4.5.3 Domestic Measures | World Trade Organization (WTO)

I. Introduction to Domestic Measures (WTO)

Conceptual Overview

• Definition of Domestic Measures
  • Domestic measures refer to internal policies, laws, subsidies, regulatory standards, and administrative actions that affect the flow, pricing, and accessibility of goods and services within national borders.
  • These include tax concessions like India’s Production-Linked Incentive (PLI) scheme, regulatory approvals, environmental laws, and labor standards, which may indirectly or directly influence trade.
• Purpose of Domestic Measures
  • Aimed at achieving internal goals such as industrial growth, employment generation, poverty alleviation, price stability, and national security.
  • For instance, India’s Minimum Support Price (MSP) for agricultural produce is meant to stabilize farmer incomes and food supply.
• Scope of Domestic Measures
  • Broad in scope, including fiscal tools (subsidies, tax incentives), trade remedies (safeguards, antidumping duties), regulatory mechanisms (product standards, safety laws), and administrative practices (licensing, registration).
  • Also includes sector-specific interventions such as pharmaceutical price controls under the National Pharmaceutical Pricing Authority (NPPA) established in 1997.

Historical Context

• GATT Era (1947-1994)
  • The General Agreement on Tariffs and Trade (GATT), established in 1947, aimed to reduce tariffs but allowed domestic policy autonomy.
  • Domestic measures were generally treated as secondary concerns unless they created a disguised restriction on international trade.
• Uruguay Round (1986-1994)
  • A turning point in international trade governance; resulted in the establishment of the WTO in 1995.
  • Domestic measures gained prominence as focus expanded beyond tariffs to non-tariff barriers, services, intellectual property rights, and agriculture.
• WTO Era (1995–Present)
  • With the adoption of the Agreement on Subsidies and Countervailing Measures (SCM), Agreement on Agriculture (AoA), and General Agreement on Trade in Services (GATS), domestic policies became central to global trade disciplines.
  • India and other developing nations raised concerns during Doha Development Round (launched in 2001 in Qatar) over the constraints these agreements impose on domestic autonomy.
• Recent Developments
  • Growing scrutiny of domestic industrial policies by WTO panels, especially regarding clean energy subsidies, digital regulations, and data localization.
  • Increasing invocation of WTO’s Dispute Settlement Understanding (DSU) in cases concerning domestic regulations, such as the India–Solar Cells Case (2016) where India’s local content requirements were ruled inconsistent with WTO rules.

Relationship with International Trade

• Interplay Between Domestic Policies and Market Access
  • Domestic measures like licensing norms, standards, and subsidies may restrict or facilitate foreign market entry.
  • For example, India’s compulsory licensing of patented drugs under Section 84 of the Indian Patents Act, 1970 has raised debates about WTO compliance.
• Trade-Distorting Effects
  • Certain subsidies can alter comparative advantage and global trade patterns, leading to competitive distortions.
  • Export subsidies and production-linked support often result in unfair pricing, leading to retaliatory tariffs or trade disputes.
• Indirect Barriers
  • Non-transparent regulations, arbitrary administrative procedures, and excessive compliance burdens function as non-tariff barriers (NTBs).
  • India’s Bureau of Indian Standards (BIS) certifications for electronics, while ensuring quality, have been viewed as market entry hurdles by some trading partners.
• Positive Trade Impact
  • Well-designed domestic measures such as infrastructure spending, education investment, and environmental regulations can enhance long-term trade competitiveness without violating WTO norms.

Broader Economic Implications

• Efficiency vs. Equity Trade-off
  • Efficiency advocates argue for minimal domestic intervention, emphasizing market-led outcomes.
  • Equity concerns push for interventions that ensure inclusive development, such as India’s Public Distribution System (PDS) that ensures food access.
• Impact on National Competitiveness
  • Targeted policies like tax holidays for start-ups or support for small and medium enterprises (MSMEs) can build capacity and global competitiveness.
  • Programs like ‘Startup India’ (launched in 2016) aim to create a conducive domestic ecosystem that supports trade-ready enterprises.
• Consumer Welfare
  • Price controls, safety regulations, and access-enhancing policies protect consumers but may conflict with WTO norms if they affect importers.
  • Domestic regulation of genetically modified organisms (GMOs), for example, affects agricultural imports.
• Innovation and Investment
  • Intellectual property protection under TRIPS encourages innovation but may restrict access to affordable generics in countries like India.
  • India’s use of Section 3(d) of its Patents Act to prevent evergreening illustrates how domestic measures balance innovation and access.

Preliminary Critiques

• Arguments for Policy Space
  • Developing nations argue that rigid WTO rules erode the necessary flexibility to implement development-centric policies.
  • India has consistently defended its right to use price support mechanisms and public stockholding for food security, citing Article 18.4 of AoA.
• Concerns Over Protectionism
  • Critics argue domestic measures are often thinly veiled protectionist tools, harming foreign exporters and reducing global welfare.
  • Anti-dumping duties, frequently used by countries like the United States and India, are sometimes criticized for shielding inefficient domestic producers.
• Globalization vs. Sovereignty Tension
  • WTO obligations may limit sovereign decisions, especially in health, education, and environment sectors.
  • India’s experience during the COVID-19 pandemic with export restrictions on essential medical products demonstrates the challenge of balancing WTO compliance with national priorities.
• Asymmetric Application
  • There is growing discontent among developing countries that developed nations use domestic measures like green subsidies and digital regulations to maintain competitive edge, while discouraging similar policies in the Global South.
  • India’s opposition to carbon border adjustment mechanisms (CBAMs) proposed by the EU reflects concerns over unequal treatment.
• Need for Reform
  • Proposals for redefining domestic support, enhancing transparency, and allowing conditional flexibilities for developing countries are gaining traction.
  • The Ministerial Conference 12 (Geneva, 2022) saw renewed discussions on balancing trade rules with sustainable development goals.

II. Legal framework and foundational principles

Core WTO agreements

• General Agreement on Tariffs and Trade (GATT)
  • Signed in 1947 and later subsumed under the WTO in 1995.
  • Serves as the foundational legal instrument for trade in goods.
  • Contains rules on tariff bindings, elimination of quantitative restrictions, and the non-discrimination principles.
  • Specifically addresses trade-distorting domestic measures that impact goods, such as subsidies and internal taxes.
• General Agreement on Trade in Services (GATS)
  • Came into force in 1995 alongside the WTO.
  • Regulates domestic measures that impact cross-border services through four modes: cross-border supply, consumption abroad, commercial presence, and movement of natural persons.
  • Allows nations to maintain regulatory autonomy while ensuring commitments for market access and national treatment are honored.
  • India has made commitments in sectors such as telecommunications, banking, and information technology-enabled services.
• Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)
  • Enforced from 1995 as part of the WTO framework.
  • Sets minimum standards for protection and enforcement of intellectual property (IP) rights across all WTO members.
  • Covers patents, copyrights, geographical indications, trademarks, industrial designs, and trade secrets.
  • India amended the Indian Patents Act of 1970 in 2005 to comply with TRIPS, particularly in the area of pharmaceutical product patents.
  • Provides flexibilities such as compulsory licensing under Article 31 and safeguards against evergreening through Section 3(d) of the Indian Act.
• Role of dispute settlement in interpreting domestic measures
  • The Dispute Settlement Understanding (DSU), established in 1995, enables WTO members to challenge domestic measures violating WTO rules.
  • Panels and the now-defunct Appellate Body interpret whether domestic laws or practices are consistent with WTO agreements.
  • Notable examples include India–Quantitative Restrictions (1999) and India–Solar Cells (2016), which clarified how local policies may breach WTO obligations.
  • Dispute rulings create jurisprudence guiding member states on policy formulation and implementation.

Most-Favored-Nation (MFN) principle

• Rationale
  • Aims to ensure non-discriminatory trade treatment by requiring a WTO member to extend the same favorable terms granted to one member to all other members.
  • Codified in Article I of GATT and Article II of GATS.
  • Encourages predictability and fairness in global trade by removing preferential treatments unless legally exempted.
• Exceptions
  • Allows for regional trade agreements under Article XXIV of GATT, such as South Asian Free Trade Area (SAFTA) signed in 2004.
  • Enables preferential treatment to developing and least-developed countries under the Enabling Clause of 1979.
  • Special exemptions include waivers for Generalized System of Preferences (GSP) programs such as India’s trade preferences from countries like the USA.
• Implications for domestic regulations
  • Countries must ensure that regulatory policies do not discriminate between trading partners without a valid exception.
  • India’s earlier telecom licensing policies were revised to align with MFN requirements after WTO consultations.
  • Any deviation must be transparent and backed by an authorized waiver or agreement clause.

National Treatment principle

• Principle details
  • Mandates that imported goods and foreign services or service providers be treated no less favorably than their domestic counterparts.
  • Enshrined in Article III of GATT and Article XVII of GATS.
  • Designed to prevent hidden protectionism through internal taxes, standards, or regulations.
• Application to goods and services
  • For goods: Domestic taxation, labeling, and safety requirements must apply equally to domestic and imported products.
  • For services: Licensing, qualification procedures, and technical standards must not discriminate against foreign suppliers.
  • India’s Insurance Regulatory and Development Authority (IRDAI) licensing framework for foreign insurers aligns with national treatment standards.
• Potential for disguised restrictions
  • Countries may use legitimate domestic objectives like health or safety to indirectly discriminate.
  • For instance, a food safety standard that applies only to imports violates national treatment unless scientifically justified.
  • India faced challenges over import restrictions on poultry due to avian flu concerns, where the measure was seen as inconsistent with WTO rules.

Transparency and notification obligations

• Required disclosures of domestic measures
  • WTO members must notify changes in trade-related policies that can affect other members.
  • Notification obligations exist across various agreements like GATT (subsidies), GATS (service regulations), TRIPS (IP laws), and SPS/TBT (health and technical standards).
  • India regularly notifies its support measures under the Agreement on Agriculture (AoA), including food subsidies and public stockholding programs.
• Role of WTO committees
  • Committee on Agriculture reviews subsidy notifications and domestic support commitments.
  • Council for Trade in Services examines service-sector regulations.
  • Council for TRIPS oversees implementation of IP rights and compliance.
  • Technical Barriers to Trade (TBT) Committee and Sanitary and Phytosanitary (SPS) Committee assess the trade impact of regulatory standards.
  • These committees encourage dialogue, ensure compliance, and promote early resolution of potential disputes.

Distinctions among WTO principles

III. Classification of domestic measures

Types of domestic measures

• Fiscal measures
  • Include taxes, tax rebates, and exemptions aimed at influencing consumption, production, or investment patterns.
  • India offers tax holidays under Section 10A and 10B of the Income Tax Act for Special Economic Zones to boost exports.
  • Use of differential GST rates to encourage or discourage specific goods such as luxury cars or tobacco products reflects fiscal intervention.
• Regulatory standards
  • Comprise product quality norms, safety regulations, and environmental requirements.
  • India enforces mandatory standards through the Bureau of Indian Standards (BIS), founded in 1947, for over 300 products including electrical appliances and cement.
  • Regulations like FSSAI norms for food safety and Automotive Industry Standards (AIS) for vehicles are critical examples.
• Subsidies
  • Include direct budgetary transfers, input subsidies, and preferential pricing mechanisms.
  • India’s input subsidies for fertilizers, electricity, and irrigation have supported agricultural productivity since the Green Revolution in the 1960s.
  • Export subsidies such as the Merchandise Exports from India Scheme (MEIS) and Remission of Duties and Taxes on Exported Products (RoDTEP) help boost outbound trade.
• Administrative procedures
  • Include licensing systems, registration requirements, and inspection processes.
  • India’s Industrial Licensing Policy of 1991 liberalized many sectors but retained licensing for defense and hazardous industries.
  • New digital platforms such as National Single Window System (NSWS), launched in 2021, streamline clearances across ministries and states.

Market-based vs. non-market-based mechanisms

• Market-based mechanisms
  • Rely on price signals and incentives to drive behavioral changes.
  • Include instruments such as carbon taxes, tradable permits, and performance-linked incentives.
  • India’s Perform Achieve and Trade (PAT) scheme under the Energy Efficiency Mission is a cap-and-trade program for energy savings.
  • Fiscal measures such as GST compensation cess on coal and tobacco aim to internalize external costs.
• Non-market-based mechanisms
  • Use legal prohibitions, mandatory rules, or quantitative controls instead of price signals.
  • Include import quotas, local content requirements, and statutory bans.
  • India imposed import restrictions on PPE kits and ventilators during the COVID-19 pandemic to secure domestic supply.
  • Mandatory procurement of domestic solar panels under certain public programs serves strategic and developmental goals.

Horizontal measures vs. sector-specific measures

• Horizontal measures
  • Apply across multiple sectors with economy-wide implications.
  • Include policies related to social security, education, labor regulation, and environmental protection.
  • The National Rural Employment Guarantee Act (NREGA) of 2005 provides wage security and boosts rural consumption, indirectly influencing trade and production structures.
  • Environmental measures such as Compensatory Afforestation Fund Management and Planning Authority (CAMPA), established in 2016, impact multiple sectors.
• Sector-specific measures
  • Designed for particular industries or economic activities.
  • Include targeted subsidies, incentives, and regulation for agriculture, pharmaceuticals, IT services, and automobile manufacturing.
  • For example, the PLI scheme for mobile phones, launched in 2020, provides financial incentives linked to production volume and exports.
  • Agricultural MSP for paddy and wheat, notified annually by the Commission for Agricultural Costs and Prices (CACP), directly affects farmer incomes and domestic market prices.

Differentiating policy tools

Potential overlaps

• Multiple objectives under one measure
  • A single domestic policy can pursue overlapping economic, social, and strategic goals.
  • For instance, the PLI scheme for solar modules targets climate goals, energy independence, and trade competitiveness simultaneously.
  • The Public Distribution System (PDS) under the National Food Security Act (NFSA) of 2013 promotes food security, rural employment, and price stabilization.
• Complexities in WTO classification
  • Some measures defy clear categorization under WTO rules, leading to disputes.
  • A regulatory standard that promotes safety may also act as a non-tariff barrier if it disproportionately affects foreign suppliers.
  • Subsidies reported under Green Box may have trade-distorting effects not accounted for by WTO frameworks.
  • WTO’s Agreement on Subsidies and Countervailing Measures (SCM) and Agreement on Agriculture (AoA) contain overlapping provisions, adding legal uncertainty.
  • Developing countries like India often face challenges defending such multifunctional policies at the WTO.

IV. Domestic subsidies and support

Basic concepts

• Definitions
  • A subsidy is any financial contribution made by a government or public body that confers a benefit to producers or consumers.
  • Subsidies include direct payments, tax exemptions, concessional loans, price supports, and input cost reductions.
  • WTO defines subsidies under Article 1 of the Agreement on Subsidies and Countervailing Measures (SCM), which includes three criteria: financial contribution, by a government or public body, and a benefit conferred.
• Rationale
  • Governments use subsidies to achieve policy goals such as food security, rural development, strategic industrial growth, employment generation, innovation, and poverty reduction.
  • India provides urea subsidies to ensure affordable agricultural inputs and PLI (Production-Linked Incentive) schemes to boost manufacturing and exports.
  • Subsidies also help correct market failures, enhance competitiveness, and support fledgling sectors.
• Distortions caused by subsidies
  • When subsidies are misdirected or excessive, they lead to market distortions, encourage overproduction, discourage efficiency, and reduce global competitiveness.
  • For example, energy subsidies can promote excessive consumption and environmental degradation.
  • Distorted pricing undermines comparative advantage and affects international trade equilibrium, often triggering retaliatory tariffs or complaints under WTO mechanisms.

Types of subsidies

• Production subsidies
  • These are direct or indirect support measures that lower the cost of production.
  • India provides fertilizer subsidies, electricity subsidies for agriculture, and free irrigation services to boost agricultural output.
  • These subsidies often lead to excessive use of inputs, soil degradation, and water scarcity.
  • In the industrial sector, subsidies may include interest subvention schemes or capital investment incentives to promote manufacturing.
• Export subsidies
  • These promote outbound trade by financially incentivizing producers to sell in international markets.
  • India’s Merchandise Exports from India Scheme (MEIS), active until 2021, offered duty credits based on export performance.
  • It was replaced by Remission of Duties and Taxes on Exported Products (RoDTEP) in 2021 to ensure WTO compliance.
  • Export subsidies are prohibited under WTO rules when contingent on export performance, especially for non-agricultural products.
• Research and development (R&D) grants
  • These subsidies support innovation, technological upgrading, and skill enhancement in targeted sectors.
  • India’s Technology Development Fund (TDF) and BIRAC (Biotechnology Industry Research Assistance Council), founded in 2012, provide co-funding for startups and R&D institutions.
  • R&D subsidies are generally non-actionable under WTO if they meet specific criteria related to horizontal applicability and pre-competitive research.
• Agricultural support
  • Agriculture receives the highest share of subsidies globally and in India due to food security and livelihood concerns.
  • India’s Minimum Support Price (MSP) system, implemented through the Food Corporation of India (FCI) since 1965, guarantees price stability for farmers.
  • Other forms include input subsidies, insurance schemes like PMFBY (Pradhan Mantri Fasal Bima Yojana) launched in 2016, and free electricity for pumps.
  • Under WTO’s Agreement on Agriculture (AoA), subsidies are categorized into Amber Box (trade-distorting), Blue Box (production-limiting programs), and Green Box (non-trade distorting, e.g., research and rural infrastructure).

Legal context

• SCM Agreement coverage
  • The Agreement on Subsidies and Countervailing Measures (SCM), operational since 1995, applies to goods but not services or agriculture.
  • Defines and disciplines three types of subsidies: prohibited, actionable, and non-actionable (though this last category lapsed in 1999).
  • Requires notification of subsidies and allows members to challenge adverse effects through the WTO Dispute Settlement Body.
• Prohibited vs. actionable subsidies
  • Prohibited subsidies include those explicitly linked to export performance or the use of domestic over imported goods.
  • These are presumed to be trade-distorting and must be withdrawn without the need to prove harm.
  • Actionable subsidies are not prohibited per se but can be challenged if they cause adverse trade effects such as injury to domestic industry or serious prejudice to a member’s interests.
  • Actionable subsidies require evidence of causal link between the subsidy and market distortion.
• De minimis thresholds
  • WTO allows small-scale subsidies below a certain threshold as non-actionable.
  • For developed countries, the de minimis limit is 1% of the value of production; for developing countries, including India, it is 2%.
  • For agriculture, under AoA, developing countries can provide up to 10% of total value of production without breaching commitments.
  • India has often defended its food security subsidies under the de minimis exemption and Peace Clause adopted at Bali Ministerial Conference, 2013.

Implications for trade

• Competitiveness distortion
  • Subsidies can unfairly enhance the global competitiveness of domestic firms, affecting level playing fields.
  • Developed countries like the USA and EU provide large agricultural subsidies, distorting world prices and harming producers in developing countries like India.
  • In response, India imposes countervailing duties under the Customs Tariff Act, 1975 on subsidized imports that harm domestic industry.
• Race to the bottom or top
  • Subsidy competition among nations can trigger a race to the bottom, where governments lower standards or grant excessive support to retain investments.
  • Alternatively, it may lead to a race to the top in strategic sectors such as semiconductors or clean energy, with countries like India, the USA, and China offering billions in incentives.
  • India’s Semiconductor Mission, launched in 2021 with a ₹76,000 crore outlay, illustrates this strategic approach.

Policy reform debates

• Phasing out harmful subsidies
  • International agencies like the OECD and IMF advocate the gradual removal of fossil fuel subsidies, which amounted to ₹2.17 lakh crore in India in FY 2020.
  • Domestic political resistance and social needs often hinder rationalization.
  • India has initiated reforms in LPG subsidy targeting using Direct Benefit Transfer (DBT) since 2013.
• Safeguarding development space
  • Developing nations argue that subsidy disciplines must not restrict their right to pursue legitimate development goals.
  • India, Indonesia, and others have proposed permanent solutions to public stockholding and sought greater flexibilities under Special and Differential Treatment (S&DT) provisions.
  • WTO’s rigid subsidy rules often constrain implementation of programs tailored to local needs, such as India’s Price Stabilisation Fund (PSF) for perishable crops.

Enforcement challenges

• Measuring subsidy effects
  • Difficulty arises in quantifying the exact benefit conferred by a subsidy, especially in terms of global price distortion or market injury.
  • Evaluating counterfactual scenarios—what would have occurred without the subsidy—is often speculative and data-dependent.
• Limited transparency
  • Many members fail to notify their subsidies on time or provide incomplete details, weakening the effectiveness of WTO oversight.
  • India has faced criticism for delayed notifications, particularly concerning input subsidies and MSP outlays.
• Dispute settlement constraints
  • WTO’s Appellate Body has remained non-functional since 2019 due to the USA blocking new appointments.
  • This paralyzes the final stage of subsidy-related litigation, affecting countries like India that seek binding rulings on disputes.
  • The absence of enforceable rulings undermines confidence in multilateral resolution and may encourage unilateral retaliation through countervailing tariffs.

V. Domestic regulatory measures in agriculture

Key agricultural policies

• Price support mechanisms
  • Governments ensure minimum returns to farmers by fixing procurement prices.
  • In India, the Minimum Support Price (MSP) system covers 23 crops including wheat, paddy, pulses, and oilseeds, based on recommendations by the Commission for Agricultural Costs and Prices (CACP).
  • The MSP is implemented through procurement by the Food Corporation of India (FCI), established in 1965.
  • While MSP stabilizes farmer incomes, it can also lead to overproduction and stress on government procurement and storage infrastructure.
• Direct payments
  • These payments are made directly to farmers without linking them to specific production levels.
  • India introduced PM-KISAN (Pradhan Mantri Kisan Samman Nidhi) in 2019, which provides ₹6,000 annually in three installments to small and marginal farmers.
  • Such income support is considered less trade-distorting compared to price-based support systems.
  • Developed countries like the USA use decoupled payments under their Farm Bills to reduce distortion while ensuring farmer welfare.
• Input subsidies
  • Include financial assistance for seeds, fertilizers, irrigation, electricity, pesticides, and equipment.
  • India’s fertilizer subsidy budget exceeded ₹1.75 lakh crore in 2022-23, making it one of the largest components of agricultural spending.
  • Electricity subsidies for tube wells and free water for irrigation in several Indian states encourage excessive resource use, contributing to groundwater depletion.
  • These subsidies aim to enhance productivity but can lead to inefficiency and environmental damage if not targeted properly.
• Marketing boards and procurement agencies
  • These are public sector agencies that manage purchase, distribution, and price regulation of agricultural produce.
  • The Cotton Corporation of India, National Agricultural Cooperative Marketing Federation (NAFED, founded in 1958), and State Warehousing Corporations play key roles in price stabilization and market interventions.
  • These agencies also help in buffer stocking, procurement during glut, and implementing price support operations.

WTO disciplines on agriculture

• Amber Box subsidies
  • Refer to support measures considered trade-distorting and subject to reduction commitments under WTO’s Agreement on Agriculture (AoA).
  • India’s MSP operations and input subsidies fall under this box.
  • Developing countries are allowed to provide up to 10% of the total value of agricultural production as amber box support under de minimis limits.
• Blue Box subsidies
  • These are production-limiting subsidies that are exempt from reduction commitments.
  • Mainly used by developed countries such as European Union nations under Common Agricultural Policy (CAP) to control surplus production and ensure sustainability.
  • India does not extensively use Blue Box measures.
• Green Box subsidies
  • Considered non-trade-distorting or minimally trade-distorting, hence not subject to reduction.
  • Includes spending on R&D, rural infrastructure, pest and disease control, environmental services, and disaster relief.
  • India includes schemes like soil health cards, agricultural extension services, and crop insurance in this category.
• Distinction in trade distortion potential
  • Amber Box involves direct or indirect linkages to prices or outputs, causing more distortion.
  • Blue Box limits production while giving income support, creating moderate distortion.
  • Green Box targets public goods and long-term resilience, resulting in the least distortion.

Food security considerations

• Role of public stockholding
  • Crucial for ensuring buffer stocks and supplying subsidized food to vulnerable populations.
  • India maintains public stockpiles under the National Food Security Act (NFSA) enacted in 2013, which entitles 75% of rural and 50% of urban populations to subsidized grains.
  • FCI stores and distributes grains under the Targeted Public Distribution System (TPDS) and other welfare schemes.
  • However, WTO disciplines mandate that if public stockholding involves procurement at administered prices, it must not breach de minimis limits unless protected under the Peace Clause (Bali, 2013).
• Special and Differential Treatment (S&DT)
  • Recognizes the developmental needs of developing countries and offers flexibilities under WTO rules.
  • Allows countries like India to delay commitments, exceed de minimis thresholds in specific cases, and prioritize food security.
  • India, along with the G33 group of developing countries, continues to push for a permanent solution to public stockholding concerns in WTO negotiations.
  • S&DT also supports capacity-building, technical assistance, and transitional periods for compliance.

Contrasting domestic agricultural policies in developed vs. developing nations

Environmental and social dimensions

• Sustainability measures
  • Governments increasingly focus on environmentally sustainable practices to balance production with conservation.
  • India implements soil health cards, organic farming missions like Paramparagat Krishi Vikas Yojana, and per drop more crop schemes to promote efficient resource use.
  • However, excessive fertilizer subsidies and water usage continue to stress natural ecosystems.
• Rural livelihood programs
  • Agricultural policies also serve as livelihood support mechanisms in rural areas, where a significant portion of the population depends on farming.
  • Programs like MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act), operational since 2006, complement farm income by providing 100 days of unskilled work.
  • Livelihood missions such as Deendayal Antyodaya Yojana – NRLM empower women and Self-Help Groups (SHGs) in agro-allied activities.
• Balancing liberalization with developmental goals
  • India and other developing countries face the challenge of liberalizing agricultural trade without jeopardizing food security, employment, and rural welfare.
  • While WTO pushes for subsidy reductions, national priorities demand continuation of price support and input aid.
  • Policies must strive for coherence between global obligations and domestic developmental objectives, especially as climate shocks and economic vulnerabilities grow.

VI. Domestic measures in services and intellectual property

Services sector regulation

• Licensing requirements
  • Governments regulate service delivery through licensing to ensure quality, safety, and accountability.
  • India mandates licenses through regulators such as the Insurance Regulatory and Development Authority of India (IRDAI, founded in 1999) for insurers, Telecom Regulatory Authority of India (TRAI, established in 1997) for telecom services, and Medical Council of India (now National Medical Commission since 2020) for medical professionals.
  • Such licensing ensures service providers meet prescribed qualifications, infrastructure, and ethical standards before entering the market.
  • In sectors like education and legal services, licensing also protects national regulatory objectives and consumer welfare.
• Professional standards
  • These refer to minimum benchmarks of skill, training, and ethical conduct necessary for service provision.
  • India enforces professional standards via statutory bodies such as Bar Council of India for legal practice, Medical Council of India/National Medical Commission, and AICTE (All India Council for Technical Education) for engineering and technical education.
  • Professional standards vary significantly across countries, often becoming non-tariff barriers to cross-border service mobility.
  • Mutual recognition agreements (MRAs) are negotiated to harmonize or accept qualifications between countries.
• Domestic content rules
  • These require a certain proportion of services or inputs to be sourced from domestic providers or produced locally.
  • In India’s Broadcasting and Telecom sectors, certain percentage of content and equipment must be of Indian origin.
  • Domestic sourcing is promoted to support indigenous industry, strategic autonomy, and job creation.
  • However, such measures can conflict with General Agreement on Trade in Services (GATS) norms, especially on market access and national treatment principles.

GATS commitments

• Modes of supply
  • GATS classifies services trade under four modes:
    • Mode 1: Cross-border supply – Example: Indian IT firms offering services online to clients abroad.
    • Mode 2: Consumption abroad – Example: Indian students pursuing education in the UK or USA.
    • Mode 3: Commercial presence – Example: foreign banks like HSBC operating branches in India.
    • Mode 4: Presence of natural persons – Example: Indian professionals providing onsite consulting abroad.
• Scheduling obligations
  • WTO members schedule commitments sector-wise under each mode, indicating the extent of liberalization.
  • India has undertaken commitments in sectors such as IT, education, finance, and tourism under selected modes.
  • Commitments include terms on market access, national treatment, and any limitations or conditions.
  • India retains policy space by placing limitations in sensitive sectors like retail and legal services.
• National treatment vs. market access limitations
  • National treatment ensures that foreign service providers are not treated less favorably than domestic providers.
  • Market access restricts quantitative and qualitative limitations such as entry quotas, number of licenses, and form of business.
  • India maintains market access limitations in multi-brand retail, legal services, and insurance by regulating FDI and capping foreign equity.
  • Several sectors allow partial commitments, preserving policy flexibility in employment, ownership, and operation standards.

Intellectual property protection

• Domestic IP laws
  • India enforces IP rights through a range of laws, including:
    • The Patents Act, 1970 (amended in 2005)
    • The Trade Marks Act, 1999
    • The Copyright Act, 1957
    • The Geographical Indications of Goods Act, 1999
    • The Designs Act, 2000
  • India’s patent regime includes Section 3(d) which restricts patenting of new forms of known substances to prevent evergreening.
  • Geographical Indications protect local products like Darjeeling Tea, Mysore Silk, and Basmati Rice.
• TRIPS flexibilities
  • Under the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement, developing countries can use flexibilities such as:
    • Transition periods for full compliance
    • Parallel importation
    • Exceptions for public health
  • India has actively used these provisions, especially after the Doha Declaration on TRIPS and Public Health (2001) affirmed members’ rights to protect public health.
  • TRIPS-plus provisions in FTAs are resisted by India to retain policy autonomy.
• Compulsory licensing
  • Refers to authorizing a third party to produce a patented product without the patent holder’s consent under public interest grounds.
  • India invoked compulsory licensing in 2012 for Nexavar, a cancer drug patented by Bayer, allowing Natco Pharma to sell a generic version at a fraction of the cost.
  • The legal basis lies in Section 84 of the Indian Patents Act, balancing innovation incentives with access needs.
  • India supports global waivers of IP protection for COVID-19 vaccines and treatments, as proposed in WTO TRIPS Council (2020–2022).

Technology transfer debates

• Balancing innovation and development
  • Technology transfer remains a contentious issue as IP holders from developed countries often resist sharing with developing nations.
  • WTO members disagree on how much IP regimes support or hinder innovation dissemination.
  • India advocates a development-oriented IP regime that incentivizes innovation but enables access to essential technologies.
  • Domestic innovation policies such as National Innovation Policy, Startup India, and Atal Innovation Mission (launched in 2016) aim to build indigenous capabilities.
• Role of patent regimes
  • Patent systems encourage innovation by granting time-limited exclusivity but can block affordable access.
  • In India, patent protection lasts 20 years under the Patents Act but is subject to public interest overrides.
  • Indian courts and the Intellectual Property Appellate Board (abolished in 2021) have played crucial roles in balancing monopoly rights with societal welfare.
  • India promotes open-source innovation and public-funded research access, particularly in agriculture and pharmaceuticals.

Cultural considerations

• Preserving national identity in services
  • Services like broadcasting, cinema, publishing, and education are seen as vehicles of cultural identity.
  • India imposes local content quotas in media, supports vernacular education, and promotes traditional medicine systems like AYUSH.
  • Liberalization of such sectors is approached cautiously to safeguard cultural sovereignty and heritage.
  • The Ministry of Culture, founded in 2006, plays a key role in formulating sectoral policies with cultural sensitivity.
• Public policy exemptions
  • GATS allows members to invoke public order, public morals, and national security as grounds to restrict trade in services.
  • India uses these exemptions in regulating sectors like gambling, internet content, and foreign educational institutions.
  • Licensing denial or limitation is justifiable when aligned with domestic public interest objectives, even if commitments exist.
• Controversies over market liberalization
  • Liberalization of services such as legal practice, education, e-commerce, and financial services has generated resistance from professional bodies and civil society.
  • Concerns include job displacement, quality dilution, regulatory capture, and cultural erosion.
  • The Bar Council of India opposes entry of foreign law firms, citing constitutional provisions and professional ethics.
  • India’s cautious GATS commitments reflect the need to balance global engagement with internal regulatory comfort and socio-cultural priorities.

VII. Safeguards, antidumping, and countervailing measures

Conceptual underpinnings

• Temporary trade remedies
  • Safeguards, antidumping, and countervailing measures are temporary instruments allowed under WTO law to protect domestic industries.
  • These are applied when increased imports, unfair trade practices, or foreign subsidies cause or threaten serious injury to a domestic producer.
  • They aim to offer short-term relief while industries adjust to import competition, restructure operations, or improve competitiveness.
• Objective of protection
  • These measures balance fair trade with free trade and are not meant to be permanent barriers.
  • They serve as policy tools to defend national interests without violating multilateral obligations.
  • India applies these measures under the Customs Tariff Act, 1975, and the Rules framed under it, aligning with WTO provisions.

Safeguard measures

• Conditions for imposition
  • Applied when a surge in imports causes or threatens serious injury to a domestic industry.
  • The injury must be linked to unforeseen developments and obligations incurred under GATT.
  • India uses Directorate General of Trade Remedies (DGTR), established in 2018, to investigate safeguard cases.
• Serious injury thresholds
  • Defined as a significant overall impairment in the position of a domestic industry.
  • Evaluated using indicators such as decline in output, sales, profits, productivity, capacity utilization, and employment.
  • India must provide evidence of causality between imports and injury before imposing measures.
• Sunset reviews
  • Safeguards are temporary and must be reviewed regularly.
  • The initial duration of a safeguard measure should not exceed four years, extendable to a maximum of eight years.
  • Periodic sunset reviews determine whether the safeguard should be continued, modified, or terminated.

Antidumping measures

• Determination of dumping margin
  • Dumping occurs when goods are exported at a price lower than the normal value (usually domestic market price) in the exporting country.
  • The dumping margin is the difference between the export price and the normal value.
  • DGTR calculates the margin using cost, price, and sales data, including adjustments for freight, insurance, and commissions.
• Injury tests
  • India must demonstrate material injury or threat thereof to the domestic industry.
  • Indicators include loss in market share, price undercutting, underutilization of capacity, and financial stress.
  • Causal link between dumped imports and injury must be established.
• Price discrimination concerns
  • Dumping is not illegal per se but becomes actionable when it harms a domestic industry.
  • Price discrimination across markets may arise due to surplus production, currency manipulation, or market segmentation.
  • India has imposed antidumping duties on imports from countries such as China, Korea, and EU on products like steel, chemicals, and tires.

Countervailing duties

• Response to foreign subsidies
  • Imposed when a foreign government provides subsidies to its exporters that harm the importing country’s domestic producers.
  • India imposes countervailing duties to neutralize the unfair advantage conferred by such subsidies.
• Calculation of benefit
  • Authorities must calculate the financial contribution, benefit received, and its specificity to the exporter or industry.
  • WTO’s Agreement on Subsidies and Countervailing Measures (SCM) provides detailed methodology for assessment.
• Link to domestic injury
  • Similar to antidumping cases, India must prove that the subsidized imports cause injury or threat to a domestic industry.
  • Evidence must show volume effects, price suppression, decline in performance indicators, and market disruption.

WTO dispute precedents

• Procedural requirements
  • WTO mandates transparency in investigations, right to defense, timely notifications, and clear findings.
  • India must adhere to due process while initiating, conducting, and concluding investigations.
  • Violation of procedural norms has led to successful disputes against various members including India.
• Clarifications from cases
  • WTO rulings in cases like India – Certain Iron and Steel Products, United States – Hot-Rolled Steel, and EU – Biodiesel have refined procedural standards.
  • These rulings emphasize the importance of non-discrimination, objective evidence, and reasoned conclusions.
• Controversies over abuse
  • Several members have been accused of using trade remedies as disguised protectionist tools.
  • India has faced criticism for using antidumping and countervailing duties in sectors with low actual injury.
  • WTO jurisprudence highlights the need for precise injury demonstration and avoidance of politically motivated safeguards.

Policy implications

• Balancing legitimate relief and protectionism
  • These measures must balance support for domestic producers with avoidance of long-term dependency or inefficiency.
  • Excessive reliance may discourage innovation and structural reform within protected sectors.
  • They must be used as adjustment tools, not permanent shelters.
• Calls for stricter rules
  • There is growing demand to tighten WTO rules on initiating investigations, injury assessment, and sunset reviews.
  • India supports a rules-based system but emphasizes the need for flexibility for developing countries.
  • Ensuring proportionality, transparency, and developmental fairness is crucial to the legitimacy of these trade remedies.

VIII. Policy space vs. WTO constraints

Concept of policy space

• Definition and relevance
  • Policy space refers to the autonomy of governments to design and implement national policies to achieve developmental, economic, social, and strategic goals.
  • It enables countries to respond flexibly to domestic priorities such as poverty reduction, food security, industrialisation, employment generation, and technological advancement.
  • For example, India exercises policy space through schemes like PLI (Production-Linked Incentive), PM-KISAN, and public stockholding of foodgrains to secure livelihoods and self-reliance.
• Development-centric justification
  • Developing and least-developed countries argue that sufficient policy space is essential for inclusive growth, especially to counter historical inequities in global trade.
  • India highlights the need for policy tools to address climate vulnerabilities, rural poverty, and MSME competitiveness, which cannot be managed solely through market liberalisation.

Limits under WTO

• Tariff bindings
  • WTO members commit to binding their tariffs at a certain ceiling, beyond which they cannot raise duties without renegotiation or retaliation.
  • India has bound 74% of its tariff lines, with relatively high ceilings to retain flexibility.
  • However, pressure from trade partners often demands actual applied rates to be kept low, limiting room for counter-cyclical adjustments.
• Subsidies discipline
  • The Agreement on Subsidies and Countervailing Measures (SCM) prohibits subsidies linked to export performance or domestic content.
  • Even non-prohibited subsidies can be challenged if they distort trade or cause injury.
  • India’s MEIS scheme was found WTO-inconsistent, and was replaced by RoDTEP in 2021 to comply with subsidy rules.
• Regulatory autonomy
  • WTO disciplines limit members’ ability to introduce technical regulations, standards, or health and safety laws that could act as disguised barriers.
  • Under the TBT (Technical Barriers to Trade) and SPS (Sanitary and Phytosanitary Measures) Agreements, such measures must be science-based, least trade-restrictive, and notified transparently.
  • India’s restrictions on poultry imports from the US, based on avian flu risk, were ruled non-compliant by the WTO dispute body in 2015.

Conflicting interests

• Developed members’ perspective
  • Developed countries argue for strict adherence to WTO rules to prevent trade distortions and protect investor certainty.
  • They advocate for uniform rules, stronger disciplines on subsidies, and deeper liberalisation in agriculture and services.
  • Their approach is often informed by export competitiveness and protection of intellectual property rights.
• Developing members’ concerns
  • Developing nations seek flexibilities to preserve developmental sovereignty and adjust to global competition.
  • India opposes efforts to dilute Special and Differential Treatment (S&DT) provisions, highlighting historical inequities in global trade regimes.
  • The G33 coalition, led by India, Indonesia, and others, advocates for the permanent settlement of public stockholding issues and greater support for agricultural livelihoods.
• Negotiations for flexibility
  • At the Doha Development Round (launched in 2001), developing countries demanded that existing WTO disciplines be rebalanced in favour of inclusive development.
  • However, developed countries have sought to terminate the Doha Agenda and pursue plurilateral negotiations instead, leading to deadlocks.
  • India has repeatedly stressed the need to uphold consensus-based, multilateralism in rulemaking to safeguard sovereign interests.

Comparing policy space in different WTO agreements

Ongoing debates

• Rebalancing commitments
  • Developing countries demand that WTO rules reflect differential capacities, and offer developmental flexibility.
  • India opposes efforts to expand WTO disciplines without concluding pending issues of the Doha Round, such as subsidy caps in agriculture and technology transfer obligations.
• Special and Differential Treatment (S&DT)
  • S&DT allows for longer transition periods, lower obligations, and technical assistance for developing and least-developed members.
  • India argues that S&DT is a non-negotiable right, not a concession, and should be preserved in all future agreements.
  • Some developed members call for graduation criteria to restrict S&DT to the poorest countries, which India opposes strongly.
• Ensuring equitable outcomes
  • There is growing recognition that a uniform rules approach leads to asymmetric outcomes, favouring advanced economies.
  • India advocates that trade rules must support livelihoods, respect public policy priorities, and promote inclusive globalisation.
  • Equitable reform requires addressing market access imbalances, historical asymmetries, and structural vulnerabilities of the Global South.

IX. Dispute settlement mechanisms

Key structures

• Panels
  • Panels are the first adjudicatory bodies under the WTO’s Dispute Settlement Understanding (DSU), established in 1995.
  • Each panel consists of three experts nominated by the WTO Secretariat in consultation with the disputing parties.
  • Panels examine the evidence, interpret WTO agreements, and issue interim and final reports within a timeframe of 6 to 9 months from establishment.
  • India has participated in numerous panel proceedings both as a complainant and respondent, including disputes involving agricultural subsidies, solar energy, and poultry import bans.
• Appellate Body
  • The Appellate Body was established as a standing quasi-judicial tribunal under Article 17 of the DSU.
  • It comprises seven members, appointed for four-year terms, who review panel reports for legal correctness.
  • Decisions of the Appellate Body are binding unless rejected by consensus in the Dispute Settlement Body (DSB).
  • India’s solar cells case (2016) saw the Appellate Body uphold the ruling against India’s local content requirements.
  • Since December 2019, the Appellate Body has become non-functional due to U.S. obstruction of member appointments, creating a crisis in WTO appellate review.
• Arbitration procedures
  • Arbitration under Article 25 of the DSU allows an alternative route where disputing parties agree on arbiters and rules.
  • It is increasingly used as a substitute mechanism during the Appellate Body crisis.
  • India and the European Union have joined the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) launched in 2020 to preserve appellate review through consensual arbitration.

Process of disputes over domestic measures

• Consultations
  • Disputes begin with a request for consultations, where parties attempt to resolve the issue diplomatically within 60 days.
  • India has engaged in consultations on issues such as export incentives, telecom licensing, and food security support.
• Panel establishment
  • If consultations fail, a party can request the DSB to establish a panel, which must be approved unless opposed by consensus.
  • India has sought panels in disputes concerning U.S. steel tariffs, EU’s pesticide standards, and trade facilitation delays.
• Appeals
  • Either party can appeal the panel’s legal findings before the Appellate Body within 60 days of the final panel report.
  • With the Appellate Body non-functional, many appeals are now “filed into the void”, meaning they remain undecided indefinitely unless settled bilaterally.
• Compliance reviews
  • After a ruling, the losing party must bring the measure into conformity with WTO law.
  • Compliance is assessed through Article 21.5 proceedings, where continued non-compliance can lead to retaliation.
  • India faced such reviews in its disputes on import restrictions, solar cells, and pharmaceutical IP enforcement.

Landmark cases

• India – Solar Cells (2016)
  • The panel and Appellate Body ruled that India’s local content requirement under the National Solar Mission violated GATT Article III and TRIMs Agreement.
  • The ruling clarified the limits of using domestic industrial policy in government procurement linked to international commitments.
• India – Agricultural Import Restrictions (2015)
  • India’s ban on U.S. poultry products due to avian flu was ruled inconsistent with SPS Agreement.
  • The ruling emphasized the need for scientific risk assessments even for preventive health measures.
• Brazil – Aircraft (1999) and Canada – Aircraft (2000)
  • These non-Indian cases set important precedents on subsidy definition, benefit calculation, and countervailing duties under the SCM Agreement.
  • These rulings influenced India’s policy compliance in schemes like RoDTEP and PLI.
• EC – Asbestos (2001)
  • Recognized public health protection as a legitimate policy objective, offering space to defend regulations under the TBT Agreement if scientifically justified.

Enforcement and retaliation

• Authorized suspension of concessions
  • If the losing party fails to comply, the winning member may request the DSB to authorize retaliatory trade measures.
  • India has faced threat of retaliation in disputes involving sugar subsidies and export incentive programs.
  • In DS orders, retaliation is usually permitted after a reasonable implementation period, typically 15 months.
• Complexities for developing members
  • Developing countries like India often face constraints in enforcing decisions due to asymmetries in economic power, limited retaliatory capacity, and diplomatic dependencies.
  • While retaliation is legal, it is often not pursued due to potential harm to domestic industries and consumers.
  • India has instead preferred compliance adjustments or negotiated settlements in most cases.

Criticisms and reforms

• Delays in rulings
  • Panels frequently miss prescribed timelines, with some cases taking 3 to 4 years from initiation to ruling.
  • These delays undermine legal certainty and frustrate the purpose of prompt dispute resolution.
• Appeals crisis
  • Since 2019, the Appellate Body has ceased to function due to persistent U.S. blockade on appointments.
  • This has created a legal vacuum, stalling finality in numerous disputes.
• Perceived biases
  • Some developing countries view the system as biased towards wealthier nations, given their greater legal capacity and influence over precedent.
  • India has raised concerns about unbalanced interpretation of flexibilities in favour of developed members.
• Potential for stronger mediation
  • There are growing calls to institutionalize voluntary mediation, conciliation, and alternative dispute resolution (ADR) mechanisms.
  • These methods could reduce legal burden, ensure equitable access, and enhance settlement rates.

X. Economic consequences of domestic measures

Theoretical frameworks

• Welfare economics approach
  • This approach evaluates policy decisions by analyzing changes in consumer surplus, producer surplus, and government revenue.
  • Domestic measures like tariffs, subsidies, and quotas are assessed in terms of net social welfare and efficiency losses.
  • In India’s context, subsidies such as fertilizer support improve producer welfare but may reduce overall efficiency due to misallocation of inputs.
• Partial vs. general equilibrium analysis
  • Partial equilibrium analysis examines a single market in isolation to measure direct effects such as price changes and quantity traded.
  • This method is useful for analyzing specific sectoral impacts, for instance, the effect of minimum support prices (MSP) on paddy procurement.
  • General equilibrium analysis, by contrast, incorporates interdependencies across multiple sectors and markets, capturing resource shifts, trade-offs, and ripple effects.
  • Computable General Equilibrium (CGE) models are increasingly used in India for evaluating trade policy reforms, export incentive restructuring, and subsidy rationalisation.

Empirical assessments

• Measuring trade creation or diversion
  • Trade creation occurs when domestic measures enhance efficiency and stimulate new trade flows.
  • Trade diversion happens when these measures displace more efficient foreign producers in favor of less efficient domestic or preferential partners.
  • India’s regional trade agreements such as the ASEAN-India FTA and India-MERCOSUR PTA provide examples where domestic support interacts with preferential access to create or divert trade.
• Effects on domestic productivity
  • Supportive domestic measures can raise productivity by enabling technological upgradation, R&D incentives, and scale economies.
  • India’s PLI (Production-Linked Incentive) schemes launched since 2020 aim to enhance efficiency in sectors like electronics, pharma, and solar manufacturing.
  • However, prolonged protection without performance monitoring can breed complacency and inefficient capital allocation.
• Impact on consumer prices
  • Subsidies may reduce prices in the short term but cause fiscal slippages, resulting in inflationary pressures later.
  • India’s food subsidy under the National Food Security Act (2013) helps poor consumers but also contributes to budgetary stress and limits scope for capital expenditure.
  • Tariffs on imported electronics or oil derivatives may raise input costs, increasing prices for end consumers and reducing affordability.

Income distribution impacts

• Gains for specific sectors
  • Domestic measures often disproportionately benefit capital-intensive or politically significant industries, creating unequal sectoral gains.
  • In India, automobile manufacturing, textiles, and sugar industry receive higher policy support, whereas informal sectors get limited protection.
  • These benefits are often concentrated in urban or industrial zones, widening inter-sectoral inequalities.
• Potential consumer losses
  • Trade barriers, input tariffs, and inefficient subsidies raise market prices, harming low-income groups.
  • For example, import duties on cooking oil or pulses affect poor households, especially in food-insecure regions like eastern Uttar Pradesh and Odisha.
  • Costlier consumer goods also affect real wages, particularly in unorganised labour markets.
• Regional disparities
  • Regions with higher industrial activity or infrastructure readiness benefit more from incentive schemes and export subsidies.
  • In India, states like Gujarat, Tamil Nadu, and Maharashtra attract the majority of FDI-linked benefits due to better logistics and policy responsiveness.
  • Conversely, Bihar, Jharkhand, and North-Eastern states often miss out due to poor absorptive capacity, reinforcing spatial imbalances.

Industrial policy debates

• Infant industry protection
  • The argument justifies temporary protection for new industries until they become competitive.
  • India used this rationale to support steel, IT, and pharmaceutical sectors in the 1980s and 1990s through tariff walls and government procurement.
  • Critics warn against permanent dependency and argue for clear sunset clauses and performance-linked support.
• Strategic trade policy
  • This theory promotes selective support to industries with economies of scale, learning curves, and spillover potential.
  • India’s support for semiconductors, defense production, and clean energy technologies reflects strategic trade thinking.
  • However, such policies demand robust governance, competitive neutrality, and long-term vision.
• Role of domestic content requirements
  • These promote backward linkages, local sourcing, and job creation, especially in public procurement.
  • India has used content requirements in sectors like renewables, railways, and telecom equipment.
  • However, WTO disputes (e.g., India – Solar Cells, 2016) have questioned the legality of these measures if they violate national treatment under GATT or TRIMs.

Global value chains (GVCs)

• Effects on production fragmentation
  • Trade policy and regulatory barriers can disrupt GVC efficiency by increasing costs of intermediate goods and compliance complexity.
  • India’s tariffs on electronic components or telecom inputs have been flagged by industry bodies as hurting GVC integration.
  • Facilitating smooth cross-border flow of raw materials, components, and services is essential to climb the value chain.
• Influence on multinational investment
  • MNCs evaluate policy stability, tariff regimes, and logistics before integrating India into their supply chains.
  • The introduction of tax certainty, reduction in retrospective taxation, and creation of PLI-linked clusters have improved India’s positioning.
  • However, inconsistencies in customs procedures, state-level approvals, and regulatory unpredictability remain concerns.

Macroeconomic stability

• Fiscal burdens of subsidies
  • India’s combined central and state subsidies exceeded ₹4.9 lakh crore in FY 2022–23, with major components being food, fertilizers, and petroleum.
  • Rising subsidies crowd out development expenditure, affecting long-term infrastructure and human capital investments.
  • The Fiscal Responsibility and Budget Management (FRBM) Act, passed in 2003, aims to cap fiscal deficit at sustainable levels, but subsidy overreach often delays targets.
• Inflationary risks of domestic measures
  • Expansionary subsidies without matching supply can fuel demand-side inflation, especially in food and fuel.
  • Price controls or minimum price guarantees, such as MSPs, may distort market signals and reduce price responsiveness.
  • These risks complicate monetary policy goals, especially when inflation breaches the Monetary Policy Committee’s (MPC) target range of 4% ±2%.
• Interplay with monetary policy
  • The Reserve Bank of India (RBI), established in 1935, must align interest rate decisions with inflation trends partly shaped by domestic fiscal measures.
  • For example, cuts in fuel excise duty to control inflation have fiscal costs that offset monetary tightening.
  • Coordination between RBI and the Ministry of Finance becomes essential to ensure macroprudential stability.

XI. Emerging trends and debates

New forms of industrial support

• Advanced manufacturing support
  • Governments are shifting industrial policy toward high-tech sectors, automation, and Industry 4.0.
  • India launched the National Mission on Advanced Manufacturing in 2015 to strengthen innovation-led competitiveness.
  • The PLI (Production-Linked Incentive) scheme expanded in 2020 includes ₹1.97 lakh crore outlay across 14 sectors, including drones, electronics, telecom, and semiconductors.
• Digital economy subsidies
  • Fiscal incentives now support sectors like fintech, cloud computing, AI, and software-as-a-service (SaaS).
  • India’s Digital India programme, launched in 2015, provides subsidies for internet penetration, rural digital literacy, and startup incubation.
  • The MeitY Startup Hub, under the Ministry of Electronics and IT, funds digital innovators and promotes public-private collaborations.
• Research tax credits
  • These incentives reduce effective tax rates for firms undertaking R&D, patent development, or product design.
  • India’s Income Tax Act Section 35(2AB) allows weighted deductions for in-house scientific research in approved sectors.
  • However, post-2020, the deduction has been reduced from 200% to 100%, sparking debates over innovation slowdown.

Sustainability measures

• Domestic carbon pricing
  • Many economies are implementing carbon taxes, cap-and-trade systems, or emission trading schemes (ETS) to internalize environmental costs.
  • India does not yet have a national carbon price but levies a coal cess of ₹400/tonne and plans a carbon market framework under the Energy Conservation (Amendment) Act, 2022.
  • The Bureau of Energy Efficiency (BEE), founded in 2002, will implement the national carbon credit mechanism.
• Green subsidies
  • Financial support is being provided for solar energy, wind power, EV adoption, biofuels, and energy-efficient buildings.
  • India’s Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) scheme offers subsidies for EV buyers and manufacturers.
  • The PM-KUSUM scheme, launched in 2019, subsidizes solar pumps for farmers to reduce fossil fuel dependence.
• Border carbon adjustments
  • These refer to import tariffs based on the carbon intensity of foreign goods to level the playing field with greener domestic production.
  • The European Union introduced its Carbon Border Adjustment Mechanism (CBAM) in 2023, applicable to steel, cement, aluminium, and fertilisers.
  • India has flagged CBAM as disguised protectionism, fearing loss of competitiveness in exports of carbon-intensive goods.

Societal priorities

• Labor protection laws
  • Industrial and trade policies are being harmonized with standards on minimum wages, occupational safety, and social security.
  • India consolidated 29 labor laws into 4 labor codes (2020) covering wages, industrial relations, social security, and workplace safety.
  • Trade agreements increasingly include labor chapters, with the EU-India FTA negotiating on labor rights compliance.
• Gender-focused policies
  • Governments are linking trade, investment, and support programs to women’s economic empowerment and gender equality.
  • India’s Mahila Coir Yojana, Women Entrepreneurship Platform (WEP) by NITI Aayog, and gender budgeting in Union Budgets reflect such integration.
  • These efforts align with SDG-5 on gender equality and promote inclusive supply chains.
• Healthcare mandates
  • Public procurement and subsidy frameworks are being aligned with universal healthcare, pandemic preparedness, and local pharma resilience.
  • India promotes Jan Aushadhi Scheme for generic drug availability, subsidizes medical device manufacturing under PLI, and maintains compulsory licensing flexibility under TRIPS.

Digital trade dimensions

• Data localization requirements
  • Governments mandate that personal or sensitive data must be stored and processed locally.
  • India’s Digital Personal Data Protection Act, 2023 formalizes consent-based data use and restricts transfer to blacklisted jurisdictions.
  • RBI’s 2018 circular requires all payment system data to be stored in India.
• E-commerce taxation
  • Many countries introduced equalization levies, digital services taxes (DSTs), or GST-based frameworks for online services.
  • India’s Equalisation Levy (6%) applies to digital advertising and e-commerce operators, operational since 2016 and expanded in 2020.
  • WTO negotiations on e-commerce moratorium continue, with India demanding digital policy autonomy.
• Cybersecurity regulations
  • Nations impose digital trade-related conditions for critical infrastructure protection, national security, and consumer safety.
  • India’s CERT-In guidelines, last updated in 2022, mandate data breach disclosures and local data logs.
  • Sectors like telecom, banking, and defense electronics are governed by separate security protocols.

Contrasting regulatory approaches in major economies

Tensions with WTO rules

• Calls for updated disciplines
  • Existing WTO frameworks lack clarity on green subsidies, digital regulations, and industrial tax breaks.
  • Members call for negotiation of new disciplines that reflect 21st-century industrial strategies and climate priorities.
  • India supports updating WTO rules only if Special and Differential Treatment (S&DT) for developing countries is preserved.
• Policy autonomy for new challenges
  • Developing countries demand flexibility to address emerging tech and climate transitions without violating trade commitments.
  • India, South Africa, and others argue for TRIPS waivers, climate-compatible subsidies, and flexible data governance.
  • WTO’s structured discussions on trade and environment, launched in 2020, reflect growing pressure to adapt trade norms.

XII. Future directions and policy recommendations

Balancing liberalization with national objectives

• Targeted policy design
  • Domestic measures must balance the objectives of global competitiveness, strategic autonomy, and inclusive development.
  • Policies should prioritize sectors with high employment elasticity, technology spillovers, and export potential.
  • India’s PLI scheme is a step towards outcome-linked industrial support, but further refinement is needed to align with WTO rules and developmental needs.
  • Regulatory interventions in areas like e-commerce, data governance, and agriculture must be based on evidence-driven frameworks to ensure proportionality and legal defensibility.
• Transparent application
  • Rules governing domestic measures should be clearly defined, publicly accessible, and uniformly implemented to reduce arbitrariness and foster predictability.
  • India’s transition from the MEIS scheme to RoDTEP reflected a move towards WTO-consistent, rule-based support while minimizing discretion.
  • Sectoral regulators like FSSAI, BIS, and TRAI must continually update guidelines in consultation with industry and civil society to avoid trade frictions and regulatory capture.

Strengthening transparency mechanisms

• Improved notification
  • WTO members must fulfil obligations under Article X of GATT, Article III of GATS, and Annex B of the SPS Agreement for timely and complete notifications.
  • India’s notification record has improved, but delays still persist in areas like technical standards, subsidy reporting, and services regulations.
  • A centralized inter-ministerial body could oversee trade-related notifications to enhance coordination and prevent oversight.
• Monitoring domestic measures
  • WTO’s Trade Policy Review Mechanism (TPRM) provides a platform to assess consistency and transparency of domestic policies.
  • India’s last TPR in 2021 acknowledged progress in trade facilitation but flagged issues in subsidy reporting and regulatory predictability.
  • Continuous engagement with WTO Committees on Agriculture, Subsidies, Sanitary Measures, and Technical Barriers ensures constructive compliance.

Reforming dispute settlement

• Addressing procedural backlogs
  • The Appellate Body paralysis since 2019 has delayed closure of several disputes, eroding credibility of WTO’s legal pillar.
  • India supports the revival of a two-tier mechanism with revised timelines, mandatory timelines for reports, and curbs on judicial overreach.
  • Fast-track mechanisms for urgent disputes involving perishable goods or critical technologies should be institutionalized.
• Enhancing trust
  • Developing countries often face resource constraints in litigation; hence, WTO must expand legal aid mechanisms such as the Advisory Centre on WTO Law.
  • India has proposed the establishment of regional legal assistance hubs and funding pools to ensure equity in dispute participation.
• Ensuring member compliance
  • Strengthening compliance requires linking implementation reviews with capacity-building assistance, technical training, and compliance scorecards.
  • India has implemented most rulings but urges caution against retaliatory actions that disproportionately impact small economies.

Revisiting special and differential treatment

• Tailoring provisions for developing countries
  • S&DT must evolve beyond transition periods and include flexible obligations, implementation sequencing, and sector-specific exemptions.
  • India advocates retaining S&DT for self-declared developing countries, resisting efforts to graduate larger developing economies prematurely.
  • LDC-specific clauses should provide enhanced access to technology, duty-free quota-free (DFQF) market access, and simplified rules of origin.
• Promoting inclusive growth
  • Trade rules must support social objectives such as gender equality, rural employment, and micro-enterprise participation.
  • India proposes embedding inclusive growth indicators within WTO monitoring reports to ensure coherence with UN SDGs.
  • S&DT should also prioritize climate-resilient trade, digital infrastructure expansion, and smallholder inclusion in supply chains.

Integrating sustainability goals

• Aligning domestic measures
  • Future subsidies and regulatory policies must support green transitions, circular economy models, and responsible consumption.
  • India’s green hydrogen mission, ethanol blending programme, and solar parks reflect this shift but need WTO-aligned reporting templates.
  • Voluntary sustainability standards (VSS) must be science-based, non-discriminatory, and harmonized to prevent disguised barriers.
• Potential for multilateral cooperation
  • WTO can serve as a platform for climate-trade dialogue, including frameworks for green goods liberalization, climate finance eligibility, and carbon adjustment safeguards.
  • India supports Technology Facilitation Mechanisms, initiated under the UN Addis Ababa Action Agenda 2015, to promote South-South knowledge exchange.
  • A plurilateral initiative on Sustainable Trade Facilitation can complement the Trade Facilitation Agreement (2017) by integrating sustainability benchmarks in customs, logistics, and procurement.

Conclusion

• Necessity of nuanced domestic measures
  • In a world marked by economic volatility, climate urgencies, and technological disruptions, domestic measures must be strategic, flexible, and data-driven.
  • They must balance the core WTO principle of non-discrimination with the sovereign right to pursue legitimate public policy goals.
  • India’s experience shows the importance of adaptive policymaking—whether in food security, IP enforcement, or digital governance.
• Role of continued WTO evolution
  • WTO must evolve from a rule enforcer to a development enabler, ensuring that global trade remains equitable, resilient, and responsive.
  • Future reforms must accommodate diverse development pathways, reduce legal asymmetries, and encourage multilateral trust.
  • India’s leadership in G20, BRICS, and Global South coalitions will be crucial in shaping a forward-looking, inclusive WTO agenda.

1. Examine how domestic subsidies influence international trade competitiveness and critically assess WTO’s effectiveness in regulating these subsidies. (250 words)
2. Discuss the tension between national policy space and WTO obligations in the context of regulatory measures on sustainability and public welfare. (250 words)
3. Compare and critique the use of safeguard, antidumping, and countervailing measures as tools to protect domestic industries within the WTO framework. (250 words)