Features International Sugar Journal

Yesterday, they were mired in a trade dispute at WTO; today, Brazil and India are partnering in biofuels production

In 2019, key sugar exporters, led by Brazil, lodged a formal complaint at the WTO against India over subsidies on sugar exports and support to its cane sector. Brazil claimed that the dumping of surplus sugar by India had suppressed global prices by 25%, and Brazilian sugar companies lost between US$1.2 billion and US$1.3 billion as a result. On 14th December 2021, the dispute settlement panel at WTO ruled against India. But India was not overly concerned. It appealed to the Appellate Body.

On10th December 2019, the Appellate Body ceased to function when the terms of two of the remaining three members of its Appellate Body expired. It is meant to have seven. The United States has blocked every proposed appointment and reappointment since June 2017, meaning that the Appellate Body is left with just one member. The US has resented the minority of Appellate Body decisions that have not gone its way in the past and accuses the seven-member tribunal of judicial overreach. Both presidents Donald Trump and Joe Biden have refused repeated requests from most other WTO members to discuss reforming the Appellate Body that might allow its work to resume. The impasse means that all appeals go into limbo, which has already happened to more than 20 cases since the Appellate Body became inquorate. The Appellate Body hears appeals from WTO adjudications. If it can’t function and there is an appeal, those adjudications have no force.

So, it was a pyrrhic victory for Brazil et al. That is all.

In an act of commercial expediency, Brazil has decided to move on and embrace an opportunity that India proffered. Recent press reports1 are replete with high-level delegations from both countries fostering an “alliance on Bioenergy and Biofuels”.

In August 2018, Prime Minister Modi spearheaded a new, ambitious biofuels policy to reduce import of crude oil imports while addressing the Paris Climate deal it was a signatory.

Of course, India’s new biofuels policy is the get out of jail card for the industry. The government has incentivised ethanol production through high prices and recently extended the submission deadline for sugar mills to propose building a new ethanol plant attracting a subsidised interest rate. The government has already received around 150 proposals from sugar mills seeking a soft loan to build new ethanol plants. In addition to the subsidised interest rate, the government has also allowed tripartite agreements among mills, oil marketing companies (OMCs) and banks for such projects. The provision of cane juice for biofuels production is similar to what happens in Brazil.

The new alliance between Brazil and India will doubtless be perceived as a bridge-building exercise. With the deal, India will have access to tested, proven biofuels technology developed in Brazil and deployed at its many mills.

Cynical observers may see this as a consolation prize for Brazil. But under the circumstances, Brazil knows that India’s arm will not be twisted to comply and reform its policy. Sugar is the most highly regulated of all commodities in India. Since the market arm of policy control was relaxed, cyclical production has been checked. But with many politicians coming from the sugar sector, the production arm of policy control is still there. This favours some 50 million cane growers. So, while they can, the politicians in India are simply not going to pay the price for a free market principle which includes their careers and the livelihood of many in the rural economy.

Endnote

1 See https://www.bnamericas.com/en/news/brazil-and-india-to-forge-partnership-to-promote-bioenergy-and-biofuels, https://www.moneycontrol.com/news/business/india-brazil-to-develop-alliance-for-bioenergy-and-virtual-centre-of-excellence-on-ethanol-8390661.html