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ITRN 603

BRAZIL-EU SUGAR DISPUTE. Professor: Dr. Stuart Malawer Presented by: Al-Zahra Hamideddin Pius Kimeu Sonia Karim. ITRN 603. Contents. Overview of the case EU Sugar Market WTO Agreements Involved Main Arguments Decision of the Panel Decision of the Appellate Body

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ITRN 603

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  1. BRAZIL-EU SUGAR DISPUTE. Professor: Dr. Stuart Malawer Presented by: Al-Zahra Hamideddin Pius Kimeu Sonia Karim ITRN 603

  2. Contents • Overview of the case • EU Sugar Market • WTO Agreements Involved • Main Arguments • Decision of the Panel • Decision of the Appellate Body • Current Implementation • EU Sugar Market Reforms • Implications • Proposals

  3. - Overview- EU Sugar Market- WTO Issues Al-Zahra Hamideddin

  4. Export Subsidies On Sugar • Dispute raised on September 27, 2002 to the DSB • Complaining parties stated EU's sugar regime violates numerous agreements • WTO Agreement on Agriculture, • WTO Agreement on SCM • 1994 agricultural GATT provision

  5. Complainant • Brazil, Australia, & Thailand-claimed that the EU has provided export subsidies in excess of its WTO commitments during the Uruguay Round to reduce export subsides on sugar. • India and several African countries joined as third parties.

  6. Respondent • EU declared: • sugar is not included in farm subsidy reform plans under the (CAP). • Dismissed argument of the complaining parties.

  7. EU Sugar Quotas • EC exports of sugar exceeds its commitment levels. • The sugar regime established 2 categories of production quota : A & B sugar. • Sugar produced in excess of A and B quantities is called C sugar- not eligible for domestic price support or direct export subsidies and must be exported

  8. Commitment Levels by the EU • The EC quantity commitment level for exports of sugar is 1.27 mil tonnes per year • The EC exceeded its quantity commitment level exporting 4.1 mil. (2.8 mil tonnes in excess of its commitment level. • Brazil argued that all sugar produced in excess of A and B sugar quotas (Over 1.27 mil tonnes) is the C sugars (2.8mil) are subsidized and exported.

  9. EU Sugar Market • EC established Common Organization in 1968 for sugar • The regulation sets out rules with respect to: • Basic price and the minimum price for sugar • A & B quota as well as C sugar • Import and export licenses • Levies • Export refunds • Preferential import arrangements.

  10. WTO Agreement Involved • Agreement on Agricultural • Article 3.3 • Article 8 • Article 9.1a & Article 9.1c • Article 10 • Article 11

  11. WTO Agreement Involved • Agreement on Subsidies and Countervailing Measures • Article 3.1 • Article 3.2 • Articles III:4 and XVI of GATT 1994.

  12. Farmers Concern • Efficient Brazilian and Australian producers. "Australian farmers are understandably angry that inefficient EU sugar producers receive three times the price we do and distort the world market in the process". (Ross Walker)

  13. - Arguments- Panel Decisions - Appellate Body Decisions Pius Kimeu

  14. Argument by Brazil • The EC sugar regime accords less favorable treatment to imported sugar. • EC Provided exports subsidies for sugar in excess of its reduction commitment level. They acted inconsistently with the requirements of: Articles • 3.3, 8.9, 9.1(a) and (c), 10.1 of the Agreement on agriculture. • Articles 3.1 (a) and 3.2 of the SCM agreement • Brazil also requests that the Panel recommend to the DSB, that the European Communities bring its export subsidies for sugar into conformity with its obligations.

  15. Argument by Australia • EC provided export subsidies in excess of the export subsidy commitments that it had specified. • EC may also be paying a higher unit subsidy on incorporated products than on the primary product. • EC pays refiners a subsidy in the form of an intervention price for refining EC sugar which is not available to imported sugar thus affording less favorable treatment for imported products. • These subsidies were in violation of WTO articles.

  16. Argument by Thailand • EC sugar regime accords imported sugar a less favorable treatment than that accorded to domestic sugar. • EC sugar regime accords export subsidies above its reduction commitment levels. • The EC provides export subsidies (export refunds).. • These subsidies are inconsistent with EC’s obligation under WTO Articles.

  17. Argument by the EC • The EC does not grant any export subsidies to exports of C sugar. • Support of A and B sugar does not result to support of C sugar. • Appellate body cautions against overboard interpretation of “export subsidy” that would erode the distinction between domestic support and export subsidies • Its absurd to claim that EC sugar producers are granting export subsidies upon their own sugar and they do so by making those exports at a loss. • Even if there was some subsidies to C sugar, they would not be in excess of EC’s reduction commitment. • The claims now brought by the complainants are opportunistic. Especially Thailand whose sugar regime is similar to EC’s.

  18. Argument of the EC continued • Other developed WTO members are expected to cut subsidized exports by 21% and yet complainants are asking EC to cut subsidized exports by 60% • Complainants had agreed during the Uruguay round and they did this with full knowledge of the EC’s intentions of giving differential treatment of this portion of sugar exports. • Claims by complainants are based on an erroneous interpretation of article 9.1(c). • EC argued that Estoppel prevented Brazil from a complain against EU since this was already decided against Brazil due to its silence for all that time since WTO agreement 396. • Brazil countered by arguing that , “as a matter of legal principle, the European Communities could not infer from silence that other Members shared the view that C sugar was not subsidized, because they did not have a ‘duty’ to object “

  19. Decision of the panel • EC annual budgetary outlay and quantity commitment levels for exports of subsidized sugar were determined with reference to entries specified in Section II, Part IV of its Schedule. The EC exports of sugar had exceeded its annual commitment levels since 1995 • EC Producers/exporters of “ACP/India equivalent sugar” that exceeded the EC’s reduction commitment level received subsidies within the meaning of Article 9.1(a) of the agreement on agriculture. • EC Producers/exporters of C sugar that exceeded the EC’s commitment levels received payments on exports by virtue of GVT action, within the meaning of article 9.1(c) of the agreement on agriculture. • EC had not demonstrated that the exports of C sugar and “ACP/India equivalent” sugar in excess of its annual commitment levels were not subsidized.

  20. Appeal to the Appellate body • On January 31st 2005, the EC notified its intention to appeal certain issues of law and legal interpretations by the panel.

  21. Decision of the Appellate Body • There is a payment in the form of financial resources from the high revenues resulting from sales of A and B sugar, to the export production of C sugar within the meaning of article 9.1(c) of the agreement on agriculture; such payment on the export was within meaning of article 9.1 (c) of the agreement on agriculture because C sugar under the EC law must be exported. • EC had acted inconsistently with articles 3.3 and 8 of the agreement on agriculture by providing export subsidies in excess of its commitment levels as specified in its schedule. • The panel made an error in not ruling on the complaining parties’ claims under the SCM agreement, because the panel’s ruling under the agreement on agriculture was insufficient to fully resolve the dispute.

  22. - EU Implementations & Reforms- Implications - Proposals Sonia Karim

  23. Implementation Timeline • 13 June 2005: EU accepted DSB decision to be implemented “in a reasonable time period”. • 9 August 2005: Brazil, Thailand and Australia request that arbitrator specify “reasonable time period”. • 28 October 2005: Arbitrator gives EU until 22 May 2006 (12 mths and 3 days) to implement reforms.

  24. EU Sugar Market Reforms • CAP reform process starting from 2002 to increase competitiveness of EU market • 14 July 2004 Communication • 24 November 2005 Meeting of Agricultural Ministers - Agreement to implement reforms - Spurred by DSB decision • 20 February 2006 - Reforms were formally adopted by the EU - Will come into force on 1 July 2006

  25. SUGAR CMO REFORM • Reforms are far-reaching according to EU standards • Affect the quota system • Eliminate the intervention system • Replace it with a compensation system • Brazil, Thailand and Australia, as well as other countries have expressed concern about the reforms

  26. Implications For EU Market: Effect on EU Members • EU-25 sugar production between 18-21 million tons • Sugar produced by almost all Member States • France and Germany are top sugar producers • CAP reform process has been very unpopular with farmers and industry groups all over Europe • Political fall-out could be disastrous, esp. in France

  27. Implications for EU Market: EU Official Assessment • Assessment conducted by European Commission • Economic Impact: sugar sector will come into line with CAP reforms of 2003/04; enable only competitive producers to remain in market; reduction in EU production levels by 6 to 7 tonnes; strengthen EU position in trade talks. • Social Impact: restructuring of agricultural sector; compensation provided to farmers to ease transition into other products such as cereals; provide re-training opportunities for farmers and factory workers.

  28. Implications for Global Market: EU Preferential Arrangement • EU has several preferential arrangements which will be affected: • The Sugar Protocol, a bilateral agreement between the EU and 20 African, Caribbean, and Pacific (ACP) countries under which they can import 1.3 million tons of sugar duty-free. Similar arrangement with India. • The Special Preferential Sugar, which allows imports from SP beneficiaries and India to meet the needs of the EU’s refining industry. • The GATT-MFN quota which sets sets low tariffs up to 85,000 tons for Brazil and Cuba. • The Everything But Arms (EBA), which has increased access to the EU market for LDCs. • The Western Balkans, through which sugar from that region is imported at zero tariff.

  29. Implications For Global Market Continued • Brazil, Thailand, and Australia stand to benefit from reduced EU production. • ACP and LDCs wary of losing EU market access, and of falling EU market prices. • Quote from Oxfam reflects this : “The provisions of the commission’s reform proposal would have a devastating impact on ACP and LDC sugar production with disastrous socio-economic consequences in many countries.” • Reflects the complexities of bargaining coalitions in multilateral negotiations; “not all developing countries are created equally”

  30. EU Statement on the Effect of Dispute on ACP & LCDs • European Commission statement on 10 July 2003 “This challenge is hard to understand. It is nothing more than an attack on the EU’s preferences for developing countries. Let us be clear. The claims made by Brazil, Australia, and Thailand risk undermining the benefits of the EU regime for many sugar-dependent developing countries, especially the ACP countries.”

  31. Proposals • Export subsidies must be decided on during this Doha Round • Agreement on Agriculture must be clarified and issues such as tariff rates, implementation and phase-out periods, etc. be explicitly defined. • Developing countries must strengthen South-South trade.

  32. References • Commission of the European Communities. “Reforming the EU’s Sugar Policy: update of impact assessment SEC(2005)808” http://europa.eu.int/comm/agriculture/capreform/sugar/impact_en.pdf • European Commission for Trade. “Cases Involving the EU- WT/DS265” http://trade-info.cec.eu/int/wtodispute - “Sugar” http://trade-info.cec.eu.int/doclib/html/120339.htm - “EC regrets attack on EU sugar, but will abide by WTO AP ruling” http://trade-info.cec.eu.int/doclib/htm/122935.htm - “WTO challenge against EU sugar will hurt developing countries” Press Release, http://trade-info.cec.eu.int/doclib/htm/114658.htm • European Commission. “CAP Reform…” Press Release, - “EU radically reforms its sugar sector…” http://europa.eu.int/rapid/pressReleasesAction • Eupolitix. “EU set for bitterness over sugar reforms” - “EU sugar deal gets sweet and sour response” http://www.eupoolix.com” • http://www.internationaltraderelations.com/WTO.Sugar%20Case%20(Brazil%20v.%20EU)%20(AB%202004).htm • DISPUTE SETTLEMENT: DISPUTE DS265.European Communities — Export Subsidies on Sugar- http://www.wto.org/English/tratop_e/dispu_e/cases_e/ds265_e.htm • WT/DS266/R15 October 2004 • http://www.wto.org/english/tratop_e/dispu_e/265_266_283abr_conc_e.pdf

  33. References continued • 2002, October 2. Dispute Settlement I: Brazil- Sugar & Cotton. Retrieved March 1, 2006 from International Center for Trade and Sustainable Development Web site: http://www.ictsd.org/weekly/02-10-02/story1.htm • 2003, July 17. DSU Update: EU-Sugar; US Cotton; Australian-Fruit; US-Steel. Retrieved March 1, 2006 from International Center for Trade and Sustainable Development Web site: http://www.ictsd.org/weekly/03-07-17/story5.htm • (2004). After U.S Cotton, EC Sugar Subsidies Ruled Illegal. Retrieved March 1, 2006 from South Centre Web site: http://www.southcentre.org/info/southbulletin/bulletin86/bulletin86-09.htm • 2004, October 15. European Communities- Export Subsidies on Sugar Complaint By Brazil. Retrieved March 1, 2006 from WolrdTradeLaw.net Web site: http://worldtradelaw.net/reports/wtopanels/ec-sugar(panel)(brazil).pdf • (2004, March 2004). DSB Update: EC-Sugar, US-Cotton. Retrieved March 1, 2006 from International Center for Trade and Sustainable Development Web site: http://www.ictsd.org/weekly/04-03-18/story1.htm • Agreement on Agricultural. Retrieved March 1, 2006 from World Trade Organization Web site: http://www.wto.org/English/docs_e/legal_e/14-ag.pdf • Agreement on Subsidies and Countervailing Measures. Retrieved m from Wolrd Trade Organization Web http://www.worldtradelaw.net/uragreements/scmagreement.pdf • Garside, B., Hills, T., Marques, J., Seeger, C., Thiel, V. (2005). Who Gains From Sugar Quotas?. Retrieved March 2, 2006 from , ODI.org Web site: http://www.odi.org.uk/IEDG/Projects/EU_banana_sugar_markets/ODI_LSE_SugarProject_2005.pdf

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