Date:17/01/2006 URL: http://www.thehindubusinessline.com/2006/01/17/stories/2006011702530800.htm

Back Fears over DEPB mismatch unfounded, says EEPC

Mohan Padmanabhan

According to the EEPC Chairman, there is no need for absolute withdrawal of the DEPB Scheme.

Kolkata , Jan. 16

THE Engineering Export Promotion Council (EEPC) has in a recent representation to Union Commerce Minister, Mr Kamal Nath, pointed out that the DEPB scheme should be allowed to continue, as it was a time-tested scheme and any fears over WTO obligations were unfounded.

Mr Rakesh Shah, chairman of EEPC, told Business Line here today that member countries listed in Annex VII of the WTO Agreement on Subsidies & Countervailing Measures (ASCM) are allowed to maintain export subsidies, inter alia subject to the condition that their per annum per capita GNP does not exceed $ 1,000 as part of a Special and Differential Treatment. He said India was listed as one such country.

The council felt that the existing DEPB Scheme was compatible vis-à-vis WTO obligations. He said, "If it were not the case, India would have been forced to withdraw the scheme long ago."

On countervailing, he said Annex I to III of ASCM, inter alia, deal with Substitution Drawback System, "and if the text is strictly applied, all our export promotion schemes including the All Industry Rate (AIR) Drawback Scheme and the Brand Rate DBK Scheme would not meet the requirements of a valid Substitution Drawback System".

The AIR drawback scheme, according to the council, was based on industry averages without any verification mechanism, and brand rates of drawback, though enterprise specific, could also be countervailed in the absence of a verification procedure with regard to actual usage of inputs in the production process.

He said any duty remission scheme that was not in accordance with the Substitution Drawback System could therefore be countervailed subject to the onerous requirement of the importer having to prove injury and casual link.

Mr Shah pointed out that until now only six product groups availing DEPB Scheme benefits have been subject to countervailing measures. "Therefore, the problem is not as critical as made out, and does not require an extreme action of an absolute withdrawal of the DEPB Scheme." He said that without DEPB exporters would be left with only the AIR DBK Scheme and Brand Rate scheme, and these too would come in for closer scrutiny by WTO members, and may not match the perfect DBK Substitution System. In other words, these too may be countervailed.

Ideally, said Mr Shah, the government while continuing with the DEPB Scheme should simultaneously take up with WTO the issue that CV duties on DEPB exports should be applied only to the extent of proven excess remission, and not on the entire credit as done at present.

He felt that as the DEPB Scheme for nearly all industrial groups works on a minimum value addition of 50 per cent, it administratively restricted excess remission.