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Explained: How to read the WTO panel’s sugar report against India

On a complaint by Australia, Brazil and Guatemala, a 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. India has rejected the report, said its sugar sector policies would not be impacted, and that it would appeal the findings.

Written by Harikishan Sharma , Edited by Explained Desk | New Delhi |
Updated: December 17, 2021 2:43:54 pm
Sugar sacks are stacked at a godown (Express Photo/File)

A panel set up by the Dispute Settlement Body (DSB) of the World Trade Organization (WTO) has ruled against India’s sugar subsidies, and asked it to “withdraw its prohibited subsidies under the Production Assistance, the Buffer Stock, and the Marketing and Transportation Schemes within 120 days from the adoption of [the] report”.

The panel circulated its 115-page report, ‘India — Measures Concerning Sugar and Sugarcane’, on Tuesday (December 14). The report is yet to be adopted (or rejected) by the WTO’s full membership. The WTO describes itself as a “member-driven”, “consensus-based” organisation.

How did the WTO process unfold?

According to a timeline of the case provided by the WTO, on July 11, 2019, three countries, Australia, Brazil and Guatemala, complained about “support allegedly provided by India 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)”.

The countries had requested “consultations” with India in February-March 2019, but the talks, held separately in April-May 2019, had “failed to resolve the dispute”.

As requested by the three countries, the DSB in its meeting of August 15, 2019, established three panels “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…and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements”.

On October 28, 2019, Thomas Cottier of the World Trade Institute at the University of Bern was named chairperson of all three panels, and Gerda Van Dijk and Roberto Zapata Barradas were named members of the panels. Twelve countries — including the United States, China, Japan, and Canada — and the European Union reserved their rights to participate as third parties in all three panel proceedings.

The panel held an organisational meeting with the parties on November 22, 2019, but due to the Covid-19 pandemic, the first substantive meeting could be held only in December 2020. Another meeting and written submissions followed, after which the panel issued its final report to the parties on September 30, 2021.

The countries also raised the issue of India’s alleged export subsidies, subsidies under the production assistance and buffer stock schemes, and the marketing and transportation scheme.

What was the complaint against India?

Australia, Brazil, and Guatemala said India’s domestic support and export subsidy measures appeared to be inconsistent with various articles of the WTO’s Agreement on Agriculture and the Agreement on Subsidies and Countervailing Measures (SCM), and Article XVI (which concerns subsidies) of the General Agreement on Trade and Tariffs (GATT).

All three countries complained that India provides domestic support to sugarcane producers that exceeds the de minimis level of 10% of the total value of sugarcane production, which they said was inconsistent with the Agreement on Agriculture.

They also raised the issue of India’s alleged export subsidies, subsidies under the production assistance and buffer stock schemes, and the marketing and transportation scheme.

Australia accused India of “failing” to notify its annual domestic support for sugarcane and sugar subsequent to 1995-96, and its export subsidies since 2009-10, which it said were inconsistent with the provisions of the SCM Agreement.

What did India tell the WTO panel?

According to the panel’s 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”.

What did the panel find?

On the complaint regarding India’s domestic support to sugarcane producers, the panel 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.

“Therefore, we find that India is acting inconsistently with its obligations under Article 7.2(b) of the Agreement on Agriculture,” the panel said.

According to a WTO summary of the panel’s key findings, “the threshold issue…was whether ‘market price support’ within the meaning of the Agreement on Agriculture only exists when the government pays for or procures the relevant agricultural product.”

While India argued 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”, the panel rejected this argument — saying “market price support does not require governments to purchase or procure the relevant agricultural product”.

On India’s alleged export subsidies for sugar, “the panel found that the challenged schemes are export subsidies within the meaning of Article 9.1(a) of the Agreement on Agriculture,” according to the summary. “Since India’s WTO Schedule does not specify export subsidy reduction commitments with respect to sugar, the panel found that such export subsidies are inconsistent with Articles 3.3 and 8 of the Agreement on Agriculture.”

With respect to Australia’s claims regarding India’s notification obligations, the panel’s report said that “by failing to notify to the Committee on Agriculture its domestic support to sugarcane producers subsequent to the 1995-96 marketing year, as well as its export subsidies for sugar subsequent to the 2009-10 marketing year”, India had “violated its obligation under Article 18.2 of the Agreement on Agriculture”.

Also, “by failing to notify to the SCM Committee its export subsidies for sugar under the Production Assistance, the Buffer Stock, the Marketing and Transportation, and the DFIA Schemes, India has violated its obligations under Articles 25.1 and 25.2 of the SCM Agreement”, the panel said in its report.

What did the panel recommend?

“We recommend that India bring its WTO-inconsistent measures into conformity with its obligations under the Agreement on Agriculture and the SCM Agreement,” the panel said in its report.

“We recommend that India withdraw its prohibited subsidies under the Production Assistance, the Buffer Stock, and the Marketing and Transportation Schemes within 120 days from the adoption of our Report.”

How has the government responded?

Responding to the WTO panel’s ruling, the Union Ministry of Commerce and Industry on Tuesday said that the findings of the panel were “completely unacceptable” to India.

Australia, Brazil, and Guatemala “had wrongly claimed that domestic support provided by India to sugarcane producers is in excess of the limit allowed by the WTO and that India provides prohibited export subsidies to sugar mills”, the Ministry said. The panel’s findings were “erroneous”, “unreasoned”, and “not supported by the WTO rules”, it said.

“The Panel has also evaded key issues which it was obliged to determine. Similarly, the Panel’s findings on alleged export subsidies undermines logic and rationale.”

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Will India’s sugar industry or sugarcane farmers be impacted by the panel’s rulings?

The Ministry said there would be “no impact” on any of India’s “existing and ongoing policy measures” in the sugar sector.

“India has initiated all measures necessary to protect its interest and file an appeal at the WTO against the report, to protect the interests of its farmers,” it said in a statement. “India believes that its measures are consistent with its obligations under the WTO agreements.”

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