India — Export Related Measures

WT/DS541
Type of case:
Inter-State
Date of introduction:
14 Mar 2018
Status of the case:
Pending
Complainant:
United States
Respondent:
India
Institution:
WTO (World Trade Organization)
Applicable treaties:
SCM Agreement (1994)

Documents of the case

Leora Blumberg Member
José Antonio S. Buencamino President
Serge Pannatier Member
Source(s) of the information:
Reproduced with the permission of the World Trade Organization :
Link1 (EN) Official source ,
Link2 (FR) Official source ,
Link3 (ES) Official source

Lawyers, other representatives, expert(s), tribunal’s secretary

Report of the Panel

ABBREVIATIONS

AbbreviationDescription
BTP Bio‑Technology Parks
CIF cost insurance freight
DFIS Duty-Free Imports for Exporters Scheme
DSB Dispute Settlement Body
DSU Understanding on Rules and Procedures Governing the Settlement of Disputes
DTA domestic tariff area
EHTP Electronics Hardware Technology Park
EOU Export Oriented Units
EPCG Export Promotion Capital Goods
FOB free on board
FTP Foreign Trade Policy
GATT 1994 General Agreement on Tariffs and Trade 1994
GNP gross national product
HBP Handbook of procedures
Highlights Highlights of the Foreign Trade Policy 2015 2020 Mid Term Review (5 December 2017)
IGST Integrated Goods and Services Tax
ITC Indian Tariff Code
MEIS Merchandise Exports from India Scheme
MSME micro, small & medium enterprises
Press Release Release of the Mid Term Review of Foreign Trade Policy 2015-2020 – Annual Incentives Increased by 2% amounting to over Rs 8,000 crore for Labour Intensive/MSME sectors (5 December 2017)
NFE net foreign exchange
SAE statement of available evidence
SCM Agreement Agreement on Subsidies and Countervailing Measures
SCM Committee Committee on Subsidies and Countervailing Measures
SEZ Special Economic Zones
SEZ Act Special Economic Zones Act
SEZ Rules Special Economic Zones Rules
STP Software Technology Park
Vienna Convention Vienna Convention on the Law of Treaties, Done at Vienna, 23 May 1969, 1155 UNTS 331; 8 International Legal Materials 679
WTO World Trade Organization

1 INTRODUCTION

1.1 COMPLAINT BY THE UNITED STATES

1.1.
On 14 March 2018, the United States requested consultations with India pursuant to Articles 1 and 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) and Articles 4 and 30 of the Agreement on Subsidies and Countervailing Measures (SCM Agreement) with regard to certain alleged export subsidy measures of India.1
1.2.
Consultations were held on 11 April 2018 but failed to resolve the dispute.

1.2 PANEL ESTABLISHMENT AND COMPOSITION

1.3.
On 17 May 2018, the United States requested the establishment of a panel pursuant to Article 6 of the DSU and Article 4.4 of the SCM Agreement with standard terms of reference in document WT/DS541/4.2 At its meeting on 28 May 2018, the Dispute Settlement Body (DSB) established a panel pursuant to the request of the United States, in accordance with Article 6 of the DSU and Article 4.4 of the SCM Agreement.3
1.4.
The Panel's terms of reference are the following:

To examine, in the light of the relevant provisions of the covered agreements cited by the parties to the dispute, the matter referred to the DSB by the United States in document WT/DS541/4 and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements.4

1.5.
On 16 July 2018, the United States requested the Director-General to determine the composition of the panel, pursuant to Article 8.7 of the DSU and Article 4.12 of the SCM Agreement. On 23 July 2018, the Director-General accordingly composed the Panel as follows5:

Chairperson: Mr Jose Antonio S. Buencamino

Members: Ms Leora Blumberg

Mr Serge Pannatier

1.6.
Brazil, Canada, China, Egypt, the European Union, Japan, Kazakhstan, the Republic of Korea, the Russian Federation, Sri Lanka, Chinese Taipei, and Thailand notified their interest in participating in the Panel proceedings as third parties.

1.3 PANEL PROCEEDINGS

1.3.1 General

1.7.
After consultation with the parties, the Panel adopted its Working Procedures6 and timetable on 22 August 2018.
1.8.
The United States and India submitted their first written submissions on 23 August and 20 September 2018, respectively, and their second written submissions on 11 October and 1 November 2018, respectively. The Panel held a substantive meeting with the parties on 12 and 13 February 2019. A session with the third parties took place on 13 February 2019. On 14 May 2019, the Panel issued the descriptive part of its Report to the parties. The Panel issued its Interim Report to the parties on 28 August 2019. The Panel held an interim review meeting with the parties on 16 September 2019 and issued its Final Report to the parties on 30 September 2019.

1.3.2 Single substantive meeting of the Panel with the parties

1.9.
On 3 August 2018, the Chairperson of the Panel, on behalf of the Panel, held a meeting with the parties to obtain their views in preparation of the Panel's draft Working Procedures and timetable. He stressed the need to reconcile different considerations, namely, the provision for accelerated procedures in Article 4 of the SCM Agreement, the obligation to provide special and differential treatment to developing country Members, and resource constraints in the Secretariat. At that meeting, the United States proposed that the Panel hold a single meeting with the parties in this case, a proposal which India opposed.
1.10.
As a means to balance the competing obligations and constraints in the particular circumstances of this case, in its draft Working Procedures and timetable sent to the parties on 8 August 2018, the Panel proposed holding a single meeting with the parties, after the filing of both parties' first and second written submissions7, and reserved the right to schedule further meetings with the parties as required.8 On 22 August 2018, the Panel adopted its draft Working Procedures and timetable. In response to communications from India to the Chairperson9, on 9 and 19 October 2018 the Panel confirmed that it would proceed with the adopted Working Procedures and timetable, while reserving the right to schedule additional meetings as necessary.10 On 19 October 2018, the Panel indicated that it would communicate the reasons supporting its decision in due course.11
1.11.
India objected to the Panel's approach in its comments on the draft Working Procedures and timetable12, comments on the United States' comments13, first written submission14, and in communications dated 5 October and 16 October 201815, and sought a preliminary ruling from the Panel that an additional substantive meeting with the parties should be held before the filing of the second written submissions.16
1.12.
In its own communications, the United States took the view that the Panel could hold a single substantive meeting with the parties, or even decide the case entirely on the basis of the parties' written submissions, without holding any substantive meeting with the parties.17 The United States set out its arguments on the matter in its comments on the draft Working Procedures and timetable18, comments on India's comments19, and second written submission.20
1.13.
Brazil commented on this matter in its third-party submission. In Brazil's view, a panel's decision to deviate from the working procedures set out in Appendix 3 to the DSU and hold a single substantive meeting with the parties should only happen with the agreement of both parties to the dispute.21
1.14.
On 22 January 2019, the Panel, as it had anticipated, communicated the reasons for its earlier decision to proceed with the adopted Working Procedures and timetable, while reserving the right to schedule additional meetings, as necessary (see Annex D-1).
1.15.
During the substantive meeting with the parties and subsequently in writing, the Panel asked the parties whether they considered a second substantive meeting necessary.22 On both occasions, it also asked India whether and how concretely the fact of holding a single substantive meeting affected India's ability to defend itself.23 The parties responded to these questions on 4 March 2019 and commented on each other's responses on 18 March 2019. Having studied the parties' responses and comments24, and in light of the proceedings thus far, the Panel did not consider that there was a need to depart from the structure of the proceedings as originally envisaged in this dispute by adding a second substantive meeting with the parties; the Panel communicated its decision to the parties on 16 April 2019.25

1.3.3 Partially open meeting

1.16.
On 8 August 2018, the Panel transmitted the draft Working Procedures to the parties, pursuant to which the Panel would "meet in closed session".26 On 14 August 2018, the United States requested the Panel to open the meeting(s) with the parties to the public, either in whole or in part.27 On 17 August 2018, India "completely oppose[d]" the United States' request.28
1.17.
In the Working Procedures adopted on 22 August 2018, the Panel indicated that it would "revert to this issue in due course before the date of [its] meeting" with the parties.29
1.18.
On 3 January 2019, the Panel invited the third parties to express their views on holding a partially open meeting. Canada, China, the European Union, and Japan considered panels to have discretion to hold a partially open meeting. China and Thailand expressed concern about granting a request for a partially open meeting without the consent of both parties to the dispute. In the event that the Panel held a partially open meeting, Brazil, Canada, the European Union, and Japan agreed to open their statements to the public.30 China, Egypt, the Russian Federation, and Sri Lanka indicated their intention to keep their respective statements confidential.31
1.19.
By communication dated 22 January 201932, the Panel declined the United States' request for a partially open meeting.

1.3.4 The Panel's terms of reference, the applicability of Article 4 of the SCM Agreement, and the statement of available evidence

1.20.
In its first written submission, India requested the Panel to issue a preliminary ruling to the effect that (a) the United States' panel request does not meet the requirements of Article 6.2 of the DSU with respect to both the identification of the specific measures at issue and the summary of the legal basis of the United States' complaint; (b) the provisions of Article 4 of the SCM Agreement could not, at that stage of the proceedings, apply to the dispute before the Panel; and (c) the statement of available evidence in the United States' request for consultations does not meet the requirements of Article 4.2 of the SCM Agreement.33
1.21.
In its second written submission, the United States disagreed with India's request on all counts.34
1.22.
In a communication of 22 January 2019, the Panel ruled that the United States' panel request meets the requirements of Article 6.2 of the DSU.35 It however declined to rule, at that stage, on the applicability of Article 4 of the SCM Agreement36 and the conformity of the statement of available evidence with Article 4.2 of the SCM Agreement.37 The Panel rules on these matters in this Report.

2 FACTUAL ASPECTS

2.1.
This dispute concerns the United States' challenge of the following schemes maintained by India:

a. the Export Oriented Units (EOU) Scheme and Sector-Specific Schemes, including the Electronics Hardware Technology Parks (EHTP) Scheme and the Bio‑Technology Parks (BTP) Scheme (the EOU/EHTP/BTP Schemes);

b. the Merchandise Exports from India Scheme (MEIS);

c. the Export Promotion Capital Goods (EPCG) Scheme;

d. the Special Economic Zones (SEZ) Scheme; and

e. the Duty-Free Imports for Exporters Scheme (DFIS).

2.2.
These measures provide for certain exemptions from, or reductions of, customs duties or taxes, or for the granting by the government of freely transferable "scrips" to be used to satisfy certain liabilities vis-à-vis the government.
2.3.
Section 7.5 below outlines key characteristics of the five schemes at issue.

3 PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS

3.1.
The United States requests that the Panel find that each of the challenged measures is a prohibited export subsidy inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement. The United States further requests, pursuant to Article 4.7 of the SCM Agreement, that the Panel recommend that India withdraw the subsidies within 90 days from the date the DSB adopts its recommendations.
3.2.
India requests the Panel to find that Article 3 of the SCM Agreement does not apply to India by virtue of Article 27.2(b) granting India an eight-year exemption period from India's Annex VII(b) graduation. India also requests that the Panel find that, in any event, the challenged schemes are not export subsidies and are not inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement. Moreover, India requests the Panel to find that the dispute could not be subject to Article 4 of the SCM Agreement or, in the alternative, to dismiss the dispute due to the insufficiency of the statement of available evidence under Article 4.2 of the SCM Agreement.

4 ARGUMENTS OF THE PARTIES

4.1.
The arguments of the parties are reflected in their executive summaries, provided to the Panel in accordance with paragraph 23 of the Working Procedures adopted by the Panel (see Annexes B‑1 and B-2).

5 ARGUMENTS OF THE THIRD PARTIES

5.1.
The arguments of Brazil, Canada, Egypt, the European Union, Japan, Sri Lanka, and Thailand are reflected in their executive summaries, provided in accordance with paragraph 26 of the Working Procedures adopted by the Panel (see Annexes C-1 to C-7). China, Kazakhstan, the Republic of Korea, the Russian Federation, and Chinese Taipei did not submit written or oral arguments to the Panel.

6 INTERIM REVIEW

6.1.
On 28 August 2019, the Panel issued its Interim Report to the parties. On 9 September 2019, the parties submitted their written requests for review. In addition to its written requests, India also requested that the Panel hold an interim review meeting with the parties. The parties submitted written comments on each other's written requests for review on 16 September 2019. On the same day, the Panel held an interim review meeting with the parties. After the meeting, the Panel put written questions to India, to which India responded on 18 September 2019. The United States provided written comments on India's responses on 20 September 2019. The requests made at the interim review stage as well as the Panel's discussion and disposition of those request are set out in Annex A-2.

7 FINDINGS

7.1.
Our findings, below, are structured as follows. We begin by outlining the burden of proof, burden of raising certain provisions (section 7.1), and standard of proof (section 7.2), as they are relevant to this dispute. Next, we ascertain whether Article 27 of the SCM Agreement still excludes India from the scope of application of Articles 3 and 4 of the SCM Agreement, and we find that it does not (section 7.3). We then assess whether the statement of available evidence provided by the United States as part of its request for consultations meets the standard of Article 4.2 of the SCM Agreement, and we find that it does meet that standard (section 7.4).
7.2.
We therefore proceed to assess the United States' claims that certain measures under the EOU/EHTP/BTP Schemes, EPCG Scheme, SEZ Scheme, DFIS, and MEIS, are export contingent subsidies inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement.
7.3.
We begin by providing a brief factual outline of the measures at issue (section 7.5). We then examine whether the measures at issue under the EOU/EHTP/BTP Schemes, EPCG Scheme, DFIS, and MEIS meet the conditions of footnote 1 of the SCM Agreement (section 7.6). Next, we assess whether the challenged measures constitute a financial contribution by the government (in the form of revenue foregone, in section 7.7, and in the form of a direct transfer of funds, in section 7.8), through which a benefit is conferred (section 7.9) and, therefore, a subsidy. Finally, we examine whether the subsidies that we have found to exist are export contingent and therefore inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement (section 7.10).
7.4.
Before concluding, we explain how we have taken into account the special and differential provisions raised by India (section 7.11). We then set out our conclusions (section 8) and our recommendations, including the time period within which the measures we have found to be inconsistent with Articles 3.1(a) and 3.2 must be withdrawn (section 9).

7.1 BURDEN OF PROOF

7.5.
The DSU does not set forth express rules concerning burden of proof.38 It has long been held, however, that WTO dispute settlement follows the "generally accepted canon of evidence in … most jurisdictions, that the burden of proof rests upon the party … who asserts the affirmative of a particular claim or defence".39
7.6.
Applying this rule assumes an understanding of which party "asserts the affirmative of a particular claim or defence". In many instances, this is obvious. For example, a respondent invoking an exception under Article XX of the GATT 1994 is "assert[ing] the affirmative of a particular … defence", and therefore bears the burden of proving that the conditions of Article XX are met. Sometimes, however, the dividing line is less clear, as in cases involving provisions which, while potentially disqualifying a claim, are not considered to be exceptions / affirmative defences.40 We now turn to this subject, which is relevant to two provisions at issue in this case, namely, footnote 1 and Article 27 of the SCM Agreement.41

7.1.1 Exceptions and excluding provisions

7.1.1.1 The distinction between exceptions and excluding provisions

7.7.
WTO adjudicators have drawn a distinction between provisions that afford a "justification" for "measures that are found to be inconsistent with other provisions of" the WTO Agreements42 (which we refer to as exceptions) and provisions that "limit[] the scope" of other provisions43, without there being a violation in the first place (which we refer to as excluding provisions).44
7.8.
In other words, although the outcome of upholding an exception or an excluding provision is the same (i.e. the complaint fails), an exception presupposes a valid claim, to which it responds, whereas if an excluding provision applies, there is no valid claim under the provision that is excluded.

7.1.1.2 Burden of proof under excluding provisions

7.9.
WTO adjudicators have often placed on complainants the burden of proof under excluding provisions.45 Since excluding provisions do not presupposea valid claim, but rather relate to the question of whether a valid claim has been established (necessarily by the complainant), we will do the same.

7.1.1.3 Burden of raising excluding provisions

7.10.
A different46 question from that of which party bears the burden of proof under an excluding provision is the question of which party bears the burden of raising an excluding provision.
7.11.
In our view, it makes little sense to require complainants to anticipate all possible excluding provisions that might apply and then explain why, in fact, they do not apply.47 A responding Member is best placed to know whether its measures fall under a particular excluding provision.
7.12.
Therefore, we consider that the respondent bears the burden of raising excluding provisions.48 As set out in the previous section, once the respondent has properly raised an excluding provision, the complainant will bear the burden of proof under the excluding provision, i.e. the burden of proving that the excluding provision does not apply.

7.2 STANDARD OF PROOF

7.13.
The standard of proof is the degree of proof that must be provided to satisfy one's burden of proof.
7.14.
In WTO dispute settlement, a complainant must "establish a prima facie case of inconsistency with [the] provision [invoked] before the burden of showing consistency with that provision is taken on by the defending party". In this context, a "prima facie case is one which, in the absence of effective refutation by the defending party, requires a panel, as a matter of law, to rule in favour of the complaining party presenting the prima facie case".49

7.3 WHETHER ARTICLE 27 OF THE SCM AGREEMENT EXCLUDES INDIA FROM THE SCOPE OF APPLICATION OF ARTICLES 3 AND 4 OF THE SCM AGREEMENT

7.15.
The United States claims that the challenged measures are prohibited export subsidies in violation of Articles 3.1(a) and 3.2 of the SCM Agreement. Accordingly, it has sought the establishment of a panel under Article 4.4 of the SCM Agreement. India, however, submits that following its graduation from Article 27.2(a) and Annex VII(b), the prohibition in Article 3.1(a) still does not apply to its subsidy schemes, as a result of Article 27.2(b). India submits that, as a result, Article 27.7 renders the provisions of Article 4 of the SCM Agreement inapplicable to this dispute.
7.16.
India asked the Panel to issue a preliminary ruling that the dispute could not be subject to Article 4 of the SCM Agreement unless the United States demonstrated, or the Panel otherwise found, that Article 27 of the SCM Agreement did not apply to the challenged measures.50 At the same time, India and the United States had opposing interpretations of Article 27 of the SCM Agreement, and India argued that this disagreement went to the essence of the dispute and could only be decided by the Panel as part of the full panel proceedings.51 In a communication dated 22 January 2019, the Panel explained that, in the circumstances of this dispute, a ruling on the applicability of Article 4 of the SCM Agreement would require a ruling on the parties' interpretive disagreement over Article 27 of the SCM Agreement.52
7.17.
Below, we first recall the relevant provisions of Article 27.2 and Annex VII of the SCM Agreement.53 We then summarize the parties' main arguments, before analysing the merits of the disagreement between the parties over the proper interpretation of Article 27.2(b). We then draw the consequences of our conclusion under Article 27.2(b) for the applicability of Articles 3.1(a) and 4 of the SCM Agreement.
7.18.
We conclude that India does not fall under Articles 27.2 and 27.7 any longer, because it has graduated from Annex VII(b) and Article 27.2(a) of the SCM Agreement54, and because Article 27.2(b) expired on 1 January 2003. Therefore, we find that Articles 3 and 4 of the SCM Agreement apply in the present dispute.

7.3.1 Relevant provisions

7.19.
Article 27 of the SCM Agreement sets out provisions on "Special and Differential Treatment of Developing Country Members". Articles 27.2 and 27.4-27.7 concern special and differential treatment in respect of prohibited export subsidies.
7.20.
Article 27.2 of the SCM Agreement provides:

The prohibition of paragraph 1(a) of Article 3 shall not apply to:

(a) developing country Members referred to in Annex VII.

(b) other developing country Members for a period of eight years from the date of entry into force of the WTO Agreement, subject to compliance with the provisions in paragraph 4.55

7.21.
Annex VII of the SCM Agreement, titled "Developing country Members referred to in paragraph 2(a) of Article 27", provides:

The developing country Members not subject to the provisions of paragraph 1(a) of Article 3 under the terms of paragraph 2(a) of Article 27 are:

(a) Least-developed countries designated as such by the United Nations which are Members of the WTO.

(b) Each of the following developing countries which are Members of the WTO shall be subject to the provisions which are applicable to other developing country Members according to paragraph 2(b) of Article 27 when [gross national product] per capita has reached $1,000 per annum: Bolivia, Cameroon, Congo, Côte d'Ivoire, Dominican Republic, Egypt, Ghana, Guatemala, Guyana, India, Indonesia, Kenya, Morocco, Nicaragua, Nigeria, Pakistan, Philippines, Senegal, Sri Lanka and Zimbabwe.56

7.22.
The WTO Secretariat annually publishes the gross national product (GNP) per capita of the Annex VII(b) developing country Members (Annex VII(b) Members) using the three most recent years for which data are available.57 In 2017 and in 2018, the WTO Secretariat released the calculations for the three most recent years for which data are available. According to these Notes by the Secretariat, India's GNP per capita exceeded USD 1,000 per year for the periods 2013-2015 and 2014-2016.58

7.3.2 Main arguments of the parties and third parties

7.23.
The parties agree that India has graduated from Annex VII(b) of the SCM Agreement.59 It is also not in dispute that Article 27.2(a) no longer excludes India from the application of the prohibition of export subsidies set forth in Article 3.1(a). The parties, however, differ on the interpretation of Article 27.2(b), that is, the meaning of the phrase "eight years from the date of entry into force of the WTO Agreement".
7.24.
India argues that the eight-year period set out in Article 27.2(b) did not start, for India, on the date of entry into force of the WTO Agreement. Rather, it commenced on the date of India's graduation from Annex VII(b), thus starting in 2017 and ending in 2025.60 India argues that a mere literal interpretation of Article 27.2(b) would render Article VII(b) ineffective or inutile, and would run contrary to the object and purpose of the SCM Agreement. India argues that Annex VII(b) and Article 27.1 are integral to the overall object and purpose of the SCM Agreement. Further, India submits that the purpose of providing special and differential treatment through Article 27 of the SCM Agreement must not be undermined and that an interpretation of Article 27.2(b) based on the ordinary meaning of its text would result in inconsistencies with Annex VII(b), Article 27.4, and Article 27.5.61 To avoid any contradictions with these provisions, Article 27.2(b) must be interpreted so that the eight‑year period starts upon Annex VII(b) graduation. Moreover, India contends that a textual interpretation of Article 27.2(b) leaves the meaning of its terms ambiguous and obscure and would lead to absurd and unreasonable results.62 According to India, this provision must therefore be interpreted by recourse to supplementary means of interpretation according to Article 32 of the Vienna Convention and in particular the negotiating history of Annex VII(b).63 India argues that considering the negotiating history, Article 27.2(b) grants graduating Annex VII(b) Members an additional eight-year transition period.64
7.25.
According to the United States, the eight-year period under Article 27.2(b) ended on 1 January 2003, when eight years had passed since the entry into force of the WTO Agreement on 1 January 1995. In the United States' view, India is therefore now subject to the prohibition of export subsidies pursuant to Article 3.1(a).65 The United States argues that the ordinary meaning of the phrase "a period of eight years from the date of entry into force of the WTO Agreement" in Article 27.2(b) is clear. Other means of interpretation, as invoked by India, cannot override that treaty text.66
7.26.
Egypt and Sri Lanka as third parties support India's position concerning the interpretation of Article 27.2(b). Egypt argues that an interpretation of Article 27.2(b) as proposed by the United States would be "unfair" and "unreasonable" for Annex VII(b) Members and would leave those Members "unprotected".67 Sri Lanka argues that it would not be "equitable" to treat low‑income developing countries (when their GNP per capita reaches USD 1,000 per year) less favourably than higher-income developing countries, which benefited from an eight-year period at the entry into force of the WTO Agreement, when their GNP per capita already exceeded USD 1,000 per year.68
7.27.
Brazil, Canada, the European Union, Japan, and Thailand as third parties contend that the ordinary meaning of the text of Article 27.2(b) is clear and disallows India's interpretation.69 These third parties also disagree with India's contextual arguments concerning Annex VII(b) and Articles 27.4 and 27.5.70

7.3.3 Analysis

7.28.
The parties agree that India has reached a GNP per capita of USD 1,000 per year and that as of 2017 India had graduated under Annex VII(b) and Article 27.2(a) of the SCM Agreement. The question is whether Article 27.2(b) now applies to India, excluding the applicability of Article 3.1(a) (and as a consequence also Article 4) of the SCM Agreement for a further eight years after graduation, as India argues, or whether instead Article 27.2(b) expired for all Members on 1 January 2003, as the United States argues.
7.29.
The interpretative question for us to resolve is whether, in the case of Members graduating from Annex VII(b), the eight-year period afforded by Article 27.2(b) to developing country Members must be counted "from the date of entry into force of the WTO Agreement", or from the date of graduation from Annex VII(b).
7.30.
Below, after recalling certain rules of treaty interpretation, we consider, first, the terms of Article 27.2(b), and then India's arguments concerning context (specifically, Annex VII(b), Article 27.4, and Article 27.5), and object and purpose.

7.3.3.1 Treaty interpretation

7.31.
Article 3.2 DSU provides that Members recognize that the WTO dispute settlement system serves among other objectives to clarify the existing provisions of the covered Agreements "in accordance with customary rules of interpretation of public international law".71 The customary rules of interpretation of public international law are codified, in particular, in Articles 31 and 32 of the Vienna Convention.72
7.32.
Article 31 of the Vienna Convention sets out the "General Rule of Interpretation". Pursuant to Article 31.1 of the Vienna Convention, WTO adjudicators must interpret the covered Agreements "in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in light of its object and purpose". Articles 31.2 and 31.3, respectively, list items that form part of "context", and other items that "shall be taken into account, together with the context".
7.33.
Article 31 of the Vienna Convention "is meant to assist an interpreter in ascertaining the ordinary meaning of treaty terms, reflecting the common intention of the parties to the treaty".73 It is generally presumed that parties to a treaty were deliberate in the specific terms they used; interpretation must therefore be based "above all" on the text of the treaty.74 From this follows also that a treaty interpreter must give meaning and effect to each term and not render redundant whole clauses or paragraphs.75
7.34.
Moreover, the rules of treaty interpretation "neither require nor condone the imputation into a treaty of words that are not there or the importation into a treaty of concepts that were not intended".76 Rather, "[t]he fundamental rule of treaty interpretation requires a treaty interpreter to read and interpret the words actually used by the agreement under examination, and not words which the interpreter may feel should have been used".77
7.35.
The ordinary meaning of treaty terms is not to be equated solely with dictionary meaning.78 Instead, "[u]nder Article 31 of the Vienna Convention, the 'ordinary meaning' of treaty terms may be ascertained only in their context and in the light of the object and purpose of the treaty".79 While it may help to organize an analysis to discuss text, context, and object and purpose in turn, it must be borne in mind that "interpretation pursuant to the customary rule codified in Article 31 of the Vienna Convention is ultimately a holistic exercise that should not be mechanically subdivided into rigid components".80
7.36.
Regarding the relationship between the plain textual meaning of treaty terms, on the one hand, and context, and object and purpose (and "possibly" the tools in Article 32 of the Vienna Convention), on the other, the Appellate Body has stated:

While context is a necessary element of an interpretative analysis under Article 31 of the Vienna Convention, its role and importance in an interpretative exercise depends on the clarity of the plain textual meaning of the treaty terms. If the meaning of treaty terms is difficult to discern, determining the ordinary meaning under Article 31 may require more reliance on the context and the object and purpose of the treaty and possibly other elements considered "together with the context" and the tools mentioned in Article 32.81

7.37.
Article 32 of the Vienna Convention provides for recourse to "[s]upplementary means of interpretation". Pursuant to Article 32, a treaty interpreter may resort to supplementary means of interpretation either to confirm the meaning resulting from the application of Article 31 of the Vienna Convention, or to determine the meaning when the interpretation according to Article 31 leaves the meaning ambiguous or obscure or leads to manifestly absurd or unreasonable results. Supplementary means of interpretation include "the preparatory work of the treaty and the circumstances of its conclusion"82, but this listing is not exhaustive.83
7.38.
The Appellate Body has repeatedly emphasized the "holistic" nature of the interpretive exercise under the rules codified in Articles 31 and 32 of the Vienna Convention, stressing that this "exercise is engaged so as to yield an interpretation that is harmonious and coherent and fits comfortably in the treaty as a whole so as to render the treaty provision legally effective".84

7.3.3.2 Interpretation of Article 27.2(b) based on ordinary meaning, context, and object and purpose

7.3.3.2.1 Article 27.2(b)

7.39.
Based on the above rules of treaty interpretation, the starting point for our analysis in this case is the text of Article 27.2(b) of the SCM Agreement. Article 27.2(b) provides for a transition period of "eight years from the date of entry into force of the WTO Agreement", during which the prohibition in Article 3.1(a) "shall not apply". The WTO Agreement entered into force on 1 January 1995. Thus, "a period of eight years from the date of entry into force of the WTO Agreement" is the period running from 1 January 1995 to 1 January 2003. The text of Article 27.2(b) does not leave scope for ambiguity in respect of the end date of that transition period.85
7.40.
India does not contest the ordinary meaning of the phrase in Article 27.2(b). Rather, it argues that in respect of Members graduating after the entry into force of the WTO Agreement, the Panel should depart from giving the terms in Article 27.2(b) their ordinary meaning and rely instead on supplementary means of interpretation pursuant to Article 32 of the Vienna Convention.86 India justifies such departure from the text of Article 27.2(b) with arguments pertaining to context, and object and purpose of the SCM Agreement.87 According to India, when Article 27.2(b) is read in conjunction with the context provided by Annex VII(b), Article 27.4, and Article 27.5, its interpretation "results in ambiguity or obscurity".88 Further, according to India, the ordinary meaning of the phrase in Article 27.2(b) also runs counter to the special and differential treatment tenet of the object and purpose of the SCM Agreement.
7.41.
For purposes of interpreting Article 27.2(b), we therefore turn, first, to the context provided by Annex VII(b), Article 27.4, and Article 27.5 of the SCM Agreement and, second, to the object and purpose of the SCM Agreement.

7.3.3.2.2 Annex VII(b)

7.42.
India argues that a "literal interpretation" of Article 27.2(b) based on its ordinary meaning and resting on an eight-year transition period starting upon the entry into force of the WTO Agreement would:

a. render the mandatory language of Annex VII(b) ineffective89; and

b. treat graduating Annex VII(b) Members differently from other developing country Members.90

7.43.
We address India's arguments in turn below.
7.44.
Regarding India's first argument, India recalls that the text of Annex VII(b) mandates ("shall be subject") Article 27.2(b) to apply when Annex VII(b) Members reach the threshold of GNP per capita of USD 1,000 per year. India posits that the ordinary meaning of the terms in Article 27.2(b), limiting the transition period to eight years from the entry into force of the WTO Agreement, invalidates the mandatory language in Annex VII(b). After 1 January 2003, graduating Annex VII(b) Members would no longer be "subject to the provisions which are applicable to other developing country Members according to paragraph 2(b) of Article 27", contrary, in India's view, to what Annex VII(b) requires.
7.45.
We consider that India's argument is not persuasive. India seems to conflate two distinct issues: the applicability of Article 27.2(b) and its content. Annex VII(b) regulates the applicability of Article 27.2(b) in respect of those developing country Members listed therein. By contrast, Article 27.2(b) sets out the conditions governing the entitlement to the non-application of Article 3.1(a).
7.46.
The phrase in Annex VII(b) "shall be subject to the provisions" renders applicable91 Article 27.2(b), without modifying the latter's content. The subclause "which are applicable to other developing country Members according to paragraph 2(b) of Article 27 when GNP per capita has reached $1,000 per annum" qualifies the provisions made applicable.92 This phrase indicates that Annex VII(b) Members are subject to the same provisions applying to other developing country Members at the time the cross-reference in Annex VII(b) to Article 27.2(b) operates. We therefore consider that the text of Annex VII(b) does not support a reading that Article 27.2(b) is made applicable with a modified starting date for the eight-year transition period.
7.47.
We also reject India's contention that using the ordinary meaning of Article 27.2(b) in case of Annex VII(b) Members graduating late would render Annex VII(b) ineffective or redundant. As set out above, Annex VII(b) provides for a simple cross-reference to Article 27.2(b). The expiry of the transition period in Article 27.2(b) does not render ineffective or redundant this cross-reference: the substance of the cross-reference is determined by the content of the provision referred to. Developing country Members in Annex VII(b), in the event of graduation before 1 January 2003, still enjoyed a transition period that in no case would have been less than the eight-year transition period until 1 January 2003 pursuant to Article 27.2(b). The possibility that Members graduating from Annex VII(b) no longer benefit from an additional transition period under Article 27.2(b) is inherent in the reference by Annex VII(b) to a provision that contains a time-limited transition period.
7.48.
In light of the above, rather than rendering Annex VII(b) ineffective, an eight-year transition period from the date of entry into force of the WTO Agreement is precisely what Annex VII(b) envisages by stipulating that the listed Members "shall be subject to the provisions which are applicable to other developing country Members according to paragraph 2(b) of Article 27".
7.49.
India's second argument relates to graduating Annex VII(b) Members not being granted the same full eight-year transition period to phase out their export subsidies that other developing country Members are afforded pursuant to Article 27.2(b). India submits that graduating Annex VII(b) Members would thus have less or no time to phase out their export subsidies, although Annex VII(b) seeks to grant additional special and differential treatment.93 In the same vein, certain third parties contend that the less developed Annex VII(b) Members should not be treated less favourably than other more advanced developing countries which did not fall under Annex VII(b) in the first place and yet could avail themselves of an eight-year transition period.94
7.50.
Article 27.2 and Annex VII provide for special and differential treatment and establish different degrees of flexibility in excluding developing country Members from the application of the prohibition of export subsidies under Article 3.1(a). The flexibilities differ between three categories of Members in respect of the period during which the prohibition in Article 3.1(a) "shall not apply", i.e. the transition period. First, for developing country Members in general, Article 27.2(b) stipulates a transition period of eight years from the entry into force of the WTO Agreement. During this period, the first sentence of Article 27.4 imposes a progressive phase-out obligation on developing country Members referred to in Article 27.2(b). Second, for least developed country Members, Article 27.2(a) in connection with Annex VII(a) provides that the prohibition in Article 3.1(a) shall not apply as long as the Members in question are designated as least developed countries by the United Nations. Third, for the developing country Members listed in Annex VII(b), Article 27.2(a) in connection with Annex VII(b) provides for a transition period that lasts as long as these Members remain below the relevant threshold, even after the eight-year period available to the first category of Members referred to above.
7.51.
Under this scheme of different flexibilities, we consider that a literal interpretation of Article 27.2(b) in respect of graduating Annex VII(b) Members does not reduce the additional flexibilities afforded by Annex VII(b). First, such literal interpretation does not affect the additional, and more favourable, flexibility of a transition period that lasts as long as GNP remains below the relevant threshold, irrespective of a strict deadline, and without an additional phase-out obligation. Second, beyond this additional flexibility, Annex VII(b), through its express cross-reference to Article 27.2(b), ensures that graduating Members have at least the same flexibility as the other developing country Members, namely "a period of eight years from the date of entry into force of the WTO Agreement".
7.52.
Based on the above, we consider that Annex VII(b) does not provide a basis for departing from the text of Article 27.2(b) in respect of graduating Annex VII(b) Members. In particular, a textual interpretation of Article 27.2(b) neither renders Annex VII(b) ineffective, nor results in an interpretation that is ambiguous, obscure, absurd, or unreasonable. To the contrary, it allows for a harmonious application of both provisions.
7.53.
Members graduating from Annex VII(b) after 1 January 2003 are also not required to eliminate export subsidies without prior notice. Graduation does not come as a surprise "overnight".95 In fact, in the 2001 Decision of the Ministerial Conference on "Implementation-Related Issues and Concerns", Members agreed that Annex VII(b) graduation would depend on reaching the threshold of GNP per capita of USD 1,000 per year in constant 1990 US dollars for three consecutive years.96

7.3.3.2.3 Article 27.4

7.54.
India relies on the fact that the first sentence of Article 27.4 refers to an eight-year period without qualifying this period as commencing on the date of entry into force of the WTO Agreement. India argues that Article 27.4 therefore allows Members graduating from Annex VII(b) after the entry into force of the WTO Agreement to benefit from an eight-year transition period that begins when they graduate. It follows, according to India, that Article 27.4 requires interpreting Article 27.2(b) harmoniously in favour of an eight-year transition period upon Annex VII(b) graduation.97 In India's view, Article 27.4 also leads to the conclusion that the text of Article 27.2(b) results in internal contradictions and is ambiguous and obscure, thus necessitating recourse to supplementary means of interpretation.
7.55.
The first sentence of Article 27.4 provides:

Any developing country Member referred to in paragraph 2(b) shall phase out its export subsidies within the eight-year period, preferably in a progressive manner.98

7.56.
We disagree with India's argument that the eight-year period in Article 27.4 does not start from the entry into force of the WTO Agreement and that the phrase "from the date of entry into force of the WTO Agreement" in Article 27.2(b) cannot be read into Article 27.4.99 Rather, for the following reasons, we consider that the first sentence of Article 27.4 must be read as referring to the period of eight years from the date of entry into force of the WTO Agreement stipulated in Article 27.2(b).100
7.57.
First, the first sentence of Article 27.4 expressly connects with Article 27.2(b) through the reference to "any developing country Member referred to in paragraph 2(b)". Second, having made this connection in respect of the same developing country Members, the first sentence of Article 27.4 then refers to phasing out export subsidies within "the eight-year period". The use of the definite article "the" demonstrates that Article 27.4 refers to a particular or already specified eight-year period. This period is defined in Article 27.2(b) to which Article 27.4 refers. Third, we find support for this reading of Article 27.4 in the fact that this provision serves to qualify the obligation on Members during the Article 27.2(b) transition period.101 During this period, developing country Members are not, without more, entitled to the non-application of Article 3.1(a). The entitlement to the transition period in Article 27.2(b) is made "subject to compliance with the provisions in paragraph 4". Those Members shall (preferably in a progressive manner) phase out their export subsidies as provided in Article 27.4.
7.58.
It follows that while Article 27.2(b) establishes an eight-year transition period from Article 3.1(a), the first sentence of Article 27.4 does not establish a separate and independent phase-out period. Rather, it imposes an additional phase-out obligation during the Article 27.2(b) period.102 Article 27.2(b) and the first sentence of Article 27.4 refer to the same transition period of eight years starting on the date of entry into force of the WTO Agreement.
7.59.
We therefore deny India's request to depart from the text of Article 27.2(b) because of Article 27.4. Instead, we conclude that the text of these provisions ensures the provisions operate harmoniously. For the same reason, we also reject India's proposition that, based on Article 27.4, the text of Article 27.2(b) can be characterized as ambiguous, obscure, absurd, or unreasonable.

7.3.3.2.4 Article 27.5

7.60.
India argues that a textual interpretation of Article 27.2(b) would lead to inconsistency with Article 27.5 and render the latter inutile and ineffective. More specifically, India invokes an "internal contradiction"103 that arises, according to India, because of separate phase-out timelines between export subsidies for products that reach export competitiveness pursuant to Article 27.5 and all other export subsidies under Article 27.2(b).
7.61.
India notes that under the second sentence of Article 27.5, an Annex VII Member has eight years to phase out export subsidies for products in which it has reached export competitiveness. India contrasts this with an interpretation of Article 27.2(b) which does not provide for an additional eight-year transition period after graduation from Annex VII(b). According to India, the result would be that, on graduating from Annex VII, a Member would be required to eliminate all export subsidies but at the same time would be allowed eight years to phase out export subsidies for products for which it has reached export competitiveness.104
7.62.
We disagree with India's premise that the eight-year phase-out period in the second sentence of Article 27.5 survives graduation. The second sentence of Article 27.5 applies to developing country Members "referred to in Annex VII". On graduating, a Member ceases to be one "referred to in Annex VII", and the second sentence of Article 27.5 is no longer available to it.
7.63.
In other words, Article 27.5 does not extend the transition period set forth in Article 27.2. Its phase-out timelines and requirements operate within the framework of that transition period, and in fact limit on a product-specific basis the scope of the exclusion from Article 3.1(a) granted in Articles 27.2(a) and (b). Article 27.5 therefore qualifies the scope of the special and differential treatment conferred by Article 27.2; it does not grant an additional or extended exclusion from Article 3.1(a).105 This mechanism is similar to the operation of the phase-out requirement in the first sentence of Article 27.4.106
7.64.
As a result, the alleged internal contradiction is based on a misreading of Article 27.5. We therefore conclude that interpreting Article 27.2(b) using the ordinary meaning of its terms does not, in light of Article 27.5, lead to ambiguous, obscure, absurd, or unreasonable results.

7.3.3.2.5 Object and purpose

7.65.
India appears to argue that interpreting the terms of Article 27.2(b) according to their ordinary meaning would undermine the object and purpose of providing special and differential treatment and of recognizing the economic development needs of developing country Members.107
7.66.
As set forth in Article 31.1 of the Vienna Convention, the object and purpose of a treaty, as a whole108, is relevant in determining the meaning of its provisions.109 The object and purpose of the SCM Agreement "is to strengthen and improve GATT disciplines relating to the use of both subsidies and countervailing measures, while, recognizing at the same time, the right of Members to impose such measures under certain conditions".110 Part of this balance is to grant developing country Members special and differential treatment.111 This emerges in particular from Article 27.1, which provides that "Members recognize that subsidies may play an important role in economic development programmes of developing country Members".112
7.67.
Part VIII of the SCM Agreement, devoted to "Developing Country Members", consists of Article 27, entitled "Special and Differential Treatment of Developing Country Members". Article 27 "makes operational"113 the principle of special and differential treatment in the context of the WTO rules on subsidies and countervailing measures. It "provide[s]"114 special and differential treatment for developing country Members under certain specified conditions. Articles 27.2 to 27.7 and Annex VII, in particular, provide for special and differential treatment in respect of the prohibited export subsidy disciplines. It is therefore difficult to see how, in India's view, the text of Article 27.2(b) "would run contrary to the object and purpose of Part VIII of the SCM Agreement".115 Rather, it reflects part of a delicate balance, struck by the drafters, between constraining certain types of subsidies on the one hand and providing special and differential treatment through clear and unambiguous time-bound flexibilities on the other hand. A literal interpretation of Article 27.2(b) is thus in line with, and gives effect to, the purpose of furthering special and differential treatment for developing country Members.
7.68.
We therefore take the view that considering the object and purpose of the SCM Agreement does not require a departure from the ordinary meaning of Article 27.2(b).

7.3.3.2.6 Conclusion

7.69.
Based on the above, we find that the terms of Article 27.2(b) in the context of the SCM Agreement and in light of its object and purpose do not lead to conclude otherwise than that the eight-year transition period in Article 27.2(b) runs from 1 January 1995. In fact, a reading of Article 27.2(b) as referring to eight years from 1 January 1995 sits harmoniously with its context and with the object and purpose of the SCM Agreement.

7.3.3.3 Supplementary means of interpretation

7.70.
Article 32 of the Vienna Convention allows recourse to supplementary means of interpretation either "to confirm the meaning resulting from the application of article 31" of the Vienna Convention or, when the interpretation according to Article 31 leaves the meaning ambiguous or obscure or leads to manifestly absurd or unreasonable results, "to determine the meaning".
7.71.
India argues that the plain text of Article 27.2(b), when viewed in light of Annex VII(b) and Articles 27.4 and 27.5, results in ambiguity, obscurity, absurdity, and unreasonableness.116 India submits that the Panel must therefore depart from the text of Article 27.2(b) and rely on supplementary means of interpretation according to Article 32 of the Vienna Convention in order to read Article 27.2(b) as entitling graduating Annex VII(b) Members to an eight-year transition period upon their graduation.117
7.72.
Above, we found that a textual interpretation of the terms in Article 27.2(b) does not leave their meaning ambiguous or obscure, or lead to manifestly absurd or unreasonable results. To the contrary, the meaning of Article 27.2(b) is clear and unambiguous and its textual interpretation does not result in internal contradictions with Annex VII(b), Article 27.4, or Article 27.5. On this basis, we disagree with India on the need in this case to resort to supplementary means of interpretation because of alleged ambiguity, obscurity, absurdity, and unreasonableness resulting from the interpretation according to Article 31 of the Vienna Convention.
7.73.
Article 32 of the Vienna Convention also allows us to have recourse to supplementary means of interpretation in order to confirm the meaning resulting from the application of Article 31. However, in light of the clear meaning of Article 27.2(b), we do not consider it necessary in this case to have recourse to supplementary means of interpretation.118

7.3.3.4 Conclusion on Article 27.2 and Article 3.1(a) of the SCM Agreement

7.74.
It is an undisputed fact that India has graduated from Annex VII(b). The text of Article 27.2(b), in its context and in light of the object and purpose of the SCM Agreement, leads us to conclude that the eight-year transition period from the date of entry into force of the WTO Agreement set forth in Article 27.2(b) has expired on 1 January 2003, also for Members graduating from Annex VII(b). Therefore, we find that Article 27 no longer excludes India from the application of Article 3.1(a) of the SCM Agreement.

7.3.3.5 Conclusion on Article 4 of the SCM Agreement

7.75.
Article 27.7 of the SCM Agreement excludes from the application of Article 4 of the SCM Agreement "a developing country Member in the case of export subsidies which are in conformity with the provisions of paragraphs 2 to 5" of Article 27.
7.76.
As set out above, India has graduated from Annex VII to the SCM Agreement, and the transition period in Article 27.2(b) has expired. Therefore, the exclusion set out in Article 27.7 does not operate and, as a result, Article 4 of the SCM Agreement applies to this dispute.

7.4 STATEMENT OF AVAILABLE EVIDENCE

7.77.
India asked the Panel to rule that the statement of available evidence included in the United States' request for consultations does not meet the requirements of Article 4.2 of the SCM Agreement.119 India argues that the statement fails to provide any evidence of the character of the measures as subsidies, and merely reproduces the list of legal instruments appearing in the request for consultations and subsequently in the panel request.
7.78.
We discuss, first, the legal standard under Article 4.2 of the SCM Agreement (section 7.4.1) and, second, the application of that legal standard to the statement of available evidence, in light of the arguments of the parties (section 7.4.2). As set out below, we find that the statement of available evidence contained in the United States' request for consultations meets the standard set out in Article 4.2 of the SCM Agreement.

7.4.1 The applicable legal standard under Article 4.2 of the SCM Agreement

7.79.
Article 4.2 of the SCM Agreement is a special or additional rule listed in Appendix 2 to the DSU, applying to disputes involving allegations of prohibited subsidies under Article 3 of the SCM Agreement. Pursuant to Article 1.2 of the DSU, such special or additional rules apply together with the DSU, except that, to the extent there is a conflict, the special or additional rules prevail.120
7.80.
Article 4.2 of the SCM Agreement provides:

A request for consultations under paragraph 1 shall include a statement of available evidence with regard to the existence and nature of the subsidy in question.

7.81.
Thus, a complainant in a prohibited subsidies case must "indicate, in its request for consultations, the evidence that it has available to it, at that time, 'with regard to the existence and nature of the subsidy in question'".121 This must be "available evidence of the character of the measure as a 'subsidy' … and not merely evidence of the existence of the measure".122
7.82.
In Australia – Automotive Leather II, the panel interpreted the requirement for a "statement of available evidence" in Article 4.2 as meaning that the complainant must include in its request for consultations:

[A]n expression in words of the facts at its disposal at the time it requests consultations in support of the conclusion that it has, in the words of Article 4.1, "reason to believe that a prohibited subsidy is being granted or maintained".123

7.83.
Further, "the requirement is to provide a 'statement' of the evidence and not the evidence itself"124, nor "disclosure of arguments".125
7.84.
The Appellate Body has emphasized the importance of the requirement in Article 4.2 of the SCM Agreement to provide a statement of available evidence, given the "accelerated timeframes for disputes" under Article 4 and the "complex factual questions" that these disputes raise.126 It has underlined that this requirement is "distinct from – and not satisfied by compliance with – the requirements of Article 4.4 of the DSU".127 In other words, it is additional to "giving the reasons for the request for consultations and identifying the measure and the legal basis for the complaint under Article 4.4 of the DSU".128
7.85.
At the same time, the statement "is the starting point for consultations, and for the emergence of more evidence concerning the measures by reason of the clarification of the 'situation'".129 The statement "informs the beginning of the dispute settlement process", and "does not limit the scope of evidence and argument for the entire proceeding".130 As a result, in assessing the sufficiency of the statement, which must be done "on a case by case basis"131, it is "important to bear in mind that the requirement to submit a statement of available evidence applies in the earliest stages of WTO dispute settlement".132

7.4.2 Whether the statement of available evidence meets the requirements of Article 4.2 of the SCM Agreement

7.86.
In the present case, the United States' statement of available evidence lists: all the legal instruments listed in the body of the request for consultations, and subsequently in the panel request133; and two publications of the Ministry of Commerce and Industry of India, namely (a) "Highlights of the Foreign Trade Policy 2015-2020 Mid Term Review (5 December 2017)" (the Highlights); and (b) an accompanying press release entitled "Release of the Mid‑Term Review of Foreign Trade Policy 2015-2020 – Annual Incentives Increased by 2% amounting to over Rs 8,000 crore for Labour Intensive/MSME sectors (5 December 2017)" (the Press Release).134
7.87.
India argues that this statement falls short of the requirements of Article 4.2 of the SCM Agreement.135 Specifically, India argues that the statement (a) includes no evidence of the character of the measure as a subsidy136; (b) "reproduces a verbatim list" of the legal instruments cited in the request for consultations137; and (c) provides no "basis for the[] identified programmes/schemes providing a subsidy" because it does "not indicate any specific chapter or paragraph" of the cited legal instruments.138 In addition, India considers that the lack of "substantive difference" between the request for consultations and the panel request is further evidence of the United States' failure to appreciate the substantive standard in Article 4.2 of the SCM Agreement.139
7.88.
The United States responds that India confuses evidence with arguments.140 Article 4.2 requires a statement of the former, not the latter.141 The United States considers that it has demonstrated in its first written submission that the cited evidence "is indeed evidence regarding the existence and nature of the subsid[y] in question".142 Specifically, the statement "identified twenty-five separate legal instruments that gave the United States reason to believe that there are five Indian export subsidy programs that are inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement", and that "are the primary evidentiary basis for the U.S. claims".143
7.89.
We now turn to consider the items in the statement of available evidence in light of the legal standard and the arguments of the parties.
7.90.
Item No1 in the statement of available evidence consists of the Highlights of the Foreign Trade Policy (FTP) mid‑term review, issued by the Government of India in December 2017.144 This document describes some of the changes made to the FTP as part of the mid-term review, and refers in particular to the first, second, and third schemes145 listed in the request for consultations, i.e. the EOU and Sector-Specific Schemes, MEIS, and the EPCG Scheme, respectively.
7.91.
Regarding MEIS, the Highlights note that it "is a major export promotion scheme which seeks to promote export of notified goods manufactured/produced in India"; that "MEIS incentives are available at 2, 3, 4 and 5% of the [free on board] value of exports"; and that incentives in two textiles sub-sectors, as well as "for exports by MSMEs / labour intensive industries" have been increased, involving additional outlays of "Rs. 2743 Crore" and "Rs. 4567 Crore", respectively.146 It further notes that the validity of scrips under MEIS has been extended by six months and the tax rate for their transfer reduced to zero147; and more generally that the "[s]cope and incentives as a percentage of exports under … MEIS … [have been] enhanced".148 Regarding the EOU and Sector‑Specific Schemes, MEIS and EPCG Scheme, the Highlights state that these are "continued".149
7.92.
Item No2 in the statement of available evidence is a press release that accompanied the release of the FTP mid-term review. This press release explains, among other things, that "[t]he FTP will focus on exports from labour intensive and MSME sectors by way of increased incentives in order to increase employment opportunities"150, and that "[w]hile restoring the benefits under the export promotion schemes of duty free imports under Advanced Authorisation, Export Promotion Capital Goods and 100 percent Export Oriented Units … the FTP review has focused on increasing the incentives for labour intensive MSME sectors".151 It then goes on to describe, like the Highlights, the specific increases in the rate of incentives and the resulting additional outlays, as well as providing a breakdown by sector of some of the resulting incentives.152
7.93.
Item No3 in the statement of available evidence is the FTP, which is the same as Instrument No1 in the request for consultations and in the panel request.153
7.94.
Chapter 6 of Item No3 relates to the EOU and Sector-Specific Schemes. Section 6.00 of the FTP describes the units that may benefit from these schemes, as follows: "[u]nits undertaking to export their entire production of goods and services (except permissible sales in DTA [domestic tariff area])". Sections 6.01, 6.11, and 6.12 set forth exemptions from duties and taxes for import or procurement of goods, as well as other entitlements of units under the EOU and Sector-Specific Schemes.
7.95.
Chapter 3 of Item No3 relates to MEIS. Section 3.02 of the FTP, on "Nature of Rewards", explains that "[d]uty credit scrips shall be granted as rewards under MEIS" and "shall be freely transferable", and goes on to describe the three types of uses to which these duty scrips can be put, i.e. payment of customs duties on certain goods, payment of excise on certain goods, and payment of certain other dues such as for shortfalls in export obligation. Section 3.04 of the FTP, on "Entitlement under MEIS", explains that "[e]xports of [certain goods to certain markets] shall be rewarded under MEIS"; that the "basis of calculation of reward" is "FOB value of exports"; and that certain "exports categories / sectors" are ineligible. The relevant goods and markets for purposes of Section 3.04 are set out in Item No8 of the statement of available evidence (Instrument No7 in the request for consultations and the panel request), as amended by Items No9-16 (Instruments No8-15 in the request for consultations and the panel request).
7.96.
Chapter 5 of Item No3 relates to the EPCG Scheme. Section 5.01 of the FTP explains that this scheme: "allows import of capital goods … at zero customs duty"; allows for exemption from certain other taxes; and in some cases allows for advantages also in connection with the procurement of capital goods "from indigenous sources". Section 5.01 also provides that "[i]mport under EPCG Scheme shall be subject to an export obligation". Section 5.04 sets out the conditions applying to the fulfilment of this export obligation. As a general rule, it provides that the export obligation "shall be fulfilled by the authorisation holder through export of goods which are manufactured by him or his supporting manufacturer / services rendered by him, for which the EPCG authorization has been granted".154 It further provides that the export obligation "shall be, over and above, the average level of exports achieved by the applicant in the preceding three licensing years for the same and similar products within the overall [export obligation] period", with some exceptions.155
7.97.
Items Nos4-20, which correspond to Instruments Nos2-5, 7-15, and 17-20 in the request for consultations and in the panel request156, set out details for the operation of the EOU and Sector‑Specific Schemes, MEIS and EPCG Scheme, amendments to those schemes and, in the case of MEIS, the goods and markets of export that give rise to rewards under the scheme.
7.98.
Items Nos21-26, which correspond to Instruments Nos21-26 in the request for consultations and in the panel request, relate to the fourth scheme listed in the request for consultations, i.e. the SEZ Scheme. In particular, Chapter VI of Item No21 (the Special Economic Zones Act (SEZ Act)) sets out "Special fiscal provisions for special economic zones", applying to developers and entrepreneurs for "authorised operations" under the Act.157 It provides for exemptions from customs duties and other taxes that would otherwise be due under the 1962 Customs Act, the 1975 Customs Tariff Act, the 1944 Central Excise Act, the 1985 Central Excise Tariff Act, the 1956 Central Sales Tax Act, and other legislation.158 It further provides that the 1961 Income Tax Act applies to developers and entrepreneurs for authorised operations "subject to … modifications" set out in Item No21, that is, it provides that special rules on income tax apply to Special Economic Zones159; these provisions are also reflected in Item No26, the 1961 Income Tax Act.
7.99.
Item No22 (the Special Economic Zones Rules (SEZ Rules)) details the conditions subject to which entrepreneurs and developers are entitled to exemptions, drawbacks, and concessions. Among other conditions, it requires "positive net foreign exchange earning" as a condition for approving a Unit in an SEZ160, and as a commitment that every developer and entrepreneur must undertake to be entitled to exemptions, drawbacks, and concessions.161 In extreme summary, the positive net foreign exchange (NFE) earning requires the free on board (FOB) value of exports to exceed the cost insurance freight (CIF) value of imports during specified time periods; Item No22 provides a detailed definition of this requirement.162
7.100.
Items Nos23 and 24 are amendments to Item No22. Item No25 provides that all goods or services imported by a developer or entrepreneur in an SEZ are exempt from the integrated tax that would otherwise be due on them under the 1975 Customs Tariff Act.
7.101.
Item No27 relates to the fifth scheme listed in the request for consultations, i.e. DFIS. Specifically, it is the only legal instrument listed in the request for consultations as reflecting that scheme. It sets forth exemptions from or reductions to customs duties on the importation of certain goods, subject to certain conditions.163
7.102.
The United States' request for consultations singled out nine conditions, as did, subsequently, the panel request. These nine conditions provide that the value of the imports benefiting from the duty exemptions or reductions is capped at a certain percentage (ranging from 1% to 25%, depending on the condition) of the value of exports during the preceding financial year.164 Six of these nine conditions also require that the imported goods be used in the manufacture of goods for export.165
7.103.
We now turn to the question whether the list of items just described is a "statement of available evidence with regard to the existence and nature of the subsidy in question", in light of India's arguments.166 To recall, India's first argument is that the request for consultations includes no evidence of the character of the measure as a subsidy, as is required by Article 4.2 of the SCM Agreement.167
7.104.
As set out above, the items listed in the statement of available evidence describe, at least: an exemption from taxes, or the granting by the government of freely transferable "scrips" to be used to satisfy certain liabilities; and conditions for obtaining these exemptions and scrips, which, in each case, include some requirement to export. Most of the listed items are legislation or implementing regulations promulgated by India.
7.105.
In this way, the listed items evidence the possible existence of a foregoing of government revenue, and of the government's granting of instruments, called "scrips", that can be used to satisfy liabilities vis-à-vis the government. Further, since the listed items provide for (a) exemptions from otherwise applicable duties and taxes; and (b) transferable instruments that may be used to satisfy obligations to pay customs duties, excise, and other dues, they also evidence the possible existence of a benefit, and thus a possible subsidy within the meaning of Article 1 of the SCM Agreement.168 This evidence therefore relates not only to the existence of the possible subsidy but also to its nature as a subsidy.
7.106.
Moreover, because they set out conditions for benefiting from the tax exemptions or from the award of scrips that include requirements to export, the listed items also evidence the possible export contingency of the measures in question, within the meaning of Article 3.1(a) of the SCM Agreement. This evidence therefore relates also to the nature of the possible subsidy as a prohibited export subsidy.
7.107.
As a result, we consider that the statement indicates available evidence both of the existence of the possible subsidies and of their nature as possible subsidies and, indeed, as possible export-contingent subsidies. We therefore disagree with India's position that the statement of available evidence relates to the existence of the measure but not to its character as a subsidy.169
7.108.
We now turn to consider India's second argument, namely, that the statement is insufficient because it reproduces "verbatim" the list of legal instruments provided to satisfy the requirement to identify the measures under Article 4.4 of the DSU.170
7.109.
As India argues, the requirements in Article 4.2 of the SCM Agreement are additional to those in Article 4.4 of the DSU, and not satisfied by compliance with the latter requirements.171 In this case, 25 of the 27 items of evidence in the statement of available evidence are legal instruments cited in the United States' request for consultations to identify the measures. The United States argues that these legal instruments "are the primary evidentiary basis for the U.Sclaims"172, and the Panel has ascertained, as set out above, that these legal instruments are evidence relating both to the existence and nature of the measures as subsidies.
7.110.
This factual situation raises the question whether the near-identity between the request for consultations and the statement of available evidence included in it demonstrates, in itself, the insufficiency of the statement of available evidence.
7.111.
Article 4.2 of the SCM Agreement requires a request for consultations to "include a statement of available evidence with regard to the existence and nature of the subsidy in question". As has been repeatedly found, this requirement is different from, and additional to, the requirement to identify the measures at issue and give an indication of the legal basis of the complaint, set out in Article 4.4 of the DSU. This however means that both sets of requirements must be satisfied; it does not necessarily mean that the same item cannot, in any case, serve both to identify the measure at issue and to provide evidence of the existence and nature of a subsidy. In this dispute, as noted above, the listed items appear to satisfy the requirements of Article 4.2 of the SCM Agreement.173 The fact that the same items also serve to identify the challenged measures, in itself, does not render insufficient the statement of available evidence.
7.112.
India's third argument is that the statement of available evidence is insufficient because it does "not indicate any specific chapter or paragraph which would result in a violation of the SCM Agreement", which is an "implicit failure to offer any … basis [for] the existence of a possible subsidy".174 The United States responds that India confuses evidence with arguments.175
7.113.
Pursuant to Article 4.2 of the SCM Agreement, the complainant must "state" the "evidence" it has available as to the existence and nature of the challenged subsidy. This did not require the complainant in this case to indicate the "specific chapter or paragraph" of the cited items of evidence. The complainant stated the evidence it was relying on, so as to meet the requirements of Article 4.2. Moreover, the body of the text of the request for consultations, which precedes and introduces the text of the statement of available evidence, provided sufficient information to put the respondent on notice as to which aspects of the legal instruments cited as evidence are relevant to this dispute.176
7.114.
As examples of how the cited legal instruments fail to provide evidence of the existence and nature of the challenged subsidies, India refers to (a) the Income Tax Act (Item No26), (b) Items Nos21 to 24, and (c) Items Nos1 to 6.177
7.115.
Regarding the Income Tax Act, India argues that "when read alone, [it does] not even vaguely indicate that [it] refer[s] to prohibited subsidies", and that the United States "has failed" "to demonstrate how the Indian Income Tax Act may be characterized as a subsidy".178
7.116.
First, we disagree with India that the Income Tax Act must be "read alone". The 1961 Income Tax Act, which is listed in the statement of available evidence, appears in the context of a request for consultations where the same Income Tax Act is cited with reference to a specific scheme, namely, Special Economic Zones, and together with a number of related instruments.179 Among these legal instruments, the SEZ Act, which establishes the scheme in question, provides that the Income Tax Act "shall apply … subject to the modifications specified in the Second Schedule".180 Further, the Second Schedule lists the "Modifications to the Income-Tax Act, 1961", i.e. the provisions of the Income Tax Act that are added or modified by the SEZ Act.181 Therefore, the 1961 Income Tax Act is far from having to be "read alone".
7.117.
Second, regarding India's argument that the United States "has failed" "to demonstrate how the Indian Income Tax Act may be characterized as a subsidy"182, we recall that the requirement is to provide a statement of the evidence, not "disclosure of arguments".183 We note that the provisions on special economic zones in the 1961 Income Tax Act, identified in the Second Schedule of the SEZ Act, relate to tax exemptions and deductions, and some explicitly provide that the exemption or deduction in question relates to "export".184 Thus, together with the other listed items, they give "reason to believe"185 that a subsidy exists, has the character of a subsidy, and indeed has the character of a prohibited subsidy.186
7.118.
Regarding Items Nos21 to 24, India argues that they do "not indicate that they refer to subsidies".187 However, Items Nos21 to 24 provide for the establishment and operation of Special Economic Zones and set out, inter alia, special fiscal provisions for such zones; conditions under which participants are entitled to exemptions, drawbacks, and concessions; and rules on the NFE earnings requirement.188 Thus, India's view that these Items do not "refer to subsidies" appears to be grounded in India's position on the merits of the present case, rather than in an assessment of Items Nos21 to 24 from the perspective of Article 4.2 of the SCM Agreement.
7.119.
Regarding Items Nos1 to 6, India argues that "cited randomly with no reference to specific provisions within the legislation or the specific program being challenged also fail to meet the higher threshold in Article 4.2 of the SCM Agreement".189 Once again, these items are neither "cited randomly" nor "with no reference to … the specific program being challenged". Instead, in the body of the request for consultations, Items Nos3 to 6 are listed with reference to the EOU and Sector‑Specific Schemes, MEIS, and EPCG Scheme; and Items Nos3 and 5 contain a chapter expressly devoted to each of those schemes, setting out the bulk of the relevant provisions governing those schemes, including provisions giving reason to believe that India grants subsidies that are export contingent.190
7.120.
Therefore, the Panel does not agree with India's arguments that, by listing these items, the complainant failed to state evidence of the existence of the challenged subsidies and of their nature as subsidies.
7.121.
India's fourth and last argument is that "[a]dditionally … there is no substantive difference between the 'Request for Consultation' … and the Request for the Establishment of Panel".191 According to India, this is evidence that the complainant also disregarded the difference in substantive standards between Article 4.2 of the SCM Agreement and Article 6.2 of the DSU.192
7.122.
It is true that "precise and exact identity" between the request for consultations and the panel request is not required193, and that there is often an evolution between the former and latter documents. However, nothing prevents complainants from presenting a panel request that is identical to their request for consultations, provided that each of these two documents meets the requirements set out in Articles 4.4 and 6.2 of the DSU and other applicable provisions.
7.123.
Thus, to sum up, a review of the statement of available evidence indicates that the statement of available evidence is sufficient to meet the requirements of Article 4.2 of the SCM Agreement, because it "state[s] … available evidence with regard to the existence and nature of the subsidy in question"194; and India's arguments considered so far have not established otherwise.
7.124.
In the context of the substantive meeting with the parties, the Panel asked the United States to articulate how each item in its statement of available evidence related to the existence of the alleged subsidy or its nature as a subsidy, and to point to the relevant provisions or paragraphs of the listed items.195 The Panel then gave India the opportunity to comment on the United States' response at the hearing and in writing.
7.125.
While the Panel has based its assessment of the sufficiency of the statement of available evidence on the statement itself, as contained in the United States' request for consultations, the Panel notes that the United States' response to the Panel's question, too, illustrates that the 25 legal instruments cited in the statement, themselves, provide evidence "with regard to the existence and nature of the subsidy in question"196, because the language of those legal instruments gives reason to believe that a subsidy exists, has the character of a subsidy, and is export contingent.197
7.126.
In its comments on the United States' response, India asserts, first, that the provisions cited by the United States support India's argument that the challenged schemes fall under footnote 1 of the SCM Agreement.198 The Panel considers this to be a substantive argument regarding the merits of the dispute, and not an argument on the sufficiency of the statement of available evidence under Article 4.2 of the SCM Agreement.
7.127.
Second, India argues that the United States has failed to engage with the nature of the legal instruments in question and, as an example, India writes that "the United States has not even acknowledged that [Item No12] notifies ITC codes that were not included in the harmonised list".199 This comment bears no relevance on the assessment under Article 4.2 of the SCM Agreement. The document in question makes amendments to the list of goods the export of which gives rise to rewards under MEIS200; observing, or not, that these amendments relate to the Indian Tariff Code (ITC) classification of the products says nothing on the sufficiency of the statement of available evidence in this dispute.
7.128.
Third, India argues that the United States has selectively or incorrectly quoted portions of the listed evidence. As an example, India refers to Item No22 (the SEZ Rules), for which the United States has listed, among others, Rule 9 of the SEZ Rules; India observes that Rule 9 pertains to exemptions provided to SEZ developers, and that the United States clarified in the course of the hearing that it is only challenging financial contributions provided to SEZ Units (not developers).201 India's factual observation is correct; however, it does not render the statement of available evidence insufficient. The United States' listing of provisions from Item No22, in answer to the Panel's question, is prefaced with the phrase "[n]on-exhaustive excerpts of interest to a subsidy analysis include", and then lists the Rule referred to by India, together with other Rules whose substantive relevance to the United States' challenge India does not contest.202 It is correct that in response to questioning from the Panel at the hearing and after the hearing, the United States clarified that it is not challenging financial contributions granted to SEZ developers.203 This means that the United States included in its response to the Panel question a provision that it has ultimately chosen to exclude from its challenge; but it does not mean that the statement of available evidence was not sufficient under Article 4.2 of the SCM Agreement to sustain that portion of its challenge that the United States ultimately pursued.
7.129.
Therefore, the exchanges with and between the parties in answer to Panel question No25 do not modify the Panel's preliminary conclusions in paragraphs 7,107 and 7,123 above, that the statement of available evidence included in the request for consultations was sufficient.
7.130.
We therefore conclude that the statement of available evidence met the requirements of Article 4.2 of the SCM Agreement.

7.5 THE MEASURES AT ISSUE

7.131.
Having found that Article 27 of the SCM Agreement no longer excludes the challenged measures from the application of Articles 3.1(a) and 4 of the SCM Agreement, and that the United States' statement of available evidence met the requirements of Article 4.2 of the SCM Agreement, we proceed to examine the United States' claims of inconsistency with Articles 3.1(a) and 3.2 of the SCM Agreement. As an introduction to that analysis, this section provides a brief description of each of the measures at issue.204

7.5.1 Export Oriented Units and Sector-Specific Schemes

7.132.
The EOU/EHTP/BTP Schemes are three schemes for which India's FTP and Handbook of procedures (HBP) set forth common disciplines, including conditions for participating in the schemes and a range of "entitlements"205 granted to participating enterprises ("EOU/EHTP/BTP Units", or "Units"). Two of these entitlements are at issue in this dispute. First, EOU/EHTP/BTP Units can import goods without payment of any customs duty.206 This exemption from customs duties applies to "all types of goods"207 required for the Units' activities, expressly including capital goods.208 Second, EOU/EHTP/BTP Units can procure excisable goods209 free of central excise duties.210
7.133.
Units must commit "to export their entire production of goods and services"211, subject to certain limited exceptions.212 Further, each Unit must be a positive NFE earner213, a requirement which is met when a Unit's total value of exports exceeds its total value of imports.214
7.134.
The schemes set forth provisions to monitor compliance with the NFE requirement.215 Failure to ensure positive NFE or to abide by other obligations under the schemes may result in sanctions, including penalties, penal action and the cancellation of the status of an enterprise as an EOU/EHTP/BTP Unit.216
7.135.
The stated objectives of the EOU/EHTP/BTP Schemes are "to promote exports, enhance foreign exchange earnings, attract investment for export production and employment generation".217

7.5.2 Export Promotion Capital Goods Scheme

7.136.
The EPCG Scheme exempts participants218, upon authorisation, from paying customs duties219 on the importation of capital goods.220
7.137.
Importation under the EPCG Scheme is subject to two export obligations. First, over a six‑year period, a scheme participant must achieve exports of the goods specified in the EPCG authorization equalling at least six times the duties, taxes, and cess221 saved on capital goods.222 This is referred to as the "specific export obligation".223
7.138.
Second, with limited exceptions224, a scheme participant must maintain exports of those same goods above the average level of its exports of the same or similar products during the three‑year period preceding the EPCG authorization.225 This is referred to as the "average export obligation".226
7.139.
The scheme provides an "incentive for early … fulfilment" of these export obligations: when "75% or more of the specific export obligation and 100% of Average Export Obligation till date" are met within half of the required period, the "remaining export obligation shall be condoned".227
7.140.
As part of the process to apply for EPCG authorisation, applicants must provide a certification by a chartered engineer of the "nexus" between the capital goods to be imported and the manufacture of products for export228, certifying that the capital goods in question are "required" to manufacture specified "export product(s)".229
7.141.
Once authorisation is granted, participants' compliance with their export obligations is subject to regular monitoring.230 Half of the specific export obligation must be fulfilled during the first four years231, failing which an enterprise must pay customs duties corresponding to the unfulfilled export obligation.232 Failure to meet the export obligations or to comply with any other applicable requirements may result in penal action.233
7.142.
The stated objectives of the EPCG Scheme are to "facilitate import of capital goods for producing quality goods and services and enhance India's manufacturing competitiveness".234

7.5.3 Special Economic Zones Scheme

7.143.
India's SEZ Act and SEZ Rules, as amended235, are the two main legal instruments setting forth the framework for the SEZ Scheme. The SEZ Act "provide[s] for the establishment, development and management of the Special Economic Zones for the promotion of exports and for matters connected therewith or incidental thereto".236 Among other things, the SEZ Act and SEZ Rules regulate the bodies charged with approving and administering SEZs, and set forth the procedures for establishing SEZs, provisions on the operation of SEZs, special fiscal provisions for SEZs, and the conditions applying to those special provisions.
7.144.
India has submitted that an SEZ is a "distinct"237 "geographical region which provides for more liberal economic measures to be applicable to the Units set up within it, as compared to the rest of India".238 Further, India has pointed out that the SEZ Act defines the "domestic tariff area" (DTA) as the whole of India excluding SEZs, and that "export" for purposes of the SEZ Act includes not only "the taking of goods … out of India, from a[n SEZ]" and the supply of goods between different Units239 within an SEZ, but also the supply of goods from the DTA to a Unit or developer240 within an SEZ.241
7.145.
Of the special fiscal provisions applying to SEZs242, the following are at issue in this dispute:

a. the exemption of "every Developer and … entrepreneur" from customs duties on imports into, and exports from, "a Special Economic Zone or a Unit"243;

b. the exemption of "all goods … imported by a unit or a developer in the Special Economic Zone" from India's Integrated Goods and Services Tax (IGST)244; and

c. the deduction, from the corporate income tax base of an entrepreneur, of the export earnings of the entrepreneur's SEZ Unit.245

7.146.
These provisions refer to "developers", "entrepreneurs", and "Units", which are the principal economic actors setting up, and operating within, SEZs.
7.147.
A "developer" is a person or state government that has been granted a letter of approval to set up an SEZ246: developers set up SEZs and develop and maintain their infrastructure.247
7.148.
An "entrepreneur" is a person who has been granted a letter of approval to set up a Unit and undertake the operations authorized by that letter of approval248: entrepreneurs thus set up Units, and manufacture goods and render services through the Unit.249
7.149.
A "Unit" is defined, somewhat circularly, as "a Unit set up by an entrepreneur in a Special Economic Zone".250 Units are central to the operation of SEZs, because the manufacturing of goods and rendering of services in SEZs (except those incidental to setting up the SEZ itself) take place within the Units.251
7.150.
As will be elaborated further in discussing export contingency, Units are required in particular to achieve a positive NFE.252 Under the SEZ Scheme, NFE is the difference between, on the one hand, FOB value of exports, plus a number of certain other eligible "supplies", and, on the other hand, CIF value of imports, plus the value of goods obtained from certain other sources.253 Compliance with the positive NFE requirement is subject to monitoring254, and a Unit's failure to meet the requirement makes the entrepreneur "liable for penal action" and leads to cancellation of the Unit's approval.255
7.151.
Regarding the scheme's objectives, as noted at the outset, the preamble of the SEZ Act refers to "the promotion of exports and … matters connected therewith or incidental thereto".256 At the same time, India emphasizes that "the objective of the SEZ Scheme cannot be reduced to the promotion of exports": instead, India explains that the SEZ Act aims to achieve the "overall economic development of areas within its territorial control[, which] is crucial to the sovereign functions of a country".257
7.152.
India refers, in particular, to Section 5 of the SEZ Act, which sets forth the considerations that must guide "[t]he Central Government" in discharging its functions under the Act. These considerations are: the "generation of additional economic activity", the "promotion of exports", the "promotion of investment", the "creation of employment opportunities", the "development of infrastructure facilities", and the "maintenance of sovereignty and integrity of India, the security of the State and friendly relations with foreign States".258

7.5.4 Duty-Free Imports for Exporters Scheme

7.153.
We found that the panel request identified, as a measure, alleged export subsidies provided under Conditions 10, 21, 28, 32, 33, 36, 60, 61, and 101 of Notification No50/2017.259 These are the caps on the rate of import duty set out in line items 104, 229, 288, 312, 313, 327, 430, 431, and 612, respectively, of Notification No. 50/2017.260
7.154.
The United States refers to these as the duty-free imports for exporters scheme (DFIS).261 According to India, this measure is not a cohesive scheme, but just "a grouping of individual duty stipulations".262 Indeed, we note that the nine stipulations at issue are nine individual line items, with their respective Conditions, scattered among more than 600 other customs duty stipulations in Notification No. 50/2017, and they do not appear to coalesce into a cohesive scheme. Nonetheless, India, too, refers to this measure as DFIS263, and we, too, will refer to the nine duty stipulations that we have found to fall within our terms of reference as "DFIS".
7.155.
Each of these nine duty stipulations provides that the import duty for specified goods is capped at zero ("nil"), provided that the corresponding Condition is met.
7.156.
The following table lists the challenged line item capping the import duty at zero, and the corresponding duty-exempt goods and Condition number.

Table 1: Line items and Conditions in Notification No. 50/2017 challenged by the United States264

Line itemDuty-exempt goods265Condition
104 36 items, or groups of items, used in the processing of sea-food, such as breadcrumbs, flavouring oil, food colours, citric acid, and milk protein 10
229 27 items, or groups of items, for use in the manufacture of handicrafts, such as electric parts, hinges, animal hair materials for brushes, glass sheet, air and electric operated screw driver with hose and couplings, and moisture measuring tools 21
288 Lining and inter-lining materials for use in the manufacture of textile or leather garments 28
312 42 items, or groups of items, for use in the manufacture of leather or synthetic footwear or other leather products, such as buckles, buttons and snap fasteners, elastic tape, lining, adhesives, heels, and fittings 32
313 18 items, or groups of items, for use in the manufacture of handloom, cotton or man-made made-ups, such as lace, elastic tape, tassel, and sewing threads 33
327 Samples of hand knotted carpets 36
430266 125 items, or groups of items, for use in the manufacture of commodities in the pharmaceutical and biotechnology sector, such as cell cultivation devices, low temperature freezers, spectrophotometers, centrifuges, x-ray diffraction equipment, automated sampling devices, and gas generators 60(ii)
431 119 items, or groups of items, for research and development in the agro-chemical sector, such as analytical balances, anemometers, centrifuges, dry ice makers, health monitoring equipment, and incubators 61
612 21 items, or groups of items, for use in the manufacture of sports goods, such as butyl bladders for inflatable balls, cork bottoms, table tennis rubber, and stitching thread for inflatable balls or sports gloves 101

7.157.
Conditions 10, 21, 28, 32, 33, and 101 require the duty-exempt goods to be imported for use in the manufacture of specified final products for export. Further, they require that the value of the duty-exempt imported goods not exceed a certain percentage, ranging from 1% to 5%, of the FOB value of exports of those same final products during the preceding financial year.
7.158.
In contrast, Conditions 36, 60(ii), and 61 do not contain a requirement that duty-exempt goods be used for manufacture in export production. However, similar to the other six conditions just described, they do peg the value of qualifying imports to past exports. Specifically, Condition 36 requires that the total value of duty-exempt imports of samples of carpets not exceed 1% of the FOB value of carpets exported during the previous financial year; whereas Conditions 60(ii) and 61 require that the value of duty-exempt goods not exceed 25% and 1%, respectively, of the FOB value "of exports" during the preceding financial year.
7.159.
All nine conditions also require the importer to produce a certificate from the competent export promotion council or, in the case of Conditions 60(ii) and 61, from the Joint Director General of Foreign Trade, stating (a) the value of relevant exports during the preceding financial year, and (b) the value of goods already imported under Notification No. 50/2017 during the current financial year.
7.160.
Thus, for most of these duty stipulations, the competent export promotion council is given an important role, satisfying itself as to the accuracy of the data on past exports and on imports made under Notification No. 50/2017 and, on that basis, issuing the certificates that are necessary in order to benefit from zero customs duties under DFIS.267 In at least one case, the competent export promotion council requires the manufacturer-exporter to certify that the imported items "will not be put to any other use or sold in the market except in the manufacture of Leather Garments for exports", and that it "understand[s] fully that any violation of … Notification … No50/2017 … shall be construed as malpractice" and results in liability "to penal and/or any other action" under applicable legislation.268

7.5.5 Merchandise Exports from India Scheme

7.161.
MEIS provides a "reward" for "exports of notified goods/products … to notified markets".269 This reward consists of "Duty Credit Scrips", which are paper-based notes that can be used to pay for (i) basic and additional customs duties on the importation of goods270, (ii) central excise duties on domestically procured goods271, and (iii) certain other charges and fees owed to the Government, such as basic and additional customs duties owed as a consequence of failing to fulfil one's export obligations under other schemes.272 Scrips are "freely transferable".273
7.162.
The value of the scrips that a recipient is entitled to is calculated by multiplying the FOB value of the recipient's exports of a particular ("notified") good to a particular ("notified") destination country market with the applicable "rate(s) of reward" assigned to that good and market.274
7.163.
"Notified" goods and markets as well as the applicable reward rates are set out in Appendix 3B to the FTP.275 This Appendix divides export destination countries into three "country groups".276 It then lists the covered "notified" goods, indicating, for each notified good, the "MEIS reward rate" applying to exports of the good in question to each of the three country groups.277 For each covered product, it therefore indicates three rates, the choice between the three being determined by the country to which the exports giving rise to the reward were made. Depending on the product and destination country, the reward rates range from 0% to 5%.
7.164.
The stated objectives of MEIS are "to provide rewards to exporters to offset infrastructural inefficiencies and associated costs"278, and specifically "to promote the manufacture and export of notified goods/products".279

7.6 FOOTNOTE 1 OF THE SCM AGREEMENT

7.165.
The United States challenges the five sets of measures described in the previous section as prohibited export subsidies under the SCM Agreement. India argues, however, that four of those sets of measures (i.e. those under the EOU/EHTP/BTP Schemes, the EPCG Scheme, DFIS, and MEIS) must be deemed not to be a subsidy, because they meet the conditions of footnote 1 of the SCM Agreement.280
7.166.
We therefore begin by examining whether these four sets of challenged measures meet the conditions of footnote 1. We first set out the applicable legal standard (section 7.6.1); we then apply it, in turn, to each of the four sets of measures in question, namely, certain exemptions under the EOU/EHTP/BTP Schemes (section 7.6.2), the EPCG Scheme (section 7.6.3), and DFIS (section 7.6.4), and the provision of scrips under MEIS (section 7.6.5).

7.6.1 The applicable legal standard under footnote 1

7.167.
Footnote 1 of the SCM Agreement, appended to Article 1, provides that certain measures "shall not be deemed to be a subsidy".
7.168.
The footnote has two main parts. The first clause of the footnote directs the interpreter to read the remainder of the footnote "[i]n accordance with the provisions of" the Note to Article XVI of the GATT 1994281 and of Annexes I to III of the SCM Agreement. The second part of the footnote describes the two groups of measures that "shall not be deemed to be a subsidy", provided they are also in accordance with the Note to Article XVI and Annexes I to III.
7.169.
These two groups of measures are (a) "the exemption of an exported product from the duties or taxes borne by the like product when destined for domestic consumption"; and (b) "the remission of such duties or taxes in amounts not in excess of those which have accrued".282 We understand the difference between these two groups of measures to be that, in the case of exemptions, the duty or tax liability never arises283, whereas, in the case of remissions, the liability first arises, but is later remitted284, including by returning the payment if one was already made.285
7.170.
Thus, the description of these two groups of measures in footnote 1 contains four definitional elements, namely, there must be (1) an exemption or remission (2) of duties or taxes (3) on an exported product, (4) not in excess of the duties and taxes which have accrued.286
7.171.
Footnote 1 also provides that the footnote must be read in accordance with the Note to Article XVI of the GATT 1994 and Annexes I to III of the SCM Agreement. As has already been observed, "the words 'in accordance with' in footnote 1 may be understood as implying that footnote 1 is to be read 'in agreement', 'in conformity', or 'in harmony' with all of the provisions referred to therein".287 That is, footnote 1, the Ad Note, and the Annexes must be read together.
7.172.
The text of the Note to Article XVI is repeated in its entirety in footnote 1 itself. Therefore, the cross‑reference to that provision does not add to the text of the footnote; however, it reminds the interpreter that Article XVI of the GATT 1994 forms part of the context of footnote 1.
7.173.
Annex I contains the illustrative list of export subsidies. Items (g), (h), and (i) list, as export subsidies, the exemption, remission, deferral, or drawback of certain indirect taxes and import charges on exported products, in certain defined circumstances.288 Because footnote 1 must be read in accordance with Annex I, a measure falling within the definition of any of items (g), (h), or (i) would not benefit from the shelter of footnote 1.
7.174.
Thus, item (g) identifies as a prohibited export subsidy:

The exemption or remission, in respect of the production and distribution of exported products, of indirect taxes in excess of those levied in respect of the production and distribution of like products when sold for domestic consumption.289

7.175.
As a result, to meet the conditions of footnote 1, any exemption or remission of "indirect taxes" "in respect of the production and distribution of exported products" must not be "in excess of those levied in respect of the production and distribution of like products when sold for domestic consumption", as it would otherwise not be "in accordance with" Annex I(g).
7.176.
Turning to item (h), this identifies as a prohibited export subsidy the exemption, remission, or deferral of prior‑stage cumulative indirect taxes on goods and services used in the production of exported products, when the same is in excess of the exemption, remission or deferral of "like … taxes" on goods and services used in the production of like products destined for domestic consumption. As a result, such an exemption would not benefit from the shelter of footnote 1, because it would not be "in accordance with" Annex I(h).
7.177.
At the same time, Annex I(h) carves out from that prohibited export subsidy the situation in which the "exemption, remission or deferral" relates to "prior‑stage cumulative indirect taxes … levied on inputs that are consumedin the production of the exported product (making normal allowance for waste)".290 As a result, an exemption, remission, or deferral that complies with this condition, and is otherwise in accordance with footnote 1, is not deemed to be a subsidy.
7.178.
Similarly, under footnote 1 read together with Annex I(i), for a "remission or drawback" (which "includes … exemption or deferral"291) of import charges to benefit from the shelter of footnote 1, such remission or drawback must not be "in excess of [import charges] levied on imported inputs that are consumed in the production of the exported product".292
7.179.
Further, footnote 58, which is appended to each of Annexes I(g), I(h), and I(i), elaborates on the scope of the terms "remission", and "remission or drawback", as well as providing definitions for the types of duties and taxes referred to in Annexes I(g), I(h), and I(i). When Annexes I(g), I(h), and I(i) are read together with footnote 58, each of these covers both remissions and exemptions.293
7.180.
Thus, to summarize, when footnote 1 is read together with Annexes I(g), I(h), and I(i), each of these paragraphs of Annex I first identifies the nature of the remission or exemption at issue294, and then sets forth a requirement that the remission or exemption not exceed the benchmark set out in the item in question.
7.181.
Next, footnote 1 must also be read "in accordance with" Annex II to the SCM Agreement. Annex II sets forth "Guidelines on Consumption of Inputs in the Production Process". As Annex II itself recalls, both items (h) and (i) in Annex I refer to "inputs that are consumed in the production of the exported product"295, and the Guidelines in Annex II relate to the examination, for that purpose, of "whether inputs are consumed in the production of the exported product".296
7.182.
Part II of these Guidelines is expressly directed at this examination "as part of a countervailing duty investigation".297 This, however, does not make Annex II irrelevant outside the context of countervailing duty investigations. While some of the provisions in this Annex (such as those envisaging that the investigating authority carry out "certain practical tests") are not directly applicable outside the context of countervailing duty investigations, Annex II helps inform the understanding of footnote 1 also beyond the context of countervailing duty investigations.
7.183.
Footnote 61, appended to Annex II, defines "inputs that are consumed in the production of the exported product", providing that:

Inputs consumed in the production process are inputs physically incorporated, energy, fuels and oil used in the production process and catalysts which are consumed in the course of their use to obtain the exported product.298

7.184.
Annex II(II)(3) provides further guidance on the interpretation of this phrase, by stipulating that:

Investigating authorities should treat inputs as physically incorporated if such inputs are used in the production process and are physically present in the product exported. The Members note that an input need not be present in the final product in the same form in which it entered the production process.299

7.185.
Finally, footnote 1 refers to Annex III to the SCM Agreement. Annex III sets forth guidelines for the examination of "substitution drawback systems", which are a particular type of drawback system envisaged in Annex I(i). While the present dispute does not concern the issue of substitution drawback systems, Annex III, too, informs the understanding of footnote 1 of the SCM Agreement.300
7.186.
In reading footnote 1 together with the provisions of the Annexes that are directly relevant in this case, we therefore identify four steps for our analysis of whether the measures in question meet the conditions of footnote 1. We summarize these steps in the table below.

Table 2: Steps in the Panel's analysis under footnote 1 and Annexes I(g), I(h), and I(i)

Footnote 1Annex I(g)Annex I(h)Annex I(i)
(1) Exemption or remission Exemption or remission, including (footnote 58) refund or rebate Exemption, remission, or deferral, including (footnote 58) refund or rebate Remission or drawback, including (footnote 58) full or partial exemption or deferral
(2) of duties or taxes of indirect taxes (defined in footnote 58) of prior‑stage cumulative indirect taxes (defined in footnote 58) of import charges (defined in footnote 58)
(3) on an exported product in respect of the production and distribution of exported products on inputs that are consumed in the production of the exported product (defined in footnote 61; see also Annex II) on imported inputs that are consumed in the production of the exported product (defined in footnote 61; see also Annex II)
(4) not in excess of the duties and taxes which have accrued not in excess of those levied in respect of the production and distribution of like products when sold for domestic consumption (not in excess of those) levied on those inputs301 not in excess of those levied on those inputs (or on substitute inputs in case of substitution drawback, on which see Annex III)302

7.187.
As with any framework for analysis, we are mindful that these steps are not isolated from each other, and that each measure must be viewed as a whole in assessing its consistency with footnote 1.
7.188.
With this in mind, we now turn to examine whether the four measures at issue meet the conditions of footnote 1, read together with the relevant Annexes to the SCM Agreement. To recall, if they do, they are "not … deemed to be a subsidy".303

7.6.2 Whether the Export Oriented Units and Sector-Specific Schemes meet the conditions of footnote 1

7.189.
India argues that the exemptions from customs and excise duties under the EOU/EHTP/BTP Schemes meet the conditions of footnote 1 of the SCM Agreement.304 Specifically, according to India, the exemption from customs duties meets the conditions of footnote 1 read together with Annex I(i)305 or, alternatively, with Annex I(g).306 And the exemption from central excise duties meets the conditions of footnote 1 read together with Annex I(h).307 We examine these in turn.

7.6.2.1 Whether the customs duty exemption meets the conditions of footnote 1 read together with Annex I(i)

7.190.
We begin by examining whether the exemption from customs duties meets the conditions of footnote 1 read together with and Annex I(i) of the SCM Agreement.
7.191.
We recall our discussion of the legal standard under footnote 1 and the relevant Annexes in the previous section. In accordance with that discussion, to ascertain whether the challenged customs duty exemption under the EOU/EHTP/BPT Schemes is not "deemed to be a subsidy" by virtue of footnote 1 together with Annex I(i), we will examine whether the exemption constitutes:

(1) a remission, drawback, exemption or deferral;

(2) of import charges;

(3) on imported inputs that are consumed in the production of the exported product;

(4) not in excess of those levied on those inputs.308

7.192.
It is not disputed that the customs duty exemption under the EOU/EHTP/BTP Schemes constitutes (1) an exemption or remission309 (2) of import charges.310
7.193.
Regarding the third element set out above, India argues that the customs duty exemption for goods imported under the EOU/EHTP/BTP Schemes is only available for "approved activities", which are limited to the production of goods (or services) for export. Therefore, according to India, the exemption is limited to inputs consumed in the production of exported products and thus meets the conditions of footnote 1 read together with Annex I(i).311 India adds that in the limited circumstances in which sales to the domestic tariff area are permitted, such sales "are subject to payment of duties as well as reversal of customs duties", which are "aggregated on the basis of [Standard Input Output Norms] or other norms established by the Norms Committee, to ensure that the amounts to be reversed are the amounts that were actually due".312
7.194.
However, the United States argues that the schemes do not meet the third element set out above. According to the United States, the EOU/EHTP/BTP Schemes are not at all designed to ensure, and do not ensure, that the duty‑free treatment is afforded only to inputs "consumed in the export production process", as required by footnote 1 with Annex I(i).313
7.195.
The United States articulates a number of ways in which, in its view, the EOU/EHTP/BTP Schemes fail to limit the import duty exemption to inputs consumed in the production of exported products. In particular, first, the United States argues that the schemes make the exemption available for the importation of goods whose very nature means that they do not constitute inputs consumed in the production of products. According to the United States, this is the case of capital goods314 and of certain other goods named in the applicable legal instruments.315 Second (and related to the previous point), the United States points out that the schemes also make the exemption available for the importation of "any other items", with no requirement that such items be inputs consumed in the production of exported products.316 Third, the schemes also exempt from customs duties the importation of "certain specified goods for creating a central facility"; according to the United States, this means that those goods are not intended (and not required) to be consumed in the production of exported products.317 We examine these arguments, and India's response, in turn.318

7.6.2.1.1 The nature of certain goods covered by the exemptions

7.196.
The parties disagree on whether a number of goods whose importation is exempt from customs duties under the EOU/EHTP/BTP Schemes are inputs consumed in the production of an exported product, in accordance with footnote 1 read together with Annex I(i).
7.197.
The FTP provides that EOU/EHTP/BTP Units may import without payment of customs duties "all types of goods, including capital goods, required for its activities"319, and sets forth the following definition of capital goods:

"Capital Goods" means any plant, machinery, equipment or accessories required for manufacture or production, either directly or indirectly, of goods or for rendering services, including those required for replacement, modernisation, technological up‑gradation or expansion. It includes packaging machinery and equipment, refrigeration equipment, power generating sets, machine tools, equipment and instruments for testing, research and development, quality and pollution control.320

7.198.
The HBP contains a more detailed, non‑exhaustive listing of goods "permitted to be imported" (or procured from the domestic tariff area).321 This list includes a large number of items that the HBP itself labels as "capital goods", including for example diesel generator sets, captive power plants, modular office furniture, and many others322, as well as "[r]aw materials for making capital goods for use within unit".323 In addition, the list includes "other[]" items such as, for example, prototypes, drawings, and office equipment including multi‑line telephone systems, fax machines, and servers.324
7.199.
The SCM Agreement, at footnote 61, defines inputs consumed in the production process as comprising three categories of goods, as follows:

Inputs consumed in the production process are [1] inputs physically incorporated, [2] energy, fuels and oil used in the production process and [3] catalysts which are consumed in the course of their use to obtain the exported product.325

7.200.
The structure of the sentence, with the phrase "inputs consumed in the production process", followed by the verb "are", followed in turn by the three categories of goods, conveys that the three listed categories exhaust the scope of "inputs consumed in the production process".
7.201.
As regards "inputs physically incorporated", Annex II(II)(3) further provides that "[i]nvestigating authorities should treat inputs as physically incorporated if such inputs are used in the production process and are physically present in the product exported", even in a different form.
7.202.
As defined in the legislation governing the EOU/EHTP/BTP Schemes, capital goods are "plant, machinery, equipment or accessories", which are "required for manufacture or production, either directly or indirectly".326 These include, according to the same legislation, packaging machinery, power generating sets, testing equipment, fork lifts, and many others. By their very nature, these goods are not "physically incorporated" in the goods or services they are used to produce, as envisaged in footnote 61, nor are they "physically present", even in a different form, in the final product, as envisaged in Annex II(II)(3). Capital goods also do not fall under any of the other listed categories in footnote 61, because they are not energy, fuels, oil, or catalysts.
7.203.
Similarly, certain other items expressly listed in Section 6.04 of the HBP are not energy, fuels, oil, or catalysts, and are also not of a nature as to be "physically incorporated" in the product they are used to produce.327
7.204.
On this basis, we reach the preliminary conclusion that capital goods as defined in the FTP, and certain other goods the importation of which is free of customs duties under the EOU/EHTP/BTP Schemes, are not "inputs consumed in the production of the exported product", for purposes of Annex I(i). India however makes a number of contrary arguments, which we now turn to consider.
7.205.
Regarding capital goods, India argues that they fall within the definition of inputs consumed in the production of the exported product, within the meaning of Annex I(i).328
7.206.
First, India argues that imported capital goods are inputs within the meaning of Annex I(i) because they "contribute to the cost of the final exported product".329 India notes that a duty drawback scheme is meant to offset the cost impact of import duties on inputs incorporated in exported products. According to India, since capital goods contribute to the final cost of the exported product, capital goods must therefore fall within the meaning of inputs covered by Annex I(i) with footnotes 1 and 61.
7.207.
However, footnote 1 with Annex I(i) only allows for the exemption from customs duties on "inputs that are consumed in the production of the exported product". Contributing to a product's cost is not the same as being "consumed" in the production of that product. Indeed, under the definition provided by footnote 61, whether goods are "consumed" does not depend on whether they contribute to the cost of the final product.
7.208.
Second, India notes that the EOU/EHTP/BTP Schemes set forth depreciation rates for computers, computer peripherals, and other capital goods. According to India, this shows that the schemes "calculate[] the manner in which capital goods are 'physically incorporated' in the production process of exported products".330
7.209.
Depreciation is an accounting method for allocating the cost of a tangible asset over its useful life and accounts for the asset's decline in value.331 Depreciation rules reflect the notion that capital goods are durable assets for repeated use in the production of other goods. The value of capital goods decreases during their life cycle as reflected in the depreciation rates.332 However, the fact that a good depreciates in value does not mean that it is "physically incorporated" into another product, nor does the existence of depreciation rules evidence physical incorporation. In fact, the very reason why depreciation rules are necessary is precisely that capital goods are not consumed in the production process – i.e. the opposite of India's argument. We therefore reject India's arguments based on the use of depreciation rules.
7.210.
Third, India notes that footnote 61 of the SCM Agreement, which defines inputs consumed in the production process, includes in that definition catalysts, which undergo no permanent chemical change. According to India, it would therefore be "counter‑intuitive" not to include in the same definition capital goods, which depreciate over time and use.333
7.211.
However, as noted above, footnote 61 sets forth an exhaustive definition of inputs consumed in the production process, and not merely an illustrative list of such inputs. In setting forth the three categories of goods that are "inputs consumed in the production process", the drafters explicitly chose to list catalysts in addition to inputs that are physically incorporated334, and not capital goods.335,336 Thus, the fact that catalysts are listed in footnote 61 does not overcome the fact that capital goods are not.
7.212.
Fourth, India argues that to establish that the duty‑exempt goods are not inputs consumed in the production of the exported product, the United States must provide "a technical, data‑driven analysis", in accordance with Annex II of the SCM Agreement.337 India has also argued that to satisfy this burden, the United States must carry out a countervailing duty investigation.338 India presents this as a cross‑cutting argument, pertaining to the legal interpretation of footnote 1 and Annex II339, and therefore valid also for the EPCG Scheme, MEIS, and DFIS.340
7.213.
Annex II sets out "guidelines on consumption of inputs in the production process", for purposes of Annexes I(h) and I(i). As set out at paragraphs 7,181‑7,184, footnote 1 must be read "in accordance with" Annex II.
7.214.
However, India errs in the manner in which it seeks to rely on Annex II. First, the issue before us is whether the goods that can be imported duty‑free under the EOU/EHTP/BTP Schemes are of a kind that can even qualify as inputs consumed in the production of an exported product. That is, we are faced with the threshold question of whether footnote 1 applies to the schemes at issue, and in particular with what we have described as the third element in the test under footnote 1. Instead, the "quantitative analysis of the amounts and prices of the inputs consumed"341 proposed by India presupposes (through the reference to "inputs consumed") the existence of a scheme that meets the first three elements of the test under footnote 1, and it asks: is there excess remission and, if so, in what amount (fourth element)?
7.215.
Second, Annex II(II) does not stand for the proposition, put forward by India, that "any contention regarding whether or in what quantity inputs are 'consumed' … in a duty drawback … scheme is to be examined by an investigating authority".342 It is true that Part II of Annex II is expressly addressed to "investigating authorities" "as part of a countervailing duty investigation".343 This provision could apply, therefore, in the context of a countervailing duty investigation conducted pursuant to Part V of the SCM Agreement. However, this does not mean that a complainant is obliged to carry out a countervailing duty investigation before it can challenge a measure that might fall under Annex II. While footnote 35 of the SCM Agreement makes it clear that the provisions of Part II and III "may" be invoked in parallel with the provisions of Part V, there is no suggestion that Parts II and V must always be invoked in parallel.
7.216.
Therefore, India has not rebutted the United States' showing that the EOU/EHTP/BTP Schemes exempt from customs duties inputs that are not consumed in the production of the exported products, namely, capital goods and certain other goods listed in Section 6.04 of the HBP that, like capital goods, are not energy, fuels and oil, catalysts, or inputs physically incorporated in the exported product. Therefore, this duty exemption does not meet the conditions of footnote 1 read together with Annex I(i) to the SCM Agreement.

7.6.2.1.2 "Any other items"

7.217.
In addition, we recall that the schemes also allow the exemption from customs duties, upon application, for the importation of "[a]ny other item[]" not expressly listed in Section 6.04 of the HBP.344 The United States argues that this too evidences that the duty exemption is not limited to inputs consumed in the production of exported products.345 India responds that the competent authority has the discretion to dismiss applications and the United States had not demonstrated that it would not use that discretion to dismiss applications not meeting the requirements of footnote 1.346
7.218.
We have found that the FTP and HBP expressly provide for the duty‑free importation of items that do not qualify as inputs consumed in the production of an exported product, and we are therefore not persuaded by India's response. We also note that the letter of permission relied on by India provides that "[i]mport/local purchase of all items except those listed in prohibited list for import/export will be permitted".347 As a result, we are not persuaded that under the challenged schemes, the competent authority would dismiss applications that are not compliant with footnote 1. Therefore, the schemes fail to meet the conditions of footnote 1 and Annex I(i) also to the extent that the competent authority approves the duty‑free importation of other items that are not inputs consumed in the production of the exported product.

7.6.2.1.3 Goods imported "for creating a central facility"

7.219.
The EOU/EHTP/BTP Schemes, under Section 6.01(f) of the FTP, also exempt from customs duties the importation of "certain specified goods for creating a central facility". According to the United States, this provides further evidence that the schemes exempt from customs duties goods other than inputs consumed in the production of an exported product, and that therefore they do not meet the conditions of footnote 1 read together with Annex I(i).348
7.220.
We recall however that the United States only challenges the exemptions under Section 6.01(d), and not the exemption set forth in Section 6.01(f).349 We therefore do not consider this argument to be relevant to our analysis of the challenged exemptions.

7.6.2.2 Whether the customs duty exemption meets the conditions of footnote 1 read together with Annex I(g)

7.221.
We now examine whether the challenged customs duty exemption under the EOU/EHTP/BTP Schemes meets the conditions of footnote 1 read together with Annex I(g).350 As set out above, we do so by ascertaining whether this measure constitutes (1) an exemption or remission (2) of indirect taxes (3) in respect of the production and distribution of exported products, (4) not in excess of those levied in respect of the production and distribution of like products when sold for domestic consumption.351
7.222.
Annex I(g) applies to exemptions or remissions of "indirect taxes". Footnote 58, appended to Annex I(g), defines the term "indirect taxes" to "mean sales, excise, turnover, value added, franchise, stamp, transfer, inventory and equipment taxes, border taxes and all taxes other than direct taxes and import charges".352 Footnote 58 also defines the term "import charges" as "tariffs, duties, and other fiscal charges not elsewhere enumerated in this note that are levied on imports". Since customs duties thus fall within the definition of "import charges", footnote 58 makes it clear that the customs duties from which the EOU/EHTP/BTP Schemes provide an exemption do not constitute "indirect taxes" within the meaning of Annex I(g). Accordingly, the customs duty exemption provided by the EOU/EHTP/BTP Schemes does not meet the conditions of footnote 1 read together with Annex I(g).

7.6.2.3 Whether the central excise duty exemption meets the conditions of footnote 1 read together with Annex I(h)

7.223.
We now examine whether the exemption from central excise duties under the EOU/EHTP/BTP Schemes meets the conditions of footnote 1 read together with Annex I(h). We do so by ascertaining whether this measure constitutes (1) an exemption, remission or deferral (2) of prior‑stage cumulative indirect taxes (3) on inputs that are consumed in the production of the exported product, (4) levied on those inputs.353
7.224.
The United States does not contest that the central excise duty exemption meets the first element set out above, i.e. it involves an exemption.354
7.225.
Turning to the second element set out above, the exemption must pertain to "prior-stage cumulative indirect taxes". Excise is expressly included in the definition of "indirect taxes" in footnote 58 of the SCM Agreement. Footnote 58 further defines "prior stage" indirect taxes as taxes "levied on goods or services used directly or indirectly in making the product", and "cumulative" indirect taxes as "multi‑staged taxes levied where there is no mechanism for subsequent crediting of the tax if the goods or services subject to tax at one stage of production are used in a succeeding stage of production".
7.226.
India explained, and the United States did not contest, that Indian central excise duties are an indirect tax within the meaning of footnote 58 and, absent any subsequent crediting mechanism under India's Central Excise Tax Act, fall within the meaning of prior‑stage cumulative taxes.355 On this basis, we assume that the second element set out above is met.
7.227.
We now turn to the third element in our analysis of footnote 1 read together with Annex I(h), i.e. whether the central excise duty exemption is granted on "inputs that are consumed in the production of the exported product".
7.228.
The United States argues that the exemption from central excise duty is not limited to inputs consumed in the production of the exported product, for the same reasons applying, mutatis mutandis, to the exemption from customs duty.356 To recall, the United States argued that certain goods benefiting from the exemptions are of such a nature that they cannot be inputs consumed in the production of an exported product357, that the exemptions are also available to acquire goods for creating a central facility358, and that the EOU/EHTP/BTP Schemes do not require the duty-exempt goods to be consumed as inputs in the production of the exported product.359
7.229.
We begin with the nature of the duty-exempt goods. We have found, above, that the goods eligible for customs duty exemptions under the EOU/EHTP/BTP Schemes include goods that are not capable of constituting inputs consumed in the production of an exported product within the meaning of Annex I.360 We note, however, that the exemption "from duty of excise", at issue here, applies to the procurement of "excisable goods".361 The 1944 Central Excise Tax defines excisable goods as those listed in its Fourth Schedule, and salt.362 The goods listed in the Fourth Schedule are tobacco products ranging from unmanufactured tobacco to cigarettes, tobacco substitutes, and mineral products including petroleum oils, oils obtained from bituminous minerals, and gaseous hydrocarbons.363 The United States has not established that any of these goods is of a nature that makes it incapable of being an input consumed in the production of the exported product, either as an input that is "physically incorporated" in the exported product or as "energy, fuels and oil used in the production process".364
7.230.
Next, the United States argues that goods for creating a central facility are not inputs consumed in the production of an exported product. While we agree with the United States' factual proposition, we note that the exemption the United States is challenging is not the one on goods acquired for creating a central facility.365
7.231.
Finally, the United States argues more generally that the EOU/EHTP/BTP Schemes do not limit the central excise duty exemption to inputs consumed in the production of an exported product. The Schemes do not set out such a requirement expressly. In the context of the customs duty exemptions, we have rejected the equivalent US argument, noting, in particular, that the Schemes require the "imported" goods to be "utilized for export production" and that the fact that the Schemes use this wording, rather than the wording "inputs consumed", does not in itself establish that the Schemes do not meet the conditions of footnote 1.366 However, the relevant language applicable to the exemption from central excise duties differs from that applying to customs duties. While the FTP requires goods "imported" free of customs duties to "be utilized for export production"367, the FTP does not set forth such a requirement for goods procured domestically without payment of central excise duties.
7.232.
India argues that the goods exempted from central excise duty are necessarily inputs consumed in the production of exported products as a result of the requirement for Units to export their entire production.368 However, as India itself recognizes, Units are allowed to sell on the domestic market, albeit subject to a number of limiting conditions.369 India points out that pursuant to Sections 6.08(a)(i) and (v) of the FTP, to the extent that Units are allowed to sell on the domestic market, such sales are "subject to payment of duties as well as reversal of customs duties".370
7.233.
In that regard, we note that pursuant to Sections 6.08(a)(i) and (v) of the FTP, domestic market sales by EOU/EHTP/BTP Units are subject to "payment of excise duty, if applicable".371 As a result of these provisions, if the product being sold domestically is subject to central excise duties (e.g. cigarettes), then indeed the effect of the central excise duty exemption on goods acquired to produce it (e.g. tobacco) is undone through the payment of excise duty on the product sold domestically (in our example, through the payment of excise duty on the cigarettes). However, if the product being sold domestically is not subject to central excise duties (e.gcomputers), then the domestic sale in question is not itself subject to payment of excise duty within the meaning of Sections 6.08(a)(i) and (v).
7.234.
However, during the interim review, India clarified that pursuant to Section 6.08(a)(vi) of the FTP, even when the finished good being sold in the DTA is not itself subject to excise duty, that sale triggers the obligation on the part of EOU/EHTP/BTP Units to pay the excise duty initially foregone on any inputs used to produce the good in question.372
7.235.
Therefore, the United States has not established that the exemption from the central excise duty is not limited to inputs consumed in the production of an exported product, and that, for this reason, it does not meet the conditions of footnote 1 read together with Annex I(h).

7.6.2.4 Conclusion

7.236.
We find that the exemption from customs duties under the EOU/EHTP/BTP Schemes does not meet the conditions set out in footnote 1 read together with Annexes I(g), I(h), and I(i). We also find that the United States has not established that the exemption from central excise duty under the EOU/EHTP/BTP Schemes does not meet the conditions of footnote 1 read together with Annex I(h).

7.6.3 Whether the customs duty exemption under the Export Promotion Capital Goods Scheme meets the conditions of footnote 1

7.237.
India argues that the exemption from customs duties373 on the importation of capital goods, under the EPCG Scheme, meets the conditions of footnote 1 read together with Annex I(i).374 In this section, we examine whether this is the case.
7.238.
We recall our discussion of the legal standard under footnote 1 read together with Annex I(i) in section 7.6.1. As summarized in paragraphs 7,186 and 7,191 above, for the challenged customs duty exemption not to be "deemed to be a subsidy" by virtue of footnote 1 together with Annex I(i), it must constitute (1) a remission, drawback, exemption or deferral (2) of import charges (3) on imported inputs that are consumed in the production of the exported product, (4) not in excess of those levied on those inputs.
7.239.
The parties do not dispute that the EPCG Scheme provides for an exemption from customs duties on importation, thus meeting the first two elements set out above.
7.240.
Regarding the third element, the United States contends that the customs duty exemption does not relate to the importation of inputs that are consumed in the production of the exported product.375 The United States provides two arguments as a basis for this contention. First, the duty‑exempt goods are capital goods, and therefore incapable of serving as "inputs consumed" in the production of the exported product.376 Second, although beneficiaries are subject to an export obligation377, they are not required to use the imported goods in connection with the manufacture of exported products.378
7.241.
Regarding the capital goods issue, India repeats the arguments already considered when examining the EOU/EHTP/BTP Schemes.379 India also refers to Members' work on Implementation‑Related Issues and Concerns as evidence of a political will to include capital goods among inputs consumed in the production process.380 As for the United States' second argument, India responds that "the requirement to use the imported capital goods only in the production of exported products is verified during the application process".381
7.242.
The FTP provides that the customs duty exemption at issue applies to the importation of "capital goods".382 The FTP provides that, for the purpose of the EPCG Scheme, "capital goods" include: capital goods as defined in Chapter 9 of the FTP383, i.e. the same definition applying under the EOU/EHTP/BTP Schemes, discussed above; "[c]omputer systems and software which are a part of the Capital Goods being imported"384; "[s]pares, moulds, dies, jigs, fixtures, tools & refractories"385; and "[c]atalysts for initial charge plus one subsequent charge".386
7.243.
We refer to our discussion in paragraphs 7,196‑7,217 above. With the exception of the last item in the definition of capital goods for purposes of the EPCG Scheme, i.e. "catalysts"387, the goods that can be imported duty‑free under the EPCG Scheme, therefore, are not energy, fuels and oil, catalysts, or inputs physically incorporated in the exported product. Instead, they are machines, tools, and equipment (as well as components thereof or software therefor) that may be used to produce goods but are not physically incorporated in the goods produced. Therefore, they are not inputs "consumed" in the production of the exported product and, as a result, the exemption from customs duties under the EPCG Scheme does not meet the conditions of footnote 1 read together with Annex I(i).
7.244.
India relies on the same rebuttal arguments that we have considered, and dismissed, in paragraphs 7,206‑7,207 and 7,210‑7,215 above. The same considerations set out there apply to the present scheme, whose scope of application is in part identical388 to that of the EOU/EHTP/BTP Schemes, and in part includes goods of a similar nature, i.e. goods that are not physically incorporated in the product for whose manufacture they are used, as well as not being energy, fuels and oil, or catalysts.
7.245.
In addition to repeating those arguments, India relies on Members' work on Implementation‑Related Issues and Concerns as evidence of a political will to include capital goods among inputs consumed in the production process.389
7.246.
The Panel notes that Members decided, in 2000, that the Committee on Subsidies and Countervailing Measures (SCM Committee) would "examine as an important part of its work the issue[] … of the definition of 'inputs consumed in the production process', taking into account the particular needs of developing‑country Members".390 In the report that India itself relies upon, the chairperson of the SCM Committee noted the divergent views of Members on the matter, and observed that "[s]ome Members ha[d] noted that footnote 61 was specifically negotiated to exclude capital goods and therefore could not lend itself to interpretation as including such goods".391 The Panel does not view this as showing that footnote 61 includes capital goods.
7.247.
We therefore find that the customs duty exemption under the EPCG Scheme does not meet the conditions of footnote 1 read together with Annex I(i), because it provides for the importation of goods that are not "inputs consumed" in the production of the exported product.

7.6.4 Whether the customs duty exemptions under the Duty-Free Imports for Exporters Scheme meet the conditions of footnote 1

7.248.
India argues that the DFIS exemptions from customs duties meet the conditions of footnote 1 read together with Annex I(i) and, therefore, are not subsidies.392
7.249.
For the DFIS exemptions not to be "deemed to be a subsidy" by virtue of footnote 1 read together with Annex I(i), they must constitute (1) a remission, drawback, exemption or deferral (2) of import charges (3) on imported inputs that are consumed in the production of the exported product, (4) not in excess of those levied on those inputs.393
7.250.
We begin with the first two elements set out above, namely, the existence of an (1) exemption or remission (2) from import charges. As set out in section 7.5.4 above, DFIS caps at zero the customs duties on importation of certain specified goods, provided the requirements in the applicable Condition are met. More precisely, through DFIS, "the Central Government … exempts [the specified goods] … from so much of the duty of customs leviable thereon under the [First Schedule of the 1975 Customs Tariff Act] as in excess of [zero]".394 Further, as clarified by footnote 58 of the SCM Agreement, "duties … levied on imports" are "import charges" for purposes of Annex I(i). Therefore, DFIS meets the first two conditions in footnote 1 read together with Annex I(i), i.e. it constitutes an exemption from import charges.
7.251.
Regarding the third element in the analysis under footnote 1 read together with Annex I(i), the United States argues, first, that the DFIS exemptions cover the importation of certain goods that, by their nature, cannot be consumed in the production process.395 In this regard, the parties rely on the arguments already considered when discussing the EOU/EHTP/BTP and EPCG Schemes.396
7.252.
Second, the United States argues that DFIS does not require the use of the imported goods as inputs in the production of exported products.397 According to India, however, the criteria in the measure, enforced by the competent bodies, ensure the duty exemption is limited to inputs consumed in the production process.398

7.6.4.1 The nature of certain goods covered by the exemptions

7.253.
The United States asserts that all the goods that can be imported duty free under Conditions 60(ii) (line item 430)399 and 61 (line item 431)400 are capital goods consisting of equipment, machinery and tools. The United States argues that, even assuming these goods are used in the production of the exported product, they are not physically incorporated into it.401 India agrees that, as a matter of fact, all the goods falling under Conditions 60(ii) and 61 "may be qualified as capital goods".402 However, India considers that, as a matter of law, capital goods used in the production of an exported product are "inputs … consumed" in the production of the exported product within the meaning of Annex I(i).403
7.254.
The parties rely on their arguments concerning the issue of capital goods which we have already considered when examining the EOU/EHTP/BTP and EPCG Schemes.404 As we have explained in that context, equipment, machinery and tools that are used in the production of a product but are not "physically incorporated", i.e. physically present, even in a different form, in the final product405, are not "inputs … consumed" within the meaning of Annex I(i).406 Therefore, the duty exemptions available under Conditions 60(ii) and 61 do not meet the conditions of footnote 1. Specifically, they do not meet the third element in our analysis, namely, that the duty-exempt goods must be "inputs … consumed" in the production of the exported product.
7.255.
The United States also argues that six of the 27 items (or groups of items) that can be imported duty-free under Condition 21 (line item 229) constitute tools that are not "inputs … consumed" within the meaning of Annex I(i).407 India, too, factually describes five of these six items as "capital goods", but repeats that capital goods are inputs consumed in the production of the exported product.408 As already explained, "inputs … consumed" within the meaning of Annex I(i) are inputs "physically incorporated", "energy, fuels and oil", or "catalysts". The tools in question fall in none of these categories. Therefore, to the extent that it exempts from customs duties the importation of these six items, the duty exemption under Condition 21 does not meet the conditions of footnote 1.
7.256.
Further, the United States argues that one of the 36 items that can be imported duty-free under Condition 10 (line item 104)409, namely, food tenderizers for use in processing seafood products for export, may also not qualify as an input consumed in the production of the seafood products in question.410 The evidence submitted by the United States indicates that at least one type of tenderizer involves a tool for mechanical tenderization, which would therefore not be physically incorporated into the processed seafood product, and is also not "energy, fuels and oil", or a "catalyst[]".411 Therefore, to the extent that it exempts from customs duties the importation of such tenderizers, the duty exemption under Condition 10 does not meet the conditions of footnote 1.

7.6.4.2 Whether the imported goods must be used as inputs consumed in the production of an exported product

7.257.
The United States argues that DFIS does not require that the imported goods be used as inputs in the production of exported products.412 In response to questioning from the Panel, the United States "recognize[d] that [unlike Conditions 60 and 61, already disposed of above,413] other conditions contain language regarding the processing/manufacturing of the imported good in the exported product".414 Indeed, six of the challenged Conditions, namely, Conditions 10, 21, 28, 32, 33, and 101, expressly require the duty-exempt goods to be imported for use in the manufacture of specified final products for export.415
7.258.
The United States argues that, despite the requirement in certain Conditions that the exemption should only apply in respect of inputs used in the manufacture of final products for export, the exemption or remission416 of import charges is "disconnected" from the charges actually levied on imported inputs consumed in the production of the exported product.417 According to the United States, this is because "the amount of duty exemption … is uniform across broad categories of exports based on the FOB value of exports"418, which shows that the exemption is rather a "reward contingent upon the exporter's export performance".419
7.259.
India counters that the challenged duty stipulations exempt inputs from customs duties, and that therefore "the value of this exemption is necessarily not in excess of those [duties] levied on the inputs".420 As for the pegging of the duty exemption to the value of exports during the previous year421, India asserts that this, too, serves to ensure that the duty exemptions afforded under DFIS do not exceed the value of the duty liability on inputs consumed in the production of the exported product.422 India also argues that the existence of this ceiling on duty exemptions, which is based on the value of past exports, does not otherwise affect the operation of DFIS.423 And, finally, India notes that the United States' argument that DFIS rewards export performance is misplaced, because the question under Article 1 and footnote 1 of the SCM Agreement is whether there is a subsidy, and not (yet) whether the subsidy is export contingent.424
7.260.
We begin with Conditions 10, 21, 28, 32, 33, and 101.425 One element of each of these Conditions requires that the duty-exempt goods themselves be used in the production of the exported product, as summarized in the table below.

Table 3: Link to production of exported products in Conditions 10, 21, 28, 32, 33, and 101

ConditionLink to production of exported product426
10 "If,- (a) the goods are imported by an exporter of sea-food products for use in processing sea‑food products for export …"
21 "If,- (a) the goods are imported,- … for use in the manufacture of handicrafts for export …"
28 "If, (a) the goods are imported, … for use in the manufacture of textile garments or leather garments for export …"
32 "If (a) The goods are imported … for use in manufacture of [leather footwear or synthetic footwear or other leather products] for export …"
33 "If,- (a) the goods are imported … for use in the manufacture of [handloom made ups or cotton made-ups or man-made made ups] for export …"
101 "If,- (a) the goods are imported … for use in the manufacture of sports goods for export …"

7.261.
On the face of the measure, each iteration of this first element appears to correspond to the condition, in footnote 1 read together with Annex I(i), that a duty exemption be limited to duties on inputs consumed in the production of the exported product.427
7.262.
A second element of each of these Conditions, which we refer to as the "backward-looking element", requires that the value of the duty-exempt imported goods not exceed a certain percentage, ranging from 1% to 5%, of the FOB value of exports of those same final products during the preceding financial year.428
7.263.
These two elements are cumulative, i.e. they both limit the amount of the exemption from customs duties that is available to an importer. On the face of the measure, if the backward‑looking element entitles a recipient to import duty-free inputs that are worth 5, but the recipient imports inputs that are worth 1, the theoretical entitlement to import 5 is of no avail (i.eit does not expand the scope of the duty-free entitlement): only 1 will be duty-exempt.429
7.264.
The United States' arguments, to the effect that the duty exemption is "disconnected" from the duties actually levied on imported inputs, look exclusively at the backward-looking element. Those arguments ignore the first element discussed above, i.e. the requirement that the imported goods be used in the manufacture of the specified products for export.430
7.265.
In light of this requirement, the United States has not shown to this Panel that the six duty stipulations at issue do not meet the conditions of footnote 1. The Panel will therefore not examine these six duty stipulations under Article 3 of the SCM Agreement.431
7.266.
Last, we turn to Condition 36, which provides for the duty-free importation of carpet samples by exporters of carpets. There is nothing limiting this duty exemption to inputs consumed in the production of the exported product, and indeed carpet samples are neither inputs physically incorporated in the exported product, nor energy, fuels, oil, or catalysts. Therefore, Condition 36 is not excluded from the definition of a subsidy by virtue of footnote 1.

7.6.4.3 Conclusion

7.267.
Based on the arguments and evidence before us, we find that Conditions 60(ii), 61, and 36, in their entirety, and Conditions 10 and 21, for one and six items respectively432, do not accord with footnote 1. For all other items under Conditions 10 and 21, and for Conditions 28, 32, 33, and 101, the United States has not demonstrated that the challenged duty stipulations fail to meet the conditions of footnote 1.

7.6.5 Whether the Merchandise Exports from India Scheme meets the conditions of footnote 1

7.268.
India contends that MEIS scrips are refunds for past payments of indirect taxes, consistent with the conditions of footnote 1 read together with Annexes I(g) and I(h)433; or, alternatively, that their use results in the remission of import charges, consistent with footnote 1 read together with Annex I(i).434

7.6.5.1 Whether MEIS scrips meet the conditions of footnote 1 read together with Annexes I(g) and I(h)

7.269.
We begin by assessing whether MEIS scrips meet the conditions of footnote 1 read together with Annexes I(g) and I(h).
7.270.
We recall our discussion of the legal standard under footnote 1 and the relevant Annexes in section 7.6.1 above. In accordance with that discussion, whether MEIS scrips are not "deemed to be a subsidy" by virtue of footnote 1 read together with Annexes I(g) and I(h), respectively, depends on whether MEIS scrips meet the following four cumulative elements:

Under Annex I(g) –

(1) They constitute an exemption or remission, including a refund or rebate;

(2) of indirect taxes;

(3) in respect of the production and distribution of exported products;

(4) not in excess of those levied in respect of the production and distribution of like products when sold for domestic consumption.

Under Annex I(h) –

(1) They constitute an exemption, remission, or deferral, including a refund or rebate;

(2) of prior-stage cumulative indirect taxes;

(3) on inputs that are consumed in the production of the exported product;

(4) not in excess of those levied on those inputs.

7.271.
As we will see below, the parties disagree that even the first of these four elements is met.
7.272.
Pursuant to the FTP Chapter on MEIS, India grants "Duty Credit Scrips" as a reward for exports.435 The value of scrips that a recipient is entitled to is determined by multiplying the FOB value of exports of "notified" goods to "notified" markets by the "rates of reward" assigned to those goods and markets.436 The recipient of the scrips can then use them to offset certain liabilities vis‑à‑vis the government, including customs and excise duties437; in addition, the scrips are "freely transferable".438
7.273.
Although the value of the scrips is a fixed percentage of exports, India argues that the scrips in fact are a mechanism chosen by India to refund two categories of indirect taxes, namely: indirect taxes in respect of the production and distribution of the exported products, in accordance with footnote 1 and Annex I(g); and prior-stage cumulative indirect taxes on inputs consumed in the production of the exported products, in accordance with footnote 1 and Annex I(h).439
7.274.
India explains that the value of these taxes necessarily represents a percentage of the value of the exports in question: in India's words, these taxes are thus "embedded" in the value of the exports.440
7.275.
The Panel asked India to explain how it determined the different reward rates, and to provide the evidence supporting its answer.441 India responded that it sets the rates at a level that "approximate[s] but [is] less than" the taxes to be refunded.442 According to India, relying on a uniform but low rate allows it to avoid the "administratively cumbersome" task of "calculat[ing] the precise refund for every product and every export".443
7.276.
As an "example", India provided a table that, according to India, contains "actual information" for exporter "ABC" on "the total cost of embedded indirect taxes on electricity, freight and fuel" per metric ton of its exports under Harmonised System code 73259100 during financial year 2016-2017.444 The table states the alleged cost incurred by exporter "ABC" for specified taxes on electricity, fuel and freight, and concludes by stating that these taxes amounted to 6.10% of the FOB value of the corresponding exports.445 India then points out that the value of scrips that ABC would have been eligible for under the applicable MEIS reward rates would have been 3% of the value of exports, i.e. less than 6.10%.446
7.277.
According to the United States, the record evidence belies the argument that scrips are a refund of indirect taxes already paid, and this argument is "a fiction".447 The United States argues that there is no connection between taxes actually paid and the value of scrips448; that the FTP expressly describes scrips as a reward for exports, and bases the rate of reward on the product exported and the country it was exported to;449 that India does not even ask scrip recipients for information that would allow it to determine the amount of indirect taxes paid on exported products;450 that the taxes to be refunded under footnote 1 and Annex I(g) and (h) are actual taxes, not averages or estimates (and that in any event under MEIS India does not even estimate taxes already paid)451; and that "one happenstance example" in which the applicable MEIS reward rate is lower than the ratio between indirect taxes paid and value of exports does not show that MEIS scrips are actually a tax refund.452
7.278.
Therefore, regardless of whether the type of taxes referred to by India are relevant indirect taxes, the parties disagree on whether, in awarding MEIS scrips, India is at all providing a "remission"453 of such taxes. According to India, the award of scrips is a remission of indirect taxes on products exported in the past; but according to the United States, it is merely a reward for past exports, and India is "refram[ing] these rewards post hoc as reimbursed indirect taxes".454
7.279.
To recall, the scrips in question are "rewards under MEIS"455, and Section 3.04 of the FTP describes the trigger for, and the basis for calculating, such rewards. Pursuant to Section 3.04, the basis for calculating the reward is the FOB value of exports of "notified" goods to notified markets, which must then be multiplied by the applicable rate of reward set out in Appendix 3B.
7.280.
Appendix 3B sets forth the notified markets, dividing them into three groups; it then sets out the notified goods, indicating, for each notified good, the MEIS reward rate applying to exports of the good in question to each of the three country groups.456 Depending on the product and destination country, the reward rates range from 0% to 5%. We thus learn, for example, that for exports of butter, the MEIS reward rate is 2% if the butter is exported to country group B, and 0% if the butter is exported to country groups A and C; on the other hand, the rate of reward for desiccated coconut is 5% for export to any of the three country groups.457
7.281.
India has not pointed to anything in the FTP, in Appendix 3B, or in any other evidence on the record, indicating that indirect taxes paid in connection with the exported product were the basis for the award of MEIS scrips, nor has the Panel found any such indication in its review of the evidence.458 Instead, the legal instruments providing for MEIS very plainly establish that the value of scrips is determined by multiplying past exports by the percentage set forth in Appendix 3B for the particular product-country combination.
7.282.
Nor is there any record evidence that the rates set out in Appendix 3B were in fact determined on the basis of indirect taxes actually paid. To the contrary, the Panel notes that the scheme envisages different rates for the same product, depending on the country to which the product was exported.459 It would be difficult to see why MEIS differentiates among destination markets if it served as the basis for refunding previously accrued indirect taxes.
7.283.
In a similar vein, the Panel notes that in its Highlights of the Foreign Trade Policy 2015‑2020, Mid Term Review, India explained that it increased the rate of reward for ready-made garments and made-ups from 2% to 4%, and that it granted an "[a]cross the board increase of 2% in existing MEIS incentive for export by MSMEs / labour intensive industries".460 Nothing in that document or elsewhere links the increase in the MEIS rates to the level of indirect taxes paid on the exported products and, in the absence of any such link, it is again difficult to reconcile this decision to increase reward rates with the characterization of MEIS scrips as remitting or refunding indirect taxes.
7.284.
As noted earlier, the Panel asked India to explain, with supporting evidence, how it determined "the different reward rates". In response, India provided a table that it described as setting forth the indirect tax expenses of exporter "ABC", during financial year 2016-2017, on a particular exported product.461
7.285.
The Panel notes that although it explicitly requested, in its question, "evidence supporting [India's] answer", India entirely failed to provide any evidence supporting (a) the allegations of fact in the table or even (b) the relevance of exporter ABC's alleged costs to MEIS. In any event, even accepting the information on ABC provided by India, this information merely establishes that, for ABC, in financial year 2016-2017 and for the product in question, the level of indirect taxes at issue was higher than the level of the MEIS reward rate. It does not establish that MEIS serves to remit those taxes.
7.286.
The characterization of MEIS in the underlying domestic legal instruments, while alone not dispositive, further confirms the conclusion that MEIS does not remit indirect taxes. For example, the FTP provides that "[d]uty credit scrips shall be granted as rewards under MEIS"462, and that "[e]xports of notified goods/products … to notified markets … shall be rewarded under MEIS".463 The HBP speaks of an "application for claiming rewards under MEIS on exports".464 And Appendix 3B refers throughout to "reward rates". Nowhere does any of these legal instruments refer to any notion of MEIS remitting indirect taxes.
7.287.
India refers to Section 3.00 of the FTP, according to which the objective of the two schemes in Chapter 3 of the FTP, which include MEIS, is "to offset infrastructural inefficiencies and associated costs". India argues that these inefficiencies and costs include the indirect taxes that, according to India, MEIS refunds.465 However, first, we note that the complete text of the description of the MEIS objective in the FTP reads as follows:

Exports from India Schemes

3.00 Objective

The objective of schemes under this chapter is to provide rewards to exportersto offset infrastructural inefficiencies and associated costs.

…

Merchandise Exports from India Scheme (MEIS)

3.03 Objective

Objective of … MEIS is to promote the manufacture and export of notified goods/products.

7.288.
Thus, even when we consider, as directed by India, the stated objectives of the scheme, we see that the emphasis is on "rewarding", or "promoting", exports, and nothing is said about refunding taxes already paid. Moreover, the language excerpted by India refers to offsetting "infrastructural inefficiencies", which are not the same as "indirect taxes". We are therefore unable to agree with India that the reference to "offset[ting] infrastructural inefficiencies" in Section 3.00 of the FTP should lead us to conclude that, despite the text, structure and design of MEIS, this scheme's underlying objective is in fact to refund indirect taxes connected to the exported products.
7.289.
Based on the foregoing, we find that MEIS does not "remit" or "refund" indirect taxes and therefore does not meet the first of the conditions set out in footnote 1 read together with Annex I(g) or I(h).

7.6.5.2 Whether MEIS scrips meet the conditions of footnote 1 read together with Annex I(i)

7.290.
We now turn to India's arguments in respect of footnote 1 and Annex I(i). As an alternative to its arguments under footnote 1 and Annexes I(g) and I(h), India argues that when MEIS scrips are used to pay for customs duties on importation, or to regularize a default in an export obligation, this "results in" a remission of import charges that meets the conditions of footnote 1 read together with Annex I(i).466
7.291.
To ascertain whether a measure must "not be deemed to be a subsidy" by virtue of footnote 1 read together with Annex I(i), we examine whether it constitutes (1) a remission or drawback, including full or partial exemption or deferral, (2) of import charges (3) on imported inputs that are consumed in the production of the exported product, (4) not in excess of those levied on those inputs.467
7.292.
Even assuming that MEIS scrips, when used to pay for customs duties468, do operate as remitting import charges, MEIS scrips fail the third of the four elements set out above, namely, that the import charges must be on imported inputs consumed in the production of exported products.
7.293.
MEIS in no way limits the import charges that may be paid for with scrips to import charges on inputs consumed in the production of the exported product. Instead, the FTP provides expressly that scrips may be used to pay for import charges on the "import of inputs or goods, including capital goods".469 Therefore, MEIS does not meet, at least, the third condition of footnote 1 read together with Annex I(i). Indeed, India elsewhere acknowledges that "the use of the MEIS scrips … does not require the import of inputs to be consumed in the production of an exported product".470

7.6.5.3 Conclusion

7.294.
Therefore, we find that MEIS scrips do not meet the conditions set out in footnote 1 read together with Annexes I(g), I(h), and I(i).

7.7 REVENUE FOREGONE UNDER ARTICLE 1.1(A)(1)(II)

7.295.
This section addresses the United States' argument that, under four of the challenged schemes, India provides a financial contribution by foregoing government revenue that is otherwise due, within the meaning of Article 1.1(a)(1)(ii) of the SCM Agreement. More specifically, in respect of the EOU/EHTP/BTP Schemes, the EPCG Scheme, the SEZ Scheme, and DFIS471, the United States alleges that India foregoes government revenue because each of these schemes provides certain exemptions or deductions from taxes and customs duties.472
7.296.
We first describe the legal standard under Article 1.1(a)(1)(ii) of the SCM Agreement and then apply it to the four schemes at issue.

7.7.1 The applicable legal standard under Article 1.1(a)(1)(ii)

7.297.
Article 1.1(a)(1)(ii) of the SCM Agreement provides that a financial contribution in the form of revenue foregone exists if "government revenue that is otherwise due is foregone or not collected (e.g. fiscal incentives such as tax credits)".
7.298.
The words "foregone", "not collected" and "otherwise due" indicate that "the government has given up an entitlement to raise revenue that it could 'otherwise' have raised".473 This entitlement cannot be one that is "abstract", because "[a] Member, in principle, has the sovereign authority to tax any particular categories of revenue it wishes".474 Therefore, to ascertain whether there is foregoing of revenue otherwise due, there must be "some defined, normative benchmark against which a comparison can be made between the revenue actually raised and the revenue that would have been raised 'otherwise'".475
7.299.
As an analytical tool to apply this legal standard, WTO adjudicators have articulated a "three‑step test".476
7.300.
The first step is to identify the tax treatment that applies to the alleged subsidy recipients, i.e. the tax treatment that is being challenged.477
7.301.
The second step is to identify the treatment that will serve as the benchmark for comparison. Given that "Members, in principle, have the sovereign authority to determine their own rules of taxation"478, the benchmark for comparison "must be the tax rules applied by the Member in question"479 to "situations which it is legitimate to compare".480
7.302.
We note that the measures in relation to which this test was first articulated related to the taxation of income. As a result as part of this second step of the test, adjudicators have typically referred to the need to identify "comparable income of comparably situated taxpayers".481 Not all instances of revenue foregone, however, involve the taxation of income. For example, tax may be levied (or foregone) on the importation of a good, without reference to the taxpayers' income. In such an example, the relevant fiscal situation will not be "income" but the importation of goods. Therefore, in identifying the fiscal treatment which it is legitimate to compare, we consider it important not to refer mechanically to "income", and instead to keep in mind the nature of the measure at issue in each case.
7.303.
To identify the tax treatment afforded by the Member in question to "fiscal situations which it is legitimate to compare"482, we are required "to develop an understanding of the tax structure and principles that best explains that Member's tax regime, and to provide a reasoned basis for identifying [the benchmark]".483 At the same time, we note that the rules of taxation of a Member are not part of the applicable law in WTO dispute settlement, and that therefore a panel is necessarily limited in its analysis to the facts properly before it.
7.304.
The third step is to compare the challenged tax treatment with the benchmark tax treatment. This comparison allows a panel to determine whether, in light of the responding Member's treatment of the fiscal situations which it is legitimate to compare, the government is foregoing revenue otherwise due.484
7.305.
The requirement to compare "the challenged treatment … to an objectively identifiable benchmark … does not presuppose … that such a comparison should necessarily be made between the group of the entities that allegedly benefits from a subsidy, on the one hand, and the group of all the other entities, on the other hand".485 Thus, the fact that some taxpayers in the benchmark group do not pay "the full amount of the relevant tax … would not necessarily mean that there is no revenue foregone with respect to the taxpayers benefiting from a subsidy".486
7.306.
The Appellate Body has held that, as part of this three-step test, adjudicators must "consider[] … the objective reasons behind" the challenged tax treatment.487 This observation was first made in US – Large Civil Aircraft (2nd complaint), in the context of a measure which lowered the tax rate previously applied, and in connection to which the respondent argued that the underlying aim was to counteract certain alleged distortions in the tax system and thus "approximate", for the entities concerned, "the average effective tax rate".488 The Appellate Body considered this alleged reason behind the tax treatment, and found that it appeared "to be more in the nature of an ex post explanation" and "the Panel record [did] not support [it]".489
7.307.
In US – Tax Incentives, the panel looked into the reasons for the challenged tax treatment and found that there was "no evidence" that the resulting difference in tax treatment was "reflective of any organizing principle of the [Business and occupation] tax system"; instead, the "express reason" for the different tax treatment was to "incentiviz[e] the maintenance and growth of Washington State's aerospace industry".490 Consideration of these reasons therefore did not detract from a finding that the respondent was foregoing revenue otherwise due.491
7.308.
Similarly, the panel in Brazil – Taxation considered the reasons for the challenged tax treatment. For example, with respect to one set of challenged schemes, the panel found that "the alleged reasons relate[d] to the objectives of setting up and developing technology-based industries in Brazil, and giving access to [information technology] products to the population".492 The panel therefore concluded that these alleged reasons did not "impact"493 its findings of revenue foregone.
7.309.
Thus, in summary, adjudicators before us have looked into whether "objective reasons" behind the challenged treatment explained that treatment other than as revenue foregone.
7.310.
India considers that for measures that do not "fall within the ambit of … footnote 1", the three-step test is the appropriate framework to analyse revenue foregone.494 However, for the EOU/EHTP/BTP Schemes, EPCG Scheme, and DFIS495, India makes the cross-cutting argument that, since the challenged measures fall under footnote 1, the appropriate framework for analysis is not a three-step test under Article 1.1(a)(1)(ii), as set out above. Instead, India argues that the Panel must compare the duties or taxes accrued with the duty or tax exemption.496 This is the comparison carried out to determine whether there is revenue foregone under measures that do fall within the scope of footnote 1: with exemption or remission schemes falling under footnote 1, only the excess remission is a financial contribution.497 But to the extent we examine them below, we have found that the challenged measures fall outside the scope of footnote 1.498 Therefore, "excess" remission under footnote 1 is not the applicable legal standard.

7.7.2 Whether India foregoes revenue otherwise due under the Export Oriented Units and Sector-Specific Schemes

7.311.
The United States argues that EOU/EHTP/BTP Units are exempt from the payment of customs duties that would otherwise be due in the absence of the measure, and that, this way, India foregoes revenue otherwise due within the meaning of Article 1.1(a)(1)(ii).499
7.312.
India, on the other hand, argues that the EOU/EHTP/BTP Schemes fall under footnote 1 of the SCM Agreement, and that therefore "the appropriate comparison analysis is … a comparison of duties that accrued as opposed to those that were exempted".500 In paragraph 7,310 above, however, we have already rejected India's argument in this regard, because we are examining whether the challenged measures under the EOU/EHTP/BTP Schemes are a subsidy precisely to the extent that we have already found them to fall outside the scope of footnote 1.
7.313.
We therefore examine whether India foregoes revenue otherwise due under the EOU/EHTP/BTP Schemes, using the analytical framework discussed in the previous section.

7.7.2.1 First step: Applicable treatment

7.314.
We begin by identifying the tax treatment that allegedly constitutes a financial contribution. Section 6.01(d) of the FTP provides, in relevant part:

(i) An EOU/EHTP/STP/BTP unit may import and/or procure, from DTA or bonded warehouses in DTA/international exhibition held in India, all types of goods, including capital goods, required for its activities, provided they are not prohibited items of import in the ITC (HS) subject to conditions given at para (ii) & (iii) below. …

(ii) The imports and/ or procurement from bonded warehouse in DTA or from international exhibition held in India shall be without payment of duty of customs leviable thereon under the First Schedule to the Customs Tariff Act, 1975 and additional duty, if any, leviable thereon under Section 3(1), 3(3) and 3(5) of the said Customs Tariff Act. …

7.315.
Thus, for Units under the EOU/EHTP/BTP Schemes, the importation or purchase of goods is not subject to payment of the customs duties that would otherwise be leviable on those same transactions under the 1975 Customs Tariff Act.
7.316.
Before turning to the second step in the analysis, we consider the "objective reasons" behind this tax treatment.501 The underlying legislation states that the objectives of the EOU/EHTP/BTP Schemes "are to promote exports, enhance foreign exchange earnings, and attract investment for export production and employment generation".502 With regard to the objective of promoting exports, we also note that the EOU/EHTP/BTP Schemes impose on participants an export obligation and a NFE requirement.503 These elements of the schemes further confirm that the promotion of export performance is the central reason behind the tax treatment at issue.504

7.7.2.2 Second step: Benchmark for comparison

7.317.
As a second step, we identify the benchmark for comparison, i.e. the "fiscal situations which it is legitimate to compare".505 We recall that the challenged tax treatment consists of customs duties (not) levied on the importation of goods. The fiscal situation which it is legitimate to compare, therefore, must be identified within India's regime for customs duties on the importation and domestic procurement of goods.506
7.318.
In respect of import duties, Section 12 of India's 1962 Customs Act provides:

Except as otherwise provided in this Act, or any other law for the time being in force, duties of customs shall be levied at such rates as may be specified under [the Customs Tariff Act, 1975 (51 of 1975)], or any other law for the time being in force, on goods imported into, or exported from, India.507

7.319.
In accordance with Section 12 of the 1962 Customs Act, the First Schedule of India's 1975 Customs Tariff Act508 sets forth the rate of import duty for the listed products. India's national tariff schedule therefore sets forth the applicable import duties that, in accordance with Section 12 of the 1962 Customs Act, apply except as otherwise provided. Moreover, Sections 3(1), 3(3), and 3(5) of the 1975 Customs Tariff Act provide for the possibility of imposing additional duties on imports equal to the level of excise duty, sales tax, local taxes and other charges applicable on like domestic goods.
7.320.
Taxpayers subject to duties under the 1962 Customs Act and 1975 Customs Tariff Act are importers of (any) goods into India. Taxpayers under the EOU/EHTP/BTP Schemes are, equally, importers of "all types of goods" (subject to certain exclusions) into India.509 Moreover, customs duties are an indirect charge imposed on the goods themselves upon their importation, rather than a direct tax that would vary, for example, based on taxpayers' income. Therefore, for the purpose of an analysis of India's customs duties on importation, taxpayers subject to duties under the 1962 and 1975 Acts, and taxpayers exempt from those duties under the EOU/EHTP/BTP Schemes, are comparably situated.
7.321.
We have asked both parties to identify the normative benchmark against which the customs duty treatment under the EOU/EHTP/BTP Schemes must be assessed. The parties have not identified other elements of India's tax rules as forming part of the relevant normative benchmark.510
7.322.
We therefore consider that the tax structure and principles outlined in paragraphs 7,318‑7,320 provide the basis for identifying the treatment of comparable fiscal situations, i.e. of the importation of goods into India by comparably situated taxpayers. The express wording of the relevant statutes contemplates rates of customs duties applicable to "goods imported into … India" ("[e]xcept as otherwise provided"). We also note that the EOU/EHTP/BTP Schemes explicitly refer to the 1975 Customs Tariff Act as setting out the customs duty liability from which EOU/EHTP/BTP Units are exempt511, which provides a further indication that the tax treatment under the 1975 Customs Tariff Act is the relevant benchmark for us to identify under the second step in the analysis.512
7.323.
We therefore consider that the customs duty liability and rates set out under Sections 3(1), 3(3), and 3(5) and the First Schedule of the 1975 Customs Tariff Act are the appropriate benchmark for comparison.

7.7.2.3 Third step: Comparison of the applicable treatment with the benchmark

7.324.
We now turn to comparing the tax treatment identified under the first step in the analysis with the benchmark identified in the second step in the analysis.513
7.325.
As set out above, the 1975 Customs Tariff Act (at its First Schedule and Sections 3(1), 3(3), and 3(5)), in accordance with the 1962 Customs Act, provides that the importation of goods into India is subject to the customs duties set out thereunder. By contrast, under Section 6.01(d) of the FTP, EOU/EHTP/BTP Units may import goods into India "without payment of duty of customs leviable thereon under the First Schedule to the Customs Tariff Act, 1975 and additional duty, if any, leviable thereon under Section 3(1), 3(3) and 3(5) of the said Customs Tariff Act". Therefore, the 1975 Customs Tariff Act entitles India to collect the specified customs duties on the importation of goods, and under the challenged EOU/EHTP/BTP Schemes India foregoes that revenue in case of the importation of the same goods by participating Units.
7.326.
We recall that the objective reason behind this different treatment is the promotion of exports and investments.514 Consideration of this reason does not suggest that the different tax treatment can be explained as treating different fiscal situations differently, rather than as the foregoing of revenue otherwise due.
7.327.
We therefore conclude that by exempting the importation of goods by EOU/EHTP/BTP Units from customs duties, India foregoes revenue otherwise due within the meaning of Article 1.1(a)(1)(ii), and therefore provides a financial contribution.

7.7.3 Whether India foregoes revenue otherwise due under the Export Promotion Capital Goods Scheme

7.328.
The United States argues that the EPCG scheme exempts a participant from the payment of customs duties otherwise due on the importation of capital goods used for export pre‑production, production, and post‑production.515 According to the United States, comparably situated enterprises importing the same capital goods must pay customs duties according to India's national tariff schedule. The United States refers to the Indian customs legislation to show that enterprises participating in the EPCG scheme receive an exemption from the payment of customs duties that comparably situated enterprises in India must instead pay.516 The United States contends that therefore India foregoes revenue otherwise due within the meaning of Article 1.1(a)(1)(ii).517
7.329.
According to India, the customs duty exemption falls within the scope of footnote 1 and Annexes I(g), I(h), and I(i), and therefore the appropriate comparison is not between comparably situated enterprises, but rather between duties accrued and duties from which EPCG participants were exempted.518
7.330.
However, in paragraph 7,310 above, we have already rejected India's argument in this regard, because we have already found that the duty exemption under the EPCG Scheme falls outside the scope of footnote 1. We therefore proceed with our analysis using the framework discussed in paragraphs 7,297-7.308.

7.7.3.1 First step: Applicable treatment

7.331.
We begin by identifying the tax treatment that allegedly constitutes a financial contribution. Section 5.01(a) of the FTP provides that the "EPCG Scheme allows import of capital goods … for pre‑production, production and post‑production at zero customs duty".519 That is, the importation of capital goods under the EPCG Scheme is subject to a customs duty rate of zero.
7.332.
Before turning to the second step in the analysis, we consider the "objective reasons" behind this duty treatment.520 The underlying legislation states that the objectives of the EPCG Scheme are "to facilitate import of capital goods for producing quality goods and services and enhance India's manufacturing competitiveness".521 Elsewhere, India has stated that "[t]he objective of the EPCG Scheme is to facilitate import of capital goods for producing quality goods and services to enhance India's export competitiveness".522 Moreover, the scheme imposes an export obligation, which also indicates that the promotion of export performance is the objective reason for the duty treatment at issue523, and a further indication of this comes from the reference to "export promotion" in the name of the scheme.524

7.7.3.2 Second step: Benchmark for comparison

7.333.
As a second step, we identify the benchmark for comparison, i.e. the fiscal situation which it is legitimate to compare. We recall that the challenged tax treatment consists of the customs duty treatment of imported goods. The fiscal situation that it is legitimate to compare, therefore, must be identified within India's regime for customs duties on the importation of goods.525
7.334.
In paragraphs 7,318-7.319 above, we described the relevant customs rules that apply to the importation into India of goods, including capital goods, under the 1962 Customs Act and the 1975 Customs Tariff Act. The 1962 Customs Act provides that the "duties of customs" at the rates set forth under the 1975 Customs Tariff Act "shall be levied … on goods imported into India". The First Schedule of the 1975 Customs Tariff Act lists the rates of duty applicable on importation, by tariff heading and subheading, as required by the 1962 Customs Act.
7.335.
Taxpayers exempt from duties on capital goods under the EPCG Scheme are importers of capital goods into India. Taxpayers subject to duties on the importation of those same goods under the 1962 Customs Act and 1975 Customs Tariff Act are, equally, importers of capital goods into India. Moreover, customs duties are an indirect charge imposed on the goods themselves upon their importation or exportation, rather than a direct tax that would vary, for example, based on taxpayers' income. Therefore, for the purpose of an analysis of India's customs duties on the importation of capital goods, taxpayers subject to duties under the 1962 and 1975 Acts, and taxpayers exempt from those duties under the EPCG Scheme, are comparably situated.
7.336.
We have asked both parties to identify the normative benchmark against which the tax treatment under the EPCG Scheme must be assessed. The parties have not identified other elements of India's tax rules as forming part of the relevant normative benchmark.526
7.337.
We therefore consider that the customs duty liability and rates set forth under the 1962 Customs Act and the 1975 Customs Tariff Act are an appropriate benchmark for assessing whether India foregoes revenue under the EPCG Scheme.527

7.7.3.3 Third step: Comparison of the applicable treatment with the benchmark

7.338.
We now compare the tax treatment identified under the first step in the analysis with the benchmark identified in the second step in the analysis.
7.339.
As set out above, the 1975 Customs Tariff Act, in accordance with the 1962 Customs Act, provides that the importation of all goods (including capital goods) into India is subject to the customs duties set out thereunder. By contrast, under Section 5.01 of the FTP, EPCG participants can import capital goods into India "at zero customs duty". Therefore, the 1975 Customs Tariff Act entitles India to collect the specified customs duties on the importation of capital goods, whereas under the challenged EPCG Scheme India foregoes that revenue in case of the importation of the same goods by participants in the scheme.
7.340.
We recall that the reason for this different treatment is the promotion of manufacturing and export competitiveness.528 Consideration of this reason does not suggest that the different tax treatment is explained by differences in the underlying fiscal situation, and therefore does not detract from our finding that India is foregoing revenue otherwise due.
7.341.
We therefore conclude that, by exempting from customs duties the importation of capital goods under the EPCG Scheme, India foregoes revenue otherwise due within the meaning of Article 1.1(a)(1)(ii), and thus provides a financial contribution.

7.7.4 Whether India foregoes revenue otherwise due under the Special Economic Zones Scheme

7.342.
To recall, the US challenge in respect of the SEZ Scheme extends to529:

a. The exemption from customs duties on imports and exports530;

b. The exemption from IGST531; and

c. The deduction of export earnings from the income on which income tax is levied.532

7.343.
The United States argues that SEZ Units benefit from exemptions from or reductions in duties and taxes that would otherwise be due in the absence of the measure.533 According to the United States, enterprises that do not participate in the SEZ Scheme must generally pay these duties and taxes. The United States refers to the Indian customs and tax legislation to show that enterprises participating in the SEZ Scheme receive an exemption from, or reduction of, the payment of customs duties and taxes that comparably situated enterprises in India must pay.534 The United States contends that therefore the challenged exemptions and deductions under the SEZ Scheme constitute financial contributions in the form of "government revenue that is otherwise due [that] is foregone or not collected" within the meaning of Article 1.1(a)(1)(ii).535
7.344.
India argues that the United States has failed to establish that the challenged aspects of the SEZ Scheme are export contingent.536 India therefore asks the Panel not to consider whether the challenged measures under the SEZ Scheme constitute subsidies within the meaning of Article 1 of the SCM Agreement.537