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Trade dispute with India over sugar subsidies

The WTO’s dispute resolution panel has ruled against India’s sugar subsidies and in favour of complainants Brazil, Guatemala, and Australia.

 

Background

  • In 2019, Brazil, Australia, and Guatemala filed a complaint with the World Trade Organization (WTO) accusing India of providing claimed internal support to sugarcane and sugar producers, as well as all sugar and sugarcane export subsidies (export subsidy measures).
  • Australia requested the formation of a panel, which was formed on August 15, 2019 by the Dispute Settlement Body (DSB).

 

The WTO Report’s Key Points

  • The panel found that India gave non-exempt product-specific domestic support to sugarcane producers in excess of the permissible amount of 10% of total sugarcane production for five consecutive sugar seasons, from 2014-15 to 2018-19.
  • As a result, it was determined that India was not complying with its duties under the Agricultural Agreement (AoA).
  • The panel further determined that the challenged programmes are export subsidies under Article 9.1(a) of the Agricultural Agreement.
  • Between 2014 and 2019, India broke the WTO agriculture agreement by providing excessive non-exempt product-specific subsidies to sugarcane producers.
  • In contravention of the SCM Agreement, India has granted subsidies based on export performance.
  • India’s FDI policy “remains vague and could be strengthened,” according to the report.
  • Companies must go through extensive approval processes to invest here, with “targeted limitations that remain in place in important industries,” according to the report.
  • Recommendations
  • It was suggested that India eliminate its subsidies under the Production Assistance, Buffer Stock, Marketing, and Transportation Schemes within 120 days of the Report’s acceptance.

 

India’s Reaction

  • India finds the Panel’s findings “totally unacceptable.”
  • India thinks that its actions are in accordance with its duties under WTO accords.
  • India has taken all essential steps to safeguard its interests.
  • To preserve the interests of its farmers, it filed an appeal with the WTO against the report.

 

Impacts

  • Because the Indian government does not provide any aid for shipments, the WTO Panel’s findings on sugar will have no influence on any of India’s existing and ongoing policy actions in the sugar industry.
  • Because of decreasing output and supply issues, worldwide sugar prices are rising

 

Way forward:

  • The first stage in resolving a conflict is bilateral consultation. If neither party is able to address the issue through consultation, either party might request the formation of a dispute resolution panel.
  • A WTO member or members can submit a dispute with the Geneva-based global body if they believe a particular measure violates WTO regulations, according to WTO rules.

 

India’s Sugar Industry

Ø  After Brazil, India is the world’s second-biggest producer of sugar and the world’s largest consumer.

Ø  The annual output of the Indian sugar industry is estimated to be around Rs.80,000 crores.

Ø  The sugar business is a significant agro-based industry that has an impact on the rural livelihoods of over 50 million sugarcane farmers and around 5 lakh sugar mill workers.

Ø  Various ancillary businesses such as transportation, trade service of machinery, and the delivery of agricultural inputs also generate employment.

Policy on pricing

Ø  With the revision of the Sugarcane (Control) Order, 1966 in 2009, the idea of the Statutory Minimum Price (SMP) of sugarcane was replaced with the ‘Fair and Remunerative Price (FRP)’ of sugarcane for the 2009-10 and following sugar seasons.

Ø  Farmers are not compelled to wait until the end of the season or for any statement of earnings by sugar mills or the government under the FRP system.

Ø  The new method guarantees farmers profit and risk margins regardless of whether sugar mills make a profit or not, and is not dependent on the success of any single sugar mill.

Ø  The FRP has been determined on the basis of recommendations of the Commission for Agricultural Costs and Prices and after consultation with State Governments and other stakeholders.

Subsidy for sugar

Ø  Sugar was provided at subsidised prices by the States/UTs through the Targeted Public Distribution System (TPDS), with the Central Government reimbursing @ 18.50 per kg of sugar distributed by the participating State Governments/UT Administrations.

Ø  According to the 2001 census, the plan covered the whole BPL population of the country, as well as the entire population of the North Eastern States, special category states, hilly states, and island territories.

Ø  The National Food Security Act of 2013 (NFSA) is now in effect in all 36 states and territories. There is no defined category of BPL under the NFSA, however recipients of the Antyodaya Anna Yojana (AAY) are clearly identifiable.
  • Continuing on the reform route would boost Indian businesses’ competitiveness both at home and internationally.

 

 

 

 

 

 

 

 

 

 

 

WTO’s Agreement on Subsidies and Countervailing Measures

  • The WTO Agreement on SCM limits the use of subsidies and the activities that countries can take to counteract their impact.
  • A country can seek the withdrawal of the subsidy or the removal of its harmful consequences through the WTO’s dispute-resolution procedure under the agreement. Alternatively, the government can conduct its own investigation and, if necessary, levy a surcharge (“countervailing tariff”) on subsidised imports that harm domestic manufacturers.

 

WTO’s Agreement on Agriculture

  • Its goal is to eliminate trade obstacles and promote transparent market access and global market integration.
  • The Agriculture Committee of the World Trade Organization oversees the execution of the Agreement and provides a platform for members to discuss related issues.

 

General Agreement on Tariffs and Trade

  • The Bretton Woods Conference, which took place in 1944, created the groundwork for the post-World War II financial system and established two crucial institutions, the International Monetary Fund (IMF) and the World Bank.
  • GATT was signed by 23 countries in Geneva in 1947 and entered into force on January 1, 1948, with the following goals:
  • to phase out the use of import quotas
  • to reduce tariffs on merchandise trade.
  • From 1948 until the WTO was established in 1995, GATT was the only multilateral instrument governing international trade.
  • GATT 1947 provisions were integrated into the GATT of 1994. The WTO’s establishment agreement includes the GATT of 1994.
  • The Uruguay Round of the GATT, which lasted from 1987 to 1994, resulted in the Marrakesh Agreement, which founded the World Trade Organization (WTO).

 

Dispute Redressal at WTO

 

  • A WTO member or members can submit a dispute with the Geneva-based multinational body if they believe a particular trade action violates WTO norms, according to WTO rules.
  • The first stage in resolving a conflict is bilateral consultation. If neither party is able to address the issue through consultation, either party might request the formation of a dispute resolution panel.
  • The verdict or report of the panel might be appealed to the WTO’s Appellate Body.
  • Surprisingly, the WTO’s appellate body is now inactive due to discrepancies in how member countries appoint members to this body. The appellate body is currently dealing with around 20 cases. The United States has been preventing the members from being appointed.

 

 

 

MCQs for practice:

 

  1. Consider the following statements regarding WTO dispute readressal mechanism:
  2. Issues are solved by dispute resolution panel only.
  3. Verdict of the panel can be appealed in Appellate body.
  4. Applet body works efficiently to resolve the issues.

 

Select the correct option:

  1. 1 only
  2. 1&2 only
  3. 2 only
  4. 1&3 only

Correct answer: C

  • A WTO member or members can submit a dispute with the Geneva-based multinational body if they believe a particular trade action violates WTO norms, according to WTO rules.
  • The first stage in resolving a conflict is bilateral consultation. If neither party is able to address the issue through consultation, either party might request the formation of a dispute resolution panel.
  • The verdict or report of the panel might be appealed to the WTO’s Appellate Body.
  • Surprisingly, the WTO’s appellate body is now inactive due to discrepancies in how member countries appoint members to this body. The appellate body is currently dealing with around 20 cases. The United States has been preventing the members from being appointed.

 

  1. Consider the following statements regarding Sugar production in India:
  2. India is largest producer of Sugar in world.
  3. ‘Fair and Remunerative Price (FRP)’ is given for sugar instead of MSP.
  4. Commission for Agricultural Costs and Prices decides FRP.

Select the incorrect option:

  1. 1 only
  2. 1&2 only
  3. 2 only
  4. 1&3 only

 

Correct answer: A

  • After Brazil, India is the world’s second-biggest producer of sugar and the world’s largest consumer.
  • With the revision of the Sugarcane (Control) Order, 1966 in 2009, the idea of the Statutory Minimum Price (SMP) of sugarcane was replaced with the ‘Fair and Remunerative Price (FRP)’ of sugarcane for the 2009-10 and following sugar seasons.

The FRP has been determined on the basis of recommendations of the Commission for Agricultural Costs and Prices and after consultation with State Governments and other stakeholders.