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

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

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

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

By: Charles ConnerGiovanella de Weever

Jacqueline Doll

Page 2: European Communities – Export Subsidies on Sugar (WT/DS266) By: Charles Conner Giovanella de Weever Jacqueline Doll

Presentation Overview

Background on sugar policies and trade regimes

Analysis of dispute settlement case

EU sugar sector reforms

Potential impact on world sugar markets

Page 3: European Communities – Export Subsidies on Sugar (WT/DS266) By: Charles Conner Giovanella de Weever Jacqueline Doll

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

Involved Parties

Page 4: European Communities – Export Subsidies on Sugar (WT/DS266) By: Charles Conner Giovanella de Weever Jacqueline Doll

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

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

Page 5: European Communities – Export Subsidies on Sugar (WT/DS266) By: Charles Conner Giovanella de Weever Jacqueline Doll

EC’s Common Agricultural Policy (CAP)

Why it started Treaty of Rome Improving the lives of farmersDirect Subsidies

Impact on ImportsQuotas

StructureMultifunctionalMultilateral

Page 6: European Communities – Export Subsidies on Sugar (WT/DS266) By: Charles Conner Giovanella de Weever Jacqueline Doll

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

Page 7: European Communities – Export Subsidies on Sugar (WT/DS266) By: Charles Conner Giovanella de Weever Jacqueline Doll

ACP Sugar Protocol

Intergovernmental agreementFixed quantities (raw/sugar cane) Indefinite period of time

How much they’re guaranteed to import1.6 million tons of sugar

Biggest ACP sugar producersSwazilandMauritius

The EU exports an equivalent amount to imports from ACP countries.

Page 8: European Communities – Export Subsidies on Sugar (WT/DS266) By: Charles Conner Giovanella de Weever Jacqueline Doll
Page 9: European Communities – Export Subsidies on Sugar (WT/DS266) By: Charles Conner Giovanella de Weever Jacqueline Doll

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

Page 10: European Communities – Export Subsidies on Sugar (WT/DS266) By: Charles Conner Giovanella de Weever Jacqueline Doll

Complainants Sugar Sectors

Brazil Production: 35.8 million tons Consumption: 9.45 million tons Exports: 23.85 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

Page 11: European Communities – Export Subsidies on Sugar (WT/DS266) By: Charles Conner Giovanella de Weever Jacqueline Doll

Brazil’s 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.

Page 12: European Communities – Export Subsidies on Sugar (WT/DS266) By: Charles Conner Giovanella de Weever Jacqueline Doll

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

Page 13: European Communities – Export Subsidies on Sugar (WT/DS266) By: Charles Conner Giovanella de Weever Jacqueline Doll

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.

Page 14: European Communities – Export Subsidies on Sugar (WT/DS266) By: Charles Conner Giovanella de Weever Jacqueline Doll

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. 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 EC’s Schedule, shifting burden of proof onto the EC. Therefore Complainants’ argument is within Panel’s terms of reference.

Page 15: European Communities – Export Subsidies on Sugar (WT/DS266) By: Charles Conner Giovanella de Weever Jacqueline Doll

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 1986-1990 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.

Page 16: European Communities – Export Subsidies on Sugar (WT/DS266) By: Charles Conner Giovanella de Weever Jacqueline Doll

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 46.72 Euros/ton; B Quota Sugar purchased at 32.42 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.

Page 17: European Communities – Export Subsidies on Sugar (WT/DS266) By: Charles Conner Giovanella de Weever Jacqueline Doll

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.

Page 18: European Communities – Export Subsidies on Sugar (WT/DS266) By: Charles Conner Giovanella de Weever Jacqueline Doll

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

Page 19: European Communities – Export Subsidies on Sugar (WT/DS266) By: Charles Conner Giovanella de Weever Jacqueline Doll

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

Page 20: European Communities – Export Subsidies on Sugar (WT/DS266) By: Charles Conner Giovanella de Weever Jacqueline Doll

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.

Page 21: European Communities – Export Subsidies on Sugar (WT/DS266) By: Charles Conner Giovanella de Weever Jacqueline Doll

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

Page 22: European Communities – Export Subsidies on Sugar (WT/DS266) By: Charles Conner Giovanella de Weever Jacqueline Doll

Implementation

May 19, 2005- 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: http://www.wto.org/english/news_e/news10_e/ag_com_10mar10_e.htm

Page 23: European Communities – Export Subsidies on Sugar (WT/DS266) By: Charles Conner Giovanella de Weever Jacqueline Doll

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

Page 24: European Communities – Export Subsidies on Sugar (WT/DS266) By: Charles Conner Giovanella de Weever Jacqueline Doll

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

Page 25: European Communities – Export Subsidies on Sugar (WT/DS266) By: Charles Conner Giovanella de Weever Jacqueline Doll

Sources ACP/EU Sugar Protocol. African, Caribbean and Pacific Sugar Group. 2005.

http://www.acpsugar.org/Sugar%20Protocol.html

Common Agricultural Policy. Wikipedia. http://en.wikipedia.org/wiki/Common_Agricultural_Policy

EU sugar sector: Facts and Figures. 2004. http://www.deltha.ec.europa.eu/bic/news/newsfile/sugar_figures.pdf

 Sugar and the European Union: Implication of WTO Findings, and Reform. USDA-Foreign Agricultural Service. 2004.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 2009. http://www.fas.usda.gov/htp/sugar/2009/Nov_sugar_2009.pdf

The Sugar Industry. Australian Government-Department of Agriculture, Fisheries and Forestry. 13 Feb. 2008. http://www.daff.gov.au/agriculture-food/wheat-sugar-crops/sugar/industry

The Common Agricultural Policy: A Brief Introduction. Institute for Agriculture and Trade Policy. September 2007. http://www.iatp.org/iatp/publications.cfm?refid=100145

The Common Agricultural Policy Explained. European Commission: Agricultural and Rural Development. http://ec.europa.eu/agriculture/publi/capexplained/cap_en.pdf

The Common Organization of the Market in Sugar. European Commission: Agriculture Directorate-General. September 2004. http://ec.europa.eu/agriculture/markets/sugar/reports/descri_en.pdf

The European Sugar Sector: A long-term competitive future. European Commission. September 2006. http://ec.europa.eu/agriculture/capreform/sugar/infopack_en.pdf