India Appeals at WTO
- 12 Jan 2022
- 9 min read
For Prelims: WTO, Sugarcane, WTO’s Agreement on Subsidies and Countervailing Measures, WTO’s Agreement on Agriculture, General Agreement on Trade and Tariffs (GATT).
For mains: WTO and its role, Issue of sugar subsidy in WTO, Significance of subsidy in sugar industry.
Why in News
Recently, India has appealed against a ruling of the World Trade Organisation'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’s Appeal:
- The appeal was filed by India in the WTO's Appellate Body, which is the final authority on such trade disputes.
- India has appealed and requested the body to "reverse, modify, 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.
- India has sought review of the panel's finding that the scheme for providing assistance to sugar mills for expenses on marketing costs, including handling, upgrading and other processing costs and costs of international and internal transport and freight charges on the export of sugar for the 2019-20 sugar season (Maximum Admissible Export Quantity (MAEQ) Scheme), is within its terms of reference.
- Complaint Against India:
- Australia, Brazil, and Guatemala said India’s domestic support and export subsidy measures appeared to be inconsistent with various articles of the WTO’s Agreement on Agriculture and the Agreement on Subsidies and Countervailing Measures (SCM), and Article XVI (which concerns subsidies) of the General Agreement on Trade and Tariffs (GATT).
- All three countries complained that India provides domestic support to sugarcane producers that exceeds the de minimis level of 10% of the total value of sugarcane production, which they said was inconsistent with the Agreement on Agriculture.
- 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.
- 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, which it said were inconsistent with the provisions of the SCM Agreement.
- A panel was set up by the Dispute Settlement Body (DSB) of the WTO to look into the case and come up with its report.
WTO’s Agreement on Subsidies and Countervailing Measures
- The WTO Agreement on SCM disciplines the use of subsidies, and it regulates the actions countries can take to counter the effects of subsidies.
- Under the agreement, a country can use the WTO’s dispute-settlement procedure to seek the withdrawal of the subsidy or the removal of its adverse effects. Or the country can launch its own investigation and ultimately charge extra duty (“countervailing duty”) on subsidised imports that are found to be hurting domestic producers.
WTO’s Agreement on Agriculture
- It is aimed to remove trade barriers and to promote transparent market access and integration of global markets.
- The WTO's Agriculture Committee oversees implementation of the Agreement and provides a forum for members to address related concerns.
General Agreement on Tariffs and Trade
- GATT traces its origins to the 1944 Bretton Woods Conference, which laid the foundations for the post-World War II financial system and established two key institutions, the International Monetary Fund (IMF) and the World Bank.
- GATT signed by 23 countries in Geneva in 1947 came into force on Jan 1, 1948 with the following purposes:
- to phase out the use of import quotas
- to reduce tariffs on merchandise trade,
- GATT became the only multilateral instrument governing international trade from 1948 until the WTO was established in 1995.
- The provisions of GATT 1947 were incorporated into the GATT of 1994. The GATT 1994 is itself part of the WTO formation agreement.
- The Uruguay Round of GATT, conducted from 1987 to 1994 culminated in the Marrakesh agreement, which established the WTO.
- 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.
Dispute Redressal 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 WTO’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.