Context

The US and Australia alleged India of giving subsidies to sugarcane farmers far exceeding limits set in global trade norms.

World Trade Organization Limits

• India’s Sugarcane Subsidies Exceeding WTO Limits: They told World Trade Organization (WTO) that over the period 2018-19 to 2021-22, India provided sugarcane subsidies between 91-100%.
  • This exceeds the limits set out” at 10% of the value of food production in the case of India and other developing countries. 
• Background: This follows Brazil, Australia, and Guatemala’s action of taking India to the WTO’s dispute settlement mechanism in 2019, claiming that India’s sugar subsidies are inconsistent with global trade rules.  
  • They also raised concerns about India’s export subsidies, subsidies under production assistance and buffer stock schemes, and those under marketing and transportation schemes.

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World Trade Organization (WTO)

World Trade Organization (WTO) is an international organization established to regulate and facilitate international trade among its member countries. 

• Genesis: The WTO commenced operation on 1st January 1995, under the Marrakesh Agreement, signed on 15 April 1994 by 124 nations.
  • It replaced the General Agreement on Tariffs and Trade (GATT) which commenced in 1948.
  • Most of the issues focused by WTO are derived from previous trade negotiations, especially from the Uruguay Round (1986-1994).
• Dispute Settlement Body (DSU): It is part of the General Council.
  • It resolves Disputes between WTO members.
  • Deals with matters subject to the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU).
  • It has authority to establish panels, refer matters to arbitration, adopt reports, and authorize concessions suspension in case of non-compliance.
• Appellate Body: Established in 1995 under Article 17 of the DSU.
  • Consists of Seven members appointed by the DSB for a Four-year term.
  • Hears appeals from panel reports in disputes brought by WTO members.
  • Can uphold, modify, or reverse legal findings and conclusions.
  • Appellate Body Reports, once adopted by the DSB, must be accepted by the disputing parties.
• Bali Package (2013): It includes provisions for reducing import tariffs and agricultural subsidies to facilitate easier trade between developed and developing countries in global markets.
• De Minimis Clause: Those who do not adhere to these obligations must limit their amber box support to 5-10% of their production value, with a 10% cap for developing nations and a 5% cap for developed nations.
• Peace Clause: It was established in December 2013 as a temporary measure. It permits developing nations to exceed the 10 percent ceiling without facing legal action by other members temporarily. 
  • This clause remains in effect until a lasting resolution to the food stockpiling issue is negotiated, as pledged by the members.
• Conditions for Government: Governments seeking the shelter of the peace clause have to:
  • avoid distorting trade or impacting other countries’ food security
  • provide information to show they are meeting those conditions.

Sugarcane Subsidy

The Department of Food and Public Distribution is responsible for the formulation of policies and regulations for the sugar sector. This includes fixing the Fair and Remunerative Price (FRP) of sugarcane which is payable to farmers by sugar factories, training in sugar technology, and regulation of supply of free sale sugar.  

• FRP Calculation: The FRP is fixed based on the recommendations of the Commission for Agricultural Costs and Prices (CACP).  It is recommended to take into consideration: 
  • the cost of production, 
  • rate of recovery of sugar
  • availability of sugar to consumers at a fair price
  • returns to farmers from alternative crops and the general trend of prices of agricultural commodities
  • realization from the sale of by-products
  • reasonable margins for farmers on account of risks and profits

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