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Measures Concerning Sugar And Sugarcane In International Trade Law

When there is a contract between parties, one cannot rule out the possibility of disputes, be it in Local or International contracts. Generally, there are many reasons which may lead to disputes between countries such as non-performance of the contract, delay in payment, noncompliance of the laid procedure about custom duty, trade barriers, non-trade barriers etc.

WTO, which came into existence in 1994 replaced GATT[1] deals with the settlement of trade disputes. For this Dispute settling Understanding (DSU) is the main agreement which consist of basic rules and procedures that needed to be followed to resolve the disputes.

Dispute Settlement Body (DSB) consists of WTO's general council members which even includes WTO's member countries.

Dispute Settlement Procedure

The dispute settlement procedure starts with informal consultations between the parties. If the parties fail, the complaining party may request the appellate body the appointment of 3 members investigation panel. Once the panel is appointed, the parties must submit their oral and written statements. Once the panel receives the same, it will issue its reports and recommendations. The parties to the dispute concerning legal issues and legal interpretations of the report submitted by the panel can also seek for appeal. It shall be heard by 3 members out of 7 members of the appellate body.

In case, if the respondent fails to abide by the instructions given, the complainant may seek compensation or request authorizations. If the parties are not willing to submit their statements to DSB, they can request a parallel process of binding arbitration as provided under DSU.

Case Study:
DS579:DS580:DS581: India - Measures Concerning Sugar And Sugarcane[2]
Complainant: Brazil, Guatemala, Australia

Respondent: India
Third Parties (original proceedings): Australia; Canada; China; Colombia; Costa Rica; El Salvador; European Union; Guatemala; Honduras; Indonesia; Japan; Panama; Russian Federation; Thailand; United States

Complaint Against India:

  1. 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[3] and Countervailing Measures (SCM)[4], and Article XVI (which concerns subsidies) of the General Agreement on Trade and Tariffs (GATT)[5].
  2. 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, which accordingly is inconsistent with the Agreement on Agriculture as stated by them.
  3. They also raised the issue that India's alleged export subsidies, subsidies under the production assistance and buffer stock schemes, and the marketing and transportation scheme.
  4. Australia accused India of "failing" to notify its annual domestic support for sugarcane and sugar after 1995-96, and its export subsidies since 2009-10, which it said were inconsistent with the provisions of the SCM Agreement.
  5. These countries believe that subsidies offered by India have led to increased production of sugar and caused the price of sugar to drop significantly in the global market.
  6. 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.

The Outcome Of The Complaint

After two years, the WTO ruled that India's sugar policy was favouring domestic producers through subsidies to the detriment of foreign producers.

The panel recommended that India withdraws its alleged prohibited subsidies under the Production Assistance, the Buffer Stock, and the Marketing and Transportation Schemes within 120 days from the adoption of this report.

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.

Panels Findings:

  • The dispute settlement panel has found India's domestic support and export subsidy measures in the sugar sector to violate 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 over the permitted level of 10% of the total value of sugarcane production.
  • Though India stated 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".

India's Rebuttal

India requests that the Panel find that:
  1. The complainants have failed to meet their burden of showing that India provides market price support for sugarcane that exceeds the de minimis level of 10% of the the total value of sugarcane production as per Article 7.2(b) of the Agreement on Agriculture[6];
  2. The complainants have failed to meet their burden of showing that India's Production Assistance Scheme, Buffer Stock Scheme, Marketing and Transportation Scheme, and the DFIA constitute subsidies within the meaning of Article 9 of the Agreement on Agriculture and, consequently, that the complainants have failed to demonstrate that India has acted inconsistently with its obligations under Articles 3.3, 8, and 10 of the Agreement on Agriculture.
  3. India has argued at the WTO that it does not offer direct subsidies to sugarcane farmers and thus doesn't break any international trade rule.
    This argument, however, has not convinced 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.
  4. In 2021, the Centre set the FRP at ₹290 per quintal and called it the "highest ever" FRP for sugarcane procurement.
    • Individual States also set minimum procurement prices that may be higher than the Centre's price to adjust for conditions at the local level.
    • The high procurement price for sugarcane set by the Government is believed to have led to a supply glut that in turn has caused sugar prices to drop.
    • In fact, several sugar mills are caught in a debt trap as consumer demand for sugar has remained stagnant.
    • The low price of sugar has affected the revenues of mills, and their ability to pay farmers and also forced many mills to shut down.

  5. 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 India hence, filed an appeal with the Appellate Body of the World Trade Organization (WTO) disputing a verdict by the WTO's dispute settlement panel on sugar subsidies.

India's Government Policies To Aid Sugar Industry:

  1. To help the sugar sector, the Centre has even mandated the compulsory blending of ethanol derived from sugarcane with fuels such as petrol and diesel.
  2. According to the Food Ministry, the country's sugar production is likely to remain flat at 30.5 million tonnes in the next season as more sugarcane will be diverted for ethanol making.
  3. State governments and the Centre have also regularly intervened to reduce the debt burden on sugar mills.
  4. Earlier this month, the Centre decided to restructure loans worth over ₹3,000 crore offered to sugar mills by the Sugar Development Fund.
  5. Without such assistance, it may not be possible for sugar mills to procure sugarcane from farmers at the minimum prices dictated by the government.
  6. Further, the Centre also regularly sanctions funds to encourage sugar mills to export sugar depending on sugar prices in the global market.
  7. In the budget last year, the Centre allocated a total of ₹3,500 crore to fund the export of 6 million tonnes of sugar.

Dispute Redressal At Wto:

  • According to WTO rules, a WTO member or member 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 sides are not able to resolve the matter through consultation, either can approach the establishment of a dispute settlement panel.
  • The panel's ruling or report can be challenged at the WTO's Appellate Body.

Current Status Of The Dispute:

The WTO Appellate Body's decision will be considered final on the dispute.

In case India refuses to comply with the decision, it might have to face retaliatory action from other countries. This could be in the form of additional tariffs on Indian exports and other stringent measures. Such retaliatory measures may benefit 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 shrink international trade.

Incidentally, the appellate body of the WTO is not functioning because of differences among member countries to appoint members, and disputes are already pending with it. The U.S. had blocked the appointment of members.

It can be concluded that Sugarcane subsidies are mandatory for the development of India. Sugarcane is a widely grown crop in India. It employs over a million people directly or indirectly besides contributing significantly to the national exchequer as India is the second largest producer of sugar.

The dues to the sugarcane farmer have accumulated to Rs. 25,000 crores or $3 billion in non-payment for their produce, as per a reply given to a question in Parliament in September of 2020. Of this amount, Rs 12,994 crore alone pertains to the 2019-20 cropping season.

Hence, the non-payment is especially true for farmers in Uttar Pradesh, Maharashtra, and Karnataka. This is because, sugar mill owners have been saying that excess sugar production, along with a decline in consumption has depressed domestic sugar prices leading to the accumulation of arrears. Since the mills are unable to garner profit, they are not able to pay fair and remunerative prices to sugarcane farmers. The sugar prices are neither going up nor are we seeing an increase in consumption[7]. Therefore, subsidies help to aid Indian farmers.

Also, developing countries are on the one hand, accusing developed countries of providing agriculture subsidies to the farmers and on the other hand they are themselves heavily subsidising their farmers.

Almost 61% of India's economy is dependent on the Agriculture sector. Government must enhance this sector and help the poor farmers of the country and subsidy is the only way.

  1. WTO SITE:
  2. PANEL REPORT: india-sugarandsugarcane(panel).pdf
  3. Third-Party Executive Summary Of The United States Of America: US.3dPty.Exec.Summary.fin.pdf
  4. Referred book: International Trade Law by Dr S.R. Myneni

  1. General Agreements on Trade and Textile.
  2. DS580, DS581, INDIA- MEASURES CONCERNING SUGAR AND SUGARCANE are continuing disputes related to the same dispute wherein complainant countries were added.
  3. WTO's Agreement on Agriculture:
    • Objective is 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.
  4. 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. Alternatively, the country can launch its own investigation and ultimately charge extra duty ("countervailing duty") on subsidized imports that are found to be hurting domestic producers.
  5. 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.
  6. In its first written submission, India asserted that the complainants have failed to demonstrate that
    • India has acted inconsistently with its obligations under Articles 3.2 and 6.3 and/or Article 7.2 of the Agreement on Agriculture. (India's first written submission, para. 51)
    • In response to a Panel question, India submitted that it does not have a Total AMS commitment in Part IV of its Schedule, such that Articles 3.2 and 6.3 do not apply.
  7. Article on Sugar Export Subsidy: A Need Of The Indian Farmer;

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