PLI scheme likely to come under higher scrutiny by EU Foreign Subsidies Regulation: GTRI

New Delhi, July 19 (KNN) European Union’s (EU) new regulation that prohibits foreign subsidies could attract higher scrutiny for India’s exports to the European Union (EU) and the flagship production linked incentive scheme, Global Trade Research Initiative (GTRI) said in a report.

The Foreign Subsidies Regulation (FSR), which came into effect on 12 July, says that companies must begin notifying details of relevant transactions involving foreign subsidies starting from 12 October 2023. The European Commission will publish guidelines on the application of the FSR on 31 December 2023, and release an annual report on the FSR's implementation by 30 June 2024.

Minimizing the impact of such regulation is crucial for India as EU is among the country's largest export markets. New Delhi’s total exports to the region in FY23 were worth nearly USD 75 billion, the report said.

“The FSR covers financial contributions from non-EU governments to companies operating in/exporting to the EU's market. These contributions include direct grants, interest-free or low-interest loans, tax incentives, state-funded research and development, provision of goods or services at below-market prices, and provision of land or buildings at below-market prices," GTRI said.

The report warned that in cases where the Commission finds that a foreign subsidy is distorting competition, it can impose various remedies, including fines of up to 10 per cent of the company's annual aggregated turnover, requiring the company to repay the foreign subsidy if competition distortion is confirmed, or banning the company from participating in public procurement.

It's worth noting that FSR applies to transactions above a certain threshold. Companies must notify the European Commission if their transactions involving foreign subsidies exceed this threshold

Ajay Srivastava, former Indian Trade Service officer and founder of New Delhi-based think tank, GTRI, said that FSR shows EUs hypocrisy knows no limits.

“While distributing an annual USD 50 billion subsidy to farmers and over USD 100 billion plus annual subsidies on clean energy transition, the EU empowers itself to investigate subsidies given by other countries," Srivastava added.

Countries go to World Trade Organization to resolve such disputes through the WTO's Subsidies and Countervailing Measures Agreement. WTO explicitly prohibits countries from investigating subsidies given by other countries. Thus, FSR is also in violation of the WTO mandate. FSR compromises the integrity of the WTO process, Srivastava stressed.

The GTRI report said that India exported goods worth over USD 74.8 billion to EU countries in FY23 with key products being diesel, ATF, Apparel and makeup, smartphone, cut and polished diamonds, aluminium ingots, medicines, turbochargers.

The EU Commission is already investigating the PLI scheme, and a decision is expected soon. If the Commission finds the PLI scheme violates WTO rules, it could impose sanctions/fines.  (KNN Bureau)