therefore sets forth the applicable import duties that, in accordance with Section 12

502 Section 6.00(b) of the FTP.
503 See paras. 7.133 above, and 7.490 below.
504 Sections 6.00(a), 6.01(d)(i), 6.04, and 6.08 of the FTP.
505 Appellate Body Report, US – FSC (Article 21.5 – EC), para. 90; see also Appellate Body Report, US –
Large Civil Aircraft (2nd complaint), para. 809. On this "second step", see paras. 7.301-7.303 above.
506 See e.g. Panel Report, US – Tax Incentives, para. 7.118.
507 Customs Act (1962) as amended, Section 12 to Section 15, (Exhibit USA-8).
508 Excerpt from Customs Tariff Act (1975) as amended, First Schedule, (Exhibit USA-89). The
United States in footnote 259 of its first written submission referred to
http://www.cbic.gov.in/htdocs-cbec/customs/cst1718-020218/cst1718-0202-idx (accessed 8 January 2019)
which provides India's Customs Tariff Act (1975) and separately lists the chapters of its First Schedule. In
response to a request to this effect from the Panel, the United States submitted the first twenty pages of the
First Schedule as Exhibit USA-89. See also India's applied tariffs,
https://www.wto.org/english/thewto_e/countries_e/india_e.htm.

of the 1962 Customs Act, apply except as otherwise provided. Moreover, Sections 3(1), 3(3), and
3(5) of the 19 75 Customs Tariff Act provide for the possibility of imposing additional duties on
imports equal to the level of excise duty, sales tax, local taxes and other charges applicable on like
domestic goods.
7.320. Taxpayers subject to duties under the 1962 Cus toms Act and 1975 Customs Tariff Act are
importers of (any) goods into India. Taxpayers under the EOU/EHTP/BTP Schemes are, equally,
importers of "all types of goods" (subject to certain exclusions) into India. 509 Moreover, customs
duties are an indirect charge imposed on the goods themselves upon their importation, rather than
a direct tax that would vary, for example, based on taxpayers' income. Therefore, for the purpose
of an analysis of India's customs duties on importation, taxpayers subject to duties u nder
the 1962 and 1975 Acts, and taxpayers exempt from those duties under the EO U/EHTP/BTP
Schemes, are comparably situated.
7.321. We have asked both parties to identify the normative benchmark against which the
customs duty treatment under the EOU/EHTP/BTP Sche mes must be assessed. The parties have
not identified other elements of India's tax rules as forming part of the relevant normative
benchmark.510
7.322. We therefore consider that the tax structure and principles outlined in
paragraphs 7.318-7.320 provide the basis for identifying the treatment of comparable fiscal
situations, i.e. of the i mportation of goods into India by comparably situated taxpayers. The
express wording of the relevant statutes contemplates rates of customs duties applicable to "goods
imported into … India" ("[e]xcept as otherwise provided"). We also note that the EOU/EHT P/BTP
Schemes explicitly refer to the 1975 Customs Tariff Act as setting out the customs duty liability
from which EOU/EHTP/BTP Units are exempt 511, which provides a further indication that the tax
treatment under the 1975 Customs Tariff Act is the relevant benchmark for us to identify under
the second step in the analysis.512
7.323. We therefore consider that the customs duty liabilit y and rates set out under
Sections 3(1), 3(3) , and 3(5) and the First Schedule of the 1975 Customs Tariff Act are the
appropriate benchmark for comparison.
7.7.2.3 Third step: Comparison of the applicable treatment with the benchmark
7.324. We now turn to comparing the tax treatment identified under the first step in the analysis
with the benchmark identified in the second step in the analysis.513
7.325. As set out above, the 1975 Customs Tariff Act (at its First Schedule and Sections 3(1),
3(3), and 3(5)), in accordance with the 1962 Customs Act, provides that the importation of goods
into India is subject to the customs duties set out thereunder. By contrast, under Section 6.01(d)
of the FTP, EOU/EHTP/BTP Units may import goods into India "without payment of duty of customs
leviable thereon under the First Schedule to the Customs Tariff Act, 1975 and additional duty, if
any, leviable thereon under Section 3(1), 3(3) and 3(5) of the said Customs Tariff Act ". Therefore,
the 1975 Customs Tariff Act entitles India to collect the specified customs duties on the
importation of goods, and under the challenged EOU/EHTP/BTP Schemes India foregoes that
revenue in case of the importation of the same goods by participating Units.

509 Section 6.01(d) of the FTP.
510 United States' response to Panel question No. 48, para. 76; India's response to Panel question
No. 47, p. 38.
511 Section 6.01(d)(ii) of the FTP.
512 As we will see below, other schemes, too, provide for certain exemptions from customs duties. India
has not argued that, taken together, these schemes indicate that the rules set out in the Customs Act (1962)
and Customs Tariff Act (1975) are not the relevant benchmark. Based on the evidence before us, outside these
and possibly other schemes providing for certain exemptions, the applicable customs duties are those provided
for under the Customs Act (1962) and Customs Tariff Act (1975). The evidence before us does not lead us to
conclude that India's choice to provide for exemptions under a number of schemes disqualifies the duties under
the 1962 and 1975 Acts as a legitimately comparable benchmark. See also e.g. Panel Report, US – Tax
Incentives, para. 7.125.
513 Appellate Body Reports, US – Large Civil Aircraft (2nd complaint), para. 814; Brazil – Taxation,

7.326. We recall that the objective reason behind this different treatment is the promotion of
exports and investments.514 Consideration of this reason does not suggest that the different tax
treatment can be explained as treating different fiscal sit uations differently, rather than as the
foregoing of revenue otherwise due.
7.327. We therefore conclude that by exempting the importation of goods by EOU/EHTP/BTP Units
from customs duties, India foregoes revenue otherwise due within the meaning of
Article 1.1(a)(1)(ii), and therefore provides a financial contribution.
7.7.3 Whether India foregoes revenue otherwise due under the Export Promotion
Capital Goods Scheme
7.328. The United States argues that the EPCG scheme exempts a participant from the payment
of customs duties o therwise due on the import ation of capital goods used for export
pre-production, production, and post -production.515 According to the United States, comparably
situated enterprises importing the same capital goods must pay customs duties according to
India's national tariff schedule. The United States refers to the Indian customs legislation to show
that enterprises participating in the EPCG scheme receive an exemption from the payment of
customs duties that comparably situated enterprises in India must instead pay.516
The United States contends that therefore India foregoes revenue otherwise due within the
meaning of Article 1.1(a)(1)(ii).517
7.329. According to India, the customs duty exemption falls within the scope of footnote 1 and
Annexes I(g), I(h), and I(i), and therefore the appropriate comparison is not between comparably
situated enterprises, but rather between duties accrued and duties from which EPCG participants
were exempted.518
7.330. However, i n paragraph 7.310 above, we have already rejected India's argument in this
regard, because we have already found that the duty exemption under the EPCG Scheme falls
outside the scope of footnote 1. We therefore proceed with our analysis using the framework
discussed in paragraphs 7.297-7.308.
7.7.3.1 First step: Applicable treatment
7.331. We begin by identifying the tax treatment that allegedly constitutes a financial
contribution. Section 5.01(a) of the FTP provides that the "EPCG Scheme allow s import of capital
goods … for pre-production, production and post -production at zero customs duty ".519 That is, the
importation of capital goods under the EPCG Scheme is subject to a customs duty rate of zero.
7.332. Before turning to the second step in the analy sis, we consider the "objective reasons"
behind this duty treatment. 520 The underlying legislation states that the objectives of the EPCG
Scheme are "to facilitate import of capital goods for producing quality goods and services and
enhance India's manufacturing competitiveness ".521 Elsewhere, India has stated that "[t] he
objective of the EPCG Scheme is to facilitate import of capital goods for producing quality goods
and services to enhance India's export competitiveness ".522 Moreover, the scheme imposes an
export obligation, which also indicates that the promotion of export performance is the objective

514 See para. 7.316 above.
515 United States' first written submission, para. 72.
516 United States' first written submission, fn 130; response to Panel question No. 50, paras. 81-82.
517 United States' first written submission, para. 73.
518 India's first written submission, paras. 309-310; second written submission, para. 138 (referring to
Appellate Body Report, EU – PET (Pakistan), para. 5.79); responses to Panel questions No. 35, pp. 23-28,
No. 36, pp. 28-31, and No. 49, p. 39; and comments on the United States' responses to Panel question No. 50,
p. 17.
519 Emphasis added.
521 Section 5.00 of the FTP. (emphasis added)
522 MIS [Management Information System] Report on Export Promotion Schemes, (Exhibit USA-55),
Foreword and Chapter II, p. 10; Ministry of Commerce and Industry Department of Commerce, Annual Report,
2017-2018, (Exhibit USA-56), p. 64. (emphasis added)

reason for the duty treatment at issue523, and a further indication of this comes from the reference
to "export promotion" in the name of the scheme.524
7.7.3.2 Second step: Benchmark for comparison
7.333. As a second step, we identify the benchmark for comparison, i.e. the fiscal situation which
it is legitimate to compare. We recall that the challenged tax treatment consists of the customs
duty treatment of imported goods. The fiscal situation that it is legitimate to compare, therefore,
must be identified within India's regime for customs duties on the importation of goods.525
7.334. In paragraphs 7.318-7.319 above, we described the relevant customs rules that apply to
the importation into India of goods, including capital goods, under the 1962 Customs Act and the
1975 Customs Tariff Act. The 1962 Customs Act provides that the "duties of customs" at the rates
set forth under the 1975 Customs Tariff Act "shall be levied … on goods imported into India".
The First Schedule of the 1975 Customs Tariff Act lists the rates of duty applicable on importation,
by tariff heading and subheading, as required by the 1962 Customs Act.
7.335. Taxpayers exempt from duties on capital goods under the EPCG Scheme are importers of
capital goods into India. Taxpayers subject to duties on the importation of those same goods
under the 1962 Customs Act and 1975 Customs Tariff Act are, equally, importers of capital goods
into India. Moreover, customs duties are an indirect charge imposed on the goods themselves
upon their importation or exportation, rather than a direct tax that would vary, for example, based
on taxpayers' income. Therefore, for the purpose of an analysis of India's customs duties on the
importation of capital goods, taxpayers subject to duties under the 1962 and 1975 Acts, and
taxpayers exempt from those duties under the EPCG Scheme, are comparably situated.
7.336. We have asked both parties to identify the normative benchmark against which the tax
treatment under the EPCG Scheme must be assessed. The parties have not identi fied other
elements of India's tax rules as forming part of the relevant normative benchmark.526
7.337. We therefore consider that the customs duty liability and rates set forth under the
1962 Customs Act and the 1975 Customs Tariff Act are an appropriate benchmar k for assessing
whether India foregoes revenue under the EPCG Scheme.527
7.7.3.3 Third step: Comparison of the applicable treatment with the benchmark
7.338. We now compare the tax treatment identified under the first step in the analysis with the
benchmark identified in the second step in the analysis.
7.339. As set out above, the 1975 Customs Tariff Act , in accordance with the 1962 Customs Act,
provides that the importation of all goods (including capital goods) into India is subject to the
customs duties set out thereunder. B y contrast, under Section 5.01 of the FTP, EPCG participants
can import capital goods into India "at zero customs duty". Therefore, the 1975 Customs Tariff Act
entitles India to collect the specified customs duties on the importation of capital goods, wher eas
under the challenged EPCG Scheme India foregoes that revenue in case of the importation of the
same goods by participants in the scheme.
7.340. We recall that the reason for this different treatment is the promotion of manufacturing
and export competitiveness.528 Consideration of this reason does not suggest that the different tax
treatment is explained by differences in the underlying fiscal situation, and therefore does not
detract from our finding that India is foregoing revenue otherwise due.

523 Sections 5.01(c) and 5.04(b) of the FTP.
524 Heading of Chapter 5 of the FTP.
525 See e.g. Panel Report, US – Tax Incentives, para. 7.118.
526 United States' response to Panel question No. 50, paras. 81 and 82; India's response to Panel
question No. 49, p. 39.
527 See also fn 512 above.
528 See para. 7.332 above.

7.341. We therefore c onclude that, by exempting from customs duties the importation of capital
goods under the EPCG Scheme, India foregoes revenue otherwise due within the meaning of
Article 1.1(a)(1)(ii), and thus provides a financial contribution.
7.7.4 Whether India foregoes revenue otherwise due under the Special Economic Zones
Scheme
7.342. To recall, the US challenge in respect of the SEZ Scheme extends to529:
a. The exemption from customs duties on imports and exports530;
b. The exemption from IGST531; and
c. The deduction of export earnings from the income on which income tax is levied.532
7.343. The United States argues that SEZ Units benefit from exemptions from or reductions in
duties and taxes that would otherwise be due in the absence of the measure. 533 According to the
United States, enterprises that do not participate in the SEZ Scheme must generally pay these
duties and taxes. The United States refers to the Indian customs and tax legislation to show that
enterprises participating in the SEZ Scheme receive an exemption from, or reduction of, the
payment of customs duties and taxes that comparably situated enterprises in India must pay. 534
The United States contends that therefore the challenged exemptions and deductions under the
SEZ Scheme constitute financial contributions in the form of "government rev enue that is
otherwise due [that] is foregone or not collected" within the meaning of Article 1.1(a)(1)(ii).535
7.344. India argues that the United States has failed to establish that the challenged aspects of
the SEZ Scheme are export contingent. 536 India therefore asks the Panel not to consider whether
the challenged measures under the SEZ Scheme constitute subsidies within the meaning of
Article 1 of the SCM Agreement.537
7.345. Using the three-step framework for analysis discussed above, we will examine, in turn, the
exemption from customs duties, the exemption from IGST, and the deduction from corporate
income tax.
7.7.4.1 The exemption from customs duties on imports and exports
7.7.4.1.1 First step: Applicable treatment
7.346. We begin by identifying the challenged tax treatment through which India allegedly
foregoes revenue otherwise due, as well as considering the objective reasons for this tax
treatment.
7.347. Section 26(1)(a) of the SEZ Act provides for:

529 The United States only challenges this treatment insofar as accorded to SEZ "Units"; it does not
challenge (where applicable) the same treatment granted to developers of SEZs or entrepreneurs establishing
SEZ Units (United States' responses to Panel questions No. 74, para. 119 and No. 76, para. 121). For the
definitions of "developer", "entrepreneur" and "Unit", see paras. 7.147-7.149 above.
530 Section 26(1)(a) (for imports) and Section 26(1)(b) (for exports) of the SEZ Act.
531 Notification No. 15/2017, (Exhibit USA-27).
532 Section 27 and the Second Schedule of the SEZ Act; Income Tax Act, 1961, Sections 10A and 10AA,
(Exhibit USA-29).
533 United States' first written submission, paras. 110-117.
534 United States' first written submission, paras. 110, 112, 114, and 116; response to Panel question
No. 67, paras. 92-96.
535 United States' first written submission, paras. 105-106 and 109; second written submission,
para. 136.
536 India's first written submission, para. 329; opening statement at the meeting of the Panel,
para. 105; and response to Panel question No. 64, p. 51.
537 India's first written submission, para. 329; opening statement at the meeting of the Panel,
para. 105; responses to Panel questions No. 64, p. 51 and No. 66, p. 52.

[E]xemption from any duty of customs, under the Customs Act, 1962 or the Customs
Tariff Act, 1975 or any other law for the time being in force, on goods imported into,
or services provided in, a Special Economic Zone or a Unit, to carry on the authorized
operations by the Developer or entrepreneur.538
7.348. Similarly, Section 26(1)(b) of the SEZ Act provides for:
[E]xemption from any duty of customs, under the Customs Act, 1962 or the Customs
Tariff Act, 1975 or any other law for the time being in force, on goods exported from,
or services provided, from a Special Economic Zone or from a Unit, to any place
outside India.539
7.349. Thus, the SEZ Act exempts SEZ Units 540 from "any duty of customs, under the Customs
Act, 1962 or the Customs Tariff Act , 1975 or any other law for the time bei ng in force ", on the
importation and exportation of goods into and from India.541
7.350. Before turning to the second step in the analysis, we consider the objective reasons for
this fiscal treatment.542 India contends that the SEZ Scheme is not an export promotion s cheme543
and "cannot be reduced to the promotion of exports". 544 Instead, the scheme "is […] integral to
the maintenance of the sovereignty and integrity of India", and its measures are "designed to
increase the production capacity of the SEZ Units, and result in additional economic activity,
promotion of investment, and creation of employment opportunities".545
7.351. The opening paragraph of the SEZ Act describes it as an " Act to provide for the
establishment, development and management of the Special Economic Zones f or the promotion of
exports and for matters connected therewith or incidental thereto" .546 This suggests that the
central objective of the Act and the measure set forth in it is the promotion of exports, other
matters being "connected therewith or incidental thereto". Further, the NFE requirement is a
central operational characteristic of the SEZ Scheme, in line with the central objective of
promoting exports.547
7.352. In addition, Indian officials have stated 548 that "[t] he Special Economic Zones (SEZs)
scheme has be en a key instrument for promoting exports from India"549 and that " SEZ Act and
Rules provide a very competitive package for setting up export -oriented manufacturing and
services units "550. Likewise, India's Minister of Commerce and Industry observed that "SEZ
Schemes are important components of [India's] export promotion efforts contributing about

538 SEZ Act. (emphasis added)
539 SEZ Act. (emphasis added)
540 The United States' challenge in the present case does not extend to the exemptions, if any, afforded
to entities other than SEZ Units. (See fns 251 and 529 above).
541 See e.g. United States' first written submission, paras. 103, 112, and 114.
542 See para. 7.306 above.
543 India's first written submission, para. 321; second written submission, paras. 152-155.
544 India's first written submission, para. 322; second written submission, para. 149; and opening
statement at the meeting of the Panel, paras. 87 and 88.
545 India's second written submission, para. 154. (fn omitted)
546 First page of the SEZ Act.
547 India argues that the NFE requirement is not meant to induce exports (India's first written
submission, para. 348). We address this argument in the discussion of export contingency.
548 India objects to giving probative value to "the subjective statements of government officials".
We note however that with regard to the "objective reasons" behind the challenged tax and duty treatment,
previous panels have relied on published government statements explaining the objective of the challenged
measures, and press statements by government officials, as well as on the text of the relevant legislation or
instrument, the operation of the scheme, and other evidence. India's second written submission, para. 156.
See ibid., para. 157 and opening statement at the meeting of the Panel, para. 89; Panel Reports, Brazil –
Taxation, paras. 7.407, 7.409, 7.410, 7.486, 7.832, 7.833, 7.841, 7.1157, 7.1159-7.1162, and 7.1210; US –
Tax Incentives, paras. 7.62-7.63; and US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU),
paras. 8.875, 8.994-8.996, and 8.1035.
549 Address by Shri Anand Sharma (Annual Supplement 2013-2014 to the Foreign Trade Policy
2009-2014, (Exhibit USA-23), para. 25).
550 Nirmala Sitharaman, "SEZ scheme of India is quite comprehensive", Daily News and Analysis,
(20 December 2014), (Exhibit USA-24).

one-third of our national exports ".551 And India's Ministry of Electronics and Information
Technology recognizes the SEZ Scheme as an " export promotion scheme ".552 These statements
confirm what the text of the SEZ Act and the operational characteristics of the Scheme indicate,
namely, the central role of exp ort promotion as a reason for the measures comprising the
SEZ Scheme.
7.353. India points out that the SEZ Act also describes a range of considerations that must guide
the Central Government of India in discharging its functions under the SEZ Act. 553 These
considerations that must guide the Government include, together with the "promotion of exports
of goods and services", the generation of additional economic activity, the promotion of
investment from domestic and foreign sources, the creation of employment opportu nities, the
development of infrastructure facilities, and the maintenance of the sovereignty and integrity of
India, the security of the State and friendly relations with foreign States.554
7.7.4.1.2 Second step: Benchmark for comparison
7.354. As a second step, we identify the benchmark for comparison, i.e. the fiscal situations that
it is legitimate to compare. We recall that the challenged tax treatment consists of the customs
duty treatment of the importation and exportation of goods. The fiscal situation that it is legitimate
to compare, therefore, must be identified within India's regime for customs duties on the
importation and exportation of goods.555
7.355. Section 12 of India's 1962 Customs Act provides:
Except as otherwise provided in this Act, or any other law for the time being in force,
duties of customs shall be levied at such rates as may be specified under [the
Customs Tariff Act, 1975 (51 of 1975)], or any other law for the time being in force,
on goods imported into, or exported from, India.556
7.356. In accordance with Section 12 of the 1962 Customs Act, t he First Schedule of India's 1975
Customs Tariff Act 557 sets forth the rat e of import duty for the listed products 558, and the
Second Schedule of India's 1975 Customs Tariff Act sets forth the rate of export duty for the listed
products.559
7.357. We have asked both parties to identify the normative benchmark against which the
exemption from customs duties on importation and exportation under the SEZ Scheme must be
assessed. The parties have not identified other elements of India's tax ru les as forming part of the
relevant normative benchmark.560
7.358. We also note that the SEZ Act explicitly refers to the 1962 Customs Act and the
1975 Customs Tariff Act (and "any other law for the time being in force", which is also the wording
used in the 1962 Customs Act) as laying down the duties with regard to which it sets forth
"exemption[s]".561
7.359. Taxpayers subject to duties on importation and exportation under the 1962 Customs Act
and 1975 Customs Tariff Act are importers or exporters, respectively, of goods. Taxpayers exempt

551 "Export Champions", The Economic Times, (12 February 2018), (Exhibit USA-4).
552 Export Promotion Schemes, (Exhibit USA-35).
553 Section 5 of the SEZ Act. See also India's second written submission, para. 154.
554 Section 5 of the SEZ Act.
555 See e.g. Panel Report, US – Tax Incentives, para. 7.118.
556 Customs Act (1962) as amended, Section 12 to Section 15, (Exhibit USA-8).
557 Excerpt from Customs Tariff Act (1975) as amended, First Schedule, (Exhibit USA-89). See fn 508
above.
558 United States' first written submission, para. 112; response to Panel question No. 67, para. 95.
559 Customs Tariff Act, (Exhibit USA-31), Second Schedule; United States' first written submission,
560 United States' response to Panel question No. 67, paras. 94-95; India's response to Panel question
No. 66, p. 52; and comments on the United States' response to Panel question No. 67.
561 Section 26(1)(a)-(b) of the SEZ Act. As regards customs duties on importation, see also fn 512
above.

from those duties under the SEZ Scheme are, equally, importers or exporters of goods. Moreover,
customs duties are an indirect charge imposed on the goods themselves upon their importation or
exportation, rather tha n a direct tax that would vary, for example, based on taxpayers' income.
Therefore, for the purpose of an analysis of India's customs duties on importation and exportation,
taxpayers subject to duties under the 1962 and 1975 Acts, and taxpayers exempt from those
duties under the SEZ Scheme, are comparably situated.
7.360. We therefore consider that the customs duty liabilities and rates set out under the
1962 Customs Act and the 1975 Customs Tariff Act for the importation and exportation of goods
are the appropriate benchmark for comparison.
7.7.4.1.3 Third step: Comparison of the applicable treatment with the benchmark
7.361. As a third step, we compare the tax treatment identified under the first step in the analysis
with the benchmark treatment identified in the second step in the analysis.
7.362. As described above, the 1962 Customs Act provides that goods imported into, or exported
from, India, are subject to the customs duties set forth in the 1975 Customs Tariff Act (and "any
other law for the time being in force" 562). By contrast, t he SEZ Act exempts goods imported or
exported by SEZ Units from those same customs duties. Therefore, under the SEZ Scheme, India
foregoes revenue otherwise due in the form of customs duties on goods imported or exported by
SEZ Units.
7.363. We recall our earlier finding that the promotion of exports is a key reason behind the
SEZ Scheme, as well as our observation that, according to India, other reasons for the Scheme
include the generation of additional economic activity, investment, and employment, and the
maintenance of India's sovereignty. 563 None of these reasons explains the different tax treatment
otherwise than as the foregoing of revenue, and therefore none of these reasons detracts from our
finding that India is foregoing revenue otherwise due.
7.364. We therefor e conclude that by exempting from customs duties the importation and
exportation of goods by SEZ Units, India foregoes revenue otherwise due within the meaning of
Article 1.1(a)(1)(ii), and thus provides a financial contribution.
7.7.4.2 The exemption from IGST
7.7.4.2.1 First step: Applicable treatment
7.365. Turning to the exemption from IGST, we begin by identifying the challenged tax treatment.
This is set out in Notification No. 15/2017, which:
exempts all goods or services or both imported by a unit or a developer in the Special
Economic Zone, from the whole of the integrated tax leviable thereon under
sub-section (7) of section 3 of the Customs Tariff Act, 1 975 (51 of 1975) for
authorised operations.564
7.366. Thus, Notification No. 15/2017 exempts SEZ Units from payment of IGST on the
importation of goods.565
7.367. We have considered the reasons for the fiscal treatment under the SEZ Scheme in
paragraphs 7.350-7.353, and we refer to that discussion, which applies equally here.

562 Customs Act (1962) as amended, Section 12 to Section 15, (Exhibit USA-8), Section 12.
563 See paras. 7.350-7.353 above.
564 Notification No. 15/2017, (Exhibit USA-27). Notification No. 15/2017 refers to the importation by an
SEZ Unit or an SEZ developer. However, the United States' challenge in the present case is limited to the
exemption granted to SEZ Units. (See fns 251 and 529 above).
565 Notification No. 15/2017 "exempts … goods or services". But as we will see below, the provision
derogated from, i.e. Section 3(7) of the Customs Tariff Act (1975), only refers to "articles". The United States,
too, only refers to an exemption as it relates to goods: see e.g. United States' first written submission,
paras. 116 and 117.

7.7.4.2.2 Second step: Benchmark for comparison
7.368. As a second step, we ident ify the benchmark for comparison, i.e. the fiscal situations that
it is legitimate to compare. We recall that the challenged tax treatment consists of an exemption
from IGST on the importation of goods, where IGST is an "integrated goods and services tax",
similar to value added tax, which is levied on interstate transactions and on import transactions. 566
The fiscal situation that it is legitimate to compare, therefore, must be identified within India's
regime for such taxes as it applies to the importation of goods.567
7.369. Section 5(1) of the IGST Act stipulates that:
[T]here shall be levied a tax called the integrated goods and services tax on all
inter-State supplies of goods or services … at such rates, not exceeding forty per cent,
as may be not ified by the Government … [p]rovided that the integrated tax on goods
imported into India shall be levied and collected in accordance with the provisions of
section 3 of the Customs Tariff Act, 1975 [concerning the levy of additional duty equal
to excise d uty, sales tax, local taxes and other charges] on the value as determined
under the said Act at the point when duties of customs are levied on the said goods
under section 12 of the Customs Act, 1962.568
7.370. Section 3(7) of the 1975 Customs Tariff Act provides that:
Any article which is imported into India shall, in addition, be liable to integrated tax at
such rate, not exceeding forty per cent as is leviable under section 5 of the Integrated
Goods and Services Tax Act, 2017 on a like Article on its supply in India, on the value
of the imported article as determined under sub -section (8) or sub-section (8A), as
the case may be.569
7.371. Thus, taken together, Section 5(1) of the IGST Act and Section 3(7) of the 1975 Customs
Tariff Act impose the applicable IGST on all goods imported into India.
7.372. Pursuant to Section 6 of the IGST Act, the Government may lay down exemptions from
IGST where it "is satisfied that it is necessary in the public interest". 570 It may lay down
exemptions "generally" for "goods or services or both of any specified description", "either
absolutely or subject to such conditions as may be specified therein". 571 Or, "under circumstances
of an exceptional nature", it may individually exempt from payment of the IGST "goods or services
… on which tax is leviable".572
7.373. Notification No. 15/2017, which sets out the challenged tax exemption, was adopted "[i]n
exercise of the powers conferred by sub -section (1) of section 6 of the Integrated Goods and
Service Tax Act, 2017"573, i.e. it was expressly worded as a derogation from the IGST liability that
is otherwise set forth in the IGST Act. Further, Notification No. 15/2017 is expressly worded as an
exemption from Section 3(7) of the 1975 Customs Tariff Act, i.e. the provision extending the IGST
to imports.

566 Integrated Goods and Services Tax Act, (Exhibit USA-32), Section 5(1).
567 See e.g. Panel Report, US – Tax Incentives, para. 7.118.
568 Integrated Goods and Services Tax Act, (Exhibit USA-32), Section 5(1). The applicable tax rates can
be found at: https://cbec-gst.gov.in/gst-goods-services-rates.html (accessed on 25 March 2019), also
submitted as Indian Ministry of Finance, Department of Revenue website, Rates of Goods and Services Tax
(accessed 14 March 2019), (Exhibit USA-65).
569 Customs Tariff Act (1975) as amended, (Exhibit USA-87), Section 3(7). The United States initially
submitted a version of the Customs Tariff Act (1975), (Exhibit USA-7) that contained an outdated version of
Section 3(7). In response to a request to this effect from the Panel, the United States submitted the updated
version of the Customs Tariff Act (1975), including the updated Section 3(7), as Exhibit USA-87.
570 Integrated Goods and Services Tax Act, (Exhibit USA-32), Sections 6(1)-(2).
571 Integrated Goods and Services Tax Act, (Exhibit USA-32), Section 6(1).
572 Integrated Goods and Services Tax Act, (Exhibit USA-32), Section 6(2).
573 Notification No. 15/2017, (Exhibit USA-27).

7.374. In response to our request to parties that they identify the relevant normative benchmark,
neither party has identified elements of India's tax regime other than those set out above.574
7.375. Taxpayers subject to IGST on imported goods under the 1962 Customs Act and 1975
Customs Tariff Act are importers of goods into India. Taxpayers exempt from IGST under the SEZ
Scheme are, equally, importers of goods into India. Moreover, the IGST is an indirect tax imposed
on the goods themselves (for present purposes, upon the importation of the goods), rather than a
direct tax that would vary, for example, based on taxpayers' income. Therefore, taxpayers subject
to IGST on importation under the 1975 Customs Tariff Act, and taxpayers exempt from IGST on
importation under the SEZ Scheme, are comparably situated.
7.376. We therefore consider that the IGST liability and rates set out under the IGST Act and the
1975 Customs Tariff Act for the importation of goods are the appropriate benchmark for
comparison.
7.7.4.2.3 Third step: Comparison of the applicable treatment with the benchmark
7.377. As a third step, we compare the tax treatment identified under the first step in the analysis
with the benchmark treatment identified in the second step in the analysis, also taking into
account the reasons behind the challenged tax treatment.
7.378. As described above, Section 3(7) of the 1975 Customs Tariff Act, extending Section 5(1) of
the IGST Act to imported goods, entitles India to collect the IGST on "[a]ny article which is
imported into India". By contrast, Notification No. 15/201 7, expressly derogating from Section
3(7) of the 1975 Customs Tariff Act, provides that the IGST shall not be levied on goods imported
by an SEZ Unit. Therefore, under the SEZ Scheme, India foregoes revenue otherwise due in the
form of the IGST on imported goods.
7.379. We recall our earlier finding that the promotion of exports is a key reason behind the
SEZ Scheme, as well as our observation that, according to India, other reasons for the Scheme
include the generation of additional economic activity, investment, and employment, and the
maintenance of India's sovereignty. 575 None of these reasons explains the different tax treatment
otherwise than as the foregoing of revenue, and therefore none of these reasons detracts from our
finding that India is foregoing revenue otherwise due.
7.380. We therefore conclude that by exempting from IGST the importation of goods by
SEZ Units, India foregoes revenue otherwise due within the meaning of Article 1.1(a)(1)(ii) , and
thus provides a financial contribution.
7.7.4.3 The deduction from corporate income tax
7.381. We now turn to the challenged deduction from the base on which income tax is levied.
7.7.4.3.1 First step: Applicable treatment
7.382. We begin by identifying the challenged tax treatment through which India allegedly
foregoes revenue otherwise due.
7.383. Section 27 of the SEZ Act provides that:
The provisions of the Income-tax Act, 1961, as in force for the time being, shall apply
to, or in relation to, the Developer or entrepreneur for carrying on the authorised
operations in a Special Economic Zone or Unit subject to the modifications specified in
the Second Schedule.576

574 United States' response to Panel question No. 67, paras. 94-95; India's response to Panel question
No. 66, p. 52; and comments on the United States' response to Panel question No. 67.
575 See paras. 7.350-7.353 above.
576 SEZ Act.

7.384. The Second Schedule of the SEZ Act modifies India's 1961 Income Tax Act in relevant part
to the effect that:
Subject to the provisions of this section, in computing the total income of an assessee,
being an entrepreneur as referred to in clause (j) of section (2) of the Special
Economic Zones Act, 2005, from his Unit, who begins to manufacture or produce
articles or things or provide any services during the previous year relev ant to any
assessment year commencing on or after the 1st day of [April, 2006, a deduction of]—
(i) hundred per cent of profits and gains derived from the export, of such articles or
things or from services for a period of five consecutive assessment years beginning
with the assessment year relevant to the previous year in which the Unit begins to
manufacture or produce such articles or things or provide services, as the case may
be, and fifty per cent of such profits and gains for further five assessment y ears and
thereafter[.]577
7.385. Thus, the SEZ Act and its Second Schedule, and the Income Tax Act as accordingly
amended, entitle SEZ Units to deduct from taxable income 100% of profits from exports of goods
and services during the first five years of operation, and 50% for five further years.
7.386. We have considered the reasons for the fiscal treatment under the SEZ Scheme in
paragraphs 7.350-7.353, and we refer to that discussion, which applies equally here.
7.7.4.3.2 Second step: Benchmark for comparison
7.387. As a second step, we identify the benchmark for comparison, i.e. the fiscal situations which
it is legitimate to compare.
7.388. As we have seen above, the United States challenges tax treatment consisting of a
deduction granted by India "in computing the total income of" an SEZ entrepreneur from an SEZ
Unit, for purposes of the Income Tax Act. 578 Specifically, with regard to goods, SEZ entrepreneurs
are allowed to deduct from the total income of SEZ Units all or part of the "profits and gains
derived from the export of … articles or things or … services".579
7.389. The benchmark for comparison, therefore, must be the t ax treatment of "legitimately
comparable income" 580 "for taxpayers in comparable situations". 581 By way of example, income
might not be legitimately comparable "if the measure at issue involves income earned in sales
transactions, [and that income is compared with] employment income".582 As for the comparability
of taxpayers, again by way of example, "a domestic corporation" might not be comparably situated
to a "foreign corporation". 583 Thus, in the case of income from export sales earned by SEZ Units,
which are l ocated in India, the income earned by other undertakings located in India from the
exportation of goods and services provides an appropriate benchmark for comparison.
7.390. To identify the benchmark for comparison, the United States relied on Section 80A of
India's 1961 Income Tax Act. This provision, titled "[d] eductions to be made in computing total
income", states in relevant part:

577 SEZ Act; Income Tax Act, 1961, Sections 10A and 10AA, (Exhibit USA-29) (fn omitted). The cited
language is from Section 10AA. Section 10A provided for the equivalent deduction for SEZ Units having begun
production before the year preceding "the assessment year commencing on or after the 1st day of April, 2006",
and which were initially located in a free trade zone or export processing zone.
578 Second Schedule of the SEZ Act; Income Tax Act, 1961, Sections 10A and 10AA, (Exhibit USA-29),
Section 10AA.
579 Second Schedule of the SEZ Act; Income Tax Act, 1961, Sections 10A and 10AA, (Exhibit USA-29),
Section 10AA.
580 Appellate Body Report, US – FSC (Article 21.5 – EC), para. 91.
581 Appellate Body Report, US – FSC (Article 21.5 – EC), para. 92. See also ibid. para. 98 ("the fiscal
treatment of comparable income, in the hands of taxpayers in similar situations").
582 Appellate Body Report, US – FSC (Article 21.5 – EC), para. 90.
583 Appellate Body Report, US – FSC (Article 21.5 – EC), para. 92.

(1) In computing the total income of an assessee, there shall be allowed from his
gross total income, in accordance with and subject to the provisions of this Chapter,
the deductions specified in sections 80C to [80U].584
7.391. Because this provision expressly enu merates the deductions that are allowed "[i]n
computing the total income of an assessee", the United States infers from it that, "as a general
rule, profits are not deductible", and considers that this inability to deduct profits is the
appropriate benchmark for comparison.585
7.392. India does not contest the United States' reliance on Section 80A. 586 However, India points
out that this provision together with the deductions specified in Sections 80C to 80U show that
"the Income Tax Act, 1961, allows for a range of deductions", and that "the deduction of profits is
not restricted to the profits earned by enterprises engaged in SEZ / SEZ Development". 587 India
points to several examples of profits that can or could be deducted from taxable income, including
profits from certain undertakings in backward areas, profits from exports (which could be deducted
until, and not after, 2005), profits "derived … from any business of developing a Special Economic
Zone", and profits from certain undertakings "in any of the North -Eastern States" (which could be
deducted between 2007 and 2017).588
7.393. The Appellate Body has urged panels assessing allegations of revenue foregone "to
develop an understanding of the tax structure and principles that best explains that Member 's tax
regime, and to provide a reasoned basis for identifying [the benchmark]".589 We therefore review
the legislation relied upon by both parties to develop an understanding of the "tax structure and
principles" that are relevant to India's tax treatment of income, and in part icular of income from
export sales.
7.394. First, in reviewing the provisions allowing for tax deductions and enumerated in Section
80A, we note that, for a time, taxpayers resident in India could deduct a certain proportion of
profits from export sales, but that no such deduction is "allowed in respect of the assessment year
beginning on the 1st day of April, 2005 and any subsequent assessment year".590
7.395. Second, we note that, as pointed out by India, Sections 80C to 80U allow a "range" 591 of
other deductions of profi ts from taxable income, including for example profits from certain
undertakings in backward areas, from the business of developing an SEZ and, until 2017, from
certain undertakings in the North -Eastern States. We do not, however, see these deductions as
coalescing into some general rule according to which the deduction is the rule.592 Rather, India
appears to have selected a range of disparate situations in which it allows, indefinitely or for a
finite period of time, the deduction of profits from taxable inc ome, all the while maintaining its

584 Income Tax Act, 1961, Section 80A, (Exhibit USA-30) (fn omitted), cited in United States' first
written submission, para. 110; and United States' responses to Panel questions No. 63, paras. 89-90 and
No. 67, para. 93.
585 United States' responses to Panel questions No. 63, para. 90 and No. 67, para. 93.
586 As a general matter, India's position is that, because the SEZ Scheme is not export contingent, India
need not address the arguments going to the existence of a subsidy. (India's first written submission,
para. 329; second written submission, paras. 187-189; and comment on the United States' response to Panel
question No. 67).
587 India's comments to the United States' response to Panel question No. 63.
588 Income Tax Act, 1961, Sections 80HH, 80HHC, 80IAB, and 80IE, referred to in India's comments to
the United States' response to Panel question No. 63. Instrument No. 26 in Communication dated
22 January 2019 from the Panel to the parties concerning the Panel's terms of reference, the applicability of
Article 4 of the SCM Agreement and the statement of available evidence (Annex D-2), annex A;
Exhibits USA-84 and IND-23.
589 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 813. See para. 7.303 above.
590 Income Tax Act, Section 80HHC, referred to in India's comments on the United States' response to
Panel question No. 63. Instrument No. 26 in Communication dated 22 January 2019 from the Panel to the
parties concerning the Panel's terms of reference, the applicability of Article 4 of the SCM Agreement and the
statement of available evidence (Annex D-2), annex A; Exhibits USA-84 and IND-23.
591 India's comments on the United States' response to Panel question No. 63.
592 Compare Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 815 ("we note that a
domestic tax system may be so replete with exceptions that the rate applicable to the general category of
income in fact no longer represents the 'general rule' but, rather, the 'exception'").

entitlement, outside those situations specifically provided for, to treat profits as part of taxable
income.
7.396. Third, in examining the "tax structure and principles" as evidenced in the Income Tax Act,
we note that where a "Central Act" provides that income tax will be charged, it must be "charged
… in accordance with … the provisions … of" the Income Tax Act, "in respect of the total income of
the previous year of every person". 593 For that purpose, the Income Tax Act defines the "scope of
total income". It provides that, subject to the provisions of the Income Tax Act, the "total income"
of residents includes "all income from whatever source derived which (a) is received … in India by
or on behalf of such a person; or (b) accrues or arises … to him in India …; or (c) accrues or arises
to him outside India …".594
7.397. Taken together, these provisions of the Income Tax Act therefore outline a system in which
the definition of income is broad and encompasses profits from export sales, w hile at the same
time India has chosen, in a range of disparate situations, to allow certain deductions from profits,
including, to this day, the deduction of profits from export sales of SEZ Units.
7.398. Our review of the relevant provisions therefore confirms to us the inference drawn by the
United States from Section 80A, i.e. that the benchmark treatment of income is that the income is
included in (and not deducted from) the taxable income, and it confirms to us that this inference is
also specifically valid for income from export sales by undertakings which, like SEZ Units, are
situated in India.
7.399. We therefore conclude that the benchmark for comparison is that "profits and gains" from
the export of goods are included in the taxable income of the undertakings to whom those profits
and gains accrue.
7.7.4.3.3 Third step: Comparison of the applicable treatment with the benchmark
7.400. As a third step, we compare the tax treatment identified under the first step in the analysis
with the benchmark treatment identified in the second step in the analysis.
7.401. As set out above, the SEZ Act, modifying in relevant part the Income Tax Act, provides
that SEZ entrepreneurs may deduct from the taxable income of their SEZ Unit 100% of profits and
gains from the export of goods during the first five years after the Unit has started "to
manufacture or produce" such goods, and 50% of such profits for a further five years. 595
By contrast, such income from export sales would otherwise be included in the taxable income
under the Income Tax Act.596
7.402. We have found that the promotion of exports is a key reason for the different tax
treatment afforded under the SEZ Scheme, and we have also noted India's contention that other
reasons for the Scheme include the generation of additional economic activity, inve stment, and
employment, and the maintenance of India's sovereignty. 597 None of these reasons explains the
different tax treatment otherwise than as the foregoing of revenue otherwise due, and therefore,
like for the other prongs of the SEZ Scheme, consideration of the objective reasons behind the tax
treatment does not detract from our finding that India is foregoing revenue otherwise due.
7.403. We therefore conclude that, by allowing SEZ entrepreneurs to deduct all or half of profits
and gains from exports from th e taxable income of SEZ Units during two consecutive periods of
five years, India foregoes the revenue otherwise due to it in the form of tax on that income, and

593 Income Tax Act, Section 4. Instrument No. 26 in Communication dated 22 January 2019 from the
Panel to the parties concerning the Panel's terms of reference, the applicability of Article 4 of the
SCM Agreement and the statement of available evidence (Annex D-2), annex A; Exhibits USA-84 and IND-23.
594 Income Tax Act, Section 5. Instrument No. 26 in Communication dated 22 January 2019 from the
Panel to the parties concerning the Panel's terms of reference, the applicability of Article 4 of the
SCM Agreement and the statement of available evidence (Annex D-2), annex A; Exhibits USA-84 and IND-23.
595 See paras. 7.383-7.385 above.
596 See paras. 7.390-7.399 above.
597 See paras. 7.350-7.353 above.

thus provides a financial contribution within the meaning of Article 1.1(a)(1)(ii) of the
SCM Agreement.
7.7.5 Whether India foregoes revenue otherwise due under the Duty-Free Imports for
Exporters Scheme
7.404. The United States argues that DFIS exempts importers from the payment of customs
duties that would otherwise be due on the import ation of particular goods in the absence of the
measure598, up to the value of that participant's duty -free entitlement under DFIS.599 According to
the United States, comparably situated enterprises importing the same products must pay customs
duties according to India's national tariff schedule. The United States refers to the Indian customs
legislation to show that , under DFIS, enterprises receive an exemption from the payment of
customs duties that comparably situated enterprises in India must pay. 600 The United States
contends that therefore DFIS provides exemptions from customs duty which constitute revenue
foregone within the meaning of Article 1.1(a)(1)(ii).601
7.405. According to India, the customs duty exemption falls within the scope of footnote 1 and
Annex I(i), and ther efore the appropriate comparison is not between comparably situated
enterprises, but rather between duties accrued and duties from which DFIS participants are
exempted.602
7.406. In paragraph 7.310 above, however, we have already rejected India's argument in this
regard. To recall, we have found that, among the nine Conditions/duty stipulations comprising
DFIS, Conditions 36, 60(ii), and 61, in their entirety, and Conditions 1 0 and 21, for one and six
items respectively, fall outside the scope of footnote 1. 603 It is therefore for these Conditions/duty
stipulations that we examine whether India is providing a financial contribution by foregoing
revenue that is otherwise due.
7.7.5.1 First step: Applicable treatment
7.407. As a first step, we identify the challenged tax treatment. The pairings of Conditions and
duty stipulations at issue are set out in Notification No. 50/2017. This provides, in relevant part:
In exercise of the powers conferred by sub-section (1) of section 25 of the Customs
Act, 1962 … and sub -section (12) of section 3, of Customs Tariff Act, 1975 … the
Central Government, on being satisfied that it is necessary in the public interest so to
do, hereby exempts the goods [identifi ed in Customs Notification No. 50/2017] when
imported into India,-
(a) from so much of the duty of customs leviable thereon under the said First
Schedule [of the 1975 Customs Tariff Act] as is in excess of the amount calculated at
the standard rate specified in the corresponding entry in column (4) of the said Table ;
…
subject to any of the conditions, specified in the Annexure to this notification[.]604
7.408. For the Line Numbers at issue, Notification No. 50/2017 indicates "Nil" as the "Standard
rate" of c ustoms duties. 605 Thus, under Notification No. 50/2017, participating enterprises are
exempt from import duties subject to meeting the relevant Conditions.

598 United States' first written submission, paras. 152-156.
599 United States' first written submission, para. 154.
600 United States' first written submission, para. 155; response to Panel question No. 84, paras. 143
and 144.
602 India's first written submission, para. 391 and 392; second written submission, para. 203 (referring
to Appellate Body Report, EU – PET (Pakistan), para. 5.79); responses to Panel questions No. 35, p. 23-28,
No. 36, p. 28-31 and No. 83, p. 61; and comments on the United States' responses to Panel question No. 84,
p. 25.
603 See para. 7.267 above.
604 Notification No. 50/2017, (Exhibit USA-36), p. 1.

7.409. Before turning to the second step in the analysis, we consider the "objective reasons"
behind this duty treatment.606 Notification No. 50/2017 does not provide any express statement of
objectives. However, it ties the value of goods eligible for customs duty exemption to the value of
past export performance, which indicates that the promotion of export perfo rmance underlies the
duty treatment at issue, as argued by the United States. India has not identified a different
objective, and has argued that DFIS was intended as a drawback of customs duties related to
exported products607, an argument which is consiste nt with the view that the reason behind DFIS
is the promotion of exports.
7.7.5.2 Second step: Benchmark for comparison
7.410. As a second step, we identify the benchmark for comparison, i.e. the fiscal situations which
it is legitimate to compare. We recall that the cha llenged tax treatment consists of customs duties
on the importation of goods. The fiscal situation which it is legitimate to compare, therefore, must
be identified within India's regime for customs duties on the importation of goods.608
7.411. Section 12 of India' s 1962 Customs Act provides that "[e]xcept as otherwise provided …
duties of customs shall be levied at such rates as may be specified under [the Customs Tariff
Act, 1975] … on goods imported into … India".609 The First Schedule of India's 1975 Customs Tariff
Act accordingly sets forth the rate of import duty for the listed products.
7.412. In response to questioning from the Panel, the parties have not identified other elements
of India's tax rules as forming part of the relevant normative benchmark.610
7.413. We also note that Notification No. 50/2017, itself, refers to the First Schedule of the
1975 Customs Tariff Act as the norm it departs from.611
7.414. Taxpayers exempt from duties on the listed goods under DFIS are importers of those
goods into India. Taxpayers subject to duti es on the importation of those same goods under the
1962 Customs Act and 1975 Customs Tariff Act are, equally, importers of the same goods into
India. Moreover, customs duties are an indirect charge imposed on the goods themselves upon
their importation or exportation, rather than a direct tax that would vary, for example, based on
taxpayers' income. Therefore, for the purpose of an analysis of India's customs duties on the
importation of capital goods, taxpayers subject to duties under the 1962 and 1975 Ac ts, and
taxpayers exempt from those duties under DFIS, are comparably situated.
7.415. We therefore consider that the customs duty liability and rates set forth in the First
Schedule of the 1975 Customs Tariff Act 1975, in accordance with the 1962 Customs Act, ar e the
appropriate benchmark for comparison.612
7.7.5.3 Third step: Comparison of the applicable treatment with the benchmark
7.416. We now turn to comparing the tax treatment identified under the first step in the analysis
with the benchmark treatment identified in the second step in the analysis.
7.417. As seen above, the First Schedule of the 1975 Customs Tariff Act sets forth the rates of
customs duty that, pursuant to the 1962 Customs Act, apply to goods imported into India. By
contrast, for the Line Numbers at issue, DFIS re duce those duty rates to zero for participating
enterprises (until they reach the ceiling placed on their duty-free entitlement under DFIS).

605 Notification No. 50/2017, (Exhibit USA-36), table, column (4).
606 See para. 7.306 above.
607 India's first written submission, paras. 388-390.
608 See e.g. Panel Report, US – Tax Incentives, para. 7.118.
609 Customs Act (1962) as amended, Section 12 to Section 15, (Exhibit USA-8).
610 United States' response to Panel question No. 84, para. 144; India's response to Panel question
No. 83, p. 61.
611 Notification No. 50/2017, (Exhibit USA-36), p. 1.
612 See also fn 512 above.

7.418. Our review of the limited evidence and arguments regarding the reasons for this difference
in tax treatment 613 has di sclosed nothing that would detract from our finding that India is
foregoing revenue otherwise due.
7.419. We therefore conclude that, through the duty stipulations that correspond to
Conditions 10, 21, 36, 60(ii), and 61, India foregoes revenue otherwise due within the meaning of
Article 1.1(a)(1)(ii), and thus provides a financial contribution.
7.8 Direct transfer of funds under Article 1.1(a)(1)(i)
7.420. This section assesses the United States' contention that the provision of scrips under MEIS
is a direct transfer of funds by India, and thus a financial contribution, within the meaning of
Article 1.1(a)(1)(i).614
7.421. India responds that MEIS scrips are merely a mechanism to remit indirect taxes already
paid. According to India, therefore, they are not a direct transfer of funds but an exemption or
remission consistent with footnote 1 read together with Annexes I(g), I(h), or I(i).615 However, we
have already found that MEIS does not meet the conditions of footnote 1 read together with
Annexes I(g), I(h), and I(i).616
7.422. Further, I ndia argues that the United States has not shown that MEIS scrips "can be
equated to or are similar to the examples" of direct transfer of funds in Article 1.1(a)(1)(i), namely
"grants, loans, and equity infusions".617
7.423. Below, we recall the legal standard app licable to direct transfers of funds pursuant to
Article 1.1(a)(1)(i) and then examine whether the provision of MEIS scrips is a direct transfer of
funds.618
7.8.1 The applicable legal standard under Article 1.1(a)(1)(i)
7.424. Article 1.1(a) of the SCM Agreement provides, in relevant part:
1.1 For the purpose of this Agreement, a subsidy shall be deemed to exist if:
(a)(1) there is a financial contribution by a government or any public body within the
territory of a Member (referred to in this Agreement as "government"), i.e. where:
(i) a government practice involves a direct transfer of funds (e.g. grants, loans, and
equity infusion), potential direct transfers of funds or liabilities (e.g. loan
guarantees)[.]
7.425. Thus, a government practice involving a direct transfer of funds constitutes a financial
contribution.

613 See para. 7.409 above.
614 United States' first written submission, paras. 56-57. The United States does not exclude that MEIS
scrips could additionally be characterized as financial contributions in the form of government revenue
foregone under Article 1.1(a)(1)(ii) of the SCM Agreement. (United States' responses to Panel questions
No. 54, para. 85 and No. 55, para. 87; comments on India's response to Panel question No. 57, paras. 124
and 125).
615 India's first written submission, paras. 231-236 and 245-278; second written submission,
paras. 96-98 and 100-118; opening statement at the meeting of the Panel, paras. 65-76; responses to Panel
questions No. 57, No. 60, and No. 62; and comments on the United States' responses to Panel questions
No. 54 and No. 55.
616 See para. 7.294 above.
617 E.g. India's first written submission, para. 251.
618 The parties do not dispute that the scrips are provided "by a government" within the meaning of
Article 1.1(a)(1). As will be seen below, scrips are provided by the Government of India in accordance with the
Foreign Trade Policy, which is an administrative instrument adopted by the Government. Therefore, to the
extent it is established that the provision of scrips is a direct transfer of funds, we are satisfied that this
financial contribution is "by a government" within the meaning of Article 1.1(a)(1).

7.426. The focus of subparagraph (i), like of the other subparagraphs of Article 1.1(a)(1), is
"primarily on the action taken by the government or a public body". 619 Under the fir st clause of
this subparagraph, the action is a "direct transfer of funds", where "the term ' funds' encompasses
not only 'money', but also financial resources and other financial claims more generally ".620 The
phrase "direct transfer of funds" within the mea ning of Article 1.1(a)(1)(i) "therefore captures
conduct on the part of the government by which money, financial resources, and/or financial
claims are made available to a recipient".621
7.427. Article 1.1(a)(1)(i) also provides examples of a direct transfer of fu nds, namely, "grants,
loans, and equity infusion": the list is illustrative, and the examples provide "an indication of the
type of transactions intended to be covered by the more general reference to 'direct transfer of
funds'".622
7.428. While "the types of fina ncial contributions set out in Article 1.1(a)(1) are [not] the same" ,
the subparagraphs are not mutually exclusive, i.e. it is possible for the same transaction to "fall
under more than one type of financial contribution".623
7.8.2 Whether MEIS involves a direct transfer of funds
7.429. Pursuant to the Foreign Trade Policy, the Government of India "grant[s]" scrips, under
MEIS, as a reward for exports. 624 Scrips have a value which is the result of multiplying the
recipient's FOB value of exports by reward rates that vary by product exported and country of
export.625 As we now turn to discussing, a recipient of scrips may either use them to offset certain
liabilities vis-à-vis the Government of India, or transfer them to third parties for consideration.
7.430. First, scrips may be us ed to pay for (a) basic and additional customs duties applying on
importation under the 1975 Customs Tariff Act (with some exclusions), (b) excise duties on goods
purchased domestically, and (c) certain other fees and charges owed to the Government, such a s
charges for failing to fulfil one's export obligations under certain other Government schemes.626
7.431. Second, scrips are "freely transferable".627 There was some factual disagreement between
the parties as to the meaning of "freely transferable". The United Sta tes argued this means that
the scrips can be sold for cash to third party recipients, and provided evidence of online
marketplaces where such transactions take place. 628 India argued that the legislation setting forth
MEIS "does not state that the scrip can be sold for cash nor does it mandate that the scrip must be
sold for cash", regardless of whether "in practice, the scrip(s) are or can be sold for cash ".629 We
note that the Foreign Trade Policy expressly provides that "Scrips … shall be freely transferable", a
point further confirmed by the evidence of marketplaces where scrips are traded for money; India
failed to rebut this factual evidence. Indeed, India stated that "freely transferable" in the provision
in question "means that MEIS Scrips can be transfe rred to third parties, for which no further
permission is required from the government"630, and further stated that the "third party [recipient]
can use the scrip for any of the Specified Uses listed in Paragraph 3.02 of the Foreign Trade

619 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 613.
620 Appellate Body Reports, Japan – DRAMs (Korea), para. 250; US – Large Civil Aircraft (2nd complaint),
para. 614.
621 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 614.
622 Appellate Body Reports, US – Large Civil Aircraft (2nd complaint), para. 615; Japan – DRAMs (Korea),
para. 251.
623 Appellate Body Reports, Canada – Renewable Energy / Canada – Feed-in Tariff Program, para. 5.120.
624 Sections 3.02 ("Duty Credit Scrips shall be granted as rewards under MEIS …") and 3.04 of the FTP.
625 Section 3.04 of the FTP and Public Notice 2/2015-2020, (Exhibit USA-11), Appendix 3B.
626 Sections 3.02 and 3.18 of the FTP. See para. 7.161 above. As reflected there, such charges for
failing to fulfil one's export obligations include the back payment of customs duties.
627 Section 3.02 of the FTP.
628 E.g. United States' second written submission, para. 109 and comment on India's response to Panel
question No. 56, para. 121 with reference to Scripbazaar, a platform dedicated to "trad[ing] in MEIS & SEIS
scrips", which advertises: "If you are interested in selling … Scripbazaar.com will have the physical scrip picked
up from your address and transfer the money to your account". (Scripbazaar website (accessed
9 October 2018), (Exhibit USA-57), p. 2).
629 E.g. India's second written submission, para. 110. See also India's responses to Panel questions
No. 56 and No. 59.
630 India's response to Panel question No. 56.

Policy".631 We therefore consider it established, as a matter of fact, that scrips can be sold to third
party recipients for consideration such as money.
7.432. We recall that "direct transfer of funds … captures conduct on the part of the government
by which money, financial resources, and/or financial claims are made available to a recipient" .632
We consider that both because scrips can be used to pay for customs duties and other liabilities
vis-à-vis the Government, and because they can be sold to third party recipients for considera tion,
they are "financial resources and/or financial claims ", i.e. "funds" within the meaning of
Article 1.1(a)(1)(i). Therefore, the provision of scrips under MEIS is a direct transfer of funds by
the Government of India to the initial recipients of the s crips, within the meaning of Article
1.1(a)(1)(i).
7.433. India argues that MEIS scrips in fact are a mechanism to remit indirect taxes already paid,
falling under footnote 1 of the SCM Agreement. However, we have already found, as a matter of
fact, that MEIS is not a mechanism to remit indirect taxes already paid, and, as a matter of law,
that it does not meet the conditions of footnote 1.633
7.434. India also argues that the United States has not established that MEIS scrips "can be
equated to or are similar to the exa mples" in Article 1.1(a)(1)(i), namely "grants, loans, and
equity infusions", and therefore has not established that they are direct transfers of funds.634
7.435. The examples in Article 1.1(a)(1)(i) are illustrative: they do not exhaust the category of
"direct tr ansfer of funds". 635 At the same time, they provide an indication of the types of
transactions intended to be covered by it 636, and where " there are measures that have sufficient
characteristics in common with one example in subparagraph (i), this commonality indicates …
that the measures fall within the concept of 'direct transfer of funds'".637
7.436. While for a measure to be a direct transfer of funds it is not necessary for it to fall among
the three examples in the first clause of subparagraph (i), we examine, in light of India's
contention, the relationship between the MEIS scrips and those three examples. The first example,
i.e. "grants", consists of transactions in which "money or money's worth is given to a recipient,
normally without an obligation or expectat ion that anything will be provided to the grantor in
return"638; in contrast, the other two examples, "loans" and "equity infusion", "are characterized
by reciprocity".639 We note that, when India grants MEIS scrips, it provides "money's worth … to a
recipient". While past exports trigger the granting of scrips, there is no obligation or expectation
that any form of return will be provided to the Government of India for the scrips. Further, grants
can be "conditional", as MEIS scrips are. 640 Therefore, MEIS scrips have significant commonalities
with grants, which further confirms that they do fall within subparagraph (i).
7.437. Finally, India suggests that MEIS scrips cannot fall under subparagraph (i) because they
fall under subparagraph (ii) of Article 1.1(a)(1). 641 However, while the two subparagraphs are of
course context for each other, they are not mutually exclusive. 642 Having examined the measure,
including identifying its "principal characteristics" 643, we have found that MEIS scrips fall within
subparagraph (i). For this finding to stand, we do not need, in addition, to exclude that aspects of
the measure may fall under subparagraph (ii).

631 India's response to Panel question No. 59.
632 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 614. (emphasis added)
633 See para. 7.294 above.
634 E.g. India's first written submission, para. 251.
635 See para. 7.427 above.
636 See para. 7.427 above.
637 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 624.
638 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 616.
639 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 616.
640 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), fn 1292.
641 E.g. India's first written submission, paras. 253-258.
642 See para. 7.428 above.
643 Appellate Body Reports, Canada – Renewable Energy / Canada – Feed-in Tariff Program, para. 5.120.

7.438. We therefore confirm our preliminary finding, in paragraph 7.432 above, that by providing
MEIS scrips India provides a direct transfer of funds within the meaning of Article 1.1(a)(1)(i) of
the SCM Agreement, and thus provides a financial contribution.
7.9 Benefit under Article 1.1(b) of the SCM Agreement
7.439. We now turn to examine whether the measures that we have found to be financial
contributions by the Government of India also confer a "benefit" within the meaning of
Article 1.1(b).
7.9.1 The applicable legal standard under Article 1.1(b)
7.440. Under Article 1.1(b) of the SCM Agreement, a financial contribution by a government is a
"subsidy" if "a benefit is thereby conferred".
7.441. A benefit within the meaning of Article 1.1(b) is an "advantage" 644 to the recipient of the
financial contribution.645 That is, there is a benefit for purposes of this provision if "the 'financial
contribution' makes the recipient 'better off' than it would otherwise have been, absent that
contribution".646
7.442. In past cases, WTO adjudicators have held that "the marketplace provides an appropriate
basis for comparison … because the trade -distorting potential of a 'financial contribution' can be
identified by determining whether the recipient has received a 'financial contribution' on terms
more favourable than those available to the recipient on the market".647
7.443. Article 14 of the SCM Agreement, which addresses the "Calculation of the Amount of the
Subsidy", by an investigating authority, "in Terms of the Benefit to the Recipient", pro vides
context for the interpretation of Article 1.1(b). 648 Among other things, Article 14 confirms that the
focus of the analysis is on the recipient 649, and that benefit is assessed by reference to the
conditions that would exist on the market in the absence of the financial contribution.650
7.444. The two types of financial contribution that we have found to be established in the case
before us are the foregoing of revenue otherwise due, within the meaning of Article 1.1(a)(1)(ii),
and a direct transfer of funds, wit hin the meaning of Article 1.1(a)(1)(i) of the SCM Agreement.
We therefore address, in turn, certain peculiar traits of the benefit analysis for these two types of
financial contribution.
7.445. Adjudicators examining cases of revenue foregone have consistently h eld that a finding of
benefit "readily follows" from a finding that the government is foregoing revenue otherwise due. 651

644 Panel Report, Canada – Aircraft, para. 9.112; Appellate Body Report, Canada – Aircraft, para. 153.
Also e.g. Appellate Body Reports, Canada – Renewable Energy / Canada – Feed-in Tariff Program, para. 5.159;
Panel Report, US – Tax Incentives, para. 7.159.
645 E.g. Appellate Body Reports, Canada – Aircraft, paras. 154 ("the focus … should be on the recipient
and not on the granting authority") and 155-156; Canada – Renewable Energy / Canada – Feed-in Tariff
646 Appellate Body Report, Canada – Aircraft, para. 157. Also e.g. Appellate Body Report, EC and certain
member States – Large Civil Aircraft, para. 5.107; Panel Report, US – Tax Incentives, para. 7.159.
647 Appellate Body Report, Canada – Aircraft, para. 157. See also e.g. Appellate Body Reports, Canada –
Renewable Energy / Canada – Feed-in Tariff Program, para. 5.164; EC and certain member States – Large Civil
Aircraft, para. 5.107; Panel Reports, US – Tax Incentives, para. 7.159; and US – Large Civil Aircraft
(2nd complaint), para. 7.168.
648 Appellate Body Reports, Canada – Aircraft, para. 155 and 158; Canada – Renewable Energy /
Canada – Feed-in Tariff Program, para. 5.163
649 Appellate Body Report, Canada – Aircraft, para. 155.
650 Appellate Body Report, Canada – Aircraft, para. 158. Article 14 refers, in particular, to "the usual
investment practice … of private investors in the territory of [the Member concerned]", "a comparable
commercial loan which the [recipient] could actually obtain on the market", "the amount that the [recipient]
would pay on a comparable commercial loan", and "prevailing market conditions … in the country of provision
or purchase".
651 Panel Reports, EU – PET (Pakistan), para. 7.36 ("readily follows"); Brazil – Taxation,
paras. 7.491-7.494; US – Tax Incentives, paras. 7.160-7.164; US – Large Civil Aircraft (2nd complaint),
paras. 7.169-7.171; US – FSC, para. 7.103; US – FSC (Article 21.5 – EC), para. 8.46; and Canada – Autos,

The panel in US – Large Civil Aircraft (2nd complaint) explained that, in its view, this is because a
"tax break is essentially a gift f rom the government, or a waiver of obligations due, and it is clear
that the market does not give such gifts ".652 The panel in US – Tax Incentives similarly explained
that "the relief from taxation otherwise due is not generally available to market participa nts, nor
does it exist as a general condition in the marketplace".653
7.446. As a result, although financial contribution and benefit are "separate legal elements"654,
the "same factual elements" may form the basis both of a finding that the government is foregoing
revenue otherwise due, and of a finding of benefit.655
7.447. The second type of financial contribution we have found to be established in this case is a
direct transfer of funds. Specifically, we have found there to be a direct transfer of funds that
shares "significant commonalities with grants". 656 Similar to revenue foregone, adjudicators have
repeatedly found that grants, by their nature, confer a benefit to the recipient: "they place the
recipient in a better position than the recipient otherwise would hav e been in the marketplace" 657,
because no entity acting pursuant to commercial considerations would make such unremunerated
payments.658
7.448. Turning to the measures before us, we will assess, first, whether a benefit is conferred
through the financial contributions taking the form of tax exemptions and deductions; and, second,
whether a benefit is conferred through the MEIS scrips. Before doing so, we note that for the
EOU/EHTP/BTP Schemes, EPCG Scheme, DFIS, and MEIS, India argues that the measures at issue
fall under footnote 1, and therefore cannot be held to confer a benefit within the meaning of
Article 1 of the SCM Agreement.659 We recall however that, for these schemes, we have proceeded
to the analysis of the existence of financial contribution and benefit to the extent that we have
found that these schemes do not meet the conditions of footnote 1. Therefore, we reject India's
footnote 1 argument in the context of the benefit analysis.
7.9.2 Whether the tax exemptions and deductions under the Export Oriented Units a nd
Sector-Specific Schemes, Export Promotion Capital Goods Scheme, Special Economic
Zones Scheme, and Duty-Free Imports for Exporters Scheme, confer a benefit
7.449. We begin with the financial contributions taking the form of revenue foregone. We have
found that the following tax exemptions and deductions are financial contributions in the form of
revenue foregone : (a) the exemptions from customs duties on importation under the
EOU/EHTP/BTP Schemes, EPCG Scheme, SEZ Scheme, and DFIS; (b) the exemption from custom s
duties on exportation under the SEZ Scheme; (c) the exemption from IGST on importation under
the SEZ Scheme; and (d) the deductions from taxable income under the SEZ Scheme.

para. 10.165. See also, espousing this position, United States' first written submission, para. 43;
Canada's response to Panel question No. 11, paras. 21-22; and Japan's response to Panel question No. 11.
Indeed, India itself, discussing EU – PET (Pakistan), notes that the rationale behind it "could be, that cases of
government revenue foregone result in a finding of benefit conferred as well, since there can never be a
market equivalent of government revenue foregone, such as tax remissions, since the authority to tax is a
sovereign function of states". (India's first written submission, para. 287. (emphasis added))
652 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.170. (emphasis added)
653 Panel Report, US – Tax Incentives, para. 7.162. (emphasis added)
654 Appellate Body Report, Brazil – Aircraft, para. 157. (emphasis added)
655 Panel Report, US – Tax Incentives, para. 7.163 (emphasis added). See also
European Union's third-party response to Panel question No. 11, para. 35. In US – Tax Incentives, the panel
noted that this is because "the 'market conditions' that are relevant as a benchmark in this context are the
competitive conditions that exist in the absence of the challenged financial contribution". (Panel Report, US –
Tax Incentives, para. 7.162).
656 See para. 7.436 above.
657 Panel Report, US – Upland Cotton, paras. 7.1116 and 7.1118. See also Panel Reports, EC and certain
member States – Large Civil Aircraft, para. 7.1501; US – Large Civil Aircraft (2nd complaint),
paras. 7.1228-7.1229 and 7.1362. See also Canada's third-party response to Panel question No. 11, para. 22
("[i]t is simply a consequence of the nature of the financial contribution which confers a benefit per se").
658 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1229.
659 India's first written submission, paras. 217 (EOU/EHTP/BTP Schemes), 284 (MEIS), 314
(EPCG Scheme), and 397 (DFIS); second written submission, paras. 83 (EOU/EHTP/BTP Schemes), 120-123
(MEIS), 206 (DFIS), and 194 (EPCG Scheme); and opening statement at the meeting of the Panel, paras. 58
(EOU/EHTP/BTP Schemes), 73 (MEIS), 83 (EPCG Scheme), and 112 (DFIS).

7.450. The United States argues that these exemptions confer a benefit on their recipi ents,
because recipients do not have to pay the duties and taxes they would otherwise have to pay and,
therefore, are financially "better off " than in the absence of the financial contribution. 660 The
United States asserts that in cases of government revenue foregone, such as these, the benefit
resides in the very fact that revenue is forgone.661
7.451. As others before us, we note that "relief from taxation otherwise due is not generally
available to market participants, nor does it exist as a general condition in th e marketplace".662
Beginning with the exemptions from customs duties on importation, we observe that an importer
of goods under the EOU/EHTP/BTP Schemes, EPCG Scheme, SEZ Scheme, or DFIS, gets to import
goods free of customs duties. The market – however defined – does not offer this "gift". 663 An
importer of the very same goods outside these or other exemption schemes is subject to customs
duties. Thus, a recipient of the customs duty exemption under the EOU/EHTP/BTP Schemes,
EPCG Scheme, SEZ Scheme, or DFIS is "'better off' than it would otherwise have been, absent that
contribution".664
7.452. The same considerations are valid for the other exemptions from duties and indirect taxes
at issue, namely: the exemption from customs duties on exportation (an exporter of goods under
the SEZ Scheme gets to export the goods free of customs duties, but an exporter of the same
goods outside the SEZ or similar schemes must pay customs duties on exportation); and the
exemption from IGST on importation (an importer of goods under the SEZ Scheme gets to import
the goods free of IGST, but importers of the same goods, outside this or similar schemes, must
pay IGST). Again, the market "does not give such gifts" 665, and therefore the recipients of these
tax exemptions are better off than they would be on the market in the absence of the financial
contribution.
7.453. Similar considerations are also valid for the deduction from taxable income under the
SEZ Scheme. To recall, SEZ entrepreneurs are allowed to deduct profits and gains from exports
from the total income of their Units, to which income tax is applied. By contrast, entities outside
the SEZ Scheme have to pay tax on such income. Again, this makes SEZ entrepreneurs and their
Units better off than they would be in the absence of the financial contribution – i.e. better off than
if they had to pay tax on their export income.
7.454. India argues that this line of reasoning wrongly conflates the notions of financial
contribution and benefit. 666 Relying among others on Canada – Renewable Energy / Canada –
Feed-in Tariff Program , India emphasizes the need for "an appropriate understanding of 'the
market' … to determine whether a benefit has been conferred" .667 In particular, with regard to the
exemptions under the EOU/EHTP/BTP Schemes, EPCG Scheme, and DFIS, India argues that the

660 United States' first written submission, paras. 44 (EOU/EHTP/BTP Schemes), 76 (EPCG Scheme),
118, 120 (SEZ Scheme), and 159 (DFIS); second written submission, paras. 97 (EOU/EHTP/BTP Schemes),
131 (EPCG Scheme), 137 (SEZ Scheme), and 174 (DFIS); and opening statement at the meeting of the Panel,
paras. 11 (EOU/EHTP/BTP Schemes), 21 (EPCG Scheme), 26 (SEZ Scheme), and 29 (DFIS).
661 United States' first written submission, para. 43 (EOU/EHTP/BTP Schemes), 75 (EPCG Scheme),
119 (SEZ Scheme), 158 (DFIS); second written submission, paras. 94 (EOU/EHTP/BTP Schemes),
127 (EPCG Scheme), and 171 (DFIS).
662 Panel Report, US – Tax Incentives, para. 7.162.
663 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.170.
664 Appellate Body Report, Canada – Aircraft, para. 157.
665 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.170.
666 E.g. India's first written submission, para. 135. India makes the same argument for all tax
exemptions under the EOU/EHTP/BTP Schemes, EPCG Scheme and DFIS. India's first written submission,
paras. 216 (EOU/EHTP/BTP Schemes), 313 (EPCG Scheme), and 396 (DFIS); second written submission,
paras. 82 (EOU/EHTP/BTP Schemes), 140 (EPCG Scheme), and 205 (DFIS). For the SEZ Scheme, India argues
that the measure is not export contingent, and that therefore it need not address the allegations of subsidy.
India's first written submission, para. 329; second written submission, paras. 187 and 189; opening statement
at the meeting of the Panel, para. 105; and response to Panel question No. 64.
667 India's first written submission, para. 136.

United States has failed to establish the existence of a benefit because it has not provided "an
appropriate analysis or definition of the market".668
7.455. However, the fact that a certain type of market analysis is required, for example, to
ascertain whether a government purchase was made for more than adequate remuneration (as in
Canada – Renewable Energy / Canada – Feed-in Tariff Program , which India relies on) does not
mean that the same type of analysis is required in every case. Here, India foregoes revenue from
certain enterprises, and this is not a gift the market gives.669
7.456. India further argues that the relevant market in fact consists of the "like competitors"670 to
the recipients of the financial contribution at issue, who would therefore qualify under the relevant
scheme. These like competitors, if only they applied, would receive the same exemptions, and
therefore "'participating enterpr ises' are only made 'better off' insofar as they submitted the
appropriate paperwork".671
7.457. India is, in essence, suggesting that the relevant market should be defined as all entities
potentially qualifying for an alleged subsidy scheme (and, further, that qu alifying entities that fail
to apply should not be considered). This cannot be the appropriate framework for analysis. As set
out above, the relevant question is whether "the 'financial contribution' makes the recipient 'better
off' than it would otherwise have been, absent that contribution" 672, i.e. outside the alleged
subsidy scheme. Therefore, India's suggestion that the relevant market consists of those entities
that could, or do, fall within the challenged schemes goes against the very notion of a bench mark
for ascertaining the existence of a benefit, and does not persuade us.
7.458. We therefore find that the duty and tax exemptions and deductions at issue confer a
benefit on their recipients, by making them better off than they would be, in the market, absent
those exemptions and deductions. And, to recall, we have already found that they are a financial
contribution by the government.673 Therefore, these duty and tax exemptions and deductions are a
subsidy within the meaning of Article 1.1 of the SCM Agreement.
7.9.3 Whether MEIS scrips confer a benefit
7.459. The other category of financial contribution we have found to be established in this case is
a direct transfer of funds, in the form of MEIS scrips.
7.460. The United States argues that, by providing MEIS scrips, India confers a benefit on the
scrips' recipients, because recipients can use the scrips to pay for customs duties , central excise
duties, and other liabilities vis-à-vis the Government, and can also sell the scrips for money.674
7.461. We have found that MEIS scrips ar e "money's worth" 675, which can be used to pay for a
number of liabilities vis-à-vis the Government, and can also be sold to third parties for money. 676
Further, we have found that India provides MEIS scrips with no obligation or expectation of any
form of return.677

668 E.g. India's first written submission, para. 218, with reference to the EOU/EHTP/BTP Schemes. To
recall, India does not address the United States' allegation that the exemptions under the SEZ Scheme confer a
benefit. See fn 666 above.
669 We also recall that the challenged schemes exempt from duties or taxes the very same transactions,
involving the very same goods, that would be subject to those duties or taxes outside the schemes.
670 India's first written submission, para. 399, with reference to DFIS.
671 India's first written submission, para. 400, with reference to DFIS. Also India's first written
submission, paras. 218-219 (EOU/EHTP/BTP Schemes); second written submission, paras. 84
(EOU/EHTP/BTP Schemes), 142 (EPCG Scheme), and 207 (DFIS).
672 Appellate Body Report, Canada – Aircraft, para. 157.
673 See section 7.7 above.
674 United States' first written submission, para. 59; second written submission, para. 111; and opening
statement at the meeting of the Panel, para. 17.
675 See para. 7.436 above.
676 See paras. 7.430-7.431 above.
677 See para. 7.436 above.

7.462. Like others before us, we are of the view that "no private entity acting pursuant to
commercial considerations" would provide money's worth "to another commercial entity" for no
remuneration.678
7.463. Therefore, the provision by India of money's worth in th e form of MEIS scrips makes
recipients better off than they would otherwise be, absent that financial contribution, on the
market.
7.464. Similar to its arguments on the tax exemptions discussed above, India argues that the
United States failed to identify the re levant market, and thus failed to discharge its burden to
prove benefit. 679 India relies, again, on the Appellate Body Reports in Canada – Renewable
Energy / Canada – Feed-in Tariff.680
7.465. However, we reiterate that the fact that some subsidy cases require an elaborate definition
of the relevant market does not mean that all do. For some types of financial contribution, an
elaborate analysis and definition of the relevant market is crucial. By way of example, this may be
the case of financial contributions consisting of the provision or purchase of goods (where it is
necessary to assess the adequacy of remuneration), or of loans (where it is necessary to ascertain
the amount the recipient would pay on a comparable commercial loan that it could obtain on the
market).
7.466. In contrast to these two examples, under MEIS, India provides recipients with scrips that
have a monetary value, with no obligation or expectation that recipients will provide any form of
return. As we have noted, the market does not make such gifts, whichever way the market
boundaries are drawn.
7.467. India also argues that the United States failed to substantiate that MEIS "as such" confers
a benefit. 681 India submits that, to this end, the United States must demonstrate that
MEIS requires the conferral of a benefit.682 Since the applicable legal instruments do not " specif[y]
that the recipient of a scrip must utilize the MEIS Scri p", and instead they " merely give [] the
MEIS Scrip recipient an option to utilize the scrips … the law does not require conferral of any
alleged benefit".683
7.468. We disagree with India. MEIS scrips have a monetary value and, on receiving them, their
recipients are made better off than they would have been on the market, where no such gifts ar e
made. That the applicable legal instruments do not oblige recipients to realize that monetary value
does not mean that, by providing MEIS scrips, India does not confer a benefit on their recipients.
7.469. Finally, India argues that the United States failed to establish that MEIS as such confers a
benefit because, if the recipient fails to provide the necessary documents upon request, it must
refund the value of the scrips, with interest. 684 However, that the competent authority can reclaim
the value of the scrips if recipients are unable to prove their entitlement to them does nothing to
contradict the conclusion that the provision of MEIS scrips confers a benefit.
7.470. We therefore find that MEIS scrips confer a benefit on their recipients, by making them
better off t han they would have been, in the market, absent such an unremunerated direct
transfer of funds. Thus, we find that because MEIS scrips are a financial contribution by the
government685 and confer a benefit on their recipient, they are a subsidy within the me aning of
Article 1.1 of the SCM Agreement.

678 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1229.
679 India's first written submission, paras. 285-287.
680 India's first written submission, para. 286.
681 India's first written submission, paras. 288-291; second written submission, para. 122.
682 India's first written submission, paras. 288-291; second written submission, para. 122.
683 India's first written submission, para. 290.
684 India's first written submission, para. 290. Also ibid. para. 291, with regard to transfer of the scrips
to third parties.
685 See section 7.8 above.

7.10 Export contingency under Articles 3.1(a) and 3.2 of the SCM Agreement
7.471. We now address the United States' argument that the subsidies provided under the five
challenged schemes are export contingent within the meani ng of Article 3.1(a) of the
SCM Agreement, and that, therefore, by providing these subsidies India is acting inconsistently
with Articles 3.1(a) and 3.2 of the SCM Agreement.
7.472. We begin by setting out the applicable legal standard. We then examine, in turn, whether
the challenged subsidies under each of the five schemes are export contingent and therefore
inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement.
7.10.1 The applicable legal standard under Articles 3.1(a) and 3.2
7.473. Article 3.1 of the SCM Agreement provides, in relevant part:
… the following subsidies, within the meaning of Article 1, shall be prohibited:
(a) subsidies contingent, in law or in fact, 4 whether solely or a s one of several other
conditions, upon export performance, including those illustrated in Annex I;
…

4 This standard is met when the facts demonstrate that the granting of a subsidy, without having
been made legally contingent upon export performance, is in fact tied to actual or anticipated
exportation or export earnings. The mere fact that a subsidy is granted to enterprises which
export shall not for that reason alone be considered to be an export subsidy within the meaning
of this provision.

7.474. Article 3.1(a) thus prohibits subsidies "contingent … upon export performance". The
ordinary meaning "of 'contingent' is 'conditional' or 'dependent for its existence on something
else'".686 That is, for a subsidy to be export contingent, "the grant of the s ubsidy must be
conditional or dependent upon export performance".687
7.475. Article 3.1(a) clarifies that whether export performance is the sole condition, or one of
several conditions for granting the subsidy, there is export contingency for purposes of that
provision. Moreover, when a certain subsidy is available on condition of export performance, the
fact that the same subsidy can also be obtained under a different set of circumstances, which may
or may not involve export contingency, does not prevent a finding that the subsidy is export
contingent.688
7.476. Article 3.1(a) further provides that prohibited export contingent subsidies "includ[e] those
illustrated in Annex I" to the SCM Agreement. The subsidies illustrated in items (b) to (l) of
Annex I share the common fe ature "that the subsidy gives certain advantages to exported
products and favours exported products over products destined for domestic consumption".689

686 Appellate Body Report, Canada – Aircraft, para. 166.
687 Appellate Body Report, US – FSC (Article 21.5 – EC), para. 111.
Further, "the relevant question … is not whether the eligibility requirements under a subsidy may result
in" exportation, but whether there is "a condition requiring" exportation. (Appellate Body Report, US – Tax
Incentives, paras. 5.18 and 5.40 (emphasis original)). These statements were made in the context of
Article 3.1(b), which prohibits subsidies that are "contingent … upon the use of domestic over imported goods".
However, the "legal standard for establishing the existence of 'contingency' under Article 3.1(b) is the same as
under Article 3.1(a) of the SCM Agreement". (Appellate Body Reports, Brazil – Taxation, para. 5.241).
688 Appellate Body Report, US – FSC (Article 21.5 – EC), para. 119. See also European
Union's third-party submission, para. 29 (referring to Appellate Body Report, US – Upland Cotton,
paras. 579-580).
689 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1053.

7.477. Article 3.1(a) prohibits both subsidies that are export contingent in law and subsidies that
are export contingent in fact. The difference between the two resides in the evidence establishing
the existence of export contingency.690
7.478. Export contingency in law is demonstrated on the basis of the very words of the legal
instrument constituting the measure , either because the measure expressly conditions the
granting of the subsidy on export performance, or because it does so implicitly, by necessary
implication from the words used in the measure.691
7.479. For example, in Canada – Autos, the challenged legal instruments di d not say, in so many
words, that a manufacturer's exemption from customs duties on the import of motor vehicles was
conditioned on export performance. However, the necessary implication of the words used in those
legal instruments was that they "operate[d ], as a matter of law, in such a manner that the more
motor vehicles a manufacturer export[ed], the more motor vehicles that manufacturer [was]
entitled to import duty -free".692 The panel and Appellate Body therefore found that the subsidy
was contingent in law upon export performance.
7.480. Conversely, "[t]here is no single legal document which will demonstrate, on its face,"
export contingency in fact. 693 Therefore, "the existence of this relationship of contingency … must
be inferred from the total configuration of the facts constituting and surrounding the granting of
the subsidy, none of which on its own is likely to be decisive in any given case" .694 And "what facts
should be taken into account in a particular case will depend on the circumstances of that case" .695
While "there can be no general rule as to what … kinds of facts must be taken into account" 696,
relevant facts may include "the design and structure of the measure granting the subsidy", "the
modalities of operation set out in such a measure", and "the relev ant factual circumstances
surrounding the granting of the subsidy".697
7.481. While the "legal standard expressed by the word 'contingent' is the same for both de jure
or de facto contingency"698, the different evidentiary basis is reflected in the way the analysis is
conducted. For determining contingency in fact, "the Uruguay Round negotiators provided a
standard, in footnote 4 of the SCM Agreement"699, which "requires proof of three different
substantive elements: first, the 'granting of a subsidy'" 700; second, "tied to"; and, third, "actual or
anticipated exportation or export earnings". 701 This standard shares commonalities with the
analysis of export contingency in law, but also differences, such a s the enquiry into "actual or
anticipated exportation".
7.482. As will be seen below, we find that all the subsidies in question are export contingent in
law, and we therefore do not examine the United States' alternative argument that the subsidies
provided under the SEZ Scheme are export contingent in fact. As a result, we do not elaborate
further, here, on the specificities of the analysis of export contingency in fact.

690 Appellate Body Report, Canada – Aircraft, para. 167.
691 Appellate Body Report, Canada – Autos, para. 100. See also Appellate Body Report, Canada –
Aircraft, para. 167 ("[d]e jure export contingency is demonstrated on the basis of the words of the relevant
legislation, regulation or other legal instrument.").
692 Appellate Body Report, Canada – Autos, para. 106.
693 Appellate Body Report, Canada – Aircraft, para. 167.
694 Appellate Body Report, Canada – Aircraft, para. 167. (emphasis original)
695 Appellate Body Report, Canada – Aircraft, para. 168.
696 Appellate Body Report, Canada – Aircraft, para. 169.
697 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1046.
698 Appellate Body Report, Canada – Aircraft, para. 167. See also Appellate Body Report, Canada –
Autos, para. 107. Further, in the context of contingency under Article 3.1(b), the Appellate Body has noted that
"the analysis of de jure and de facto contingency … [is] a continuum", and a panel "need not
compartmentalize" the two analyses. (Appellate Body Report, US – Tax Incentives, para. 5.13).
699 Appellate Body Report, Canada – Aircraft, para. 168. At the same time, because the standard for
contingency in law and in fact are the same, except for the evidence supporting the finding of contingency,
some of the considerations derived from the analysis of footnote 4 can also be extended, with the necessary
adaptations, to export contingency in law. See Appellate Body Report, Canada – Autos, para. 107. This applies
in particular to the analysis of "tied to".
700 Appellate Body Report, Canada – Aircraft, para. 169.
701 Appellate Body Report, Canada – Aircraft, para. 169. See also Appellate Body Report, EC and certain
member States – Large Civil Aircraft, paras. 1043-1044.

7.483. Turning to Article 3.2 of the SCM Agreement, this provides:
A Member shall neither grant nor maintain subsidies referred to in paragraph 1.
7.484. As a result, when a Member grants or maintains a subsidy that is export contingent under
Article 3.1(a) of the SCM Agreement, that Member also violates Article 3.2 of the
SCM Agreement.702
7.485. Having set out the r elevant legal standard, we now turn to applying it to the subsidies at
issue in this dispute.
7.10.2 Whether the subsidies granted under the Export Oriented Units and
Sector-Specific Schemes are export contingent
7.486. The United States argues that the exemption from customs duties under the
EOU/EHTP/BTP Schemes is export contingent in law. 703 According to the United States, this is
because "India conditions the availability" to participating Units of the customs duty exemption
under the scheme "upon the [Units'] promise of agreeing to export their entire production and
obtaining and maintaining of a positive NFE". 704 This is "evidenced throughout government
documents"705, including in the provision for penal action if a Unit fails to maintain a positive
NFE.706
7.487. The United Stat es argues that, like in Canada – Autos, the customs duty exemption
available under the challenged scheme is "simply not available to a manufacturer unless it
exports"707, and this is apparent from "the 'words of the relevant legislation, regulation, or other
legal instrument'".708
7.488. India disagrees and argues that the United States has not established the export
contingency of the challenged measures. 709 According to India, the EOU/EHTP/BTP Schemes are
"an administrative system that seeks to boost the manufacturi ng capabilities of [the] domestic
industry"710, and are remission schemes falling under footnote 1 and the Annexes of the
SCM Agreement.711 Regarding the NFE requirement, India argues that it is not indicative of export
contingency but ensures that Units act w ith commercial prudence and without operating at a
loss.712 And as for the United States' reliance on Canada – Autos, India argues that the factual
pattern in the present dispute differs from that at issue in Canada – Autos.713
7.489. We turn to assess whether the United States has established the measures' export
contingency, in light of the legal standard outlined above.
7.490. The challenged exemption from customs duties under the EOU/EHTP/BTP Schemes are
exclusively available to Units set up under the schem es.714 To be "set up under" the
EOU/EHTP/BTP Schemes, Units must " undertak[e] to export their entire production of goods and

702 See, e.g. Panel Reports, Canada – Aircraft, para. 9.231; US – FSC (Article 21.5 – EC),
paras. 8.109-8.110.
703 United States' first written submission, paras. 44-46; second written submission, paras. 98-101; and
opening statement at the meeting of the Panel, para. 14.
704 United States' first written submission, para. 46.
705 United States' first written submission, para. 46.
706 United States' first written submission, para. 46 (referring to Section 6.05 of the FTP).
707 United States' first written submission, para. 45 (quoting Appellate Body Report, Canada – Autos,
para. 104).
708 United States' first written submission, para. 45 (quoting Appellate Body Report, Canada – Aircraft,
para. 167).
709 India's first written submission, paras. 221-226; second written submission, paras. 86-93; and
opening statement at the meeting of the Panel, paras. 59-62.
710 India's first written submission, para. 222.
712 India's first written submission, paras. 223-225; second written submission, paras. 91-92; and
opening statement at the meeting of the Panel, para. 61.
713 India's second written submission, paras. 86-89.
714 See paras. 7.314-7.315 above.

services (except permissible sales in the DTA) ".715 In addition, the schemes require participating
Units to maintain a positive NFE.716 The HBP defines the NFE as follows:
6.10 Net Foreign Exchange (NFE) Earnings
(a) EOU / EHTP / STP / BTP unit shall be a positive net foreign exchange earner.
NFE earnings shall be calculated cumulatively in the block period as per Paragraph
6.04 of FTP, acc ording to the formula given below. Items of manufacture for export
specified in LoP / LoI alone shall be taken into account for calculation of NFE.
Positive NFE = A – B> 0
Where
'NFE' is Net Foreign Exchange;
'A' is FOB value of exports by EOU / EHTP / STP / BTP unit;
'B' is sum total of CIF value of all imported inputs and CIF value of all imported capital
goods, and value of all payments made in foreign exchange by way of commission,
royalty, fees, dividends, interest on external borrowings / high sea sales during first
five year period or any other charges. It will also include payment made in Indian
Rupees on high sea sales.
"Inputs" mean raw materials, intermediates, components, consumables, parts and
packing materials.717
7.491. Thus, to achieve a positive NFE under these schemes, a Unit must export more than it
imports. Further, the schemes set forth provisions to monitor compliance with the NFE
requirement, and envisage sanctions, including possible penal action, for a unit's failure to comply
with the requirement. For example, the standard format for the letter of permission provides that
an approved Unit "would be required to achieve positive … NFE … failing which it would be liable
for penal action".718
7.492. Thus, "on the basis of the very words of the relevan t legislation, regulation or other legal
instrument"719 setting forth the measure , the subsidies provided under the scheme are only
available to Units (a) that undertake to export their entire production, with limited exceptions, and
(b) that undertake to ex port more than they import, with provision for sanctions in case this
undertaking is not met. Therefore, on the face of the legal instruments in which the measure is
reflected, the availability of the subsidy is "dependent for its existence" 720 on exportation, within
the meaning of Article 3.1(a).
7.493. India argues that the schemes, and the NFE requirement, have other objectives, different
from export performance. It argues that the schemes "seek[] to boost the manufacturing
capabilities of the domestic industry" and streamline the process of exemption or remission of
duties721, and that the NFE requirement aims to ensure that enterprises act prudently, do not
operate at a loss, and do not import more inputs than needed.722

715 Section 6.00(a) of the FTP.
716 While disputing the purpose of the NFE, India does not dispute the existence or definition of the
requirement in the context of the EOU/EHTP/BTP Schemes.
717 Section 6.10 of the HBP.
718 Appendices and Aayat Niryat forms, (Exhibit USA-6), appendix 6D, para. (ii). Similarly, the FTP
provides that failure to maintain a positive NFE may render the Unit liable to penal action and lead to
cancellation of the letter of permission or of intent. (Subsection 6.05(c) of the FTP).
719 Appellate Body Report, Canada – Autos, para. 100.
720 Appellate Body Report, Canada – Aircraft, para. 166.
721 India's first written submission, para. 222.
722 India's first written submission, paras. 193 and 223-225. The United States points out that
India's argument that the positive NFE requirement is a tool to protect the participating enterprises is

7.494. We note that India's arguments appear to be somewhat contradictory. India argues, on the
one hand, that the schemes are meant to "boost the manufacturing capabilities of the domestic
industry"723 but, on the other hand, that they do not seek to ensure a certain level of exports and
instead seek to en sure that participating Units do not import more inputs than needed. 724 For a
scheme under which participating Units "undertake to export their entire production" 725, it is hard
to see how one could "boost" manufacturing capabilities without boosting exports.
7.495. In any event, however, the relevant enquiry is whether the subsidies in question are
"contingent …, whether solely or as one of several other conditions, upon export performance" .726
When a subsidy is indeed contingent upon export performance, the fact that there may be other
rationales behind the scheme, or even other conditions on the grant of the subsidy, does not
change the conclusion that the subsidy is prohibited under Article 3.1(a).
7.496. India has also highlighted certain factual differences between the measure challenged in
Canada – Autos, where the adjudicators found the measures to be export contingent, and the
measures before this panel. 727 Specifically, India observes that, in Canada – Autos: the duty
exemption applied to the importation of motor vehicle s, not inputs; the duty -exempt goods and
the goods that had to be exported were the same "class of goods" (motor vehicles); the amount of
the exemption depended on the amount exported; and the measure operated on the basis of a
ratio requirement. 728 However, none of the differences highlighted by India goes to the legal
standard for export contingency. It does not matter per se that the du ty-exempt goods and the
mechanism conditioning the subsidy on export contingency are not the same in this case and in
Canada – Autos: what matters is that the measures before us lay down requirements which do
condition the subsidy on export performance.
7.497. Finally, India argues that the measures meet the conditions of footnote 1. We recall,
however, that we are examining the export contingency of the challenged measures because we
have found that they do not meet the conditions of footnote 1.729
7.498. We therefore fi nd that the challenged subsidies under the EOU/EHTP/BTP Schemes are
contingent in law upon export performance, and therefore prohibited by Article 3.1(a) of the
SCM Agreement. Moreover, since through the legal instruments discussed above India grants or
maintains such subsidies, India is also acting inconsistently with Article 3.2 of the SCM Agreement.
7.10.3 Whether the subsidies granted under the Export Promotion Capital Goods
Scheme are export contingent
7.499. To recall, under the EPCG Scheme, India provides a subsid y in the form of an exemption
from customs duties on the importation of capital goods.
7.500. The United States argues that the duty exemption under the EPCG Scheme is contingent in
law upon export performance.730 According to the United States, the scheme requires participating
exporters to fulfil two cumulative export obligations and even incentivizes their early fulfilment. 731
Non-compliance with these obligations results in duty liability and sanctions.732

contradicted by the provision for penal action as a sanction for failing to meet the requirement.
(United States' second written submission, paras. 100-101).
723 India's first written submission, para. 222.
724 India's first written submission, paras. 224-225.
725 Section 6.00(a) of the FTP.
726 Article 3.1(a) of the SCM Agreement.
727 India's second written submission, paras. 86-89.
728 India's second written submission, para. 89.
729 See para. 7.236 above.
730 United States' first written submission, paras. 77-78; second written submission, para. 132; and
opening statement at the meeting of the Panel, para. 23.
731 United States' first written submission, para. 78; opening statement at the meeting of the Panel,
para. 23.
732 United States' first written submission, para. 78; opening statement at the meeting of the Panel,
para. 23.

7.501. India does not respond to the United States' arguments on ex port contingency and
contends that the United States has not established the existence of a subsidy under Article 1 of
the SCM Agreement.733 Rather, in India's view, the scheme falls under footnote 1 and thus does
not qualify as a subsidy within the meaning of Article 1.734
7.502. With reference to the duty -exempt importation of capital goods under the EPCG Scheme,
the Foreign Trade Policy provides that:
Import under EPCG Scheme shall be subject to an export obligation equivalent to
6 times of duties, taxes and cess s aved on capital goods, to be fulfilled in 6 years
reckoned from date of issue of Authorisation.735
7.503. The Foreign Trade Policy further specifies that:
[The export obligation] shall be fulfilled by the authorisation holder through export of
goods which are manufactured by him or his supporting manufacturer … for which the
EPCG authorisation has been granted.736
7.504. Thus, over a six -year period, a s cheme participant must achieve exports of the goods
specified in the EPCG authorization equalling at least six times the du ties, taxes, and cess737 saved
on capital goods under the scheme.738
7.505. The HBP requires the authorisation holder to fulfil half of this export obligation within the
first four years739, failing which the "holder shall … pay duties of customs … proportionate to dut y
saved amount on total unfulfilled [export obligation] block".740
7.506. In addition to this six-year export obligation, participants in the scheme must also fulfil an
"average" export obligation. That is, subject to certain limited exceptions 741, a scheme participant
must maintain exports of the goods specified in the EPCG authorization above the average level of
export of the same or similar products during the three -year period preceding the EPCG
authorization.742
7.507. Thus, the very words of the FTP and HBP, which provi de for the EPCG Scheme, condition
the availability of the subsidy on the fulfilment of obligations to export. This in itself is sufficient to
make the subsidies at issue export contingent in law, within the meaning of Article 3.1(a) of the
SCM Agreement.
7.508. Moreover, other aspects of the EPCG Scheme, as they also emerge from the words of the
legal instruments that regulate it, further confirm the scheme's characterization as export
contingent.
7.509. For example, the scheme provides an "incentive for early … fulfilm ent" of the export
obligation: a portion of the export obligation can be "condoned" when "75% or more of [ the]
specific export obligation and 100% of Average Export Obligation till date" have been met in half
or less the required period.743

733 India's first written submission, paras. 317-319; second written submission, paras. 144-145; see
also opening statement at the meeting of the Panel, paras. 83-84.
734 India's opening statement at the meeting of the Panel, para. 84.
735 Section 5.01(c) of the FTP.
736 Section 5.04(a) of the FTP.
737 See fn 221 above.
738 Section 5.01(c) of the FTP; Section 5.14(a) of the HBP.
739 Section 5.14(a) of the HBP.
740 Section 5.14(c) of the HBP.
741 Section 5.13 of the HBP.
742 Section 5.04(b) of the FTP; Section 5.12 of the HBP; and India's responses to Panel questions
Nos. 51 and 52.
743 Section 5.09 of the FTP.

7.510. Further, applica nts for EPCG authorisation must provide, as part of their application, a
certification by a chartered engineer of the "nexus" between the capital goods to be imported and
the manufacture of products for export 744, certifying that the capital goods in questio n are
"required" to manufacture specified "export product(s)".745
7.511. In sum, "the very words of the relevant legislation, regulation or other legal instrument" 746
show that the EPCG Scheme conditions the availability of the subsidy on export performance, in
violation of Article 3.1(a) of the SCM Agreement. Those words even emphasize further the
centrality of the export performance conditions by setting forth incent ives for the early fulfilment
of those conditions, sanctions for failure to fulfil them, and additional requirements to certify the
nexus between the goods benefiting from duty -free treatment and the manufacture of goods for
export.
7.512. We therefore find that the exemption from customs duties for the importation of capital
goods under the EPCG Scheme is contingent in law upon export performance, and therefore
prohibited by Article 3.1(a) of the SCM Agreement. Moreover, since through the legal instruments
discussed above India grants or maintains such subsidy, India is also acting inconsistently with
Article 3.2 of the SCM Agreement.
7.10.4 Whether the subsidies granted under the Special Economic Zones Scheme are
export contingent
7.513. The United States argues that the chal lenged subsidies under the SEZ Scheme are
contingent on export performance, in law or in fact. 747 In particular, first, to qualify as SEZ Units,
applicants must undertake to meet a positive NFE requirement, and this requirement is then
subject to monitoring and "penal action" in case of non -compliance.748 Second, SEZ Units are
required to "export the goods manufactured". 749 Third, one of the subsidies, i.e. the deduction
from total income for purposes of corporate income tax, is reserved to "export" income. 750 In
addition, in the context of its argument that the subsidies under the SEZ Scheme are also export
contingent in fact, the United States relies on the preamble of the SEZ Act, the description of the
functions of the competent agencies in the SEZ Act, and publ ic statements of government officials,
all to the effect that the purpose of the SEZ Scheme is the promotion of exports.751
7.514. India disagrees with the United States and argues that the SEZ Scheme is not
export-contingent, in law or fact.752 According to India, the United States has mischaracterized the
obligation to achieve a positive NFE, because SEZ Units can fulfil that requirement through
domestic transactions, without making any export sales.753 Moreover, India disagrees with how the
United States has portrayed, and relied upon, the application, approval and monitoring process for
SEZ Units.754 Further, India submits that the United States failed to apply the correct legal test for
de jure contingency.755 With regard to de facto contingency, India argues in particu lar that the

744 Section 5.03(a) of the HBP.
745 Appendices and Aayat Niryat Forms, (Exhibit USA-6), appendix 5A ("Format of Chartered Engineer
Certificate for Nexus under EPCG Scheme").
746 Appellate Body Report, Canada – Autos, para. 100.
747 United States' first written submission, paras. 121-138; second written submission, paras. 138-161;
and opening statement at the meeting of the Panel, para. 27. See also response to Panel question No. 78,
para. 124.
748 United States' first written submission, paras. 123-126; second written submission, paras. 144-150.
749 United States' first written submission, para. 124.
750 United States' first written submission, para. 137; response to Panel question No. 77, para. 122.
751 United States' first written submission, paras. 128-138; second written submission, paras. 152-161;
and opening statement at the meeting of the Panel, para. 27. See also response to Panel question No. 77,
paras. 122-123.
752 India's first written submission, paras. 330-380; second written submission, paras. 161-189;
opening statement at the meeting of the Panel, paras. 94-105.
753 India's first written submission, paras. 344-351; second written submission, paras. 168-173 and
183; opening statement at the meeting of the Panel, paras. 97-99 and 104; and comments on the
United States' responses to Panel questions Nos. 69, and 70-73.
754 India's first written submission, paras. 337, 338, 342, 343, 351, and 352-355; second written
submission, paras. 166, 167 and 174.
755 India's first written submission, paras. 339-341.

United States erred in giving probative value to statements of government officials 756 and in
relying on the same type of evidence relied upon to prove de jure contingency.757
7.515. We begin by examining the United States' contention that the SEZ Scheme is contingent in
law upon export performance.
7.516. We recall that, under the SEZ Scheme, India provides subsidies in the form of (a) an
exemption from customs duties on imports and exports, (b) an exemption from IGST, and (c) a
deduction from the taxable base for corporate income tax.
7.517. The exemption from customs duties is provided to "every Developer and … entrepreneur"
for imports into, or exports from, "a Special Economic Zone or a Unit". 758 The exemption from
IGST applies to "all goods … imported by a unit or a developer in the Special Economic Zone". 759
And the deduction from the taxable base for corporate income tax applies "in computing the total
income of an assessee, being an entrepreneur … from his Unit".760
7.518. Thus, the three sets of exemptions are available (a) to Units, (b) for imports into or
exports from Units, or (c) for income from Units; but on the face of the measure, the customs duty
and IGST exemptions appear to be also available (d) to entrepreneurs and developers for imports
into, or exports from, the Special Economic Zone more generally, i.e. outside the context of
Units.761
7.519. We recall that an entrepreneur is a person who has been authorized to set up a Unit, and a
developer is a person who has been authorized to set up a Special Economic Zone. 762 India has
explained that, in SEZs, the manufacturing of goods (and rendering of services) takes place in
Units, and the activities of an entrepreneur are limited to setting up such Units and then
manufacturing goods (and rendering services) within the Unit 763; whereas a developer, in addition
to setting up an SEZ, also "develop[s] and maintain[s] the necessary infrastructure", and would
"benefit from the exemptions or deductions available under the SEZ scheme to the extent such
activities are for the development or maintenance of SEZ infrastructure". 764 Thus, while some
economic activity covered by the SEZ Scheme takes place outside the context of Units, the bulk of
the economic activity within an SEZ is carried out through the Units, leading India to say that "[i]n
general, the economic activities in a Special Economic Zone under the SEZ Scheme are undertaken
through a 'Unit'".765
7.520. The United States has clarified that it challenges only subsidies under the SEZ Scheme that
apply to Units.766
7.521. The SEZ Scheme imposes condition s on the very existence of Units, prominent among
which is a requirement to "achieve Positive Net Foreign Exchange". Rule 53 of the SEZ Rules
provides:
Net Foreign Exchange Earnings – The Unit shall achieve Positive Net Foreign Exchange
to be calculated cu mulatively for a period of five years from the commencement of
production according to the following formula, namely:-

756 India's first written submission, para. 371; opening statement at the meeting of the Panel,
para. 103.
757 India's first written submission, paras. 331 and 375-376.
758 Section 26(1) of the SEZ Act.
759 Notification No. 15/2017, (Exhibit USA-27).
760 Second Schedule of the SEZ Act.
761 In contrast, the deduction from the taxable base for corporate income tax is limited to income
762 See paras. 7.147 and 7.148 above.
763 India's responses to panel questions Nos. 74-75, p. 58.
764 India's response to Panel question No. 75, p. 58.
765 India's response to panel question No. 74, p. 58.
766 United States' response to Panel question No. 74, para. 119. As set out in the opening part of
para. 7.518, the connection to a Unit can reside in one of the following: the subsidy is provided to the Unit; the
subsidy is provided for imports into and exports from the Unit; or the subsidy is provided as a deduction in
calculating income from the Unit.

Positive Net Foreign Exchange = A - B >> 0
Where:-
 A: is Free on Board value of exports … against freely convertible currency, by
the Unit and the value of … supplies of their products [falling under items A(a) to A(k)
of Section 53].
…
 B: consists of sum of the following:
(a) sum total of the Cost Insurance and Freight value of all imported inputs
used for authorised operations … and … of all imported capital goods …;
(b) value of goods obtained from other Unit or [EOU/EHTP/BTP] Unit or from
bonded warehouses or … from international exhibitions held in India or precious
metals …
(c) the Cost Insurance Freight value of the goods and servic es … imported duty
free or leased … or received [in specified circumstances].767
7.522. Thus, Section 53 requires a Unit ("The Unit shall…") to achieve a " Positive Net Foreign
Exchange", defined by the formula "A – B >> 0". Since A – B must be greater than 0, the first
item, i.e. "A", must be greater than 0. A comprises several components. The first is the FOB value
of exports by the Unit. 768 Therefore, one condition triggering the subsidies to Units is export
performance: exports greater than 0.
7.523. In addition to achieving Positive NFE by exporting goods, the SEZ Rules also set forth
other "supplies" by the Units that can be counted in computing "A" .769 These other suppli es
include, for example, the supply of capital goods to holders of a licence under the EPCG
Scheme770, the supply of goods to nuclear power projects meeting the conditions in the FTP 771, the
export of services, the rendering of services within the DTA against free foreign exchange772, and
the supply of goods to other entities within the same SEZ or to other SEZs or EOU/EHTP/BTPs.773

767 Rule 53 of the SEZ Rules, (Exhibit USA-28, as amended by Exhibits USA-60 and IND-22).
(underlining added)
768 India points out, and the United States agrees, that Section 2(m) of the SEZ Act defines exports as
including not only the "taking of goods … outside India", but also as the export of services, and the sale of
goods or services to other Units or developers within the same SEZ or to other SEZs. E.g. India's response to
Panel question No. 69; United States' response to Panel question No. 69. We note, however, that these same
"additional" items are also included in the subparagraphs of Section 53A, discussed in paras. 7.523-7.524. We
therefore consider that the discussion of Section 2(m) is subsumed in the discussion of the subparagraphs of
Section 53A.
769 There have been amendments to the list of these "supplies", which is set forth in Rule 53 of the SEZ
Rules: the 2006 SEZ Rules listed items (a) to (o); this list was then substantially amended in 2018 to set forth
a revised list consisting of items (a) to (k) (Exhibit USA-60); further amendments introduced in 2019 made
minor modifications to the existing list of items (a) to (k) (Exhibit IND-22). See also India's responses to Panel
questions No. 65 and 68. These amendments however do not have a material effect on our findings: the
parties agree that, before and after the amendments, the majority of the additional "supplies" listed in the
subparagraphs of item A are sales to the DTA, but see para. 7.524 below. See India's responses to Panel
questions Nos. 70 and 72; United States' responses to Panel questions Nos. 70 and 71.
770 2019 Amendment to the SEZ Rules, (Exhibit IND-22), Rule 7, amending Rule 53A(b) of the
SEZ Rules.
771 2019 Amendment to the SEZ Rules, (Exhibit IND-22), Rule 7, amending Rule 53A(f) of the
SEZ Rules.
772 2019 Amendment to the SEZ Rules, (Exhibit IND-22), Rule 7, amending Rule 53A(h) of the
SEZ Rules.
773 2019 Amendment to the SEZ Rules, (Exhibit IND-22), Rule 7, amending Rule 53A(j) of the
SEZ Rules.

7.524. The United States describes these as "a narrowly defined list of exceptions in the form of
encouraged domestic sales" 774, and we agree with this description. More importantly, however,
when a subsidy is available on condition of export performance, the fact that the same subsidy can
also be obtained under a different set of circumstances, not involving export contingency, does not
prevent a finding that the subsidy is export contingent. 775 Therefore, because achieving a positive
NFE means that "A" must be greater than 0, and one component of A is exports of goods, exports
of goods are a condition for purposes of Article 3.1(a).
7.525. Other element s of the legal instruments setting out the SEZ Scheme reiterate the NFE
requirement. For example, Rule 18(2)(i) of the SEZ Rules provides that proposals to set up an SEZ
Unit shall be approved if, among other requirements, "the proposal meets … the positiv e net
foreign exchange earning requirement as provided in rule 53".
7.526. Rule 19 of the SEZ Rules provides that upon approval of a Unit, the Development
Commissioner "shall issue a Letter of Approval in Form G, for setting up of the Unit" . The text of
Form G, which is part of the SEZ Rules, includes the following language:
The approval is subject to the following terms and conditions:
(i) You shall expor t the goods manufactured / … imported / … procured for
trading and services … as per the provisions of the Special Economic Zones Act,
2005, and Rules made thereunder for a period of five years from the date of
commencement of production/service activities. For this purpose, you shall
execute the Bond -cum-Legal Undertaking as prescribed under the Special
Economic Zones Rules, 2006.
…
(iii) You shall achieve positive Net Foreign Exchange (NFE) as prescribed in the
Special Economic Zones Rules, 2006 … failing which you shall be liable for penal
action under the Foreign Trade (Development and Regulation) Act, 1992.
…
(xii) You shall confirm acceptance of the above terms and conditions … within
forty-five days of issue of this Letter of Approval.
(xiii) If you fa il to comply with the conditions stipulated above, this Letter of
Approval shall be cancelled as per the provisions of the Special Economic Zones
Act, 2005 and the rules and orders made thereunder.
(underlining added)
7.527. Thus, first, the text of Form G, which is part of the SEZ Rules and which must be accepted
by an entrepreneur whose proposal to set up a Unit has been approved, further confirms the

774 United States' response to Panel question No. 69, para. 106.
775 Para. 7.475 above; Appellate Body Reports, US – FSC (Article 21.5), para. 119; and US – Upland
Cotton, paras. 579-580. See also European Union's third-party submission, para. 29, noting that the
Appellate Body in US – Upland Cotton rejected the argument made by the United States in that case that, since
Step 2 payments were available to both exporters and domestic users, and the conditions applying to the latter
had not been found to involve export contingency, the payments were not export contingent. The
Appellate Body explained that the fact that the subsidies granted in a second set of circumstances might not be
export contingent did not dissolve the export contingency arising in the first set of circumstances.
Relying on Canada – Autos, India argues instead that the test for export contingency in law is a "but
for" test, i.e. the subsidies must be unavailable but for export performance. (India's first written submission,
paras. 339-341). However, the text relied upon by India is part of the Appellate Body's description of the
measure before it, and not the Appellate Body's articulation of the test for export contingency. The text of
Article 3.1(a) itself makes it clear that export performance can be "one of several … conditions".

requirement to achieve positive NFE, and envisages "penal action" for failing to achieve positive
NFE.776
7.528. Second, Form G also provides that the entrepreneur who is thus being authorized to set up
the Unit "shall export … as per the provisions of the Special Economic Zones Act, 2005", for five
years. As the United States pointed out, the definition of "export" in the SEZ Act, as it applies to
SEZ Units for trade in goods, only includes "taking goods … out of India" and supplying goods to
other SEZ Units or developers. 777 Thus, this too, amounts to a requirement for all approved Units
to "export", further reinforcing the export contingency of the subsidies provided to Units under the
SEZ Scheme.
7.529. Third, Form G requires its recipient to execute the prescribed "bond -cum-legal
undertaking", which is also part of the SEZ Rules and is set out in Form H. Form H, to be
undertaken by the SEZ Unit "unto the President of India", reiterates that the Letter of Approval
"contain[s] terms and conditions for setting up and operating the unit … including the requirement
of achieving positive Net Foreign Exchange Earning"778, and further reads:
We, the obligors shall achieve positive Net Foreign Exchange Earning and shall fulfil
other conditions stipulated in the Letter of Approval and in case of failure to achieve
the said positive Net Foreign Exchange Earnings, … we shall be liable for penal action
under the provisions of the Foreign Trade (Development and Regulation) Act, 1992.779
7.530. Therefore, the applicable legal instruments provide, and reiterate, that SEZ Units must
meet a positive NFE requirement, and at least one way in which this requiremen t is met is by
exporting. Further, we recall that the challenged subsidies are provided to Units. Therefore, the
challenged subsidies under the SEZ Scheme are contingent in law upon export performance within
the meaning of Article 3.1(a).
7.531. Moreover, the Letter of Approval also provides that the SEZ Unit will "export" and, again,
one of the ways in which this requirement is met is by exporting goods out of India. 780 For this
reason too, the challenged subsidies under the SEZ Scheme are contingent in law upon ex port
performance within the meaning of Article 3.1(a).
7.532. In addition, as regards the third type of subsidy that we have found to be provided under
the SEZ Scheme, i.e. the deduction from the taxable base for corporate income tax, the relevant
provisions expr essly provide for the deduction, "in computing the total income of … an
entrepreneur … from his Unit", of "profits and gains derived from … export".781 That is, export is,
again, a condition for the grant of the subsidy. For this reason, too 782, this deduction from taxable
income is contingent in law upon export performance within the meaning of Article 3.1(a).
7.533. We therefore find that the challenged subsidies under the SEZ Scheme, namely, (a) the
exemption from customs duties on imports into, and exports from, Units, (b) the exemption from
IGST on imports into Units, and (c) the deduction of export profits from the income of Units for
purposes of corporate income tax, are contingent in law upon export performance, and therefore
prohibited by Article 3.1(a) of th e SCM Agreement. Further, because India grants or maintains
such subsidies, it also acts inconsistently with Article 3.2 of the SCM Agreement.
7.534. The United States also argued that the challenged subsidies under the SEZ Scheme are
contingent in fact upon expo rt performance. We have found that they are contingent in law upon

776 Form G, para. (iii) of the SEZ Rules.
777 Section 2(m) of the SEZ Act. See also fn 768 above.
778 Form H, p. 1 of the SEZ Rules.
779 Form H, para. 8 of the SEZ Rules.
780 See fn 768 above.
781 Income Tax Act, 1961, Sections 10A and 10AA, (Exhibit USA-29). (emphasis added)
782 In addition to the fact that the very existence of Units is contingent upon export performance, as
discussed in the previous paragraphs with reference to all the challenged subsidies under the SEZ Scheme.

export performance, and we therefore do not proceed to examine whether they are contingent in
fact upon export performance.783
7.10.5 Whether the subsidies granted under the Duty -Free Imports for E xporters
Scheme are export contingent
7.535. To recall, we have found that the exemptions from customs duties under Conditions 10,
21784, 36, 60(ii), and 61 of DFIS constitute a subsidy.
7.536. The United States argues that the DFIS exemptions from customs duties are contingent in
law upon export performance. 785 According to the United States, under DFIS, participating
exporters must have made exports in the previous year to obtain the exemptions, and the value of
these past exports determines the amount of the duty-free entitlement.786
7.537. India mostly787 does not respond to the United States' arguments on export contingency
and contends that the United States has not established the existence of a subsidy under Article 1
of the SCM Agreement.788 Rather, in India's view, DFIS fall s under footnote 1 and thus does not
qualify as a subsidy within the meaning of Article 1. 789 However, we recall that we are examining
Conditions 10, 21, 36, 60(ii), and 61 of DFIS to the extent that we have found them not to fall
under footnote 1.790
7.538. Each of the duty exemptions at issue is subject to a "Condition" under the legal instrument
setting forth the measure, i.e. Notification No. 50/2017. In each case, the Condition includes a
requirement that the total value of the goods imported under the exemption not exceed a certain
percentage of the FOB value of exports of the specified product in the preceding year, ranging
from 1% to 25%.791
7.539. Thus, first, on the face of the measure itself, the exemption is not available without
exportation: as the United States p uts it, "[t]o receive the import duty exemption, an enterprise
must have made exports in the past year" .792 Second, again on the face of the measure itself, the
extent of the exemption (i.e. the total value of the goods that can be imported under the
exemption) depends on the value of exports of the specified products during the previous year.
That is, like in Canada – Autos, the more the subsidy recipient exports, the more it is entitled to
import under the duty exemption.793
7.540. In both these ways, the import du ty exemptions under DFIS are contingent upon export
performance, as established on the basis of the very words of the legal instrument that provides
for DFIS. In other words, they are contingent in law upon export performance.
7.541. India argues that insofar as the goods imported free of duty "are … for research and
development purposes … the duty exemption is not export contingent".794 This argument applies to
Condition 61, which requires, among others, that the goods be "imported for Research and

783 See also United States' response to Panel question No. 78 ("if the Panel agrees … that the
SEZ scheme is de jure contingent upon export performance, the Panel need not conduct a de facto analysis").
784 For one and six items, respectively. See among others paras. 7.255, 7.256, 7.267, and 7.406 above.
785 United States' first written submission, paras. 160-161; second written submission, para. 175;
opening statement at the meeting of the Panel, para. 30.
786 United States' first written submission, para. 161; opening statement at the meeting of the Panel,
para. 30.
787 See para. 7.541 below.
788 India's first written submission, paras. 402-404; second written submission, paras. 209-210; and
opening statement at the meeting of the Panel, paras. 113-114.
789 India's opening statement at the meeting of the Panel, para. 113.
790 See para. 7.267 above.
791 Notification No. 50/2017, (Exhibit USA-36). See also Communication dated 22 January 2019 from
the Panel to the parties concerning the Panel's terms of reference, the applicability of Article 4 of the
SCM Agreement, and the statement of available evidence, (Annex D-2), paras. 2.104-2.107.
792 United States' first written submission, para. 161.
793 Appellate Body Report, Canada – Autos, para. 106.
794 India's response to Panel question No. 80.

Development purp ose".795 However, as we have just found, Condition 61 both requires past
exports as a condition of the import duty exemption, and ties the extent of the duty -free
entitlement to the value of those past exports. 796 That the goods imported with the benefit of th is
duty-free entitlement are to be used for research and development does not make the duty
exemption any less export contingent.
7.542. We therefore find that the exemptions from customs duties under Conditions 10, 21797, 36,
60(ii), and 61 of DFIS are subsidies that are contingent in law upon export performance, and
therefore prohibited by Article 3.1(a) of the SCM Agreement. Moreover, since India grants or
maintains such subsidies, India is also acting inconsistently with Article 3.2 of the SCM Agreement.
7.10.6 Whether the subsidies granted under the Merchandise Exports from India
Scheme are export contingent
7.543. To recall, under MEIS, India provides a subsidy in the form of MEIS scrips.
7.544. The United States argues that MEIS scrips a re contingent upon export performance. 798
Specifically, citing the Foreign Trade Policy, the United States argues that under MEIS, a " program
participant receives scrips conditioned and tied to the value it exports, where the exports are sold,
and of what product".799 According to the United States, "[f]rom approval to award to monitoring,
the amount of scrips hinges on export performance".800
7.545. India does not respond to the United States' arguments on export contingency and submits
that the question of export con tingency is moot because MEIS falls under footnote 1 and
Annexes I(g) and I(h).801
7.546. The Foreign Trade Policy provides that MEIS scrips "shall be granted as rewards under
MEIS".802 The set of conditions giving rise to "entitlement under MEIS" is described in Se ction 3.04
of the Foreign Trade Policy.803 This provision reads:
3.04 Entitlement under MEIS
Exports of notified goods/products with ITC[HS] code, to notified markets as listed in
Appendix 3B, shall be rewarded under MEIS. Appendix 3B also lists the rate(s) of
rewards on various notified products [ITC (HS) code wise]. The basis of calculation of
reward would be on realised FOB value of exports in free foreign exchange, or on FOB
value of exports as given in the Shipping Bills in freely convertible foreign cur rencies,
whichever is less, unless otherwise specified.
7.547. Thus, the condition giving rise to "entitlement under MEIS" is the " export of notified
goods/products … to notified markets"; the "basis of calculation of reward" is the "FOB value of
exports"; and the "rate" of entitlement depends on the product exported and the country it is
exported to, as further specified in Appendix 3B.804

795 The argument was also applicable to Condition 60(i). However, the United States has clarified that its
challenge does not extend to this Condition. See fn 266 above.
796 In the case of Condition 61, the requirement is worded as follows: "If, … (b) the total value of goods
imported does not exceed one % of the FOB value of exports made during the preceding financial year…".
(Notification No. 50/2017 (Exhibit USA-36), p. 68).
797 For one and six items, respectively. See among others paras. 7.255, 7.256, 7.267, and 7.406 above.
798 United States' first written submission, paras. 60-61; second written submission, para. 114; and
opening statement at the meeting of the Panel, para. 18.
799 United States' first written submission, para. 61.
800 United States' first written submission, para. 61. See also United States' second written submission,
para. 114.
801 India's first written submission, paras. 292-295; second written submission, para. 124; and opening
statement at the meeting of the Panel, para. 76.
802 Section 3.02 of the FTP.
803 See also United States' first written submission, paras. 51-52 and 61.
804 Section 3.04 of the FTP. (emphasis added)

7.548. Appendix 3B, in turn, sets out a "list of Countries and ITC (HS) code wise list of products
with reward rates under the Merchandise Exports from India Scheme (MEIS)". 805 Appendix 3B
groups export destination countries into three "country groups". 806 Appendix 3B then lists, over
332 pages, the "MEIS - Reward Rate" for each covered product; specifically, for each covered
product, it lists three rates, the choice between the three being determined by the country to
which the exports giving rise to the reward were made.807
7.549. India has not rebutted any of this evidence of export contingency. Instead, India argues
that MEIS falls under footnote 1 of the SCM Agreement, and that every measure falling under
footnote 1, by definition, requires the export of products. 808 We note that while it is correct that
every measure falling under footnote 1 requires the export of products, we are undertaking the
analysis of export contingency because we have found that MEIS does not fall under footnote 1.809
7.550. Therefore, we find that "on the ba sis of the very words of the relevant legislation,
regulation or other legal instrument" 810, the fact of exporting is both the triggering condition for
the award of MEIS duty credit scrips, and the basis on which the value of the scrips is calculated.
As set out above, under the legal instruments regulating MEIS, that value is based on (a) the
FOB value of exports of the recipient of the scrips, and (b) a rate determined by the type of goods
exported and the destination country. That is, MEIS scrips are export contingent in law.
7.551. We therefore find that the provision of duty credit scrips under MEIS is contingent in law
upon export performance, and therefore prohibited by Article 3.1(a) of the SCM Agreement.
Moreover, since through the legal instruments discusse d above India grants or maintains such
subsidies, India is also acting inconsistently with Article 3.2 of the SCM Agreement.
7.11 The Panel's duty under Article 12.11 of the DSU
Article 12.11 of the DSU requires that panels, in cases in which "one or more of th e parties
is a developing country Member",
explicitly indicate the form in which account has been taken of relevant provisions on
differential and more-favourable treatment for developing country Members that form
part of the covered agreements which have been raised by the developing country
Member in the course of the dispute settlement procedures.
The "relevant provisions on differential and more -favourable treatment … raised by" India
in this dispute are Article 12.10 of the DSU and Article 27 of the SCM Agreement.
We begin with Article 12.10 of the DSU . Pursuant to this provision, "in examining a
complaint against a developing country Member, the panel shall accord sufficient time for the
developing country Member to prepare and present its argumentation".
In these Panel proceedings, we took account of India's status as a developing country
Member, under Article 12.10, in adopting and reviewing the Working Procedures and timetable.
Although established under the fast -track procedures contemplated in Arti cle 4 of the
SCM Agreement, we allowed four weeks for India to prepare its first written submission following
the United States' first written submission, and four weeks for India to prepare its second written
submission following the United States' second written submission. The Panel's timetable also

805 Public Notice 2/2015-2020, (Exhibit USA-11), cover page.
806 Public Notice 2/2015-2020, (Exhibit USA-11), Appendix 3B, table 1.
807 Public Notice 2/2015-2020, (Exhibit USA-11), Appendix 3B, table 2. The United States also points out
that "India controls how the product exported and the destination market for that product determine the rate
of receiving scrips", and in particular "reserves the right" to modify the goods or destination markets giving
rise to rewards, and to modify the rates of reward. (United States' first written submission, para. 54;
Section 3.13 of the FTP). Further, the United States also refers to a number of statements of Indian
government agencies to the effect that MEIS seeks to promote the export of goods covered by the scheme.
(United States' first written submission, para. 50).
808 India's first written submission, paras. 292-294.
809 See para. 7.294 above.
810 Appellate Body Report, Canada – Autos, para. 100.

provided for more than two months between the filing of submissions and the substantive meeting
with the parties.
In addition, after the substantive meeting with the parties, India requested us to double
the time for responding to our questions. In light of Article 12.10 of the DSU, we acceded to that
request for all but two of our questions.
We also considered India's developing country Member status and the requirements of
Article 12.10 when reconciling co mpeting considerations in our decision to hold a single
substantive meeting, although we ultimately did not accede to India's request that we not limit
ourselves to a single meeting.811
We now turn to Article 27 of the SCM Agreement. The question whether the special and
differential treatment provisions of Article 27 of the SCM Agreement exclude India from the scope
of application of Articles 3 and 4 of the SCM Agreement has been a key issue in this dispute.
India argued, and the United States disputed, that Article 27.2(b) of the SCM Agreement
exempted India from the prohibition of export subsidies set forth in Article 3.1(a) and, by virtue of
Article 27.7, from the applicability of Article 4. In resolving this dispute, we were therefore called
upon to interpret the meaning of the special and differential treatment provision of Article 27.2(b)
of the SCM Agreement. In doing so, we also took into account other relevant special and
differential treatment provisions included in Article 27 and Annex VII of the SCM Agreement. Our
analysis in section 7.3 of this Report reflects our consideration of the relevant provisions on special
and differential treatment.
India also reque sted us to rule at preliminary stage that, as a result of Article 27 of the
SCM Agreement, the procedures of Article 4 of the SCM Agreement were not applicable to this
dispute. We therefore considered India's request at preliminary stage. At the same time, India also
requested us not to rule at preliminary stage on the parties' interpretive disagreement on Article
27 itself, and to do so instead through the full panel proceedings, because India considered this to
be "a legal issue that goes to the essence o f the dispute".812 We explained, in a communication to
the parties at preliminary stage, that we could not rule on India's preliminary request on the
applicability of Article 4 of the SCM Agreement without resolving the parties' interpretive
disagreement under Article 27.813
8 CONCLUSIONS
8.1. For the reasons set out in this Report, we conclude that:
a. the exemptions from customs duties on importation under the EOU/EHTP/BTP Schemes
are subsidies contingent upon export performance, inconsistent with Articles 3.1(a) and
3.2 of the SCM Agreement;
b. the exemptions from customs duties on importation under the E PCG Scheme are
subsidies contingent upon export performance, inconsistent with Articles 3.1(a) and 3.2
of the SCM Agreement;
c. the exemptions from customs duties on importation and exportation, the exemption
from IGST on importation, and the deductions from taxable income, all provided under

811 Paras. 1.9-1.15 of this Report reflect the procedural background regarding the single meeting issue.
Our communications dated 22 January 2019 and 16 April 2019 to the parties set out the reasoning for our
decision (Communication dated 22 January 2019 from the Panel to the parties concerning the issues of a
single substantive meeting and a partially open meeting (Annex D-1), paras. 2.1-2.21, and in particular
paras. 2.13, 2.15 and 2.20; Communication dated 16 April 2019 from the Panel to the parties concerning the
Panel's Working Procedures and Timetable, (Annex D-3)).
812 India's first written submission, para. 79.
813 Communication dated 22 January 2019 from the Panel to the parties concerning the Panel's terms of
reference, the applicability of Article 4 of the SCM Agreement, and the statement of available evidence,
(Annex D-2), paras. 3.1-3.13.

the SEZ Scheme, are subsidies contingent upon export performance, inconsistent with
Articles 3.1(a) and 3.2 of the SCM Agreement;
d. the exemptions from customs duties on importation under Conditions 10, 21, 36, 60(ii)
and 61 of DFIS are subsidies contingent upon export performance, inconsistent with
Articles 3.1(a) and 3.2 of the SCM Agreement; and
e. the duty credit scrips awarded under MEIS are subsidies contingent upon export
performance, inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement.
8.2. Further, we reject the United States' claim s that the exemption from central excise duty on
domestically procured goods under the EOU/EHTP/BTP Schemes and the exemptions from customs
duties on importation under Conditions 28, 32, 33, and 101 of DFIS are subsidies contingent upon
export performance, inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement.
8.3. Pursuant to Article 3.8 of th e DSU, in cases where there is an infringement of the obligations
assumed under a covered agreement, the action is considered prima facie to constitute a case of
nullification or impairment of benefits. We conclude that, to the extent the measures at issue are
inconsistent with the SCM Agreement, India has nullified or impaired benefits accruing to the
United States under this agreement.
9 RECOMMENDATIONS
9.1. Pursuant to Article 4.7 of the SCM Agreement, if the measures in question are found to be
prohibited subs idies, the panel must "recommend that the subsidizing Member withdraw the
subsid[ies] without delay". Accordingly, we recommend that India withdraw, without delay, the
subsidies we have found to be inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement.
9.2. Article 4.7 further requires a panel to "specify in its recommendation the time -period within
which the measure must be withdrawn".
9.3. We recall that Article 4.7 is a "special or additional rule or procedure", which prevails over the
rules and procedures of the DSU to the extent they conflict. 814 Article 4.7 departs, among others,
from Article 21.3 of the DSU: in particular, "in contrast to Article 21.3(c) of the DSU, the use of
the term 'without delay' in Article 4.7 constrains the latitude available to a panel in specifying the
time period under that provision".815
9.4. At the same time, Article 4.7 itself does not prescribe "a single standard or time period
applicable in all cases". 816 A panel must determine what would constitute withdrawal "without
delay" taking into account the relevant facts and circumstances of the case 817, i.e. "typically … the
nature of the measure(s) to be revoked or modified and the domestic procedures available for
such revocation or modification".818
9.5. On this basis, many panels called upon t o determine the appropriate time period under
Article 4.7 have considered that, for the measures before them, this time period was 90 days.819
9.6. Other panels have considered that a different time period was appropriate for the measures
before them. In US – Upland Cotton, the panel recommended withdrawal of the measures either
within six months from adoption of the panel report, or by 1 July 2005 (which was a little less than
ten months from the date of circulation of the panel report), whichever was earlier.820

814 Article 1.2 and Appendix 2 of the DSU. See also e.g. Appellate Body Reports, Brazil – Taxation,
para. 5.445.
815 Appellate Body Reports, Brazil – Taxation, para. 5.447. (emphasis added)
816 Appellate Body Reports, Brazil – Taxation, para. 5.446.
817 Appellate Body Reports, Brazil – Taxation, para. 5.454.
818 Appellate Body Reports, Brazil – Taxation, paras. 6.43 and 5.446.
819 E.g. Panel Reports, Korea – Commercial Vessels, para. 8.700; Canada – Aircraft Credits and
820 Panel Report, US – Upland Cotton, paras. 8.3(b) and 8.3(c).

9.7. In US – FSC, the panel took note that withdrawal of the prohibited subsidy required
legislative action, and also that the measures were part of the respondent's tax legislation, which
was revised every year with effect from the beginning of each fiscal ye ar.821 On that basis, the
panel considered that withdrawal would be "without delay" if it took place no later than the start of
the fiscal year that would follow completion of the appeal process. 822 This was a year from the
expected circulation of the panel re port, and about half a year from the time at which the panel
expected adoption of the report in case of an appeal.823
9.8. Turning to the case before us, the United States has requested us to specify that the
inconsistent measures must be withdrawn within 90 days from the DSB's adoption of the
recommendations and rulings in this dispute.824
9.9. On the basis of our factual findings, above, we note that withdrawal of the prohibited
subsidies under the EOU/EHTP/BTP Schemes, EPCG Scheme, and MEIS , appears to require, at
least, amendments to the FTP. According to its preamble, the FTP is adopted by "the Central
Government", in the "exercise of powers conferred by Section 5 of the Foreign Trade
(Development & Regulation) Act, 1992". 825 Thus, on the face of the FTP, it appears t hat it is
adopted, and that therefore it can be amended, by the Government on the basis of authority
already conferred by India's legislature. In addition, withdrawal of these prohibited subsidies may
require amendments to certain other subordinated instru ments, such as the HBP, which, too, are
administrative measures. India's interim review comments confirm our understanding.826
9.10. India has also observed that modifying the FTP requires "consultations with various
stakeholders", including at central and state g overnment level, and "an express approval from
India's cabinet" 827; that "the next review of the FTP is scheduled for April 2020" 828; and that
modifications to the FTP "may have to be laid before the Indian Parliament for a period of
30 days".829
9.11. We consider that adoption by the Government (as opposed to the legislature) of
amendments to the FTP and related administrative measures, in the exercise of powers already
conferred upon the Government by India's legislat ure, can be achieved within 90 days, also taking
into account the consultation of stakeholders . As for the fact that the next review of the FTP is
scheduled to come into effect in April 2020, we consider that this may further facilitate withdrawal
of the prohibited subsidies in question. We also consider however that the possible need to lay the
amendments to the FTP before Parliament for 30 days requires that we include these 30 days in
the time period within which the prohibited subsidies under the EOU/EHTP/BTP Schemes,
EPCG Scheme, and ME IS, must be withdrawn. For these prohibited subsidies, therefore, we
consider that withdrawal "without delay" would be withdrawal within 120 days from adoption of
the Report.
9.12. We therefore recommend that India withdraw the prohibited subsidies under the
EOU/EHTP/BTP Schemes, EPCG Scheme, and MEIS, within 120 days from adoption of the Report.

822 The complainant, while accepting such a timeframe in case of an appeal, had asked the panel to
state as an alternative timeframe, in case of no appeal, the start of the fiscal year following adoption of the
panel report. (Panel Report, US – FSC, para. 4.1362).
823 Panel Report, US – FSC, para. 8.8 ("this Report is not scheduled for circulation to Members until
September 1999 (and, if appealed, might not be adopted until as late as early spring 2000)"). The panel report
was actually circulated on 8 October 1999.
824 United States' first written submission, para. 164; second written submission, para. 179. India set
out its arguments on the time period for withdrawal in its written request for review of the Interim Report and
in its oral statements at the Panel's interim review meeting with the parties (India's request for review,
paras. 88-93; India's opening statement at the interim review meeting of the Panel with the parties, para. 43;
India's closing statement at the interim review meeting of the Panel with the parties, paras. 9). The
United States commented on India's interim review arguments in this regard in United States' comments on
India's request for review, paras. 59-65. See also Annex A-2, section 9.2.
825 Preamble of the FTP.
826 India's request for review, paras. 89-91.
827 India's request for review, para. 90.
828 India's request for review, para. 91.
829 India's request for review, para. 91.

9.13. Turning to the prohibited subsidies under DFIS, on the basis of our factual findings, we note
that their withdrawal appears to require amendments to Notification No. 50/ 2017. According to its
terms, Notification No. 50/2017 is adopted by the "Central Government", in the "exercise of
powers conferred by sub -section (1) of section 25 of the Customs Act, 1962 (52 of 1962) and
sub-section (12) of section 3, of Customs Tariff Act, 1975 (51 of 1975)" .830 Thus, similar to our
observations in the preceding paragraph s, it appears from its face that Notification No. 50/2017
was adopted and can be amended by the Government, on the basis of authority already conferred
by India's legisla ture. Thus, for the prohibited subsidies under DFIS, we consider that withdrawal
"without delay" would be withdrawal within 90 days from adoption of the Report.831
9.14. We therefore recommend that India withdraw the prohibited subsidies under DFIS within
90 days from adoption of the Report.
9.15. Turning to the SEZ Scheme, based on our factual findings, it appears that withdrawal of the
measures we have found to constitute prohibited subsidies would require, at least, amendments to
the SEZ Act (for the exemptions from customs duties on importation and exportation, and the
deduction from taxable income), the Income Tax Act (for the deduction from taxable income), and
Notification No. 15/2017 (for the exemption from IGST). While Notification No. 15/2017, like the
measures we have reviewed in the previous paragraphs, is adopted by the Government in the
"exercise of the powers conferred" by the legislature, the SEZ Act and Income Tax Act are,
themselves, legislative acts. Their amendment, therefore, appears t o require action by
India's Parliament. Withdrawal of the measure may additionally require amendments to certain
other subordinated acts, such as the SEZ Rules, which were adopted by the Government in the
exercise of powers conferred by the SEZ Act. 832 India's interim review comments confirm our
understanding regarding the SEZ Scheme.833
9.16. Because withdrawal of the prohibited subsidies under the SEZ Scheme thus appear s to
require amendments to legislative acts of India's Parliament, we do not consider it "practicable"834
to envisage withdrawal within 90 days. Instead, we consider that withdrawal "without delay" would
be withdrawal within 180 days from adoption of the Report.
9.17. During the interim review, India commented that modifications to tax legislation are "mostly
made through a general budget ", and that such modifications " can be implemented at the start of
the next fiscal year". 835 On this basis, while India's comments concede that 180 days suffice as a
minimum period for withdrawal 836, India asked that, after expiry of 180 days from adoption, the
time period for withdrawal additionally include any amount of time running until the beginning of
India's following fiscal year.837 Depending on the date of adoption of the Report, this could result in
a time for withdrawal ranging from 180 to 544 days.838
9.18. Given the degree of uncertainty and potential delay that this proposed formula would
introduce, and given that India's own comments manifest that it is not strictly necessary to
implement withdrawal as part of India's ge neral budget and with effect from the start of a new
fiscal year 839, we consider that acceding to India's request would be incompatible with the
requirement of Article 4.7 that we recommend withdrawal "without delay".
9.19. Therefore, we recommend that India with draw the prohibited subsidies under the
SEZ Scheme within 180 days from the date of adoption of the Report.
India's request for review, para. 93; United States' comments on India's request for review, para. 65.
832 Preamble of the SEZ Rules.
833 India's request for review, para. 92.
835 India's request for review, para. 92. (emphasis added)
836 Annex A-2, para. 9.11, with reference to India's request for review, para. 93.
837 India's request for review, para. 93. India indicated that its fiscal year starts on 1 April.
838 Annex A-2, para. 9.8.
839 Annex A-2, para. 9.11, with reference to India's request for review, para. 92.