[Editorial] India’s Sugar Issue at the WTO

What is the issue about?

  • 3 countries (Australia, Brazil and Guatemala) complained that India’s domestic support and export subsidy for the sugar industry are inconsistent with WTO’s provision under Agreement on Agriculture (AoA) and the Agreement on Subsidies and Countervailing Measures (SCM) and GATT’s (the General Agreement on Trade and Tariffs) Article XVI which deals with subsidies.

  • The complaint was that India provides support exceeding the de minimis level (10% of total value of production) to sugarcane producers. This, they said, is inconsistent with the AoA.
  • The countries also highlighted the export subsidies, subsidies under production assistance and buffer stock schemes and also the marketing and transportation schemes of India, in their complaint.
  • According to Australia, India has failed to notify its annual domestic support for sugar and sugarcane after 1995-96 and export subsidies since 2009-10– which is inconsistent with SCM provisions.
  • In 2019, the 3 countries registered this complaint with the WTO.
  • The Dispute Settlement Body of the WTO set up 3 panels in 2019 as requested by the complaining countries. All 3 panels are chaired by Thomas Cottier (of the University of Bern).
  • 12 countries reserved the right to participate as 3rd parties in the proceedings of the panels. These included USA, EU, China, Japan and Canada.

What has been India’s position on the issue?

  • India has held that the ‘complainants have failed to meet their burden of showing’ how the government’s market price support and the different schemes for sugarcane violate the AoA.
  • The requirements under Article 3 of the Subsidies and Countervailing Measures Agreement aren’t applicable to India yet. The country has an 8 year phase-out period for eliminating export subsidies, pursuant to the SCM Agreement’s Article 27.
  • SCM Agreement’s Article 3 prohibits subsidies that are contingent solely upon the export performance and the use of domestic goods over imported goods.
  • Article 27 of the Agreement provides for the special and differential treatment of developing countries and it recognizes the importance of subsidies in the economic development programs of such countries.
  • India had argued that the mandatory minimum prices for the sugarcane aren’t paid by the government but by the sugar mills. Hence, it doesn’t count as market price support.

Most probable and repeated topics of upsc prelims

What was the recent ruling from WTO?

  • The WTO panel recently ruled in favour of the complainant countries in the report, ‘India — Measures Concerning Sugar and Sugarcane’. This report is yet to be adopted/ rejected by the WTO member countries.
  • It asked India to withdraw its subsidies under the Production Assistance, the Buffer Stock, and the Marketing and Transportation Schemes within 120 days.
  • The report found that India has provided non-exempt product-specific domestic support to sugarcane producers for 5 consecutive sugar seasons between 2014-15 and 2018-19. This is in excess of the 10% limit. The report says that India’s actions are inconsistent with the provisions of Article 7.2(b) of AoA.
  • The report rejects India’s argument that the mandatory minimum prices aren’t market support price within the meaning of AoA. It says that market price support doesn’t need the government to procure the agricultural product.
  • The panel has concluded that the schemes under challenge constitute export subsidies within the meaning of AoA’s Article 9.1(a).
  • These export subsidies are inconsistent with Articles 3.3 and 8 of the AoA as India’s WTO Schedule doesn’t specify commitments for reducing export subsidies with regards to sugar.
  • The panel has also concluded that India has violated Article 18.2 of the AoA as it hasn’t notified the Committee on Agriculture on its domestic support to the sugarcane producers and its export subsidies.
  • India has also violated Articles 25.1 and 25.2 of the SCM Agreement by not notifying the sugar export subsidies under Production Assistance, the Buffer Stock, the Marketing and Transportation, and the DFIA Schemes.

What is the way ahead?

  • The commerce ministry said that the panel’s findings are not supported by WTO rules and are ‘completely unacceptable’ to India.
  • The ministry has also accused the panel of evading key issues in the dispute and has said that the report wouldn’t have any impact on any of its policy measures- both existing and ongoing- for the sugar sector.
  • This report is yet to be adopted by the full membership of WTO, which is considered as ‘member-driven’ organization that takes consensus based decisions.
  • India is expected to file an appeal against the report at the WTO.
  • The report poses no immediate threat to India. this is because:
    • These subsidies aren’t in place anymore.
    • These amounted to Rs 10,448 per tonne in 2019-20 and Rs 6,000 per tonne in 2020-21. These subsidies enabled 5.96 million tonnes of sugar export in 2019-20 and 7.07 million tonnes in 2020-21. However, the high global prices have meant that shipments continued without the need for subsidy. The sugar mills in India have contracted 3.5 mt of exports already and are expected to contract more than 6 mt in 2020-21.
    • Hence the report’s findings that the ‘lump sum assistance’ for exports are ‘prohibited subsidies’ has been described as ‘closing the stable door after the horse has bolted’.
    • The record sugar exports of the previous 2 years have left the Indian mills with an 8.3 mt stock for the new sugar year (compared to 14.5 mt in 2019). They are expected to close with a stock of 6.3 mt if the production is estimated at 30.5 mt, domestic consumption at 8.3 mt and exports at 6 mt.
    • That is equivalent to less than 3 months’ worth consumption– a comfortable figure for the industry.
    • It would be comfortable for the consumers too as the factories start crushing the canes in early November.
    • This reduction in sugar stocks over the years can be attributed to the exports and the biofuel program. The 10% average ethanol blending target in petrol is set to be met with the diversion of 3.4 mt sugar equivalent getting diverted for ethanol production in 2021-22, compared to the previous 2 years’ 2.1 mt and 0.8 mt.
  • However, the WTO panel’s pronouncement that the domestic support to the cane growers exceed the 10% limit has profound implications. The report estimates that the aggregate support to the sugar farmers in 2018-19 stood at Rs 1,11,106.583 crore– much higher than the permitted Rs 12,304.90 crore.
  • This needs to be challenged especially as sugarcane is brought at MSP by the sugar mills and not by the government. Such payments cannot constitute market price support. Also, MSP is a matter of domestic policy– something that’s for India to decide.

Conclusion:

The WTO panel report is unlikely to have any impact on this season’s sugar exports, given the high global prices and the fact that India isn’t extending the shipment assistance any longer. However, the report’s conclusions regarding ‘market price support’ needs to be challenged.

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