India WTO Dispute


Recently, 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.

  • Earlier, China got the ‘developing country’ status at the WTO which became a contentious issue with a number of countries raising concerns against the decision.

India WTO Dispute

India’s Minimum Selling Price system for Sugarcane was brought to notice to the WTO by Brazil, Australia and Guatemala.

Australia, Brazil, and Guatemala said India’s domestic support and export subsidy measures appeared to be inconsistent with various articles against WTO’s:

  1. Agreement on Agriculture
  2. Agreement on Subsidies and Countervailing Measures (SCM)
  3. Article XVI (which concerns subsidies) of the General Agreement on Trade and Tariffs (GATT)

  • Domestic Support: All three countries complained that India provides domestic support to sugarcane producers that exceed the de minimis level of 10% of the total value of sugarcane production.
  • Various subsidies: 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.
  • Notifying support: 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.

India’s appeal:

  1. India has notified the Dispute Settlement Body of its decision to appeal the panel reports in the cases brought by Brazil, Australia and Guatemala in ‘India – Measures Concerning Sugar and Sugarcane, the WTO said.
  2. It said that given the ongoing lack of agreement among WTO members regarding the filling of Appellate Body vacancies, there is no Appellate Body division available at the current time to deal with the appeal.
  3. The panel in its ruling on 14 December 2021 recommended India to withdraw its alleged prohibited subsidies under the Production AssistanceBuffer Stock, and Marketing and Transportation Schemes within 120 days from the adoption of this report.
  4. Ruling in favour of Brazil, Australia, and Guatemala in their trade dispute against India over New Delhi’s sugar subsidies, the WTO panel has stated that the support measures are inconsistent with WTO trade rules.
  5. In its submissions to the Appellate Body, India has appealed and requested the body to “reversemodify, or declare moot and of no legal effect, the findings, conclusions, rulings and recommendations of the Panel, with respect to certain “errors of law or legal interpretation contained in the panel report“.
  6. New Delhi has also said that the panel has erred in finding that India’s fair and remunerative price and state advised price constitute market price support under the WTO’s agreement of agriculture.

India’s Stand:

  • 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.

Panels Findings:

  • The 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.
  • It 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.
    • 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”.

Panels Recommendation:

  • India brings its WTO-inconsistent measures into conformity with its obligations under the Agreement on Agriculture and the SCM Agreement.
  • India should withdraw its alleged prohibited subsidies under the Production Assistance, Buffer Stock, and Marketing and Transportation Schemes within 120 days.

Sugarcane Pricing in India

Who determines Sugarcane prices?

Sugarcane prices are determined by the Centre as well as States.

  1. The Centre announces Fair and Remunerative Prices which are determined on the recommendation of the Commission for Agricultural Costs and Prices (CACP) and are announced by the Cabinet Committee on Economic Affairs, which is chaired by Prime Minister.
  2. The State Advised Prices (SAP) are announced by key sugarcane producing states which are generally higher than FRP.

Minimum Selling Price (MSP) for Sugar

  • The price of sugar is market-driven & depends on the demand & supply of sugar.
  • However, with a view to protecting the interests of farmers, the concept of MSP of sugar has been introduced since 2018.
  • MSP of sugar has been fixed taking into account the components of Fair & Remunerative Price (FRP) of sugarcane and minimum conversion cost of the most efficient mills.

Basis of price determination

  • With the amendment of the Sugarcane (Control) Order, 1966, the concept of Statutory Minimum Price (SMP) of sugarcane was replaced with the Fair and Remunerative Price (FRP)’ of sugarcane in 2009-10.
  • The cane price announced by the Central Government is decided on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP).
  • This is done in consultation with the State Governments and after taking feedback from associations of the sugar industry.

What is FRP?

  • FRP is fixed under a sugarcane control order, 1966.
  • It is the minimum price that sugar mills are supposed to pay to the farmers.
  • However, states determine their own State Agreed Price (SAP) which is generally higher than the FRP.

Factors considered for FRP:

  • The amended provisions of the Sugarcane (Control) Order, 1966 provides for fixation of FRP of sugarcane having regard to the following factors:
  • cost of production of sugarcane;
  • return to the growers from alternative crops and the general trend of prices of agricultural commodities;
  • availability of sugar to consumers at a fair price;
  • price at which sugar produced from sugarcane is sold by sugar producers;
  • recovery of sugar from sugarcane;
  • the realization made from the sale of by-products viz. molasses, bagasse, and press mud or their imputed value;
  • reasonable margins for the growers of sugarcane on account of risk and profits.

China’s disputed ‘Developing’ Country Status at WTO

Defining a country’s ‘Development’

There are no WTO definitions of “developed” or “developing” countries.
Developing countries in the WTO are designated on the basis of self-selection although this is not necessarily automatically accepted in all WTO bodies.
The WTO however recognizes as least-developed countries (LDCs) those countries which have been designated as such by the United Nations.

Benefits of ‘Developing Country’ tag Special and differential treatment: 
Certain WTO agreements give developing countries special rights through ‘special and differential treatment’ (S&DT) provisions.

Preferential treatment: 
The classification also allows other countries to offer preferential treatment.

Longer timeframe for pacts: 
WTO can grant developing countries longer timeframes to implement the agreements and even commitments to raise trading opportunities for such countries.

Issues with Chinese ‘Developing Country’ status
China has become an upper-middle-income country according to the World Bank.
It involves in unfair trade practices such as preferential treatment for state enterprises, data restrictions and inadequate enforcement of intellectual property rights.

How has China responded?
China has consistently maintained that it is the “world’s largest developing economy”.
It has recently indicated that it may be willing to forego many benefits of being a developing country.

What are the benefits of LDC classification?
The WTO recognizes LDCs relying on a classification by the UN based on criteria that is reviewed every three years. LDCs are often exempted from certain provisions of WTO pacts.
Bangladesh, currently classified as an LDC, receives zero duty, zero quota access for almost all exports to the EU.
It is, however, set to graduate from the LDC status in 2026 as its per capita GDP has risen sharply surpassing that of India in FY21.    

Source: Indian Express

Other related articles: MSP, WTO


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