Final Project

European Communities- Export Subsidies on Sugar (A

comparative study of the complaints filed by Brazil, Australia
and Thailand

Brief facts:

Background

Since 1995, the EUs total exports of sugar exceed its final quantity commitment level for export
subsidies, which is 1,273.500 tonnes per year, because Footnote 1 to the respective part of the
WTO schedule (on exports equivalent to ACP/Indian imports of sugar) is without legal effect.

There is prima facie evidence that, since 1995, the EC has been providing export subsidies on
exports of ACP/India equivalent sugar as well as on exports of C sugar and that this is
inconsistent with the EUs obligations under the Agreement on Agriculture.

On 27 September 2002, Australia and Brazil requested consultations with the European
Communities concerning the export subsidies provided by the EC in the framework of its
Common Organisation of the Market for the sugar sector. The requests concerned Council
Regulation (EC) No. 1260/2001 of 19 June 2001 on the ECs common organization of the
markets in the sugar sector, and all other legislation, regulations, administrative policies and
other instruments relating to the EC regime for sugar and sugar containing products including the
rules adopted pursuant to the procedure referred to in Article 42(2) of Council Regulation (EC)
No. 1260/2001, and any other provision related thereto. On 14 March 2003, Thailand requested
consultations with the European Communities on the same matter 1. Thailands contention
were:

1 WTO Case Review 2004, 22 ARIZ. J. INTL & COMP. L. 99-249 (2005)
 a. The EC sugar regime accords imported sugar a less favourable treatment than that
accorded to domestic sugar and provides for subsidies contingent upon the use of
domestic over imported products;

b. The EC sugar regime accords export subsidies above its reduction commitment levels
specified in Section II of Part IV of the ECs Schedule to the sugar produced in excess of
its production quotas (so-called C sugar);

c. The EC provides export subsidies (known as export refunds) that cover the difference
between the world market price and the high prices in the EC for the products in
question, thus enabling those products to be exported.

Australia and Brazil 2broadly contended that the EC provides under the above measures export
subsidies in excess of the export subsidy commitments that it has specified in Section II of Part
IV of its Schedule of Concessions, in relation to C sugar and an amount of 1.6 million tons of
sugar per year and possibly also sugar in incorporated products. It further alleges that the EC
may also be paying a higher per unit subsidy on incorporated products than on the primary
product. In addition, under the EC sugar regime refiners are paid a subsidy, in the form of the
intervention price, for refining EC sugar which is not available to imported sugar, thus affording
less favourable treatment to imported products.

Provisions:

Art. 3.3, 8, 9.1, 10.1, 11 of the Agreement on Agriculture

GATT 1994: Art. III:4, XVI
Subsidies and Countervailing Measures: Art. 3.1(a), 3.2

2 WT/DS265/24, WT/DS266/24, WT/DS283/5

Decisions held:
The appellate body held:

The WTO panels final ruling supports Oxfams claim that all EU sugar exports are effectively
subsidised, since EU costs of production far exceed the price at which EU sugar can be viably
exported. Subsidised European exports have led to lower prices on the world market, and
reduced export opportunities for other exporters. Oxfam has estimated that EU sugar export
dumping translated into foreign exchange losses in the region of $494m for Brazil, $151m for
Thailand, and $60m each for South Africa and India in 2002.

The panel had also found that sugar exports in excess of the EU's commitment level equaled the
amount of sugar imported under preferential arrangements from the African, Caribbean and
Pacific (ACP) countries and India, as well as that of sugar produced in excess of EU sugar
quotas. The EU had argued that a footnote in its commitment schedule excluded 1.6 million
tonnes of sugar -- equivalent to the quantity that it imported from the ACP and India -- from the
scope of its subsidies reduction requirements. The panel dismissed this argument, holding that
the footnote had no legal effect and could not enlarge or modify the EU's specified commitment
levels.

Subsidies Size:
The European Union paid about 1.5bn euros ($1.8bn, 1bn) per year in support to the sugar
sector, by artificially boosting the price of sugar on the European market.

The EU guaranteed producers a price of 632 euros per ton, which was about three times the
world price.

EC use to buy sugar from the farmer at this exaggerated price, and puts it into storage. This
practice is known as intervention buying.

More often, it paid exporter the difference between the world price and the higher European
price. In 2003, the bill for these export subsidies came to 1bn euros.

Aftereffects of the Report

This case which was decided in the favour of applicant (the above mentioned countries)
against the European Union. In the case it was found that how EU was allowing more
than allowed Export to certain countries contrary to different provisions of WTO/ GAT
etc. The decision had a significant impact on countries with in the European Union as the
decision directly impacted many countries and would have decreased their revenue by a
lion-share if implemented as held by the Arbitration panel. Thus after the decision, this
case also witness the political diplomacy and negotiations which forced the countries to
come at a respectable solution, which was accepted by all the parties.

The ruling compelled the Europeon Commission regime to align its sigar regulations
with respect to WTO law. The EC modified its regime by cutting the guaranteed domestic
price for raw sugar by 36% over a four year period, beginning in 2006. This would
reduce high surplus revenues from A and B quota sugar being transferred to C Sugar, and
so eliminate the cross subsidization of C sugar exports.
The most significant outcome is that the EC became a net importer again, similar to the
case 30 years back by fully complying with WTO ruling. The reform of the C Regime
world sugar price to a greatextent, with Brazil, Thailand and Australia being comparable
 exporters. Nevertheless, the EC were no longer the second largest sugar exporter of the
world market. Thailand became the Second biggest exporter of Sugar.3
There were certain short time repercussions which includes reduction in number of Jobs
in European Countries. In europe except 5 Countries every country produces sugar. This
decisions affected farmers in 2 ways: Firstly the price of Sugar in Europe reduced by upto
40%. Farmers were compensated by the European Union but there were cuts in Jobs
which also lead to protest at various cities.

Modification in EC sugar Regime

36% price cut over 4 years begining in 2006/07 to ensure sustainable market balance, 20% in one
year, 27.5% in year two, 35% in year three and 36% in year 4.
compensation to farmers at an average of 64.2 percent on the final price cut of 36%
IN those countries giving up atleast 50 percent of their quota, the possibility of an additional
coupled payment of 30% of the income loss for a maximum of 5 years, plus possible national aid.
Merging of "A" and "B" quota into a singular production quota.
Voluntary restructuring scheme lasting years for EU sugar factories, consisting of a payment to
encourage factory closure. This payment will be 730 euros per tonne in years one and two, falling
to 625 in year 3 and 520 in the final year.
To maintain a certain production in the current "C" sugar producing countries, an additional
amount of 1.1 million tonnes will be made available against a one-off payment corresponding to
the amount of restructuring aid per tonne in the first year.

3 Brazil has 25 percent of the worlds market share while Thailand has 8 percent of
the worlds market share in sugar
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