The dispute about sugar subsidies at WTO

(MainsGS3:Issues related to direct and indirect farm subsidies and minimum support prices; Public Distribution System-objectives, functioning, limitations, revamping; issues of buffer stocks and food security.)

Context:

• India is in negotiations with Brazil to resolve a long-standing dispute about sugar at the World Trade Organisation (WTO). 
• As in 2019 the South American nation had submitted a complaint against India alleging that India's sugar subsidies were inconsistent with global trade rules.

Higher minimum prices:

• In February 2019, Brazil, Australia and Guatemala sought consultations with India, concerned about domestic support measures to agricultural producers of sugarcane and sugar. 
• They alleged that India for five years, from 2014-15 to 2018-19, provided domestic support in excess of the permissible 10% of the total value of production thus, inconsistent with the norms laid out under the organisation’s Agreement on Agriculture.  
• The countries argued that the minimum prices of sugarcane and sugar, specifically fair and remunerative prices (FRP) alongside specific states enforcing higher minimum prices, incentivised Indian sugarcane farmers which led to increased domestic production of sugarcane and sugar. 
• It contended that with production exceeding domestic demand, and ensuing increases in sugar stocks, the government also intervened in the market with assistance programmes, thereby facilitating lowered prices for the commodity in the global market.  

Minimum Indicative Export Quota:

• The complainant also argued against India’s mill-specific Minimum Indicative Export Quota (MIEQ) wherein sugar mills must export an allocated amount of sugar by the end of each season (October-September). 
• It alleged that certain support measures were dependent on compliance with the MIEQ, or otherwise dependent on export performance. 
• MIEQ allocates the minimum quantity of sugar which must be exported and distributes that quantity among individual sugar mills operating in India. 
• India is the second-largest producer of sugar in the world behind Brazil, which also is the largest exporter. 

Price support:

• The World trade organisation held that India was acting inconsistently with its obligations under Article 7.2 (b) of the Agreements on Agriculture (AoA) as far the domestic support was concerned. 
• Article 7.2 (b) of the Agreements on Agriculture (AoA) stipulates that members cannot provide support in excess of the relevant de minimis standards. 
• It held that the ‘price support’ would entail “assistance from a government or other official body in maintaining prices at a certain level regardless of supply or demand.” 
• Further it said that in FRP, while the prices may appear to be paid by the mills, they are set by the government. 

Erroneous findings:

• The WTO report asked the country to withdraw the proscribed subsidies (as per the multilateral organisation’s rules) meant for production assistance, buffer stock, marketing and transportation along with the duty-free import authorisation (DFIA) scheme.
• After the report in December 2021, the Indian government stated the panel had made “certain erroneous findings” about the schemes meant to support sugarcane producers and exports. 
• It held the findings of the panel were “completely unacceptable to India”, adding, “The panel’s findings are unreasonable and not supported by the WTO rules. 
• The panel has also evaded key issues which it was obliged to determine, Similarly, the panel’s findings on alleged export subsidies undermine logic and rationale.” 
• It said that the measures in contention were within its obligations under the WTO agreements, and that there would be no impact on the country’s existing policy measures in the sector.  
• India considers that the panel has cherry-picked a few broad similarities while ignoring the differences between MAEQ and other alleged exports subsidy measures.

Applied administrative prices:

• Further, it contended that FRP and state-advised prices do not constitute ‘applied administrative prices’, that is, prices for agricultural products determined by administrative actions of the government and not market forces. 
• It was before the consultations that India had argued that market price support could only exist when the government or its agents pay or procure the product. 
• Thus, it would be incorrect to conclude that India provided any market price support to sugarcane producers, it said.

Conclusion:

• Concerns about the WTO ruling may potentially spiral on two fronts i.e. agricultural subsidies in the broader ecosystem and potential uncertainty about its prices in lieu of expected lower production.  
• As for the proceedings in the WTO, bilateral consultations are the first step to resolve a dispute.