Why in News?
World Trade Organisation (WTO) panel has ruled against India’s sugar export subsidy and domestic support to sugarcane growers in a dispute filed by Australia, Brazil and Guatemala. India has said that it will appeal against the verdict.
What is the dispute?
- In 2019, Australia, Brazil, and Guatemala complained against India at the WTO arguing that subsidies offered by the Indian government to sugar producers were against the rules governing international trade.
- They argued that these subsidies, which include both domestic subsidies as well as export subsidies, exceed the limits imposed by WTO trade rules.
- According to WTO rules, subsidies cannot exceed 10% of the total value of sugar production.
- These countries believe that subsidies offered by India have led to increased production of sugar and caused the price of sugar to drop significantly in the global market.
- After two years, the WTO ruled in December that India’s sugar policy was favouring domestic producers through subsidies to the detriment of foreign producers.
- The panel recommended that India withdraws its alleged prohibited subsidies under the Production Assistance, the Buffer Stock, and the Marketing and Transportation Schemes within 120 days from the adoption of this report.
- India said that the “complainants have failed to meet their burden of showing” that India’s market price support for sugarcane, and its various schemes violate the Agreement on Agriculture.
- It also argued that “the requirements of Article 3 of the SCM Agreement are not yet applicable to India and that India has a phase-out period of 8 years to eliminate export subsidies, if any, pursuant to Article 27 of the SCM Agreement.
- The dispute settlement panel has found India’s domestic support and export subsidy measures in the sugar sector to be in violation of international trade rules.
- It found that for five consecutive sugar seasons from 2014-15 to 2018-19, India provided non-exempt product-specific domestic support to sugarcane producers in excess of the permitted level of 10% of the total value of sugarcane production.
- The panel rejected India’s argument that its “mandatory minimum prices are not paid by the central or state governments but by sugar mills, and hence do not constitute market price support,” stating that “market price support does not require governments to purchase or procure the relevant agricultural product.”
- India brings its WTO-inconsistent measures into conformity with its obligations under the Agreement on Agriculture and the SCM Agreement.
- India should withdraw its alleged prohibited subsidies under the Production Assistance, Buffer Stock, and Marketing and Transportation Schemes within 120 days.
Dispute Redressal at WTO
- According to WTO rules, a WTO member or members can file a case in the Geneva-based multilateral body if they feel that a particular trade measure is against the norms of the WTO.
- Bilateral consultation is the first step to resolve a dispute. If both the sides are not able to resolve the matter through consultation, either can approach for the establishment of a dispute settlement panel.
- The panel’s ruling or report can be challenged at the WTO’s Appellate Body.
- Interestingly, the appellate body of the WTO is not functioning because of differences among member countries to appoint members in this body. Over 20 disputes are already pending with the appellate body. The US has been blocking the appointment of the members.
- The WTO ruling may not have any impact on sugar exports current season as the Indian government is not extending any assistance for shipments. However, last season, India exported a record 7.1 million tonnes of sugar. This season, sugar shipments are expected to top 6 million tonnes. So no big worry for now.
- But, the need is for a comprehensive reform in the agriculture sector, to develop Agriculture as an Enterprise, as recommended by Ashok Dalwai Committee. Moreover India with support of like minded countries should raise the matter in coming WTO summit, in order to safeguard the interests of its agriculture sector.
FAQs – Dispute about Sugar Subsidies at WTO
Australia, Brazil, and Guatemala filed a complaint against India at the WTO in 2019, arguing that India’s subsidies to sugar producers violated international trade rules. They claimed that the subsidies, including domestic support and export subsidies, exceeded the 10% limit set by WTO rules for the total value of sugar production.
The subsidies in question included non-exempt product-specific domestic support to sugarcane producers, provided for five consecutive sugar seasons from 2014-15 to 2018-19, exceeding the permitted 10% limit of the total value of sugarcane production.
The WTO panel ruled against India, finding its domestic support and export subsidy measures in the sugar sector to be in violation of international trade rules. The panel recommended that India withdraw its alleged prohibited subsidies under the Production Assistance, Buffer Stock, and Marketing and Transportation Schemes within 120 days from the adoption of the report.
India has stated that it will appeal against the WTO panel’s verdict. India argued that the complainants failed to show that India’s market price support for sugarcane and its various schemes violated the Agreement on Agriculture. India also asserted that the requirements of the Subsidies and Countervailing Measures (SCM) Agreement are not yet applicable, and it has an 8-year phase-out period for export subsidies under Article 27 of the SCM Agreement.
The WTO’s dispute resolution process begins with bilateral consultations between the concerned parties to resolve the dispute. If the consultations do not lead to a resolution, either party can request the establishment of a dispute settlement panel. The panel’s ruling can then be challenged at the WTO’s Appellate Body.
The WTO’s Appellate Body is currently not functioning due to disagreements among member countries regarding the appointment of its members. This has led to over 20 disputes being pending without resolution. The US has been blocking the appointment of new members to the Appellate Body.
The WTO ruling may not have an immediate impact on the current season’s sugar exports since the Indian government is not providing assistance for shipments. Last season, a record 7.1 million tonnes of sugar were exported by India, and this season’s shipments are expected to exceed 6 million tonnes.
To safeguard the interests of its agriculture sector and comply with WTO rules, India needs comprehensive agricultural sector reform. The Ashok Dalwai Committee has recommended developing agriculture as an enterprise. India should also raise the matter in the upcoming WTO summit with the support of like-minded countries.
The WTO ruling could potentially have implications for India’s sugar exports if the alleged prohibited subsidies are not withdrawn within the given timeframe. Compliance with WTO rules is essential to avoid further disputes and ensure smooth trade relations.
After India appeals against the ruling, the case will be reviewed by the Appellate Body once it becomes functional again. The Appellate Body’s decision will be final and binding, and the parties involved will be expected to comply with the ruling based on the outcome.
Read also:- Consequences of Subsidies