Trade dispute with India over sugar subsidies

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    • Recently, the World Trade Organisation 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 had approached the WTO complaining against India for providing alleged support in favour of producers of sugarcane and sugar (domestic support measures), as well as all export subsidies that India allegedly provides for sugar and sugarcane (export subsidy measures).
    • Australia requested the establishment of a Panel and on August 15, 2019, the Dispute Settlement Body (DSB) established the panel.

    Major Points of WTO Report

    • The panel observed 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 per cent of the total value of sugarcane production. 
      • As a result, it found that India was acting inconsistently with its obligations under the Agreement on Agriculture (AoA).
    • The panel also found that the challenged schemes are export subsidies within the meaning of Article 9.1(a) of the Agreement on Agriculture. 
    • India violated the WTO agriculture agreement when it provided excessive non-exempt product-specific subsidies to sugarcane producers between 2014 and 2019. 
      • India has provided subsidies contingent upon export performance, inconsistent with the SCM Agreement.
    • India’s foreign direct investment (FDI) policy “remains ambiguous and can be strengthened.
      • It noted that companies face lengthy approval processes to invest here with “targeted restrictions that remain in place in strategic sectors.
    • Recommendations
      • It recommended India to withdraw its subsidies under the Production Assistance, the Buffer Stock, and the Marketing and Transportation Schemes within 120 days from the adoption of the Report.

    Response of India

    • The findings of the Panel are “completely unacceptable” to India.
    • India believes that its measures are consistent with its obligations under the WTO agreements.
    • India has initiated all measures necessary to protect its interest.
      • It filed an appeal at the WTO against the report, to protect the interests of its farmers.

    Impacts 

    • There would be no impact of the WTO Panel’s findings on Sugar on any of India’s existing and ongoing policy measures in the sugar sector as the Indian government is not extending any assistance for shipments. 
    • This is because global sugar prices are ruling higher on lower production and supply woes. 

    Way Forward

    • Bilateral consultation is the first step to resolving a dispute. If both sides are not able to resolve the matter through consultation, either can approach for the establishment of a dispute settlement panel.
      • 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 measure is against the norms of the WTO.
    • Continuing on the reform path would enhance the competitiveness of Indian businesses both in India and abroad.

    Sugar Production in India

    • India is the second-largest producer of sugar in the world after Brazil and is also the largest consumer. 
      • the Indian sugar industry’s annual output is worth approximately Rs.80,000 crores.
    • The sugar industry is an important agro-based industry that impacts the rural livelihood of about 50 million sugarcane farmers and around 5 lakh workers directly employed in sugar mills. 
      • Employment is also generated in various ancillary activities relating to transport, trade servicing of machinery and supply of agriculture inputs.

    Pricing policy 

    • The concept of Statutory Minimum Price (SMP) of sugarcane was replaced with the ‘Fair and Remunerative Price (FRP)’ of sugarcane for 2009-10 and subsequent sugar seasons with the amendment of the Sugarcane (Control) Order, 1966 in 2009.
      • Under the FRP system, the farmers are not required to wait till the end of the season or for any announcement of the profits by sugar mills or the Government. 
      • The new system assures margins on account of profit and risk to farmers, irrespective of the fact whether sugar mills generate profit or not and is not dependent on the performance of any individual sugar mill.
      • 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.

    Sugar Subsidy

    • Sugar was distributed through the Targeted Public Distribution System (TPDS) by the States/UTs at subsidized prices for which the Central Government was reimbursing @ 18.50 per kg of sugar distributed by the participating State Governments /UT Administrations. 
    • The scheme was covering all BPL population of the country as per 2001 census and all the population of the North Eastern States / special category/ hilly states and Island territories. 
      • The National Food Security Act, 2013 (NFSA) is now being universally implemented by all 36 States/UTs. Under the NFSA, there is no identified category of BPL; however, the Antyodaya Anna Yojana (AAY) beneficiaries are clearly identified. 

    Source: IE