The United States has raised issue over increase in incentive by India to support exports of several products which includes textile while expanding the scope of the Merchandise Exports from India Scheme (MEIS) this October. The Indian government has included exports of cotton fabrics, both woven and knitted, and made-ups to leading markets including African countries under the MEIS.

Under the World Trade Organisation’s agreement on subsidies and countervailing measures, when the export share of a developing country with per capita income below 1,000 US dollar a year touches 3.25 US dollar in any product category for two consecutive calendar years it is deemed to have gained “export competitiveness”.

Such a country is then required to phase out export subsidies for the items for eight years from the second year of breach. The WTO mandates developing countries to phase out the export subsidies within the eight-year period, preferably in a progressive manner. The WTO had in 2010 asked India to consider phasing out the subsidies for textiles and clothing.

As per the agreement, a developing country member shall not increase the level of its export subsidies, and shall eliminate them within a period shorter…when the use of such subsidies is inconsistent with its development needs.

Although India has crossed the export limit but currently the market is moving slow. As for the removal of subsidies, they can either gradually phase out or immediately discontinue them in 2018 on a pre-decided date, according to an official of the concerned department.

The US is alleging violation of global trade rule for export competitiveness in textiles saying India cannot give additional subsidy during the phase-out period.