BEIJING BRUSSELS CHICAGO DALLAS FRANKFURT GENEVA HONG KONG LONDON LOS ANGELES NEW YORK SAN FRANCISCO SHANGHAI SINGAPORE TOKYO WASHINGTON, D.C. S IDLEY SIDLEY AUSTIN LLP EC Agricultural Subsidies for Mediterranean Products and the WTO June 2006 Montpellier, France

S IDLEY SIDLEY AUSTIN LLP The WTO Agreement on Agriculture Green Box –Single Farm Payment not green box because of fruit and vegetable restriction Blue Box –Less important after 2003 reform (if SFP is notified as green box) Amber Box –EC AMS limit is € 67.2 billion –Applied AMS is far lower, reforms in 1999 and 2003 Notified Export Subsidies –Still important for sugar, dairy, pigmeat, rice and alcohol –Declining use for other products

S IDLEY SIDLEY AUSTIN LLP The WTO Agreement on Subsidies and Countervailing Measures ( SCM Agreement ) Disciplines the provision of subsidies by WTO Members –Prohibited Subsidies Local content subsidies Unscheduled export subsidies –Actionable Subsidies Any subsidy that involves a financial contribution that confers a benefit and is specific

S IDLEY SIDLEY AUSTIN LLP Prohibited Subsidies Article 3.1 of the SCM Agreement Except as provided in the Agreement on Agriculture, the following subsidies … shall be prohibited: (a) subsidies contingent, in law or in fact, whether solely or as one of several other conditions, upon export performance…; (b) subsidies contingent, whether solely or as one of several other conditions, upon the use of domestic over imported goods.

S IDLEY SIDLEY AUSTIN LLP Prohibited Subsidies Prohibited Fruit and Vegetable Processing Subsidies 2005 Outlays in millions: Tomato Products € 298 Canned Peaches € 20 Citrus Products € 261 Canned Pears € 15 Raisins € 114 Dried Figs € 1.6 Dried Plums € 45 Total - € 755 million “harvested in the Community”Subsidies are contingent on the use of products “harvested in the Community” for the production of the processed products.

S IDLEY SIDLEY AUSTIN LLP EC GrowerProcessor payments subsidized products supervision Prohibited Subsidies Processing subsidies for tomatoes, peaches, pears, citrus fruits and raisins

S IDLEY SIDLEY AUSTIN LLP Prohibited Subsidies EC ProcessorGrower payments products supervision Processing subsidies for prunes and figs minimum price

S IDLEY SIDLEY AUSTIN LLP Prohibited Subsidies Title III of the Wine CMO includes distillation subsidies, private storage aid, and aid for the use of must Title III expenditures in millions Distillation Subsidies€ 512 Private Storage Aid€ 67 Aid for the Use of Must€ 156 Total – € 735 million Article 78(3) of the Wine CMO: “may only be granted in respect of products produced in the Community from grapes harvested in the Community.” The subsidies “may only be granted in respect of products produced in the Community from grapes harvested in the Community.”

S IDLEY SIDLEY AUSTIN LLP Actionable Subsidies Article 5 of the SCM Agreement No Member should cause, through the use of any subsidy … adverse effects to the interests of other Members, i.e.: (a) injury to the domestic industry of another Member … (c) serious prejudice to the interests of another Member

S IDLEY SIDLEY AUSTIN LLP Injury to the Domestic Industry Article 5(a) of the SCM Agreement is similar to a CVD proceeding under Part V of the SCM Agreement For a determination of injury there must be: –Imports of a subsidized product –Material injury to the domestic industry producing the like product –A causal link between the subsidized imports and material injury to the domestic industry. Examples of Potential Claims –EC canned peach exports to the United States –EC olive oil exports to Morocco

S IDLEY SIDLEY AUSTIN LLP Serious Prejudice Article 6.3 of the SCM Agreement: Serious prejudice in the sense of paragraph (c) of Article 5 may arise in any case where one or several of the following apply: (a) the effect of the subsidy is to displace or impede … imports … into the market of the subsidizing Member; (b) the effect of the subsidy is to displace or impede … exports … from a third country market; (c) the effect of the subsidy is significant price undercutting … or significant price suppression, price depression or lost sales in the same market; (d) the effect of the subsidy is an increase in the world market share of the subsidizing Member…

S IDLEY SIDLEY AUSTIN LLP Serious Prejudice Components of Serious Prejudice: –Level of EC subsidization –EC market share –Nature of EC subsidies (and reform) –EC costs and returns –EC tariff levels and other import barriers (e.g. SPS) –Product differentiation issues

S IDLEY SIDLEY AUSTIN LLP Serious Prejudice: Fresh Fruits and Vegetables Operational Funds for Producer Organizations –Expenditures are between € 500 million to € 700 million per year –Their purpose is to improve product quality and boost products’ commercial value –Where is this money going? Which products are benefiting? Compensation for Withdrawals –Which products are receiving these funds? Processing subsidies –Do processing subsidies benefit the market for fresh fruits and vegetables?

S IDLEY SIDLEY AUSTIN LLP Serious Prejudice: Tomato Products Canned Tomatoes Tomato Paste Tomato Sauce/ Ketchup Value of World Exports$224 million$869 million$320 million EC Exports as % world total84 percent38 percent17 percent Imports as % world total13 percent14 percent3 percent Production as % world total70 percent36 percentNA Estimated value of EC market$900 million$980 millionNA EC Support Import Tariffs14.4 percent 10.2 percent Subsidization of primary input65 percent Trade data based on average of Excludes EC internal trade. Value of EC market based on the product of consumption (production minus net trade) and unit export values.

S IDLEY SIDLEY AUSTIN LLP Serious Prejudice: Tomato Products Processing Subsidies: –Expenditures are € 300 million in total –Grower receives € 34.5 per tonne unless quantity overrun –Contract price for processing tomatoes ≈ € 50 - € 55 per tonne –Subsidization rate ≈ 65 percent Compensation for Withdrawal –Benefit to processed tomato products unknown Operational Funds: –Benefit to processed tomato products unknown Countries that export tomato products, such as the United States, China, Chile, Tunisia and Morocco, can claim that EC subsidies impede or displace their exports to third countries and cause price suppression.

S IDLEY SIDLEY AUSTIN LLP Serious Prejudice: Canned Peaches Canned Peaches Value of World Exports$231 million EC Exports as % world total41 percent Imports as % world total17 percent Production as % world total48 percent Estimated value of EC market$300 million EC Support Import Tariffs15 to 19 percent Type of SubsidyProhibited Subsidization of primary input20 percent Trade data based on average of , Greek crop failure in 2003 changed EC production and export/import share substantially. Excludes EC internal trade. Value of EC market based on the product of consumption (production minus net exports) and unit export values.

S IDLEY SIDLEY AUSTIN LLP Serious Prejudice: Canned Peaches Processing Subsidies: –€ 20 million total –Grower receives € 47.7 per tonne unless overrun –Contract price for processing tomatoes ≈ € € 300 per tonne –Subsidization rate ≈ 20 percent Compensation for Withdrawal –Unknown Operational Funds: –Unknown Countries that export canned peaches, such as South Africa, Australia, China, and Argentina, can claim that EC subsidies impede or displace their exports to third countries and suppress prices in world or specific country markets.

S IDLEY SIDLEY AUSTIN LLP Serious Prejudice: Other Fruit and Vegetable Products Other products include: –Dried plums- Almonds –Raisins- Walnuts –Canned pears- Filberts –Grape juice- Pistachios –Citrus products The EC is a net importer of these products –Major exporters can potentially claim that EC subsidies impede or displace exports into the EC market within the meaning of Article 6.3(a) of the SCM Agreement

S IDLEY SIDLEY AUSTIN LLP Serious Prejudice: Olive Oil Olive Oil Value of World Exports$1.5 billion EC Exports as % world total74 percent Imports as % world total25 percent Production as % world total74 percent Estimated value of EC market$4.8 billion EC Support Import Tariffs40 to 50 percent Type of SubsidyActionable Subsidization rate30 percent Trade data based on average of Excludes EC internal trade. Value of EC market based on the product of consumption (production minus net exports) and unit export values.

S IDLEY SIDLEY AUSTIN LLP Serious Prejudice: Olive Oil Production aid of € 2.2 billion per year The 2004 Mediterranean reform will shift 60 percent of production aid into the SFP scheme. The remaining 40 percent will become an area aid for the upkeep of olive groves of economic or social value. –Will reform result in lower production? –Is the SFP needed to cover production costs? Are any countries in a position to challenge EC olive oil subsidies? –Turkey is the second largest exporter –Tunisia, the third largest exporter in the world, exports 56,000 tons of olive oil to the EC duty free

S IDLEY SIDLEY AUSTIN LLP Serious Prejudice: Wine Wine Value of World Exports$8.404 billion EC Exports as % world total54 percent Imports as % world total25 percent Estimated value of EC market$57.8 billion Production as % world total60 percent EC Support Import Tariffs$12 to $38 per hl Type of SubsidyProhibited / Actionable Subsidization Rate??? Trade data based on average of Excludes EC internal trade. Value of EC market based on the product of consumption (production minus net exports) and unit export values.

S IDLEY SIDLEY AUSTIN LLP Serious Prejudice: Wine Restructuring Subsidies –Expenditures are € 450 million per year –Their purpose is to adapt production to market demand –Which wine varieties are benefiting from these subsides? Is production benefiting from restructuring subsides displacing imports from Australia, Chile, Argentina and U.S.? Distillation Subsidies –Expenditures are € 500 million per year –Distillation subsidies remove wine from the EC market and protect EC wine producers from low prices. What is the net impact on producers in third countries?

S IDLEY SIDLEY AUSTIN LLP Reform of Wine CMO The EC is unlikely to introduce decoupled payments The EC would like to reduce emphasis on distillation measures. –How will surplus wine be dealt with? –How will the existing distillation infrastructure be dealt with? Restructuring subsidies will likely remain –Are their effects alone enough to support a serious prejudice?

S IDLEY SIDLEY AUSTIN LLP Reform of the Fruit and Vegetables CMO Operational funds for producer organizations are likely to remain Processing subsidies will likely be reformed –Decoupled processing aid? Probably result in a large decline in production –Area payments? May continue to constitute a prohibited local content subsidy

S IDLEY SIDLEY AUSTIN LLP Preparing for WTO Cases Prohibited subsidy claims are easier to prosecute Actionable subsidy claims are factually intensive. The following information is needed: –Trade data –Subsidy amounts and recipients –Costs and returns data The EC is far less transparent than the US –No centralized source of information (e.g. USDA)