IAS Gyan

Daily News Analysis


18th December, 2021 Agriculture

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  • A panel set up by the Dispute Settlement Body (DSB) of the World Trade Organization (WTO) has ruled against India’s sugar subsidies.



  • It has asked it to withdraw its prohibited subsidies under the Production Assistance, the Buffer Stock, and the Marketing and Transportation Schemes within 120 days from the adoption of the report.
  • The panel circulated its report, ‘India — Measures Concerning Sugar and Sugarcane’.
  • The report is yet to be adopted (or rejected) by the WTO’s full membership.



  • The World Trade Organization (WTO) uses some “boxes” for classifying trade subsidies (Domestic Trade Support) to traffic lights. This is to prevent Trade Distortion.
  • WTO basically aims to remove trade barriers and to promote transparent market access and integration of global markets.


Trade Distortion

  • Trade distortion is commonly viewed as any interference that significantly affects prices or market behavior.
  • A tax or action that changes the normal characteristics of trade.
  • For example, many governments subsidize the agricultural sector, which sometimes makes farming economically feasible, at least for certain products.
  • The subsidies can mean farmers gain artificially high prices for their products.
  • Some experts believe that trade-distorting agricultural subsidies are partly responsible for increases in global food prices.


WTO’s conditions

Domestic Support

  • It calls for reduction in domestic subsidies that distorts free trade and fair price.
  • Under this provision, the Aggregate Measurement of Support (AMS) is to be reduced by 20% over a period of 6 years by developed countries and 13% over a period of 10 years by developing countries.
  • Under this, Subsidies are categorized into:

Market Access

  • Tariffs fixed by individual countries need to be cut progressively to allow free trade.
  • It also required countries to remove non-tariff barriers and convert them to Tariff duties.


Export Subsidies

  • There should be limited subsidies as they lead to dumping of highly subsidized (and cheap) products in other countries and damage the domestic agriculture sector of other countries.


Peace Clause (Interim measure at the Bali ministerial meeting)

  • High subsidies are seen to be distorting global trade. The peace clause protects a developing country’s food procurement programmes against action from WTO members in case subsidy ceilings are breached.
  • This is in case the subsidy ceilings-10% of value of food production in the case of India and other developing countries- are breached.
  • Under the Peace Clause, WTO members agreed to refrain from challenging any breach in the prescribed ceiling by a developing nation at the dispute settlement forum of the WTO.
  • This clause will be there till a permanent solution is found to the food stockpiling issu
  • India was the first country to invoke the peace clause. India had invoked the clause in 2018-19 (13 per cent) and 2019-20 (11 per cent) as it breached the subsidy cap for rice. 


About WTO:

·        Intergovernmental organisation which regulates the international trade

·        Officially commenced on 1st Jan 1995 under the Marrakesh Agreement

·        Signed by 123 nations in 1994

·        WTO had replaced GATT (General agreement on tariffs and trade)

·        It deals with agriculture, textiles and clothing, banking, telecommunications, government purchases, industrial standards and product safety, food sanitation regulations, intellectual property and much more.



·        Administering WTO trade agreements

·        Forum for trade negotiations

·        Handling trade disputes

·        Monitoring national trade policies Technical assistance and training for developing countries

·        Cooperation with other international organizations



·        Administering WTO trade agreements

·        The basic principles of the WTO (According to the WTO):

Trade Without Discrimination:

·        Most Favoured Nation (MFN): treating other people equally

·        National treatment: Treating foreigners and locals equally

·        Freer trade: gradually, through negotiation

·        Predictability: through binding and transparency

·        Promoting fair competition

·        Encouraging development and economic reform.

Mechanisms of WTO

·        Trade Related Aspects of Intellectual Property Rights (TRIPS)

·        Trade Facilitation Agreement

·        General Agreement on Trade in Services (GATS)

·        Trade Policy Review Mechanism


The recent complaint against India

  • Three countries, Australia, Brazil and Guatemala, had complained about “support allegedly provided by India in favour of producers of sugarcane and sugar. Both domestic support measures, as well as all export subsidies.
  • 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).
  • They raised the issue of India’s alleged export subsidies, subsidies under the production assistance and buffer stock schemes, and the marketing and transportation scheme.
  • India provides domestic support to sugarcane producers that exceed the de minimis level of 10% of the total value of sugarcane production, which they said was inconsistent with the Agreement on Agriculture.


Note: The Agreement on Subsidies and Countervailing Measures (“SCM Agreement”) addresses two separate but closely related topics: multilateral disciplines regulating the provision of subsidies, and the use of countervailing measures to offset injury caused by subsidized imports.


India’s counter arguments

  • India has maintained its stand that the country’s sugar exports comply with WTO rules.
  • India does not extend a subsidy to its farmers for exports, but instead gives a production subsidy.
  • India said that the “complainants have failed to show that India’s market price support for sugarcane, and its various schemes violate the Agreement on Agriculture.
  • It 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, pursuant to Article 27 of the SCM Agreement.
  • On the issue of MSP being violative of WTO norms, India has dismissed these allegations and has demanded that MSP should be calculated by using the recent reference period instead of 1986/88 prices, which was factored in at the time of the creation of the WTO.
  • The price support is to ensure stability in food grain prices and their equitable distribution at affordable prices to the marginalized and vulnerable sections of society throughout the year.
  • India has underlined that special and differential treatment (S&DT) is a treaty embedded right at the WTO and it cannot be taken away based on certain arbitrary assumptions.
  • The basis of S&DT is to give members time and flexibility to integrate into the rules-based system and members with huge differences in economic and social development cannot be put in the same category.
  • For instance, to put India, which has an annual per capita income of less than USD 2,500, in the same development category as the United States, with a much higher (may be 25 times) per capita GDP, would be unfair


Challenges faced by WTO

  • Stalled Doha Development Round negotiations
  • WTO has been less affective in addressing trade protectionism. This raised questions over WTO’s credibility.
  • There has been unilateral denying of S&DT treatment to developing countries even under the existing WTO agreements like those on subsidies and countervailing measures.
  • New emerging issues: electronic commerce, investment facilitation, domestic regulation in services.
  • Side stepping WTO: countries have turned to free trade agreements to explore new trade-related issues that are currently not addressed within the WTO.
  • WTO has played a very limited role in helping address other global issues related to trade, such as food security, climate change and global trade imbalances.
  • Administrative issues: Some members of WTO established Multi-party Interim Appeal Arbitration Arrangement as contingency appeal arrangement for trade disputes as WTO’s dispute settlement body has become dysfunctional.
  • Lack of Transparency: no agreed definition of what constitutes a developed or developing country, members can currently self-designate as developing countries to receive ‘special and differential treatment’


Reforming WTO: The Way ahead

  • reaffirmed commitment to the rules-based liberal market order with a development dimensionmust be the foundational starting point.
  • A reformed WTO will have to be constructed on the foundation of liberal multilateralism, resting on open, non-discriminatory plurilateral pillars, an improved Appellate Body, explicit accommodation of regional trade agreements, and appropriate safety valves for rules-based sovereign action.
  • Development of a new set of rules to keep pace with changes in the market and technology.
  • Rules and disciplines on topics ranging from trade-distorting industrial subsidies to digital trade require updates and for dealing with digital trade and e-commerce, aligning trade and environmental sustainability
  • credible trading system requires a dispute settlement systemthat is accepted by all.
  • WTO should work on a Covid-19 vaccine Intellectual Property Rights waiver and the use of flexibilities of the TRIPS agreement and the Doha Declaration on TRIPS Agreement and Public Health.
  • India, along with the G-33 (group of nations), has been engaging in finding a permanent solution to the public stockholding issue.
  • WTO’s approach is “completely imbalanced” and tilted towards the developed countries.
  • Finding a permanent solution to the public food stockpile issue is linked to the survival of 800 million hungry people across the globe.
  • As the full implementation of food security programme may result in breach of the WTO cap, India has been seeking amendments in the formula to calculate the food subsidy cap.