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Info Service on WTO and Trade Issues (Dec21/11) Geneva, 15 Dec (Kanaga Raja) – A dispute panel at the World Trade Organization has ruled that India’s alleged domestic support to its sugarcane producers as well as alleged export subsidies for sugar are inconsistent with its WTO obligations. In the rulings (WT/DS579/R, WT/DS580/R, WT/DS581/R) issued on 14 December, the Panel 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. The Panel thus found that India has acted inconsistently with its obligations under Article 7.2(b) of the Agreement on Agriculture. The Panel also found that India’s subsidies contingent on export performance within the meaning of Article 9.1(a) are inconsistent with Articles 3.3 and 8 of the Agreement on Agriculture. The Panel further found that by failing to notify to the Committee on Agriculture its domestic support to sugarcane producers subsequent to the 1995-96 marketing year, as well as its export subsidies for sugar subsequent to the 2009-10 marketing year, India has acted inconsistently with its obligations under Article 18.2 of the Agreement on Agriculture. The Panel found that by failing to notify to the SCM Committee its export subsidies for sugar under the Production Assistance, the Buffer Stock, the Marketing and Transportation, and the DFIA (Duty Free Imports Authorization) Schemes, India has acted inconsistently with its obligations under Articles 25.1 and 25.2 of the Subsidies and Countervailing Measures (SCM) Agreement. The Panel recommended that India bring its WTO-inconsistent measures into conformity with its obligations under the Agreement on Agriculture and the SCM Agreement. [Indian media reports have quoted the Indian Ministry of Commerce and Industry as stating that India will appeal the Panel report. “India has initiated all measures necessary to protect its interest and file an appeal at the WTO against the report, to protect the interests of its farmers,” according to the Indian Commerce Ministry statement. [“The findings of the Panel are completely unacceptable to India. The Panel’s findings are unreasoned and not supported by the WTO rules,” the statement said, adding that there would be no impact of the WTO Panel’s findings on sugar on any of India’s existing and ongoing policy measures in the sugar sector. “India believes that its measures are consistent with its obligations under the WTO agreements,” said the statement from the Commerce Ministry.] Three separate disputes were raised by Brazil, Australia and Guatemala against India’s measures concerning sugar and sugarcane. While three separate reports were issued for each of the disputes, all three disputes were heard by the same three-member Panel. BACKGROUND TO THE DISPUTE According to the Panel reports, on 27 February 2019, Brazil requested consultations with India with respect to the measures at issue. Consultations were held on 15 April 2019 but failed to resolve the dispute. On 1 March 2019, Australia requested consultations with India also with respect to the measures at issue, and consultations were held on 16 April 2019 but failed to resolve the dispute. On 15 March 2019, Guatemala also requested consultations with India. Consultations were held on 22 May 2019 but failed to resolve the dispute. On 11 July 2019, Brazil, Australia, and Guatemala each requested the establishment of a panel, and at its meeting on 15 August 2019, the Dispute Settlement Body (DSB) established three panels pursuant to the requests of Brazil, Australia, and Guatemala in documents WT/DS579/7, WT/DS580/7, and WT/DS581/8, respectively. According to the Panel reports, the claims brought by the complainants concern India’s alleged domestic support to sugarcane producers and export subsidies pertaining to sugar or sugarcane. The complainants claim that India is acting inconsistently with Article 7.2(b) of the Agreement on Agriculture by providing domestic support to sugarcane producers in excess of the de minimis level set out in Article 6.4 of the Agreement on Agriculture. The complainants argue that India has no domestic support commitment in its Schedule, and consequently, pursuant to Article 7.2(b), read in light of Article 6.4, India may not provide product-specific domestic support to sugarcane producers that exceeds 10% of the total value of sugarcane production. According to the Panel reports, on this basis, the complainants provided evidence and calculations seeking to demonstrate that, in each sugarcane season from 2014-15 to 2018-19, India provided product-specific domestic support to sugarcane producers, in excess of the permitted level, through: (i) market price support, and (ii) non-exempt direct payments or other non-exempt policies. Regarding the mandatory minimum prices for sugarcane, the complainants submit that India provides domestic support, in the form of market price support, to sugarcane producers through the following measures, which are implemented through a number of legal instruments: i. The “Fair and Remunerative Price” (FRP), maintained by the Indian Central Government, which requires Indian purchasers of sugarcane to pay a mandatory minimum price to the sugarcane producers. The FRP is allegedly determined by the Central Government annually, based on the recommendations of the Commission for Agricultural Costs and Prices (CACP); ii. A number of “State-Advised Prices” (SAPs), maintained by certain Indian State Governments, which require purchasers of sugarcane to pay a mandatory minimum price to the sugarcane producers of the specific state. The SAPs are allegedly determined by the State Governments on an annual basis and are higher than the FRP. According to the complainants, where an SAP is applied, purchasers are required to pay the SAP instead of the FRP; and iii. A number of policies and payments provided by the Central Indian Government and certain State Governments that allegedly operate to assist sugarcane purchasers in paying the mandatory minimum price for sugarcane. In addition to market price support, the complainants submit that India provides domestic support to sugarcane producers in the form of non-exempt direct payments and other policies. Specifically, the complainants refer to: i. Tamil Nadu’s transitional production incentives in favour of sugarcane producers, for which the Tamil Nadu State Government budgeted certain amounts under the entry “Production Incentive to Sugarcane Farmers” for the sugar seasons 2017-18 and 2018-19; ii. Andhra Pradesh’s purchase tax remittances in favour of sugarcane producers, for which the Andhra Pradesh State Government budgeted certain amounts under the entry “Assistance to Co-operative Sugar Factories Towards Reimbursement of Purchase Tax Incentives” for the sugar seasons 2014-15 and 2015-16; and iii. Karnataka’s incentive price payments in favour of sugarcane producers, for which the Karnataka State Government budgeted certain amounts under the entry “Payment of Incentive Price for Sugar Cane through Sugar Factories. Subsidies” for the sugar season 2017-18. According to the Panel reports, as for India’s alleged export subsidies, the complainants identify the measures at issue as federal-level measures pertaining to sugar or sugarcane that provide subsidies contingent upon export performance, which are implemented through a number of legal instruments. The complainants challenge, as allegedly WTO-inconsistent subsidies contingent upon export performance, three schemes that operate in conjunction with Minimum Indicative Export Quotas (MIEQs) or Maximum Admissible Export Quantity (MAEQ). The MIEQ and MAEQ orders allocate sugar export quotas to sugar mills on a per-mill basis. They are adopted for each sugar season by the Department of Food and Public Distribution (DFPD), a Central Government agency that is part of the Indian Ministry of Consumer Affairs, Food and Public Distribution. Specifically, all complainants take issue with the following assistance schemes introduced by India: a. Production Assistance Scheme, which operates in conjunction with the MIEQ, implemented, inter alia, through: i. The “Scheme for extending production subsidy to sugar mills” for the sugar season 2015-16; ii. The “Scheme for Assistance to Sugar Mills” for the sugar season 2017-18; and iii. The “Scheme for Assistance to Sugar Mills” for the sugar season 2018-19. b. Buffer Stock Scheme, which operates in conjunction with the MIEQ, implemented, inter alia, through: i. The “Scheme for Creation and Maintenance of Buffer Stock of 30 Lakh MT”, introduced in 2018 (“Buffer Stock Scheme 2018”); and ii. The “Scheme for Creation and Maintenance of Buffer Stock of 40 Lakh MT”, introduced in 2019 (“Buffer Stock Scheme 2019”). c. Marketing and Transportation Scheme, which operates in conjunction with the MAEQ. In addition, Australia takes issue with the Duty Free Imports Authorization (DFIA) Scheme. According to the Panel reports, Brazil requested that the Panel find that India provides domestic support to sugarcane producers that exceeds the de minimis level of 10% of the total value of sugarcane production, and, therefore, acts inconsistently with its obligations under Article 7.2(b) of the Agreement on Agriculture. Brazil also requested that the Panel find that India provides export subsidies, within the meaning of Article 9.1(a) of the Agreement on Agriculture, in a manner inconsistent with Article 3.3 and Article 8 of the Agreement on Agriculture. Brazil thus requested, pursuant to Article 19.1 of the Dispute Settlement Understanding (DSU), that the Panel recommend that India bring its measures into conformity with its obligations under the Agreement on Agriculture. Australia requested that the Panel find that India provides domestic support to sugarcane producers that exceeds the de minimis level of 10% of the total value of sugarcane production, contrary to India’s obligations under Article 7.2(b) of the Agreement on Agriculture. Australia further requested that the Panel find that India’s Production Assistance and Buffer Stock Schemes, operating in conjunction with the MIEQ orders, the Marketing and Transportation Scheme, operating in conjunction with the MAEQ, and the DFIA Scheme: (i) constitute export subsidies within the meaning of Article 9.1(a) of the Agreement on Agriculture, and are, therefore, inconsistent with India’s obligations under Articles 3.3 and 8 of the Agreement on Agriculture, or, in the alternative, with Articles 8 and 10.1 of the Agreement on Agriculture; and (ii) constitute prohibited export subsidies that are inconsistent with India’s obligations under Articles 3.1(a) and 3.2 of the SCM Agreement. Australia also requested that the Panel find that, by failing to notify any of its annual domestic support for sugarcane and sugar subsequent to 1995-96, and its export subsidies since 2009-10, India has acted inconsistently with its obligations under Articles 18.2 and 18.3 of the Agreement on Agriculture and Article 25 of the SCM Agreement, or, in the alternative, Article XVI:1 of the GATT 1994. Australia thus requested, pursuant to Article 19.1 of the DSU, that the Panel recommend that India bring its measures into conformity with its obligations under the Agreement on Agriculture, the SCM Agreement, or the GATT 1994. With respect to the export subsidies prohibited under Article 3.1(a) of the SCM Agreement, Australia further requested that the Panel, consistent with Article 4.7 of the SCM Agreement, recommend that India withdraw them without delay within a time-period specified by the Panel. Guatemala requested that the Panel find that India acted inconsistently with Article 7.2(b) of the Agreement on Agriculture by providing domestic support that exceeds the de minimis level of 10% of the total value of sugarcane production. Guatemala further requested that the Panel find that India’s subsidies under the Production Assistance and Buffer Stock Schemes, which operate in conjunction with the MIEQs, and under the Marketing and Transportation Scheme, which operates in conjunction with the MAEQ: (i) constitute export subsidies under Articles 9.1(a) and 9.1(c) of the Agreement on Agriculture, for which India did not undertake reduction commitments, and thus violate India’s obligations under Articles 3.3, 8, and 9.1 of the Agreement on Agriculture; and (ii) constitute prohibited export subsidies within the meaning of Article 3.1(a) of the SCM Agreement. Guatemala thus requested, pursuant to Article 19.1 of the DSU, that the Panel recommend that India bring its measures into conformity with its obligations under the Agreement on Agriculture and the SCM Agreement. With respect to the measures that constitute prohibited export subsidies under Article 3.1(a) of the SCM Agreement, Guatemala requested that the Panel, in accordance with Article 4.7 of the SCM Agreement, recommend that India withdraw those measures without delay within a time-period specified by the Panel. India requested that the Panel find that: i. 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 total value of sugarcane production as per Article 7.2(b) of the Agreement on Agriculture; ii. the complainants have failed to meet their burden of showing that India’s Production Assistance Scheme, Buffer Stock Scheme, the 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; iii. the Marketing and Transportation Scheme falls within the scope of Articles 9.1(d) and (e) of the Agreement on Agriculture and is, therefore, permitted under Article 9.4 of that Agreement; iv. 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; v. notwithstanding the above, the complainants have failed to demonstrate that India’s Production Assistance Scheme, Buffer Stock Scheme, the Marketing and Transportation Scheme, and the DFIA constitute prohibited export subsidies that are inconsistent with India’s obligations under Articles 3.1(a) and 3.2 of the SCM Agreement; and vi. the DFIA falls within the scope of footnote 1, read with Annex I, of the SCM Agreement, and thus it is not a “subsidy” within the meaning of the SCM Agreement and the Agreement on Agriculture. In addition, India, in its first written submission, requested the Panel to issue a preliminary ruling finding that certain measures challenged by the complainants do not fall within the Panel’s terms of reference as per Articles 6.2 and 7.1 of the DSU. FINDINGS AND CONCLUSIONS With respect to Brazil’s claims regarding India’s domestic support to sugarcane producers, the Panel 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. The Panel, therefore, found that India is acting inconsistently with its obligations under Article 7.2(b) of the Agreement on Agriculture. With respect to Brazil’s claims regarding India’s export subsidies pertaining to sugar or sugarcane, the Panel found that India’s subsidies under the Production Assistance, the Buffer Stock, and the Marketing and Transportation Schemes are contingent on export performance within the meaning of Article 9.1(a) of the Agreement on Agriculture. Since India did not make export subsidy reduction commitments with respect to sugar in its Schedule, the Panel found that India’s subsidies contingent on export performance within the meaning of Article 9.1(a) are inconsistent with Articles 3.3 and 8 of the Agreement on Agriculture. The Panel concluded that, to the extent that the measures at issue are inconsistent with certain provisions of the Agreement on Agriculture, they have nullified or impaired benefits accruing to Brazil under that Agreement. The Panel recommended that India bring its WTO-inconsistent measures into conformity with its obligations under the Agreement on Agriculture. With respect to Australia’s claims regarding India’s domestic support to sugarcane producers, the Panel 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. The Panel, therefore, found that India is acting inconsistently with its obligations under Article 7.2(b) of the Agreement on Agriculture. With respect to Australia’s claims regarding India’s export subsidies pertaining to sugar or sugarcane, the Panel concluded that: a. India’s subsidies under the Production Assistance, the Buffer Stock, the Marketing and Transportation, and the DFIA Schemes are contingent on export performance within the meaning of Article 9.1(a) of the Agreement on Agriculture. Since India did not make export subsidy reduction commitments with respect to sugar in its Schedule, India’s subsidies contingent on export performance within the meaning of Article 9.1(a) are inconsistent with Articles 3.3 and 8 of the Agreement on Agriculture; b. Under the Production Assistance, the Buffer Stock, the Marketing and Transportation, and the DFIA Schemes, India provides subsidies contingent upon export performance, inconsistently with Articles 3.1(a) and 3.2 of the SCM Agreement. With respect to Australia’s claims regarding India’s notification obligations, the Panel concluded that: a. By failing to notify to the Committee on Agriculture its domestic support to sugarcane producers subsequent to the 1995-96 marketing year, as well as its export subsidies for sugar subsequent to the 2009-10 marketing year, India has acted inconsistently with its obligations under Article 18.2 of the Agreement on Agriculture; b. Australia has failed to demonstrate that India maintained certain buffer stock operations for sugar after the 1996-97 and 1997-98 marketing years, which India was allegedly required to notify under Article 18.3 of the Agreement on Agriculture after those marketing years. The Panel, therefore, rejected Australia’s claim that India has acted inconsistently with Article 18.3 of the Agreement on Agriculture; c. By failing to notify to the SCM Committee its export subsidies for sugar under the Production Assistance, the Buffer Stock, the Marketing and Transportation, and the DFIA Schemes, India has acted inconsistently with its obligations under Articles 25.1 and 25.2 of the SCM Agreement. The Panel concluded that, to the extent that the measures at issue are inconsistent with certain provisions of the Agreement on Agriculture and the SCM Agreement, they have nullified or impaired benefits accruing to Australia under those Agreements. The Panel recommended that India bring its WTO-inconsistent measures into conformity with its obligations under the Agreement on Agriculture and the SCM Agreement. Furthermore, with respect to India’s prohibited subsidies under Article 3.1(a) of the SCM Agreement, the Panel recalled Australia’s request that the Panel recommend, in accordance with Article 4.7 of the SCM Agreement, that India withdraw those subsidies without delay within a time-period specified by the Panel. In light of its conclusions above, and consistent with Article 4.7 of the SCM Agreement, the Panel recommended that India withdraw its prohibited subsidies under the Production Assistance, the Buffer Stock, the Marketing and Transportation, and the DFIA Schemes within 120 days from the adoption of the Panel report. With respect to Guatemala’s claims regarding India’s domestic support to sugarcane producers, the Panel 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. The Panel, therefore, found that India is acting inconsistently with its obligations under Article 7.2(b) of the Agreement on Agriculture. With respect to Guatemala’s claims regarding India’s export subsidies pertaining to sugar or sugarcane, the Panel concluded that: a. India’s subsidies under the Production Assistance, the Buffer Stock, and the Marketing and Transportation Schemes are contingent on export performance within the meaning of Article 9.1(a) of the Agreement on Agriculture. Since India did not make export subsidy reduction commitments with respect to sugar in its Schedule, India’s subsidies contingent on export performance within the meaning of Article 9.1(a) are inconsistent with Articles 3.3 and 8 of the Agreement on Agriculture; b. Having found that India’s Production Assistance, Buffer Stock, and Marketing and Transportation Schemes are inconsistent with Article 9.1(a) of the Agreement on Agriculture, the Panel did not consider it necessary to address Guatemala’s claim under Article 9.1(c) of the Agreement on Agriculture regarding the same Schemes; c. Under the Production Assistance, the Buffer Stock, and the Marketing and Transportation Schemes, India provides subsidies contingent upon export performance, inconsistently with Articles 3.1(a) and 3.2 of the SCM Agreement. The Panel concluded that, to the extent that the measures at issue are inconsistent with certain provisions of the Agreement on Agriculture and the SCM Agreement, they have nullified or impaired benefits accruing to Guatemala under those Agreements. The Panel recommended that India bring its WTO-inconsistent measures into conformity with its obligations under the Agreement on Agriculture and the SCM Agreement. Furthermore, with respect to India’s prohibited subsidies under Article 3.1(a) of the SCM Agreement, the Panel recalled Guatemala’s request that the Panel recommend, in accordance with Article 4.7 of the SCM Agreement, that India withdraw those subsidies without delay within a time-period specified by the Panel. In light of its conclusions above, and consistent with Article 4.7 of the SCM Agreement, the Panel recommended that India 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 Panel report.
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