WTO asks India to Comply with Trade Rules on Sugar

For the robustly active sugar sector in India, the WTO ruling against India in the sugar subsidy case may look like a temporary setback. However, not too many concerns were evident in the price performance of sugar companies.

In fact, the sugar sector stabilized on Wednesday after the Director General of the Indian Sugar Mills Association (ISMA), Abinash Verma, assured that the WTO ruling would not have any significant impact on sugar companies or on sugar exports.

The case pertains to the period between 2014 and 2018. During this period, India had surplus sugar stocks but could not export the sugar as Indian sugar prices were uncompetitive in the global market.

Check - Sugar Stocks Shine on Record Sugar Exports

As a result, the government of India offered subsidy of Rs.10 per KG for sugar exports which was gradually scaled down to Rs.6 per KG and finally to Rs.4 per KG. For the current sugar cycle year 2021-22, the sugar subsidy is zero.

Several sugar producing countries in the world like Brazil, Thailand, Australia and Guatemala had complained to the World Trade Organization (WTO) that the Indian government was giving an artificial advantage to domestic sugar companies via subsidies.

The contention was that these subsidies were beyond the 10% limit permitted by WTO for agricultural product exports. However, the WTO order is just a prospective order and does not look like a retrospective order.

From the Indian side, the Ministry of Commerce and the ISMA were of the view that the Indian sugar subsidy policy was absolutely in sync with the stipulations of the WTO pertaining to subsidies for agricultural exports.

They also added that the interpretation of the WTO rules had been done by their battery of lawyers assuming the special concessions available to developing countries for agricultural exports. Hence, the subsidies were totally justified and in consonance with WTO rules.

For now, there does not appear to be any easy resolution in sight because both sides have their own set of arguments. India has already said that it would approach the appellate authority of the WTO against the order favouring Australia, Thailand and Guatemala. 

The strange part is that the appellate authority of WTO does not have enough judges at the current juncture so any resolution looks unlikely to happen in the near future. It would surely be a long drawn process.

For India, this is a problem pertaining to the past. In the last 3 sugar cycle years, there have been no violations of the WTO rules and the latest year is a year of zero subsidies despite nearly 6 million tonnes of sugar exports projected. 

If sugar prices globally remain high, as it looks likely, then India can continue to export with zero subsidies. The WTO ruling will be a long-drawn game of appeals and counter-appeals. The impact on companies will be limited.