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US Says India in Violation of Trade Rule for Export Competitiveness

India’s latest effort to boost its textile exports got the United States’ attention as the move may be in violation of a global trade rule for export competitiveness.

Last month, India increased support for exports of several products, including textiles as part of its Merchandise Exports from India Scheme (MEIS), India’s Economic Times reported.

The country’s Commerce Department was concerned about exports contracting for the tenth consecutive month and so extended duty incentives under its export promotion program to woven and knitted cotton fabrics and garments to leading markets, including African nations.

According to India’s Commerce Department data, the country’s merchandise exports have fallen by more than 24 percent to $21.8 billion in September, and for the first half of their fiscal year, exports contracted by more than 17 percent to $133 billion.

“In light of the major challenges being faced by Indian exporters in the backdrop of the global economic slowdown, Department of Commerce today announced increased support for export of various products and included some additional items under the Merchandise Exports from India Scheme (MEIS),” the Department of Commerce said in a statement.

Its efforts, however, could cause the country to gain unfair export competitiveness.

Under the World Trade Organization’s (WTO) agreement on subsidies and countervailing measures, for developing nations, “export competitiveness in a product exists if a developing country member’s exports of that product have reached a share of at least 3.25% in the world trade of that product for two consecutive years.”

A country in violation of the rule is then required to phase out export subsidies for the items progressively within eight years from the second year of the breach, the Times reported.

However, the agreement notes, “A developing country member shall not increase the level of its export subsidies, and shall eliminate them within a period shorter than that provided for in this paragraph when the use of such export subsidies is inconsistent with its development needs.”

The Times said, citing a source requesting anonymity, that the U.S. has flagged the export competitiveness issue and said that India cannot give any additional subsidies during the phase-out period.