Relevance: GS-2: Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests; /GS-3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment; Effects of liberalization on the economy.

Key phrases : WTO ,Export Subsidies , Agreement on Agriculture, fair and remunerative price (FRP) and the state-advised price (SAP),amber box ,green box measure, GATT

Why in news?

• A World Trade Organization (WTO) panel on India’s sugar and sugar cane subsidy observed that for five consecutive sugar seasons from 2014–15 to 2018–19, India provided non-exempt product-specific domestic subsidies to sugar cane growers beyond the permitted level of 10% of the total value of production.

Countries raising the complaints: Brazil, Guatemala, and Australia

• They raised the issue of India’s alleged export subsidies, those under the production assistance and buffer stock schemes, and the marketing and transportation scheme.
• Brazil alleged that the export subsidies on sugar have caused suppression in its global price by 25% approximately and hence a loss of trade for them. Brazil is the largest producer and exporter of sugar in the world. India is the world's second largest sugar producer after Brazil.

The complaint made was along three lines that India provides:

• Domestic agricultural support violating the Agreement on Agriculture (AoA),
• Export subsidies in excess of the budgetary outlays hence the AoA violation, and
• Export subsidies support contingent upon export performance and hence violating the Agreement on Subsidies and Countervailing Measures (SCM)

Disputes Resolution at WTO:

• 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 trade measure is against the norms of the WTO.
• Bilateral consultation is the first step to resolve a dispute. If both the sides are not able to resolve the matter through consultation, either can approach for the establishment of a dispute settlement panel. The panel's ruling or report can be challenged at the World Trade Organization's Appellate Body.
• Interestingly, the appellate body of the WTO is not functioning because of differences among member countries to appoint members in this body. Over 20 disputes are already pending with the appellate body. The US has been blocking the appointment of the members.
• Even if the body, which is the final arbiter on such trade disputes, starts working from now, it would take over an year to take up India's appeal.

Contention between WTO and India :

• The Fair and Remunerative Price (FRP) and the State-Advised Price (SAP) provided for sugar cane as market prices are the issues of contention between the WTO and the Government of India.
• Under the WTO rules, India’s sugar subsidies are capped at a limit of 10% of the value of production estimated on the average prices for 1986–88. Since India did not provide subsidies on sugar exports (in 1995), it is now difficult for it to make provisions for such subsidies unless the country makes a formal declaration of subsidies in its Schedule.

Pricing Mechanism for Sugar in India

• Although the price of sugar—the FRP and SAP—is set by the central government based on the recommendations of the Commission for Agricultural Costs and Prices after consulting the state governments and the associations of sugar mills, the payments are not made by the government.
• The minimum support price (MSP) of sugar is arrived at by taking into account the FRP of sugar cane and the minimum conversion cost of the most efficient sugar mill.

Why does the Government intervene?

• Weak bargaining power of farmers :Because of the weak bargaining power that the small and marginal sugar cane farmers have against the large sugar mills, government intervention becomes necessary.
• Consistency in fixing the prices: Since India has a large number of small farmers and sugar mills, if the market forces of demand and supply are allowed to determine the procurement price of sugar cane, there cannot be unanimity/consistency in fixing the prices.
• Saving farmers from exploitation: The sugar mills are likely to manoeuvre the pricing in their favour, thereby exploiting the small and marginal farmers.
• Timely finances for next sowing season: Moreover, the payments by the government to the farmers on behalf of the sugar mills are intended to provide timely remuneration to farmers for the next sowing season and are a kind of insurance against the price crashes.

India’s Argument against WTO Report:

• India has appealed against a ruling of the World Trade Organization's (WTO) trade dispute settlement panel which ruled that the country's domestic support measures for sugar and sugarcane are inconsistent with global trade norms.
• The appeal was filed by India in the WTO's Appellate Body, which is the final authority on such trade disputes. India has stated that the WTO's dispute panel ruling has made certain "erroneous" findings about domestic schemes to support sugarcane producers and exports and the findings of the panel are completely "unacceptable" to it.

Basis of argument:

• Domestic support allowed for resource poor producers :India’s domestic support policy invoked Part IV of Article 6.2 of the WTO, permitting government measures of assistance, investment subsidy, and agricultural input subsidy for resource-poor producers in the developing countries;
• Exemption from commitment: Such producers are exempted from domestic support-reduction commitments mandated by the WTO and shall also not be included in the “Current Total Aggregate Measure of Support” of the Member. Exemption from the application of the prohibition on export subsidies under SCM: India argued in its submission to the WTO that the “period of eight years” referred to in the SCM agreement continued to exempt India (a developing country) from the application of the prohibition on export subsidies.
• Old Methodology for Developing countries: Another issue that goes against the developing countries is the methodology adopted by the WTO for minimum rate of 10% that is tied to the 1986–88 prices as well as the quantity of subsidy tied to the 1986–90 levels. In 1986, the economic growth was primitive, low, and without subsidies in India and other developing countries; hence, providing that level will hamper India’s development in the present.

Way Forward:

• Subsidy to ethanol under Green Box : As a remedy, to comply with the WTO subsidy reduction commitment for primary agricultural products, India can give ethanol (a by-product of sugar cane) production subsidy under the “green box” as a clean alternative fuel that can be labelled as an air pollution control measure without any reduction commitments at the WTO.
• Educational workshops for improved farming techniques/practices under Green Box: To protect the Indian farmers, the MSP (amber box measure) can be replaced with financial assistance to farmers decoupled from current farm production and targeted educational workshops for improved farming techniques/practices (green box measure) to comply with the WTO rules.
• If the appellate body also passes a ruling against India's support measures, India has to abide by that and make appropriate changes in the way it provides those measures.

Source:  EPW ,  The Hindu BL  

Mains Question:

Q. Discuss the issue of sugar subsidy provided to farmers in India raised at WTO by some countries. Do you think WTO as an organisation is yet to deliver vis a vis such issues between Developed and Developing countries?