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

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Presentation on theme: "European Communities – Export Subsidies on Sugar (WT/DS266) By: Charles Conner Giovanella de Weever Jacqueline Doll."— Presentation transcript:

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 ComplainantBrazil, Australia, Thailand RespondentEuropean 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 dIvoire Involved Parties

4 DateAction September 27, 2002Request for consultation December 23, 2003Panel Established October 15, 2004Panel Report April 28, 2005Appellate Report May 19, 2005Adoption of Appellate Body report and the Panel report April 28, 2005 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 Timeline

5 ECs Common Agricultural Policy (CAP) Why it started Treaty of Rome Improving the lives of farmers Direct Subsidies Impact on Imports Quotas Structure Multifunctional Multilateral

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

7 ACP Sugar Protocol Intergovernmental agreement Fixed quantities (raw/sugar cane) Indefinite period of time How much theyre 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.


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

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

11 Brazils Complaint 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.

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

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 years quotas ACP countries are guaranteed exports of 1.6 million tons annually into the EC, and an equivalent amount must be exported.

14 Terms of Reference EC: Complainants claims under the Agreement on Agriculture are outside of the Panels 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. 1260/2001, 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 ECs Schedule, shifting burden of proof onto the EC. Therefore Complainants argument is within Panels terms of reference.

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.

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.

17 C Quota Sugar, contd 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.

18 C Quota Sugar, contd 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 ECs obligations under Articles 3 and 8 of the Agreement on Agriculture

19 Panel Conclusions Panel found that the ECs 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

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 ECs statement on its commitment to ACP countries and India. Reform of its sugar regime can continue import preferences.

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 ECs quantity commitment levels Disagreed with the panels decision to not consider complainants claims regarding the SCM agreement

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 Souce:

23 ECs Solution ECs 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

24 Broader Implications and Issues Impact on world sugar market Impetus for the DOHA round, along with Brazils 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

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 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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