At WTO, India under increasing trade fire

• Australia recently referred to the World Trade Organization (WTO) over subsidies paid to sugarcane farmers by India.

Highlights of the news

• Australia’s recent move to refer India to the WTO comes in the backdrop of the the Indian government approving a fresh Rs 5,538-crore package for the sugar industry in September.
• Australia claims that subsidies paid by India to sugarcane farmers have created a global surplus that is affecting its own farmers.
• Australia has submitted a ‘counter-notification’ to the WTO that is expected to be discussed by the Committee on Agriculture towards the end of November in Geneva.
• The next step would be a formal dispute action.

Highlights of the news

• Incidentally, the mounting list of trade disputes coincides with a phase when India has resorted to well over a dozen hikes in customs duties covering over 400 items during the last 24-30 months.
• Hikes in custom duties marked a “calibrated departure” from the underlying policy of reducing import duty that was consistently followed by successive governments over the last two decades.
• Trade analysts point to the trend being a cause for concern, especially the increasing intensity of action by countries and the leeway that this offers for other nations to cite the penal action as a justification in their submissions. 
• India’s stated position on the issue is that the country’s sugar exports comply with WTO rules as it does not extend a subsidy to its farmers for exports, but instead gives a production subsidy.

Other recent contentions at the WTO

• India has lately suffered a series of challenges and reverses at the WTO.
• In 2016, the dispute settlement panel of WTO had ruled in favour of a US complaint against the requirement that power producers under the Jawaharlal Nehru National Solar Mission compulsorily procure a part of solar panels and modules for their projects from domestic producers.
• India had also lost a key trade dispute at the WTO after a settlement panel largely upheld Japan’s complaint on the imposition of safeguard duty on imports of hot-rolled steel flat products during September 2015 and March 2018. The panel held that the safeguard duties imposed by India at different periods during 2015 and 2018 are “inconsistent” with core provisions of the WTO’s Safeguards Agreement.

Dispute between India and the US over cotton subsidies

• Recently, the US alleged to the WTO that India has paid out far more in cotton subsidies than the WTO rules permit.
• The US’ contention was that India has paid out far more in cotton subsidies than the rules permit.
• India has previously dismissed these allegations and has demanded that MPS 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.
• Besides cotton, in an earlier consultations request by the US in the WTO during the second week of March 2018, it listed 27 examples of Indian laws and regulations that it claimed are WTO-prohibited export subsidies.
• In May 2018, the US submitted a communication under provisions of the WTO Agreement on Agriculture (AoA), stating that India has “under-reported” its domestic support provided for wheat and rice and “breached” its commitments under the WTO AoA.
• India has refuted the calculations done in the US counter notifications as being flawed on technical grounds and asserted that the methodology used by India in its domestic support notifications is in accordance with the rules under the AoA,

About WTO

• The World Trade Organization (WTO) is the only international organization dealing with the global rules of trade between nations.
• Its main function is to ensure that trade flows as smoothly, predictably and freely as possible.
• The WTO has many roles:
  • It operates a global system of trade rules,
  • It acts as a forum for negotiating trade agreements,
  • It settles trade disputes between its members and it supports the needs of developing countries. 
• The World Trade Organization came into being in 1995.
• One of the youngest of the international organizations, the WTO is the successor to the General Agreement on Tariffs and Trade (GATT) established in the wake of the Second World War.
• The bulk of the WTO’s current work comes from the 1986–94 negotiations called the Uruguay Round and earlier negotiations under the General Agreement on Tariffs and Trade (GATT).
• The WTO is currently the host to new negotiations, under the ‘Doha Development Agenda’ launched in 2001.

About Agreement on Agriculture (AoA)

• The Agreement on Agriculture (AoA) is an international treatyof the World Trade Organization.
• It was negotiated during the Uruguay Roundof the General Agreement on Tariffs and Trade, and entered into force with the establishment of the WTO on January 1, 1995.
• The Agreement on Agriculture constitutes of three pillars—domestic support, market access, and export subsidies.
• Domestic Support
  • AoA divides domestic support into two categories -trade distorting and non- trade distorting(or minimal trade distorting).
  • The WTO Agreement on Agriculture negotiated in the Uruguay Round (1986–1994) includes the classification of subsidies by "boxes" depending on consequences of production and trade:
    • Amber Box subsidy (most directly linked to production levels)
    • Blue Box Subsidy (production-limiting programmes that still distort trade)
    • Green Box subsidy (minimal distortion).
  • While payments in the amber box had to be reduced, those in the green box were exempt from reduction commitments.
  • The Agreement on Agriculture's domestic support system currently allows Europe and the United States to spend $380 billion a year on agricultural subsidies.
  • The World Bankdismissed the EU and the United States' argument that small farmers needed protection, noting that more than half of the EU's Common Agricultural Policy subsidies go to 1% of producers while in the United States 70% of subsidies go to 10% of its producers, mainly agribusinesses.
  • These subsidies end up flooding global markets with below-cost commodities, depressing prices, and undercutting producers in poor countries, a practice known as dumping.
• Market access
• Market access refers to the reduction of tariff (or non-tariff) barriers to trade by WTO members.
• The 1995 Agreement on Agriculture consists of tariff reductions of:
  • 36% average reduction - developed countries - with a minimum of 15% per-tariff line reduction in next six years.
  • 24% average reduction - developing countries - with a minimum of 10% per-tariff line reduction in next ten years.
• Export subsidies
• Export subsidies are the third pillar.
• The 1995 Agreement on Agriculture required developed countries to reduce export subsidies by at least 36% (by value) or by 21% (by volume) over six years.
• For developing countries, the agreement required cuts were 14% (by volume) and 24% (by value) over ten years.

 Section Economics