EC — Brazil Export Subsidies on Sugar.EC — Brazil Export Subsidies on Sugar.

European Community and BrazilEuropean Community and Brazil

October 16, 2006October 16, 2006

Group 6- Sarah, Linda and SenihaGroup 6- Sarah, Linda and Seniha

Sugar Trade… the Sugar Trade… the historical backgroundhistorical background

Sugarcane was first planted in Brazil in 1516.Sugarcane was first planted in Brazil in 1516.

Sugar was used as an economic and strategic Sugar was used as an economic and strategic means for Europe to gain a colonial stronghold means for Europe to gain a colonial stronghold in the Americas.in the Americas.

The first commercial production of sugar in the The first commercial production of sugar in the new world was undertaken in 1550, when the new world was undertaken in 1550, when the Portuguese Portuguese built mills along the Atlantic coast built mills along the Atlantic coast of Brazil.of Brazil.

In 1612 the total production of sugar in Brazil In 1612 the total production of sugar in Brazil had reached 14,000 tons, and by the 1640s had reached 14,000 tons, and by the 1640s one mill alone exported more than 24,000 tons one mill alone exported more than 24,000 tons of sugar annually to Amsterdam. of sugar annually to Amsterdam.

(source: http://www.bell.lib.umn.edu/Products/sugar.html)(source: http://www.bell.lib.umn.edu/Products/sugar.html)

Europe’s sugar Europe’s sugar productionproduction

The sugar beet has been The sugar beet has been cultivated in Europe since cultivated in Europe since the mid-18the mid-18thth century century

Many European countries Many European countries have implemented price have implemented price floors on domestic sugar, floors on domestic sugar, and imposed tariffs on and imposed tariffs on imported sugar to protect imported sugar to protect the domestic market.the domestic market.

Major PlayersMajor Players Complainant: BrazilComplainant: Brazil Respondent: European Communities Respondent: European Communities

Third Parties:Third Parties:

Australia; Barbados; Belize; Canada; China; Australia; Barbados; Belize; Canada; China; Colombia; Cuba; Fiji; Guyana; India; Jamaica; Colombia; Cuba; Fiji; Guyana; India; Jamaica; Kenya; Madagascar; Malawi; Mauritius; New Kenya; Madagascar; Malawi; Mauritius; New Zealand; Paraguay; St. Kitts and Nevis; Zealand; Paraguay; St. Kitts and Nevis; Swaziland; Tanzania; Thailand; Trinidad and Swaziland; Tanzania; Thailand; Trinidad and Tobago; United States; Côte d’Ivoire Tobago; United States; Côte d’Ivoire

When, Who, and WhatWhen, Who, and What

September 27, 2002September 27, 2002 Australia, Thailand and Brazil requested Australia, Thailand and Brazil requested consultationsconsultations with the European with the European Communities Communities

Brazil contested that subsidies that the Brazil contested that subsidies that the European Community provided to its European Community provided to its sugar industry were in violation of sugar industry were in violation of provisions of the WTO provisions of the WTO

The EC Was Said To Be The EC Was Said To Be In Violation Of…In Violation Of…

- Providing export subsidies for sugar Providing export subsidies for sugar and sugar containing products above and sugar containing products above its reduction commitment levels. its reduction commitment levels.

- Under the EC’s organization of the Under the EC’s organization of the sugar market, exporters of sugar in sugar market, exporters of sugar in excess of the annual quota are able to excess of the annual quota are able to export the sugar below its total cost of export the sugar below its total cost of production. production.

European Community Sugar European Community Sugar Subsidies…Subsidies…

- Guaranteed a high price for sugar produced Guaranteed a high price for sugar produced within certain production quotas,within certain production quotas,

- Sugar produced outside of these quotas Sugar produced outside of these quotas could not be sold internally during the same could not be sold internally during the same year which it was produced– it had to be year which it was produced– it had to be exported or carried over to fulfill the next exported or carried over to fulfill the next year’s quotas .year’s quotas .

Brazil Contested Its Sugar Brazil Contested Its Sugar Market Was Hurt Because…Market Was Hurt Because…

The EC accorded less favorable The EC accorded less favorable treatment to imported sugar and was treatment to imported sugar and was in violation of Article III:4 of the GATT in violation of Article III:4 of the GATT 1994. 1994.

Brazil Claimed The EC Was In Brazil Claimed The EC Was In Violation of the Agreement on Violation of the Agreement on AgricultureAgriculture The EC was providing export subsidies on sugar The EC was providing export subsidies on sugar

(Section 3)(Section 3) The export subsidies were not in conformity with the The export subsidies were not in conformity with the

EC’s Member Schedule (Section 8)EC’s Member Schedule (Section 8) The EC government was providing subsides that were The EC government was providing subsides that were

not being reduced in accordance to agreement (Article not being reduced in accordance to agreement (Article 9)9)

The agreement prohibits payments on the export of an The agreement prohibits payments on the export of an agricultural product that are financed by virtue of agricultural product that are financed by virtue of governmental actiongovernmental action

The EC was circumventing EC subsidy reduction The EC was circumventing EC subsidy reduction commitments (article 10)commitments (article 10)

Subsidies and Countervailing Measures Agreement

Articles 3.1(a) and 3.2 prohibit: The EC from allowing subsidies contingent The EC from allowing subsidies contingent

upon export performanceupon export performance These articles applied to the lower priced These articles applied to the lower priced

sugar outside the of the EC’s export quota’s, sugar outside the of the EC’s export quota’s, which was a violation of the agreement.which was a violation of the agreement.

Article III, National Treatment on Internal Taxation and Regulation

Section 4 means that products, domestic or foreign, are to be treated exactly the same way.

The excess sugar produced outside the quota was not treated like sugar from Brazil

Article XVI,  Subsidies

Brazil argued that the EC was not in Brazil argued that the EC was not in compliance with Article XVI on Subsidies.compliance with Article XVI on Subsidies.

The EC was maintaining subsides on its The EC was maintaining subsides on its sugar- which may hinder the sugar- which may hinder the achievement of the objectives of the achievement of the objectives of the General AgreementGeneral Agreement

Dispute Resolution Dispute Resolution Time LineTime LineDate Event

27-Sep-02 Request for Consultations

15-Oct-04 Panel Report

13-Jan-05 EC Gives Appeal Notification

25-Jan-05 Brazil, Australia, and Thailand Appeal

28-Apr-05 Appellate Body Report

28-Oct-05 Article 21.3(c) Arbitration Report

22-May-06 Implementation Deadline

Brazil Requests Brazil Requests ConsultationsConsultations

EC is not compliant with the following:EC is not compliant with the following:

Article 3.3 of the Agreement on AgricultureArticle 3.3 of the Agreement on Agriculture Article 8 of the Agreement on AgricultureArticle 8 of the Agreement on Agriculture Article 9.1 (a) and (c) of the Agreement on Article 9.1 (a) and (c) of the Agreement on

AgricultureAgriculture Article 10.1 of the Agreement on AgricultureArticle 10.1 of the Agreement on Agriculture Article 3.1(a) and 3.2 of the SCM AgreementArticle 3.1(a) and 3.2 of the SCM Agreement Article III:4 of GATT 1994Article III:4 of GATT 1994 Article XVI of GATT 1994Article XVI of GATT 1994

Brazilian GrievancesBrazilian Grievances

- Brazil’s sugar industry lost USD 900 million Brazil’s sugar industry lost USD 900 million annually due to EC's sugar export subsidiesannually due to EC's sugar export subsidies

- EC unfairly favors raw sugar imports from EC unfairly favors raw sugar imports from African, Caribbean and Pacific (ACP) nationsAfrican, Caribbean and Pacific (ACP) nations

- EC sugar export quota system violates WTO EC sugar export quota system violates WTO rules and unfairly supports European sugar rules and unfairly supports European sugar exports that drive down world pricesexports that drive down world prices

European PositionEuropean Position

Common market organization (CMO 1968) was Common market organization (CMO 1968) was created to ensure fair income to producers and created to ensure fair income to producers and self-sufficiency within the EC. self-sufficiency within the EC.

CMO's essential features: price arrangements, CMO's essential features: price arrangements, production quotas, arrangements for trade with production quotas, arrangements for trade with third countries and self-financing.third countries and self-financing.

EC claimed its sugar regime was self-financing EC claimed its sugar regime was self-financing and it was a non-subsidizing sugar exporterand it was a non-subsidizing sugar exporter

Panel FindingsPanel Findings

EC had acted inconsistently with its EC had acted inconsistently with its obligations under Articles 3.3 and 8 of the obligations under Articles 3.3 and 8 of the Agreement on Agriculture, by providing Agreement on Agriculture, by providing export subsidies within the meaning of export subsidies within the meaning of Article 9.1(a) and (c) of the Agreement on Article 9.1(a) and (c) of the Agreement on Agriculture in excess of the quantity and Agriculture in excess of the quantity and budgetary outlay commitment level budgetary outlay commitment level specified in Section II, Part IV of specified in Section II, Part IV of Schedule CXL.Schedule CXL.

Panel FindingsPanel Findings

The EC contravened its WTO commitments by The EC contravened its WTO commitments by subsidizing the re-export of ACP/India quota subsidizing the re-export of ACP/India quota sugar both by not showing it in its reduction sugar both by not showing it in its reduction commitments and by exceeding the permitted commitments and by exceeding the permitted level of subsidized exports. level of subsidized exports.

The ruling does not affect the right of the EC to The ruling does not affect the right of the EC to import sugar from ACP/India on preferential import sugar from ACP/India on preferential terms. terms.

Panel AppealsPanel Appeals

Appeals on whether the Panel erred in the below Appeals on whether the Panel erred in the below Panel Report paragraphs:Panel Report paragraphs:

7.37, 7.191, 7.198, 7.222, and 8.1(a), 7.292, 7.334, 7.37, 7.191, 7.198, 7.222, and 8.1(a), 7.292, 7.334, 8.1(f), 7.374, 8.4, 7.74, 7.387 (SCM Agreement),8.1(f), 7.374, 8.4, 7.74, 7.387 (SCM Agreement),

Whether certain aspects of the European Whether certain aspects of the European Communities' Notice of Appeal  satisfy the Communities' Notice of Appeal  satisfy the requirements of Rule 20(2)(d) of the  requirements of Rule 20(2)(d) of the  Working Working Procedures for Appellate ReviewProcedures for Appellate Review (the " (the "Working Working ProceduresProcedures").").

Appellate Body FindingsAppellate Body Findings

Appellate body upholds the Panel findings Appellate body upholds the Panel findings Panel erred in Panel erred in paragraph 7.387 in failing address Article 3 of paragraph 7.387 in failing address Article 3 of

the SCM Agreement, but is not in a position, and therefore the SCM Agreement, but is not in a position, and therefore declines, to complete the legal analysis and to examine the declines, to complete the legal analysis and to examine the Complaining Parties' claims under the SCM Agreement left Complaining Parties' claims under the SCM Agreement left unaddressed by the Panelunaddressed by the Panel

FindsFinds that the European Communities' Notice of Appeal that the European Communities' Notice of Appeal satisfies the requirements of Rule 20(2)(d) of the Working satisfies the requirements of Rule 20(2)(d) of the Working Procedures for Appellate Review. Procedures for Appellate Review.

EC No. 1260/2001, as well as all other measures EC No. 1260/2001, as well as all other measures implementing or related to the sugar regime, are implementing or related to the sugar regime, are inconsistent with the  Agreement on Agricultureinconsistent with the  Agreement on Agriculture

Brazil’s VictoryBrazil’s Victory

Brazil won the case as a complainantBrazil won the case as a complainant The EC would cease exporting 2.8m. The EC would cease exporting 2.8m.

tons of sugar.tons of sugar. Brazil would be allowed to export Brazil would be allowed to export

10% more sugar.10% more sugar. New EC Sugar reformNew EC Sugar reform What has been changed with this new What has been changed with this new

reform?reform?

Implementation Implementation

The panel’s ruling under the Agreement on Agriculture was The panel’s ruling under the Agreement on Agriculture was not able to resolve the dispute, especially regarding not able to resolve the dispute, especially regarding implementation of a remedy.implementation of a remedy.

On 9 August 2005, the parties were not able to agree on a On 9 August 2005, the parties were not able to agree on a reasonable period of time for implementation in accordance reasonable period of time for implementation in accordance with DSU article 21.3bwith DSU article 21.3b

The complaining parties requested to the binding arbitration The complaining parties requested to the binding arbitration to determine the period of time for implementation.to determine the period of time for implementation.

The arbitrator determined the reasonable period of time for The arbitrator determined the reasonable period of time for implementation as 12 months and 3 day which would expire implementation as 12 months and 3 day which would expire on May 22 2006.on May 22 2006.

ProposalsProposals

The EC has considered measures to bring its The EC has considered measures to bring its production of sugar more into line with production of sugar more into line with domestic consumption fully respecting its domestic consumption fully respecting its international commitments with respect to international commitments with respect to imports, including its commitments to imports, including its commitments to developing countries.developing countries.

Reform its sugar regime fully standing by its Reform its sugar regime fully standing by its commitments to ACP countries and India.commitments to ACP countries and India.

Bring its export subsidies for sugar conformity Bring its export subsidies for sugar conformity with its obligations under the Agreement on with its obligations under the Agreement on Agriculture.Agriculture.

National and International National and International Interests InvolvedInterests Involved

EC sugar producers and farmersEC sugar producers and farmers Sugar processing companiesSugar processing companies EC consumersEC consumers Brazil sugar producers and farmersBrazil sugar producers and farmers ACP countriesACP countries Australia and Thailand Australia and Thailand