The very core of India's subsidy policy is under threat
INDIAN antibiotic exports are a threat to the European pharmaceutical industry! It may sound like a compliment first, but in fact it's the first step to another non-tariff barrier against Indian exports. The allegation—from the European pharma industry—has resulted in the first anti-subsidy investigation against Indian exports.
An anti-subsidy investigation is different, and in some ways more serious than, an anti-dumping one, insofar as it takes an intrusive swipe at policy and involves the government of a country directly. It's the Indian government's subsidy schemes and the advantages that accrue to Indian exporters under them that are now being assailed. And all this is happening legitimately under the WTO agreement to which India is a signatory. In the new world economic order, India is on the defensive once again.
In July, the European Community pharmaceutical industry submitted a formal request for anti-subsidy investigations against Indian antibiotic exports. "The commission decided there was sufficient evidence provided by the complainants to warrant investigation in this case," says John Lonergan, a commission official. One of the main allegations is that Indian antibiotics come into the European market at a low price, thereby providing unfair competition to domestic producers and resulting in significant injury to domestic industry in Europe. Three subsidy schemes are being targeted—DEPP (Duty Entitlement Passbook Scheme), the Exclusive Export Processing Zones and Corporate and Direct Tax Exemption to Exporters. There are two main areas under investigation: the existence of countervail-able subsidies in India and evidence of injury to domestic industry in Europe.
Questionnaires have been sent to the Indian government and more than 40 companies in India including Ranbaxy, Lupin Labs, Torrent and Gujarat Lyka. After answers are received, a group of commission officials will travel to India to verify the facts. "We envisage doing that around the end of November, beginning of December," says Lonergan. A preliminary decision is required to be reached by the commission within nine months of the initiation of investigation, following which a final decision must be taken by the council of ministers in Europe within four months.
The most recent such inquiry was against Norway, the product being farmed Atlantic salmon. "The outcome was the acceptance of an undertaking offered by the Norwegian government to offset the effect of the subsidy when it exported the product to the Community," says Lonergan. Two other cases that date back to 1990-91 involved Thailand (ball bearings) and Turkey (polyester fibre and yarn). In both these cases again, no countervailing duties were imposed, instead undertakings from the governments were accepted.
What could an undertaking from India entail? The termination of an export boosting scheme or imposition of export taxes to balance out countervailable subsidies? In any scenario it's the Indian exporter and indeed the European consumer who lose.
What's ironic is that in the particular case of Indian pharmaceuticals, producers are subsidised by the government to allow them to keep prices of their products low for sale in the domestic market. As a result,they are, in fact, encouraged to boost prices for exports to make profits. And these very inflated prices are the ones that are coming under attack for being too low!
Since developing countries like India produce goods at cheaper costs and hence export them cheap, the low prices will always be a threat to the domestic industry of the country to which goods are being exported. Which in turn has at its disposal the mechanism to initiate investigations under anti-dumping or anti-subsidy clauses of the WTO agreement. In this specific case, it's interesting to note that the European Commission is bound to admit complaints and initiate investigations under its own legislation, if the complainants constitute more than 50 per cent of the Community's production. In theory, as a signatory to the WTO, India's in the same position. But does India have the infrastructure or resources to carry out detailed anti-dumping and anti-subsidy investigations? Will we be able to investigate the existence of countervailable subsidies that give European agro-exports an advantage under their Common Agricultural Policy, once quantitative restrictions are lifted?
While there've been many anti-dumping investigations against India, this is the first anti-subsidy investigation. Today it's against Indian antibiotics, tomorrow it could be stainless steel. Subsidies are one of the most important and most widely applied constituents of India's export policy. India's exports constitute only 1.5 per cent of Europe's imports. What if India somehow increases that share? What awaits us then?