EC Brazil Export Subsidies on Sugar. European Community and Brazil October 16, 2006 Group 6- Sarah, Linda and Seniha

Sugar Trade… the historical background Sugarcane was first planted in Brazil in Sugarcane was first planted in Brazil in Sugar was used as an economic and strategic means for Europe to gain a colonial stronghold in the Americas. Sugar was used as an economic and strategic means for Europe to gain a colonial stronghold in the Americas. The first commercial production of sugar in the new world was undertaken in 1550, when the Portuguese built mills along the Atlantic coast of Brazil. The first commercial production of sugar in the new world was undertaken in 1550, when the Portuguese built mills along the Atlantic coast of Brazil. In 1612 the total production of sugar in Brazil had reached 14,000 tons, and by the 1640s one mill alone exported more than 24,000 tons of sugar annually to Amsterdam. In 1612 the total production of sugar in Brazil had reached 14,000 tons, and by the 1640s one mill alone exported more than 24,000 tons of sugar annually to Amsterdam. (source: (source:

Europes sugar production The sugar beet has been cultivated in Europe since the mid-18 th century The sugar beet has been cultivated in Europe since the mid-18 th century Many European countries have implemented price floors on domestic sugar, and imposed tariffs on imported sugar to protect the domestic market. Many European countries have implemented price floors on domestic sugar, and imposed tariffs on imported sugar to protect the domestic market.

Major Players Complainant: Brazil Complainant: Brazil Respondent: European Communities Respondent: European Communities Third Parties: Third Parties: Australia; Barbados; Belize; Canada; China; Colombia; Cuba; Fiji; Guyana; India; Jamaica; Kenya; Madagascar; Malawi; Mauritius; New Zealand; Paraguay; St. Kitts and Nevis; Swaziland; Tanzania; Thailand; Trinidad and Tobago; United States; Côte dIvoire Australia; Barbados; Belize; Canada; China; Colombia; Cuba; Fiji; Guyana; India; Jamaica; Kenya; Madagascar; Malawi; Mauritius; New Zealand; Paraguay; St. Kitts and Nevis; Swaziland; Tanzania; Thailand; Trinidad and Tobago; United States; Côte dIvoire

When, Who, and What September 27, 2002 September 27, 2002 Australia, Thailand and Brazil requested consultations with the European Communities Australia, Thailand and Brazil requested consultations with the European Communities Brazil contested that subsidies that the European Community provided to its sugar industry were in violation of provisions of the WTO Brazil contested that subsidies that the European Community provided to its sugar industry were in violation of provisions of the WTO

The EC Was Said To Be In Violation Of… -Providing export subsidies for sugar and sugar containing products above its reduction commitment levels. -Under the ECs organization of the sugar market, exporters of sugar in excess of the annual quota are able to export the sugar below its total cost of production.

European Community Sugar Subsidies… -Guaranteed a high price for sugar produced within certain production quotas, -Sugar produced outside of these quotas could not be sold internally during the same year which it was produced– it had to be exported or carried over to fulfill the next years quotas.

Brazil Contested Its Sugar Market Was Hurt Because… The EC accorded less favorable treatment to imported sugar and was in violation of Article III:4 of the GATT The EC accorded less favorable treatment to imported sugar and was in violation of Article III:4 of the GATT 1994.

Brazil Claimed The EC Was In Violation of the Agreement on Agriculture The EC was providing export subsidies on sugar (Section 3) The EC was providing export subsidies on sugar (Section 3) The export subsidies were not in conformity with the ECs Member Schedule (Section 8) The export subsidies were not in conformity with the ECs Member Schedule (Section 8) The EC government was providing subsides that were not being reduced in accordance to agreement (Article 9) The EC government was providing subsides that were not being reduced in accordance to agreement (Article 9) The agreement prohibits payments on the export of an agricultural product that are financed by virtue of governmental action The agreement prohibits payments on the export of an agricultural product that are financed by virtue of governmental action The EC was circumventing EC subsidy reduction commitments (article 10) The EC was circumventing EC subsidy reduction commitments (article 10)

Subsidies and Countervailing Measures Agreement Articles 3.1(a) and 3.2 prohibit: The EC from allowing subsidies contingent upon export performance The EC from allowing subsidies contingent upon export performance These articles applied to the lower priced sugar outside the of the ECs export quotas, which was a violation of the agreement. These articles applied to the lower priced sugar outside the of the ECs export quotas, which was a violation of the agreement.

Article III, National Treatment on Internal Taxation and Regulation Section 4 means that products, domestic or foreign, are to be treated exactly the same way. The excess sugar produced outside the quota was not treated like sugar from Brazil

Article XVI, Subsidies Brazil argued that the EC was not in compliance with Article XVI on Subsidies. Brazil argued that the EC was not in compliance with Article XVI on Subsidies. The EC was maintaining subsides on its sugar- which may hinder the achievement of the objectives of the General Agreement The EC was maintaining subsides on its sugar- which may hinder the achievement of the objectives of the General Agreement

Dispute Resolution Time Line DateEvent 27-Sep-02Request for Consultations 15-Oct-04Panel Report 13-Jan-05EC Gives Appeal Notification 25-Jan-05Brazil, Australia, and Thailand Appeal 28-Apr-05Appellate Body Report 28-Oct-05Article 21.3(c) Arbitration Report 22-May-06Implementation Deadline

Brazil Requests Consultations EC is not compliant with the following: Article 3.3 of the Agreement on Agriculture Article 3.3 of the Agreement on Agriculture Article 8 of the Agreement on Agriculture Article 8 of the Agreement on Agriculture Article 9.1 (a) and (c) of the Agreement on Agriculture Article 9.1 (a) and (c) of the Agreement on Agriculture Article 10.1 of the Agreement on Agriculture Article 10.1 of the Agreement on Agriculture Article 3.1(a) and 3.2 of the SCM Agreement Article 3.1(a) and 3.2 of the SCM Agreement Article III:4 of GATT 1994 Article III:4 of GATT 1994 Article XVI of GATT 1994 Article XVI of GATT 1994

Brazilian Grievances -Brazils sugar industry lost USD 900 million annually due to EC's sugar export subsidies -EC unfairly favors raw sugar imports from African, Caribbean and Pacific (ACP) nations -EC sugar export quota system violates WTO rules and unfairly supports European sugar exports that drive down world prices

European Position Common market organization (CMO 1968) was created to ensure fair income to producers and self-sufficiency within the EC. Common market organization (CMO 1968) was created to ensure fair income to producers and self-sufficiency within the EC. CMO's essential features: price arrangements, production quotas, arrangements for trade with third countries and self-financing. CMO's essential features: price arrangements, production quotas, arrangements for trade with third countries and self-financing. EC claimed its sugar regime was self-financing and it was a non-subsidizing sugar exporter EC claimed its sugar regime was self-financing and it was a non-subsidizing sugar exporter

Panel Findings EC had acted inconsistently with its obligations under Articles 3.3 and 8 of the Agreement on Agriculture, by providing export subsidies within the meaning of Article 9.1(a) and (c) of the Agreement on Agriculture in excess of the quantity and budgetary outlay commitment level specified in Section II, Part IV of Schedule CXL. EC had acted inconsistently with its obligations under Articles 3.3 and 8 of the Agreement on Agriculture, by providing export subsidies within the meaning of Article 9.1(a) and (c) of the Agreement on Agriculture in excess of the quantity and budgetary outlay commitment level specified in Section II, Part IV of Schedule CXL.

Panel Findings The EC contravened its WTO commitments by subsidizing the re-export of ACP/India quota sugar both by not showing it in its reduction commitments and by exceeding the permitted level of subsidized exports. The EC contravened its WTO commitments by subsidizing the re-export of ACP/India quota sugar both by not showing it in its reduction commitments and by exceeding the permitted level of subsidized exports. The ruling does not affect the right of the EC to import sugar from ACP/India on preferential terms. The ruling does not affect the right of the EC to import sugar from ACP/India on preferential terms.

Panel Appeals Appeals on whether the Panel erred in the below Panel Report paragraphs: 7.37, 7.191, 7.198, 7.222, and 8.1(a), 7.292, 7.334, 8.1(f), 7.374, 8.4, 7.74, (SCM Agreement), 7.37, 7.191, 7.198, 7.222, and 8.1(a), 7.292, 7.334, 8.1(f), 7.374, 8.4, 7.74, (SCM Agreement), Whether certain aspects of the European Communities' Notice of Appeal satisfy the requirements of Rule 20(2)(d) of the Working Procedures for Appellate Review (the "Working Procedures"). Whether certain aspects of the European Communities' Notice of Appeal satisfy the requirements of Rule 20(2)(d) of the Working Procedures for Appellate Review (the "Working Procedures").

Appellate Body Findings Appellate body upholds the Panel findings Appellate body upholds the Panel findings Panel erred in paragraph in failing address Article 3 of the SCM Agreement, but is not in a position, and therefore declines, to complete the legal analysis and to examine the Complaining Parties' claims under the SCM Agreement left unaddressed by the Panel Panel erred in paragraph in failing address Article 3 of the SCM Agreement, but is not in a position, and therefore declines, to complete the legal analysis and to examine the Complaining Parties' claims under the SCM Agreement left unaddressed by the Panel Finds that the European Communities' Notice of Appeal satisfies the requirements of Rule 20(2)(d) of the Working Procedures for Appellate Review. Finds that the European Communities' Notice of Appeal satisfies the requirements of Rule 20(2)(d) of the Working Procedures for Appellate Review. EC No. 1260/2001, as well as all other measures implementing or related to the sugar regime, are inconsistent with the Agreement on Agriculture EC No. 1260/2001, as well as all other measures implementing or related to the sugar regime, are inconsistent with the Agreement on Agriculture

Brazils Victory Brazil won the case as a complainant Brazil won the case as a complainant The EC would cease exporting 2.8m. tons of sugar. The EC would cease exporting 2.8m. tons of sugar. Brazil would be allowed to export 10% more sugar. Brazil would be allowed to export 10% more sugar. New EC Sugar reform New EC Sugar reform What has been changed with this new reform? What has been changed with this new reform?

Implementation The panels ruling under the Agreement on Agriculture was not able to resolve the dispute, especially regarding implementation of a remedy. The panels ruling under the Agreement on Agriculture was not able to resolve the dispute, especially regarding implementation of a remedy. On 9 August 2005, the parties were not able to agree on a reasonable period of time for implementation in accordance with DSU article 21.3b On 9 August 2005, the parties were not able to agree on a reasonable period of time for implementation in accordance with DSU article 21.3b The complaining parties requested to the binding arbitration to determine the period of time for implementation. The complaining parties requested to the binding arbitration to determine the period of time for implementation. The arbitrator determined the reasonable period of time for implementation as 12 months and 3 day which would expire on May The arbitrator determined the reasonable period of time for implementation as 12 months and 3 day which would expire on May

Proposals The EC has considered measures to bring its production of sugar more into line with domestic consumption fully respecting its international commitments with respect to imports, including its commitments to developing countries. The EC has considered measures to bring its production of sugar more into line with domestic consumption fully respecting its international commitments with respect to imports, including its commitments to developing countries. Reform its sugar regime fully standing by its commitments to ACP countries and India. Reform its sugar regime fully standing by its commitments to ACP countries and India. Bring its export subsidies for sugar conformity with its obligations under the Agreement on Agriculture. Bring its export subsidies for sugar conformity with its obligations under the Agreement on Agriculture.

National and International Interests Involved EC sugar producers and farmers EC sugar producers and farmers Sugar processing companies Sugar processing companies EC consumers EC consumers Brazil sugar producers and farmers Brazil sugar producers and farmers ACP countries ACP countries Australia and Thailand Australia and Thailand