India this week documented a plea with the Appellate Body of the World Trade Organization (WTO) questioning a decision by the WTO’s dispute settlement panel on sugar subsidies.
The WTO’s dispute settlement panel had sanctioned that India, by subsidizing sugar makers, was breaking rules formulated under the General Agreement on Tariffs and Trade (GATT) which govern international trade.
Background of this topic
- In 2019, Australia, Brazil, and Guatemala complained against India at the WTO arguing that subsidies assigned 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.
- The panel suggested that India withdraws its alleged unlawful subsidies under the Production Assistance, the Buffer Stock, and the Marketing and Transportation Schemes within 120 days from the adoption of this report.
According to WTO rules, subsidies cannot exceed 10% of the total value of sugar production.
What is India’s stand-in WTO Judgement?
India has insisted at the WTO that it does not offer direct subsidies to sugarcane farmers and thus doesn’t break any international trade rule. This statement, however, has not assured other countries who point out that, among other things, the Centre and the State governments in India mandate the minimum price (the Fair and Remunerative Price, or FRP) at which sugar mills can buy sugarcane from farmers.
In fact, in August last year, the Centre set the FRP at ₹290 per quintal and called it the “highest ever” FRP for sugarcane procurement.
The Individual States also set minimum procurement prices that may be higher than the Centre’s price to adjust for conditions at the local level.
What next if India does not follow the WTO verdict
- In case India declines to comply with the decision, it might have to face counter from other countries. This could be in the form of extra tariffs on Indian exports.
- Such criteria may profit producers in these countries but affect consumers who have enjoyed lower sugar prices due to subsidies offered by India.
- It should be noted that the WTO was founded to prevent exactly such tit-for-tat tariffs that decrease international trade.
- Incidentally, the appellate body of the WTO is not operating because of disparities among member countries to appoint members, and disputes are already pending with it. The U.S. had blocked the appointment of members.
Fair and Renumerative Price
FRP is the minimum price that the sugar mills have to pay to farmers.
It is determined on basis of recommendations of Commission for Agricultural Costs and Prices (CACP) and after consultation with State Governments and other stake-holders.
State Advised Price (SAP)
In other key growing states of Uttar Pradesh, Punjab, Haryana, Tamil Nadu and Uttarakhand, farmers get the State Advised Price (SAP) fixed by state governments which is usually higher than FRP.
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