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European Communities – Export Subsidies on Sugar (WT/DS266)

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1 European Communities – Export Subsidies on Sugar (WT/DS266)
By: Charles Conner Giovanella de Weever Jacqueline Doll

2 Presentation Overview
Background on sugar policies and trade regimes Analysis of dispute settlement case EU sugar sector reforms Potential impact on world sugar markets

3 Involved Parties Complainant Brazil, Australia, Thailand Respondent
European Communities Third Parties Barbados; Belize; Canada; China; Colombia; Cuba; Fiji; Guyana; India; Jamaica; Kenya; Madagascar; Malawi; Mauritius; New Zealand; Paraguay; St. Kitts and Nevis; Swaziland; Tanzania; Trinidad and Tobago; United States; Cote d’Ivoire Brazil is only complainant

4 Timeline Date Action September 27, 2002 Request for consultation
December 23, 2003 Panel Established October 15, 2004 Panel Report April 28, 2005 Appellate Report May 19, 2005 Adoption of Appellate Body report and the Panel report Article 21.3 (c) Arbitration report June 8, 2006 Australia, Brazil, and Thailand each reached an understanding under Articles 21 and 21 of the DSU Brief overview of the dates that will later come up in various parts of the presentation

5 EC’s Common Agricultural Policy (CAP)
Why it started Treaty of Rome Improving the lives of farmers Direct Subsidies Impact on Imports Quotas Structure Multifunctional Multilateral Shortly after World War II, the CAP was established under the Treaty of Rome when Europe was suffering from shortage of food supplies and agricultural productivity. Since its inception, the CAP is operated by the Member States and their respective governments. Europe wanted to ensure the survival of the agricultural sector and secure a constant supply of affordable food. This would allow Europe to become self sufficient from post-war reconstruction and help the growth of their farming industry. The main principles of the CAP: Compose a unified market for the free movement of agricultural products Preference for European products over imported Making sure farmers received the same incomes as other sectors Funding of the CAP would come from import tariffs and contributions from member states through the European Fund for Orientation and Agricultural Guarantee Direct Subsidies The CAP is to provide subsidies to farmers’ incomes while encouraging products of high quality and guaranteeing high prices to increase production. In the early 1990’s, however, the CAP went under reform due to large surpluses of major farming commodities. The CAP has since been demand-driven, decoupling the incentive of subsidies for production to encourage market-oriented farmers in a globalized economy. The CAP promotes the best production methods to improve the quality of their food by rewarding farmers who are mindful of the environment otherwise penalties can be imposed by deducting from subsidies. By providing financial assistance to farmers, the EC believes it will also advance rural development especially in many of the new member states. Impact on Imports Import levies are applied to specified goods imported into the EU. These are set at a level to raise the World market price up to the EU target price. The target price is chosen as the maximum desirable price for those goods within the EU. Import quotas are used as a means of restricting the amount of food being imported into the EU. Some non member countries have negotiated quotas which allow them to sell particular goods within the EU without tariffs. This notably applies to countries which had a traditional trade link with a member country. An internal intervention price is set. If the internal market price falls below the intervention level then the EU will buy up goods to raise the price to the intervention level. The intervention price is set lower than the target price. The internal market price can only vary in the range between the intervention price and target price. Structure The EC continues to seek bilateral, free trade and special agreements with other nations through the WTO and is committed to the rules of multilateral trade. The EC is the second largest exporter in the world and the biggest importer of agricultural products and claims to be the only wealthy nation that grants preferential access to its markets for imports from developing countries. According to the European Commission, the EU’s trade with developing countries surpasses that of major developed nations combined. From the CAP, the Common Market Organization (CMO) was introduced.

6 Common Market Organization (CMO)
Established in 1968, the CMO is a system of price imports, quotas, and income arrangements to support European sugar farmers A and B Sugar: two categories of sugar reaching certain quantities that are guaranteed a minimum price C Sugar: any sugar produced in excess of category A and B quantities. This sugar must be exported within a certain time frame, or a charge will be levied. Quotas are allocated to the member states, who in turn allocate quotas to each processor on the basis of its production in a reference period Principles The Common Market for Organizations was founded under the Common Agricultural Policy of the European Communities to govern production and trade of agricultural products from member states. CMO’s set minimum prices for products at the EU-market level and follow similar principles under CAP: Market stabilization Increase agricultural productivity Safeguard farmer’s income CMO’s Functions -Placing a price on products -Allocate subsidies -Establish mechanisms to regulate production such as quotas - A sugar - B sugar - C Sugar: Sugar produced outside the quota (overproduction) that is not carried over and exported without refund. The value of C sugar is the price set by the world market and the beet used to produce it is C beet. The C beet is paid for at a price negotiated between growers and manufacturers. -Provide the terms for exports and imports with developing nations As of today, 21 CMO’s exist and cover approximately 90% of Europe’s agricultural production and include rice, vegetable, sugar, fruits, wine, dairy products, etc. The EC is recognized as the third largest producer of sugar in the world after Brazil and India. The Common Market Organization for sugar was created to ensure fair income to producers and self supply of the EC market. Import tariffs and quotas were imposed to protect the EC sugar industry from external competition. Quotas and Prices To protect the internal market, the following was arranged: In 2005, the total quota amount is 17.4 million tons. A-quota(82 %) and B-quota (18%) set per Member State. These A and B quota correspond in principle to the demand on the internal market, and to the export of excess quota sugar with export refunds, respectively. For sugar produced outside the quota there is no support, nor can it be freely marketed within the EU. This sugar is declassified and considered C-sugar and must be exported without refund in the expense of the sugar industry and beet producers. Intervention Price – the price at which intervention agencies are required to buy in the eligible sugar delivered to them. It is guaranteeing a minimum price for sugar. € for a ton of white sugar Minimum Price for Sugar Beet – the price at which sugar factories are required to buy beet from the growers. These prices are set by the Council to ensure a fair income for the grower and a balance in the distribution of income from sugar between growers and factories. €46.27 for a ton for the A beet used to produce A quota sugar €32.42 for a ton for the B beet used to produce B quota sugar These prices are guaranteed only for production within quota €8 -10 for a ton for the C sugar.

7 ACP Sugar Protocol Intergovernmental agreement
Fixed quantities (raw/sugar cane) Indefinite period of time How much they’re guaranteed to import 1.6 million tons of sugar Biggest ACP sugar producers Swaziland Mauritius The EU exports an equivalent amount to imports from ACP countries. ACP : African, Caribbean and Pacific Group of States that currently consists of 79 countries. ACP/EU Sugar protocol is an agreement between governments signed in 1975 which guarantees access to the EU market for fixed quantities of ACP sugar at preferential prices over an indefinite period of time. The agreement is a commitment by the EC to buy certain quantities of sugar at a set price (in Euros) and a commitment by the ACP countries to supply that sugar. It is perceived as a development cooperation that allocates duty free quotas to the ACP countries and the LDC’s within the group. ACP countries are guaranteed to import approximately 1.6 million tons of sugar. Countries with a high percentage of their exports committed to the EU: Fiji, Mauritius, Guyana and Swaziland. The sugar protocol constituted more than 15 percent of Mauritius and Guyana’s exports. Biggest sugar producers from the ACP countries are Swaziland and Mauritius Mauritius accounts for over 25% of imports Among the top 10, all suppliers but Cuba are ACP countries benefiting from the Sugar Protocol In all ACP supplying states sugar is one of the most significant contributors to the national economy. For example, sugar generates over 17% of GDP in Guyana and 24% in Swaziland, while in Fiji sugar production is responsible for over 90% of agricultural output.

8

9 European Sugar Market (Sugar Regime)
Consumption 17.6 million tons 12% of world market consumption Production Third largest producer Roughly 20 million tons per year 14% of world market share Price of sugar Remains high in the EU Beet production is costly Net Exporter Consumption The EU consumes about 17.6 million tons (raw value) equaling about 12 percent of world consumption Production The EU is currently the third largest sugar producing country in the world (behind India and Brazil). In 2003/2004, the EU accounted for 14% of world market share. Production is around 20 million tons. Certain northern member states such as France and Germany are reasonably efficient producers and certain Mediterranean states, such as Greece and Italy, are inefficient producers. Sugar (taxpayer) subsidies cost the EU €1.7 billion a year (over $2 billion). Price Global sugar consumption rises by about 2% per year, and has increased 17% from 128 million tons in year 2000 to 150 million in The highest sugar consumption per capita is found in Brazil (59 kilograms of sugar per year), Mexico (53) and Australia (50). The European Union’s CMO maintains a price much higher than the world price, thus attracting developing countries. EU Price – 689 Euros/mt World Market Price – 213 Euros/mt Why does the EC have a higher price? Because the average cost of producing beet sugar is almost double the amount of producing raw cane sugar. Trade EU is a net exporter of sugar. Imports for 2004/2005 were forecast at 2.3 million tons, of this, almost 1.6 million tons are shipped under special preferential arrangements quotas awarded to various ACP countries. They arrive as raw sugar and then refined and exported with the aid of subsidies. Sugar (taxpayer) subsidies cost the EU €1.7 billion a year (roughly over $2 billion). Europe’s sugar sector is not as competitive as Brazil in producing sugar beets, and they are not as efficient as sugar cane that Brazil and others produce, therefore it is more expensive in the European Union. One of the crops subsidized by the CAP is sugar produced from sugar beet; the EU is by far the largest sugar beet producer in the world, with annual production at 17 million metric tons. This compares to levels produced by Brazil and India, the two largest producers of sugar from sugar cane. The European Sugar Regime exists to keep producers competitive, protect farming industry and maintain its prices.

10 Complainants Sugar Sectors
Brazil Production: 35.8 million tons Consumption: 9.45 million tons Exports: million tons Thailand Production: 7.7 million tons Consumption: 2 million tons Exports: 5 to 6 million tons Australia Production: 4.9 million tons Consumption: 1 million tons Exports: 4.1 million tons The world’s major sugar producers include: -Brazil -India -Thailand -China They account for 50% of world production and 59% of world exports for 2009/2010. Complainants Sugar Sectors Brazil: The largest sugar producer in the world. Produces an estimated 35.8 million tons of sugar. Accounts for 23% of world production. Brazil is also the largest sugar exporter in the world. Exports are estimated to be million tons. Mostly raw value. Background: Brazil is among the world leaders in the production of sugarcane, sugar, and ethanol. It is also the most efficient of all major sugar producers because Brazil has a diverse number of sugar products. Brazil ranks fifth as a sugar-consuming nation, with annual consumption measured at 9.45 million tons. Strong demand in India is a direct driver of increase in sugar exports both in raw value and refined sugar. Thailand: On of top five major sugar producers in the world. Sugar production is an estimated 7.7 million tons. Sugar exports are estimated at around 5-6 million tons. White and refined sugar (especially Molasses) exports have increased significantly. Mostly exported to India. Background: Thailand exports a bulk of its sugar, approximately 70%. From it’s sugar production, approximately 2 million tons is meant for domestic consumption. Although Molasses production, a by-product of sugar, has been increasing, sugarcane will be primarily used for sugar production due to attractive sugar prices. Domestic sugar prices are under upward pressure to a sharp increase in international sugar prices. Australia: One of the top ten sugar exporters and sugar producers. Sugar is the second largest export crop. Sugar production is an estimated 4.9 million tons. Exports approximately 80-85% of sugar (from sugarcane) or 4.1 million tons. Background: 94% of Australia’s sugar output comes from Queensland and about 5 % from northern New South Wales. The majority of Australia’s cane farms are owned and operated by families. The Australian sugar industry produces raw and refined sugar from sugarcane grown by over 6,500 farmers. The sugar is marketed on behalf of the state’s cane growers and mill owners through a single desk selling structure, with all net revenues being returned to producers.

11 Brazil’s Complaint Inconsistent with:
“The EC under Council Regulation No. 1260/2001, export subsidies for sugar and sugar containing products above its reduction commitment levels specified in Section II of Part IV of its schedule of Concessions” Inconsistent with: Article III: 4 and XVI of the GATT 1994 Articles 3.3, 8, 9.1(a) and (c), and 10.1 of the Agreement on Agriculture Articles 3.1 (a) and 3.2 of the SCM Agreement. Brazil’s position on the case: -Europe’s sugar sector is not as competitive as Brazil and producing sugar is more expensive for them since they produce sugar beets, which is not as efficient as sugar cane.

12 Consultations September 27, 2002 – Request for consultations by Brazil and Australia concerning the European Communities’ support for its sugar, allegedly in excess of its commitment schedule under Annex 2 of the Agreement on Agriculture March 14, 2003 – Thailand requests consultations with the EC on the same issue July 11, 2003 – Unable to reach a negotiated agreement with the EC, Brazil requests the establishment of a panel at the next DSB meeting September 27, 2002 – Request for consultations by the complainants Australia and Brazil was received with the European Communities concerning the export subsidies provided by the EC in the framework of its Common Market Organization for the sugar sector and all other policies and legislation relating to the EC regime for sugar and sugar containing products. March 14, 2003 – Thailand requested consultations with the EC on the same issue.

13 Complainants Argument/Position
The European Communities had exceeded their commitments on amber box subsidies under its reduction commitments schedule Price supports of A and B quota sugar effectively cross- subsidize C quota sugar. C sugar must be exported or carried over to fulfill the next year’s quotas ACP countries are guaranteed exports of 1.6 million tons annually into the EC, and an equivalent amount must be exported. Australia, Brazil and Thailand argued that: -the EC provides export subsidies in excess of the export subsidy commitments in relation to C sugar and an amount of 1.6 million tons of sugar per year and possibly also sugar in incorporated products -The EC provides export subsidies for sugar and sugar containing products above its reduction commitment levels under the Council Regulation (EC) No. 1260/2001 -the EC may also be paying a higher per unit subsidy on incorporated products than on the primary product -under the EC sugar regime refiners are paid a subsidy in the form of the intervention price, for refining EC sugar which is not available to imported sugar, thus affording less favorable treatment to imported products -The intervention price system for sugar guarantees a high price for the sugar that is produced within certain production quotas (A and B quotas) -C sugar, sugar produced in excess of these quotas, cannot be sold internally in the year in which it is produced: it must be exported or carried over to fulfill the following year’s production quotas -The EC’s CMO of the sugar sector allows exporters of C sugar to export at prices below its total cost of production -The export subsidies provided by the EC cover the difference between the world market price and the high prices in the EC for the products in question, thus enabling those products to be exported

14 Terms of Reference EC: Complainants’ claims under the Agreement on Agriculture are outside of the Panel’s terms of reference Violations of Article 3.3 and 8 are export subsidies, not “exports of sugar” Identification of violations were not specific enough Complainants merely referenced “sugar regime” or Council Regulation No /2001, which is 45 pages long Sugar exports are private transactions, not government measures within meaning of DSU 6.2 Complainants: Article 10.3 of AA reverses burden of proof. EC had to prove no export subsidies had occurred on exports in excess of its commitments Panel: Complainants were sufficiently specific and demonstrated that exports had occurred in excess of the EC’s Schedule, shifting burden of proof onto the EC. Therefore Complainants’ argument is within Panel’s terms of reference. Terms of Reference EC says complainants’ claims under AA Article 10.1 are outside Panel’s terms of reference ­­­Complainants had not properly identified inconsistent measures Violations of AA 3.3 and 8 not “export of sugar” but export subsidies Identification of violations by complainants were not specific enough, merely referenced “sugar regime” or Council Reg. No. 1260/2001, 45 pages long Exports of sugar are private transactions, not government measures w/in meaning of DSU 6.2 Complainants say AA 10.3 reversal of burden of proof does not require them to identify WTO provisions or definitions. The EC had to prove that no subsidy had been granted to sugar exports in excess of its commitments Panel says complainants were sufficiently specific and demonstrated that the EC was exporting in excess of its commitments, therefore the burden of proof fell on the EC and it was within the panels terms of reference to determine if export subsidies were applied to the excess exports. The complainants did identify some aspects of export subsidization in panel requests (AA 9.1(a) and 9.1(c)) Therefore, complainants’ argument that C sugar receives advantages w/in meaning of AA 9.1(c) is not outside terms of reference Obligations w/ respect to export subsidies Article 8 – Export Competition Commitments General prohibition on export subsidies Article 3.1 – makes commitments an integral part of GATT All WTO consistent export subsidies must have been specified in a Member’s Schedule in terms of quantity and budgetary outlays, and must have been subject to reduction commitments during the implementation period Article 10.3 – complainants must establish that exports above commitment levels have occurred. Once that is established the respondant must establish that no export subsidies occurred on exports in excess of its commitments EC commitment level for 2000/2001 was 1,273,500 tonnes, its actual exports were 4,097,000 tonnes Excess exported sugar is essentially composed of ACP/India and C sugar. EC does not dispute claim that ACP/India sugar is subsidized within meaning of AA 9.1(a) Pursuant to Article 10.3, the EC has not demonstrated that ACP/India sugar is not subsidized and therefore it is acting inconsistently with Article 3 and 8 of the AA

15 ACP/India Sugar EC: Exports of ACP/India sugar do not count towards its reduction commitments because of “Footnote 1” in its Schedule Footnote 1: “Does not include exports of sugar of ACP and Indian origin on which the Community is not making any reduction commitments. The average export in the period amounted to 1,6 mio t.” EC referred exclusively to Footnote 1 in relation to ACP/India sugar exports Panel: All export subsidies scheduled pursuant to Article 3 & 8 had to be subject to reduction commitments. Footnote 1 was not, therefore it was invalid. The EC itself apparently did not consider Footnote 1 as a commitment because it had not notified the WTO of its export subsidies with respect to ACP/India Sugar. Footnote 1 "Does not include exports of sugar of ACP and Indian origin on which the Community is not making any reduction commitments. The average of export in the period 1986 to 1990 amounted to 1,6 mio t." Footnote in Section II, Part IV of EC reduction commitment schedule EC arguing that its level of commitments includes an additional 1.6 million tones of ACP/India sugar as provided for in footnote 1 Complainants basically said the EC was trying to redefine the issue as footnote 1, when the complainants never cited footnote 1 as being a “measure at issue” EC referred exclusively to footnote 1 in relation to ACP/India equivalent sugar Panel says that the issue is not categorization of its subsidies but that the EC is exporting subsidized sugar in excess of commitment levels in Section II, Part IV of its schedule All export subsidies scheduled pursuant to AA 3 & 8 had to be subject to reduction commitments, because footnote 1 was not, it was therefore invalid The EC apparently did not consider footnote 1 as a commitment because it has not notified the WTO of its export subsidies with respect to ACP/India Sugar

16 C Quota Sugar Complainants: EC has created legal framework that encourages overproduction of sugar, segregates the export market for C sugar from the domestic market by imposing sanctions on exports, and generates profits and capital used to fund exports below the cost of production for C sugar. This framework is in effect a payment under Article 9.1(c) of the Agriculture Agreement. EC: C sugar exporters only get payment from world markets. Those prices should be relevant benchmarks. Panel: A Quota Sugar purchased at Euros/ton; B Quota Sugar purchased at Euros/ton. About 350 percent and 250 percent of world market prices respectively. Growers of A and B beet also grow C beet. There are no independent C sugar beet producers, therefore the minimum prices paid to A and B producers cross-subsidizes C producers. Complainants say the EC has created a legal framework that encourages the overproduction of sugar, segregates the export market for C sugar from the domestic market by imposing sanctions for exports of sugar, generates profits and capital used to fund below production costs exports of C sugar This legal framework contemplates payments within the meaning of AA 9.1(c) EC says exporters of C sugar only get payment from world markets. World market prices should be the relevant benchmarks in the dispute A Sugar beet euros/ton, B sugar beet euros/ton Growers of A and B beet also grow C beet. There are no independent C sugar beet producers, therefore minimum prices paid to A and B beet producers cross-subsidizes C beet producers, who are the same Export refunds cover difference between the EC intervention price and the export price of sugar Ultimately, price of A quota sugar is 350 percent of world prices and B quota sugar is about 250 percent

17 C Quota Sugar, cont’d Inconsistent with Article 9.1(c) – payments made on the export of an agricultural product that are financed by virtue of government action. Canada-Dairy Appellate Body: Provision of an agricultural input below its total costs of production constitutes a “payment” to the processor of that input. A payment may be granted in a form other than money payment, including revenue foregone. Violation of Article 9.1 (c) requires demonstration of three elements: Payments must be made Must be made on the export of an agricultural product Must be financed by virtue of governmental action Canada – Dairy says that provision of an agricultural input below its average total costs of production constitutes a “payment” to the processor of that input In that case the Appellate Body established that examining whether a measure constitutes a payment must be determined on a case by case basis A “payment” may be granted in a form other than money payment, including revenue foregone Panel says that because the EC could not establish that excess exports were not subsidized, the EC is in violation of Article 3 and 8 of the AA Cross-subsidization from A and B payments constitutes an export payment Intervention price is approx. 3 times world market prices, but EC regulations enable quota sugar to be sold at prices well above the energy price so intervention rarely occurs Payments include payment in the form of below costs C beet sales to C sugar producers, cross-subsidization from profits made on sale of A and B sugar, exports of sugar below total costs of production and payments in the high prices paid by consumers It is undisputed that EC producers receive payment for less than the total cost of production Because C beet must be processed into C sugar which must be exported, payments by way of below cost of production sales of C beet to C sugar producers are “on the export” EC sugar regime arrangements result in C sugar producers receiving payments on the export “financed by virtue of government action”

18 C Quota Sugar, cont’d Panel: Below costs C beet sales to C sugar producers, cross- subsidization from profits made on sale of A and B sugar, and exports of sugar below total costs of production constitute export payments. Because C beet must be processed into C sugar which must be exported, payments are made “on the export.” EC sugar regime arrangement results in C sugar producers receiving payments on the export “financed by virtue of government action.” Exports of C quota sugar are subsidized by the EC government in excess of its reduction schedule, and are therefore inconsistent with the EC’s obligations under Articles 3 and 8 of the Agreement on Agriculture

19 Panel Conclusions Panel found that the EC’s total exports of sugar exceeded its quantity commitment level, inconsistent with Articles 3.3 and 8 of the Agreement on Agriculture Since 1995, the EC provided export subsidies within the meaning of Article 9.1 (a) of the Agreement on Agriculture to exports of “ACP/India equivalent sugar” Also since 1995, the EC provided export subsidies within the meaning of Article 9.1 (c) of the Agreement on Agriculture to its exports of C sugar The EC did not demonstrate that its sugar exports in excess of its commitment levels were not subsidized, and was therefore acting inconsistently with the Agreement on Agriculture July 9, 2003 – Australia, Brazil and Thailand request the establishment of a panel August 29, 2003 – the Dispute Settlement Body established a single panel Third party rights were reserved by Barbados, Canada, China, Colombia, Jamaica, Mauritius, New Zealand, Trinidad and Tobago, U.S., Belize, Cuba, Fiji, Guyana, Paraguay, Swaziland, India, Madagascar, Malawi, St. Kitts and Nevis, Tanzania, Kenya and Cote d’Ivoire. October 15, 2004 – Panel found that: 1. The European Communities’ total exports of sugar exceeded its quantity commitment level, in violation of Articles 3.3 and 8 of the Agreement on Agriculture. 2. The European Communities provided export subsidies within the meaning of Article 9.1(a) of the Agreement on Agriculture to exports of “ACP/India equivalent sugar” since 1995. 3. The European Communities provided export subsidies within the meaning of Article 9.1(c) of the Agreement on Agriculture to its exports of C sugar since 1995. 4. The European Communities did not demonstrate that its exports of sugar in excess of its commitment level are not subsidized (as required by Article 10.3 of the Agreement on Agriculture)

20 Panel Recommendations
Bring EC Council Regulation No. 1260/2001 into conformity with its export subsidies obligation under Articles 3.3 and 8 of the Agreement on Agriculture EC should bring its production of sugar more into line with domestic consumption while respecting its international commitments with respect to imports The Panel recognizes the EC’s statement on its commitment to ACP countries and India. Reform of its sugar regime can continue import preferences. After Panel findings, they recommended the following changes: -bring EC Council Regulation No. 1260/2001 into conformity with its export subsidies obligations under the Agreement on Agriculture -consider measures to bring its production of sugar in line with domestic consumption while fully respecting international commitment (pursuant to Article 19.1 of the DSU) January 13, 2005 – EC notified its intention to appeal certain issues of law and legal interpretations developed by the Panel

21 Appellate Body Findings
Upheld panel findings that the EC was in violation of its commitments with regard to C Sugar and and preferential treatment of ACP imports Disagreed that footnote 1 had no legal effect, but agreed that it did not have the effect of enlarging the EC’s quantity commitment levels Disagreed with the panel’s decision to not consider complainants’ claims regarding the SCM agreement April 28, 2005 – Appellate Body (AB) released its report on the appeal It upheld the following Panel Findings: The EC’s subsidizes sugar exports beyond the level formally notified to the WTO – the ‘commitment schedule’ – and was thus in violation of the WTO Agreement on Agriculture. Sugar exports in excess of the EC’s commitment level equaled the amount of sugar imported under preferential arrangements from the ACP countries and India, as well as that of sugar produced in excess of EC sugar quotas or C sugar. Recall that the EU had argued that footnote 1 in its commitment schedule excluded 1.6 million tons of sugar – equivalent to the quantity it imported from the ACP and India – from the subsidies reduction requirements. The Panel dismissed this argument explaining that the footnote had no legal effect and could not enlarge or modify the EU’s specified commitment levels. The Appellate Body ruled that the footnote did indeed have legal effect – but not “the legal effect of enlarging or otherwise modifying the EU’s commitment levels as specified in its schedule.” Therefore, the Appellate Body found the Panel erred in applying “judicial economy” on the SCM claim and failed to discharge its obligation under dispute settlement rules. However, the AB declined to further analyze the claims under the SCM agreement left unaddressed by the Panel because it was not presented with enough information to allow the appropriate period of time to withdraw subsidies that would have been found to be prohibited under the SCM agreement. Source

22 Implementation May 19, The DSB adopted the Appellate Body Report and also the Panel Report, which had been modified. In recent 2010 discussions, the EC recently decided to export an additional “half a million tons” of a particular category of sugar, also known as “out of quota” sugar. The total will now be two million tons, and Australia, Brazil and Thailand objected to this decision. Australia, Brazil, and Thailand repeated their statement recently made in the DSB in reference to WTO cases DS265, DS266, and DS283 May 19, 2005 – The DSB adopted the Appellate Body report and the Panel report , as modified by the Appellate Body report. Australia, Brazil and Thailand objected to the EU’s recent decision to export an additional “half a million tons” of a specific category of sugar, also known as “out of quota” sugar. This will bring the total to almost two million tons.

-Australia, Brazil, and Thailand repeated a statement they recently made in the Dispute Settlement Body. The three referred to the disputes they brought to the WTO (cases DS265, DS266, DS283, where they said the EU undertook to cut its subsidized sugar exports to million tons. -The three countries stated that they were not consulted about the new exports, and stated that the new exports had depressed world prices. Each country urged the EU to provide further data on production costs and prices to clarify the rationale for the exports. -The EU responded and said that the increase is temporary and the sugar is not subsidized. (Changes in Implementation)/Current events -The Committee agreed that the Inter-American Institution for Cooperation on Agriculture (IICA) should become an observer. Since WTO members are currently deliberating the issue of new observers, Inter-American Institute for Cooperation on Agriculture will be an “ad hoc” observer, which is not permanent but invited to the meetings -Australia posed questions to EU, one was asked with broader implications than bilateral interest was from Australia about the method that the EU uses to revise its commitments on export subsidies and to take into account the addition of new members. The membership now is 25 and 27 from 15, thus Australia was concerned that their recent decisions would lead to a weaker commitment by the EU. Souce:

23 EC’s Solution EC’s sugar reforms
EU lost DS266, and the sugar regime was set to expire on June 30, 2006 The objectives of the reform included: 1. regular supply of sugar 2. making the sugar sector more competitive 3. market orientation 3. fair standard of living for farmers 4. maintain preferential access for ACP and LDC producers 5. Limit budget costs 6. Simplify regime and make transparent The reforms resulted in a significant price reduction and direct payments to farmers increased EC’S sugar reforms: Reasons why the sugar regime was reformed: -The Sugar sector has maintained artificially high prices -EU lost DS266 -The Sugar regime was set to expire on 30 June 2006 -The Prolongation of that system was not an option Objectives of reform included: -Guarantee regular supply of sugar -Make sugar sector more competitive -Market orientation -Fair standard of living for farmers -Maintain preferential access for ACP and LDC producers -Simplify regime and make transparent -Limit budget costs Key elements of reform: Significant price reduction EU support prices replaced by ‘reference’ prices Reference price cut by 36% between 2006 and 2010 Minimum price for beet cut to EUR 26.3/tonne Direct payments to farmers increased (equivalent to 64% of loss from price support repeal) Direct payments will be decoupled and become part of the Single Payment Scheme A temporary restructuring fund will finance adjustment to new economic situation A and B quotas will be merged into a single quota Improved incentives for industrial uses of biofuels Budget neutrality

24 Broader Implications and Issues
Impact on world sugar market Impetus for the DOHA round, along with Brazil’s US Cotton WTO Case DS 267 Bilateral interest National and International Interests Involved The affects on US trade producers and ACP countries Diversification of Crops Impact on World Sugar Market and prices: Explain how it has affected world prices and world market. This Sugar case ties in with Brazil’s US Cotton Case DS267, which was filed on the same day. Both cases served as an impetus for the DOHA round. In Hong Kong, it was discussed that the DOHA rounds were no longer relevant or pertinent, however with these two cases against big agricultural subsidizing countries, Doha became more relevant. When Brazil won, it served as an impetus for the DOHA rounds and to resume continued discussions. Countries were able to move forward with DOHA and these two cases served as an example of countries facing agricultural subsidies issues. Talk about the reaction and changes they have implemented after the cases, how it will affect US trade producers and ACP countries as well, (What are the national and international interests involved) One impact of the ACP countries is that it will force them to diversify the crops they produce -The EU decision to let its sugar beet producers dump excess output on the world market could fuel bigger exports of the sweetener. -The Global Sugar Alliance said to the European Commission that it feared the commission’s decision in January to allow exports in excess of quotas would give EU beet producers incentives to boost output. -The dispute in WTO removed 6 million tons of European sugar from the world market from 2006 and set quotas for the amount the EU could sell to consumers in other countries. In January, the EU authorized the export of an additional 500,000 tons of out-of-quota sugar. (2009/2010 marketing year) -The EU’s decision had significant market consequences, and acted as a catalyst for a change in market sentiment and drastically changed sugar prices -IMPLICATIONS for EU: the consequences for EU producers are small. As EU internal prices remain well above world market prices, the consequences are much worse for world market producers. The EU did not consult Australia, Thailand and brazil and did not provide information backing its assertion that world sugar prices exceed the EU’s cost of production. -The additional exports are in breach of its WTO obligations. The countries are hoping that a further WTO panel is unnecessary but if the EC fails to act, then they will.

25 Sources ACP/EU Sugar Protocol. African, Caribbean and Pacific Sugar Group Common Agricultural Policy. Wikipedia. EU sugar sector: Facts and Figures  Sugar and the European Union: Implication of WTO Findings, and Reform. USDA-Foreign Agricultural Service http://www.fas.usda.gov/htp/sugar/2004/internet%20article%20on%20wto%20and%20reform%20rev1.pdf Sugar: World Production Supply and Distribution. USDA-Foreign Agricultural Service. September The Sugar Industry. Australian Government-Department of Agriculture, Fisheries and Forestry. 13 Feb The Common Agricultural Policy: A Brief Introduction. Institute for Agriculture and Trade Policy. September The Common Agricultural Policy Explained. European Commission: Agricultural and Rural Development. The Common Organization of the Market in Sugar. European Commission: Agriculture Directorate-General. September The European Sugar Sector: A long-term competitive future. European Commission. September


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