Transcript SUGAR CASE - International trade

SUGAR CASE
Brazil vs. EU (AB2005)
Marina Belozerova
Anupama Chettri
INTRODUCTION
The international sugar industry is considered one of
the last heavily protected agricultural sectors. The
EU is one of the major producers and consumers of
sugar and is also one of the most heavily protected
markets. There was much speculation concerning the
effect any changes to the existing regime in 2002
might have had on the world market. This
presentation reviews the analysis of various facts and
offers its own conclusions…
EU SUGAR INDUSTRY

According to 2002 reports, EU-25 was the world’s largest
consumer of sugar and the second largest producer of sugar.
The EU consumed about 17.6 million tons (raw value)
equaling about 12 percent of world consumption.
Production was around 20 million tons.

EU imports of preferential sugar were highly valued by ACP
countries – worth over euros 500m each year – but make up
just a fraction of Europe’s sugar supply, accounting for just
8% of Europe’s sugar supply.
EU SUGAR INDUSTRY



Since the early 1980’s, the EU has
significantly increased quotas for domestic
sugar production far in access of domestic
needs, creating a continual pressure to export.
If EU sugar quotas were cut to their 1980
level, the internal market would be roughly in
balance
Instead, EU became the world’s largest
exporter of white sugar.
BRAZIL’S SUGAR INDUSTRY



Brazil is among the world
leaders in the production of
sugarcane, sugar, and ethanol
(fuel alcohol) and has a
significant effect on world
sugar prices.
It is among the most efficient
of all major sugar producers.
The world sugar market was
chronically
over-supplied,
and Brazil, as a major lowcost producer and exporter,
had a critical role and
responsibility in shaping the
future of the market.
Brazil vs. EU Dispute (WT/DS266)



According to Brazil, the EC provided export
subsidies for sugar and sugar containing products
above its reduction commitment levels.
Brazil explained that the EC intervention price
system for sugar guarantees a high price for the
sugar that is produced within certain production
quotas (A and B quotas). Sugar produced in excess
of these quotas (so-called C sugar) cannot be sold
internally in the year in which it is produced.
Under the EC’s regulatory framework, exporters of
C sugar are able to export C sugar at prices below its
total cost of production.
Brazil vs. EU Dispute (WT/DS266)


According to the EC’s Schedule for sugar the
EC provided export subsidies in excess of its
commitments to approximately 1.6 million
tons of sugar per year.
The export subsidies provided by the EC
cover the difference between the world
market price and the high prices in the
Community for the products in question, thus
enabling those products to be exported.
Brazil vs. EU Dispute (WT/DS266)

Brazil claimed that, by providing export subsidies for sugar in
excess of its reduction commitment levels the EC is acting
inconsistently with at least the requirements of:
- 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; and
- Articles III:4 and XVI of GATT 1994.
HISTORY AND CONTEXT OF THE CASE

September 27, 2002:
Brazil and Australia commenced consultations in
the DSB against the European Union over its
sugar subsidies. The two countries say that the EU
subsidies are trade distortive and fall out of WTO
rules. Due to export subsidies, sugar was sold on
the global market at what Brazil says said below
the cost of production.
HISTORY AND CONTEXT OF THE CASE




9 July 2003:
Australia, Brazil and Thailand each requested the
establishment of a panel.
21 July 2003:
The DSB deferred the establishment of the panels.
29 August 2003:
Further to second requests to establish a panel from
Australia, Brazil and Thailand, the DSB established a single
panel at its meeting.
September 2003:
The following countries reserved their third-party rights:
Barbados, Canada, China, Colombia, Jamaica, Mauritius,
New Zealand, Trinidad, Tobago, US, Belize, Cuba, Fiji,
Guyana, Paraguay, Swaziland, India, Madagascar, Malawi,
St. Kitts, Nevis, and Tanzania.
HISTORY AND CONTEXT OF THE CASE



December 2003:
Australia, Brazil and Thailand requested the Director-General
to determine the composition of the panel. On 23 December
2003, the Director-General composed the Panel.
23 June 2004:
The Chairman of the Panel informed the DSB that it would not
be able to complete its work in six months due to the
complexity of the matter and that the Panel expected to
complete its work by early September 2004.
15 October 2004:
The Panel circulated to Members its separate but identical
reports with respect to WT/DS283, WT/DS266 and
WT/DS265.
DECISION OF THE PANEL
The Panel found that:

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.

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.
DECISION OF THE PANEL (Continued)
The Panel also found that:

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.

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)
PANEL RECOMMENDATION AND
SUGGESTION

The Panel recommended that the DSB request the
European Communities to bring its EC Council
Regulation No. 1260/2001 into conformity with its
export subsidies obligations under the Agreement on
Agriculture.

The Panel suggested that the European Communities
consider measures to brings its production of sugar
in line with domestic consumption while fully
respecting international commitment (pursuant to
Article 19.1 of the DSU)
THE APPEAL PROCESS

20 Jan 2005: EC filed Appellant’s Submission

CLAIMS OF ERROR
- Panel misinterpreted notions of “claim” and “argument”
- Simple reference to the measure at issue as the export
subsidies granted under EC Regulation 1260/2001 is not
sufficient for identification of “specific measure at issue”
(Article 6.2 of the DSU)
- Panel requests did not “present the problem clearly” (Article
6.2 of the DSU)
- Article 10.3 of the Agreement on Agriculture relating to
burden of proof does not exclude or limit the application of
Article 6.2 of the DSU
THE APPEAL PROCESS (continued)

CLAIMS OF ERROR (continued)
 Panel’s finding that Footnote 1 to Section II, Part IV of the
EC’s schedule is “of no legal effect”
 Panel erred in finding that sales of C Beet are “financed by
virtue of governmental action” within the meaning of
Article 9.1(c)
 Panel’s conclusion that alleged violations of the
Agreement on Agriculture resulting from the exports of C
sugar nullified or impaired benefits to Brazil (and other
Complaining Parties)
 Panel’s finding that the Complaining Parties acted in
accordance with Article 3.10 of DSU and with the
principle of good faith
DECISION OF THE APPELLATE BODY


28 April 2005
The Appellate Body upheld:

The Panel’s finding that alleged “payments” fell within the
meaning of Article 9.1(c) of the Agreement on Agriculture,
in the form of low-priced sales of C beet to sugar
producers, fell within the Panel’s term of reference

The Panel’s finding that Footnote 1 to Section II, Part IV of
the European Communities’ Schedule does not modify the
European Communities’ commitment level
DECISION OF THE APPELLATE BODY
The Appellate Body also upheld:

The Panel’s finding that the alleged “payments” are
“financed by virtue of governmental action,” within the
meaning of Article 9.1(c) of the Agreement on Agriculture

The Panel’s report that there is prima facie evidence that
the European Communities were providing export
subsidies, within the meaning of Article 9.1(c) of the
Agreement on Agriculture, to its exports of C sugar since
1995
COMPLIANCE




13 June 2005 – EC expressed need for reasonable
time to implement recommendations and rulings
9 August 2005 – Complaining parties requested for
arbitration as the parties were unable to reach an
agreement on reasonable time
28 October 2005 – Award determining the
reasonable time to be 12 months and 3 days,
expiring on 22 May 2006
8 June 2006 – Brazil (Australia and Thailand)
reached individual Understanding with the EC
AREAS OF IMPACT

EU Sugar Production

EU Sugar Consumption

ACP Sugar Production

EBA Sugar Production

Least Cost Countries Production

World Market for Sugar
References

United States Department of Agriculture/Foreign Agricultural Service Report: Sugar and the European
Union: Implication of WTO Findings, and Reform, available at www.fas.usda.gov/htp/sugar/2004

Panel Report, European Communities – Export Subsidies on Sugar, WT/DS266/R (15 Oct. 2004)

Appellate Body Report, European Communities – Export Subsidies on Sugar, WT/DS266/AB/R (28 Apr.
2005)

Award of the Arbitrator, European Communities – Export Subsidies on Sugar, Arbitration under Article
21.3(c) of the Understanding on Rules and Procedures Governing the Settlement of Disputes,
WT/DS266/33 (28 Oct. 2005)

Oxfam Briefing Note: The Challenge to the EU: Stop the Sugar Dumping! (Nov. 2002)
http://www.oxfam.org/en/policy/briefingnotes/doc021114_sugarupdate

Sugar and the European Union: Implication of WTO Findings, and Reform, available at
www.worldtradelaw.net/cr/ds266-1

Export Subsidies on Sugar – Global Issues, Australian Government Department of Foreign Affairs and
Trade, available at
http://www.dfat.gov.au/trade/negotiations/disputes/265_export_subsidies_sugar_q_a.html

Special Issue: WTO Panel Ruling on EC Sugar Subsidies, and the WTO Framework Agreements,
Caribbean Regional Negotiating Machinery (19 Aug. 2004), available at http://www.un.org/specialrep/ohrlls/NewsArchive/19%20aug%2004%20RNM%20update.htm