Brazil, Australia, Colombia seek explanation on legal validity under global trade rules

India’s recent decision to give subsidies to exporters of raw sugar is facing international flak with many countries questioning its validity under global trade rules.

Major nations such as Australia, Colombia and Brazil, which export agricultural products, have said that the subsidies would affect their interests and distort the world market.

In February, the Cabinet approved a subsidy of ₹3,333 a tonne for export of raw sugar in response to rising stocks of white sugar in the country. The incentive is valid till this month-end. The incentive will then be reviewed by the Government before it decides if the subsidies should continue.

Under pressure

“The pressure being piled on India at the WTO is largely to ensure that the subsidies do not get extended for a longer period of time,” a Government official told Business Line.

The opposing countries, in separate representations to the WTO, have asked India to explain the legal validity of the move under multi-lateral trade rules that do not allow new subsidies for exports.

The issue will be taken up at the meeting of the Committee on Agriculture on Friday where India, the world’s second largest producer of sugar, will have to explain its move.

“India’s defence is that WTO rules prohibit export subsidies only on finished products and raw sugar is a semi-processed item. It is, therefore, exempt from such restrictions,” a Government official told Business Line.

But other exporting countries, including the world’s top sugar producer Brazil, are not willing to buy the argument.

Brazil, in its submission, has pointed out that developing countries are allowed flexibilities for giving export subsidy (under Article 9.4 of the Agreement on Agriculture) only to meet marketing or transportation costs and there was no legally-binding decision by the WTO to extend its scope.

It also said that in case India says that the subsidies are for reducing marketing or transportation costs, it should give evidence of how it is happening.

Australia, Colombia and the European Union have asked India to specify the quantities of export that has already happened at the subsidised price and the period for which the subsidies will continue.

Output, exports

White sugar stocks in the country at the beginning of the current sugar year (October2013-September 2014) was a whopping 8.8 million tonnes (mt). Sugar output in the on-going year is expected to be 25 mt against domestic demand of 22 mt.

Due to low global prices, Indian mills have exported less than 0.8 mt of raw sugar this season.

If the Government continues its subsidy programme for the remaining months of the season, exports could touch an estimated 4 mt.

(This article was published on March 19, 2014)
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