India in the WTO

The Hindu Business Line reports that Indian authorities have launched their first anti-subsidy investigation against China.

Following a petition by Deepak Nitrite Ltd, which accounts for more than 50 per cent Indian production, the Designated Authority in the Directorate General of Anti-Dumping & Allied Duties has initiated the countervailing duty probe on imports of sodium nitrite from China. The petitioner has alleged that producers of sodium nitrite from China have benefited from a host of countervailable subsidies. They advanced evidence showing existence of certain schemes/programmes claiming that the same constitute countervailable subsidies to vindicate initiation of a probe.

The actionable Chinese subsidies alleged by the Indian petitioner include "China’s grant programmes, preferential lending, income tax programmes conferred by the Chinese authorities for foreign invested enterprises (FIEs), corporate income tax refund programme for reinvestment of FIE profits in export-oriented enterprises, preferential tax policies for R&D for FIEs, income tax credits on purchases of domestically produced equipment applicable to domestically owned companies, provision of electricity, natural gas, water utilities for less than adequate remuneration and provision of land for less than adequate remuneration."

The period under investiigation is from April 1, 2007 through to March 31, 2008, and China claims that many of its schemes and programmes had been revoked or modified in this period.

India already imposes anti-dumping duty on Chinese sodium nitrite and the news report states that a mid-term review of these has been carried out.

Xinhua reports that the Chinese government has expressed serious concerns over this investigation. It also protested an Indian special safeguards investrigation launched into sodium carbonate imported from China. 

I can’t find details online regarding this subsidy investigation by the Indian authorities, but India seems to have taken the unilateral option of an anti-subsidy investigation. I suspect the measures under challenge may overlap with those challenged by the US and others before the WTO dispute settlement mechanism in WT/DS387/1 as prohibited subsidies under Article 3 of the SCM agreement.  In this request for consultations made as recently as 7 January 2009, the US has listed as many as 107 Chinese measures and claimed that these constitute prohibited subsidies, violate China’s accession protocol, and appear to violate China’s national treatment oligations under GATT article III.  In an earlier request for consultations (WT/DS358/14) the US had made a similar complaint about Chinese subsidies which was mutually settled by an MoU between China and the United States in January 2008.

Well, this should be a long and difficult investigation by India. I suspect that the issue will eventually be mutually settled.

As mentioned on this blog (see here), Thailand, Australia and Brazil had complained last year that freight subsidies available for Indian sugar exports might violate WTO subsidies disciplines.  The Indian Central Government has responded by declaring that these subsidies will end in October this year. See the Economic Times report, which also speculates on whether the sugar trade will be liberalised in the forthcoming budget.

The sugar trade in India is controlled by the government, which sets a monthly limit on the quantity that millers can sell freely in the market to ensure stable supplies and prices in the nation of more than a billion people.
Every year before the Budget there is talk the government, which has liberalised most parts of the economy, will open up the sugar sector but this has not happened so for.

Update (29 Feb) – Bloomberg reports on how the Indian sugar industry will react to the cutting-short of freight subsidies and on the background to the issue.

India, the world’s second-biggest sugar producer, may export more of the sweetener this year than previously forecast as mills boost sales before the government scraps a subsidy in October, seven months sooner than planned.

Overseas sales may total as much as 5 million metric tons in the year ending Sept. 30, compared with 3.5 million tons forecast previously, said Prakash Naiknavare, managing director of the Maharashtra State Co-operative Sugar Factories Federation Ltd.

A surge in exports from the South Asian nation may slow this year’s 35 percent gain in global sugar prices. Raw sugar, traded in New York, is the sixth-best performer this year among 26 futures in the UBS Bloomberg Constant Maturity Commodity Index.

“I think it’s a golden opportunity to lower supply in India and companies will respond anyway,” Narendra Murkumbi, managing director of Shree Renuka Sugars Ltd., India’s biggest refiner of the commodity, said in a phone interview. “Uncertainty about the subsidy had caused a lull in exports. That’s ended.”

…

India shipped only 1.7 million tons last year because of a ban on exports that was lifted in January 2007.

Mills have shipped 2.5 million tons since Oct. 1, with raw sugar accounting for 60 percent of sales, and can export as much through September, Naiknavare said.

The government will help:

Farm minister Pawar said Feb. 26 he’d be “happy” if the industry sells 5 million tons overseas and promised to ease delay in shipments because of congestion at ports and non-availability of wagons.

…

“The government has promised to help with more railway rakes and priority loading at ports to ensure we ship as much sugar as possible,” he said. “Selling another 2.5 million tons isn’t a tall order.”

Dr. Nagesh Kumar of RIS, writes in the Economic Times that the forthcoming budget might include subsidies for R&D and product development to help Indian industry to move up the value chain and build long-term competitive advantage.

…But more importantly, the finance minister may announce the creation of a large fund to assist Indian companies in their R&D and product development activity for building and sustaining long-term competitive advantage of Indian industry. The only way for Indian companies to compete in the face of rising rupee is to move up the value ladder towards product competition from price competition. In this process, innovative activity plays a key role.
Some of the world’s most advanced countries such as the US and the EU provide huge R&D subsidies to their national enterprises running into billions of dollars to bolster their international competitiveness. Private investment in R&D activity is likely to be inadequate. Private companies are also unlikely to invest borrowed resources on a highly risky activity like R&D which explains poor offtake from the funds created by the government for providing soft lending for R&D activity.
Besides this conceptual rationale of R&D subsidies, they are fully consistent with the WTO regime to the extent of 50% of the project cost.

As posted earlier, Thailand and Australia had recently complained (Nov 2007) about India’s allegedly WTO-inconsistent subsidies for sugar exports. And now its Brazil complaining.

Reuters reports that the Brazilian sugar industry is studying Indian subsidies in order to convince their government to take up the matter with the Indian govt.

“This is an export subsidy that violates article 9.4 of the Agreement on Agriculture, and we consider it questionable,” Jank told Reuters by telephone, adding that India does not have a WTO commitment that enables the use of export subsidies.

…

India extended domestic freight subsidy in October by one year given to sugar mills which have been hit by a drop in international prices, caused by a world sugar glut.

So until April 2009, India’s government is expected to offer sugar mills a subsidy of $30 to $35 per tonne to boost exports.

Encouraged by high sugar prices through mid-2006, India increased its planted area for cane and is expected to surpass Brazil as the world’s top sugar producer this season.

Its sugar surplus has been forecast to rise to 11 million tonnes this year, up from 4 million tonnes in 2006.

“This assistance doesn’t make sense as they are currently subsidizing international consumers as world prices fall. It’s not good for them, nor for any exporter”, Jank said.

He said India should divert subsidies to ethanol production, contributing not only to reduce the country’s sugar surplus but also to solve its internal energy problem.

“This would be the fastest way. The other way is more complicated, a dispute, which we are obviously examining,” he said.

The suggestion to divert subsidies to ethanol production is interesting. I will be posting on the policy and activity in India on biofuels including ethanol.

Indian newspapers are reporting on a potential new WTO dispute against India. Australia and Thailnd have sought clarifications from India on what could be Indian government subsidies to Indian sugar exporters.

The Hindu explains

The Indian government has been compensating exporters to the extent of Rs 1,350 per ton in coastal states and Rs 1,450 per ton in other states. However, the government has remained cautious in usage of the words for extending the sop lest the move should attract WTO provisions against subsidy.

The government says it is only “defraying” the transport cost, which should not be treated as subsidy.

India is set to displace Brazil as the number one sugar producer in the world with an estimated output of 30 million tons and double its exports to 4.5 million tons in 2007-08, according to the UN body – Food and Agriculture Organisation.

The world sugar production this year is estimated to reach 169 million tons (raw sugar equivalent), 2.7 per cent more than in the previous year, and about 12 million tons higher than the projected global sugar consumption of 157 million tons.

See http://www.hindu.com/thehindu/holnus/015200711251040.htm

Update

For more detail about the sugar industry in India and domestic support measures that are being questioned at the agricultural committee of the WTO,

see the India Sugar Annual GAIN report (IN7035) by the USDA Foreign Agricultural Service dated 20 April 2007, available here http://www.fas.usda.gov/gainfiles/200704/146280893.pdf

Also see the more recent GAIN semi-annual report on India sugar IN7092 here http://www.fas.usda.gov/gainfiles/200709/146292539.pdf