Brazil vs. European Union.
History and Context
The international sugar industry is considered one of the last, heavily protected
agricultural sectors. With the exception of just a few countries, most producers
benefit from many protectionist programs such as quotas, import tariffs, export
subsidies, debt financing and so forth. The EU is one of the major producers
and consumers of sugar and also has one of the most protected markets.
The EU is one of the world's highest-cost sugar producers and supplied nearly
half of global white sugar exports last year. The EU also is the largest importer
of sugar and it is for this reason that it has had to re-export part of its own
Brazil is the largest exporter, shipping 13.1 million tons, followed by the EU
shipping 5.8 million tons. (Nov. 2002).
Sugar is one of EU’s most heavily subsidized crops and government supports
have helped European sugar producers become the world’s second-largest
exporters behind Brazil, the largest sugar producer.
Sources: New York Times, Aug. 2004 ☼ Bridges Weekly Trade News Digest, July 2003
History and Context
Filed in August 2003 by Brazil along with Australia and Thailand, the
argument brought before the WTO was that the almost $2 billion in
annual export subsidies that the EU pays its sugar farmers,
encourages overproduction and artificially depresses international
The EU sets quotas for sugar production for the European market and
any surplus sugar must be exported at a lower price. In its complaint,
Brazil accused the 25-nation EU of exporting more subsidized sugar
than is allowed under global trade agreements.
The WTO complaint brought by Brazil estimated that global sugar
process would rise almost 20% if the EU scrapped its subsidies.
Brazilian sugar producers claim they lose $500-700 million in exports a
year because of European subsidies.
Source: New York Times, Aug. 2004
World Production of Sugar (2002)
Percent of World Production of Sugar
Percent of World
15 12.8 13.7
4 4.5 4.8
EU-15 Brazil India Australia Thailand US
Source: Statistical Bulletin of the International Sugar
September 27, 2002 - Brazil requested consultations with the European
Communities pursuant to:
Article 4 of the Understanding on Rules and Procedures Governing the
Settlement of Disputes
Article XXII:1 of the General Agreement on Tariffs and Trade 1994
("GATT 1994"): Consultations
Article 19 of the Agreement on Agriculture, and
Articles 4.1 and 30 of the Agreement on Subsidies and Countervailing
Measures ("SCM Agreement") with regards to export subsidies
provided by the European Communities to its sugar industry.
November 21 and 22, 2002 – Consultations were held in Geneva.
HOWEVER . . .
Consultations did not resolve the dispute, so . . .
July 21, 2003 - Brazil requested a panel to be established
Articles 4.7 and 6 of the Dispute Settlement Understanding
Article XXIII:2 of the GATT 1994
August 29, 2003 -The Dispute Settlement Body (DSB) established
a panel pursuant to Brazil’s request:
Brazil (WT/DS266/21) in accordance with Article 6 of the DSU
and pursuant to Article 9.1 of the DSU.
Brazil challenged that the EU’s Common Organization of the Market in
Sugar (CMO) on two aspects:
They argued that C-sugar effectively benefits from cross-subsidization
of A and B quota sugar, so that benefits in excess of profits allow EU
sugar producers to subsidize their exports and is effectively a form or
export subsidy resulting from government intervention.
They argued that the EU does not reduce its export subsidy
commitments, nor does it include these export subsidies in its WTO
notifications of export subsidies. Therefore, the EU is inconsistent with
its obligations under various WTO articles of the Agreement on
Agriculture and various Articles under the Agreement on Subsidies
and Countervailing Measures.
Source: “Sugar and the EU: Implication of WTO Findings, and Reform” – Robert Knapp,
Foreign Agricultural Service, USDA
Brazil’s Position: WTO Issues
Brazil considers that the extent and manner in which the EC subsidizes
the exports of sugar violate the obligations of the EC under the Agreement
on Agriculture, the Agreement on Subsidies and Countervailing Measures
and the GATT 1994.
Articles 3.3, 8, 9.1(a) and (c), and 10.1 of the Agreement on
Articles 3.1(a) and 3.2 of the Subsidies and Countervailing Measures
Article III:4 and XVI of GATT 1994.
Brazil’s Position: WTO Issues
The EC violates Article 9.1(a) of the Agreement on Agriculture since it does not
subject to its reduction commitments all of the sugar to which it grants direct export
► Article 9.1(a), (Export Subsidy Commitments), Agreement on Agriculture
The following export subsidies are subject to reduction
commitments under this Agreement:
(a) the provision by governments or their agencies of direct subsidies,
including payments-in-kind, to a firm, to an industry, to producers of an
agricultural product, to a cooperative or other association of such
producers, or to a marketing board, contingent on export performance.
Brazil’s Position: WTO Issues
The exports that the EC grants to A and B quota sugar and to ACP/India sugar are
subject to the EC’s reduction commitments for sugar; the EC therefore grants
subsidies in excess of its quantity reduction commitment for sugar inconsistently
with Articles 3.3 and 8 of the Agreement on Agriculture.
► Article 3.3 (Incorporation of Concessions and Commitments), Agreement on
Subject to the provisions of paragraphs 2(b) and 4 of Article 9, a Member shall
not provide export subsidies listed in paragraph 1 of Article 9 in respect of the
agricultural products or groups of products specified in Section II of Part IV of
its Schedule in excess of the budgetary outlay and quantity commitment levels
specified therein and shall not provide such subsidies in respect of any
agricultural product not specified in that Section of its Schedule.
► Article 8 (Export Competition Commitments), Agreement on Agriculture
Each Member undertakes not to provide export subsidies otherwise than in
conformity with this Agreement and with the commitments as specified in that
Brazil’s Position: WTO Issues
The EC’s export subsidies for quota sugar, C sugar and ACP/India
equivalent sugar are granted inconsistently with Articles 3.1(a) and 3.2 of
the SCM agreement.
► Article 3.1(a), (Prohibition), Subsidies and Countervailing Measures Agreement
Except as provided in the Agreement on Agriculture, the following
subsidies, within the meaning of Article 1, shall be prohibited:
(a) subsidies contingent, in law or in fact(4), whether solely or as one of
several other conditions, upon export performance, including those
illustrated in Annex I(5)
► Article 3.2 (Prohibition), Subsidies and Countervailing Measures Agreement
A Member shall neither grant nor maintain subsidies referred to in
Brazil Also Believes That. . .
The EU is in violation of both Article III:4, due to its preferential
treatment of ACP/India countries, and Article XVI of the GATT.
► Article III:4: National Treatment
The products of the territory of any contracting party imported into the territory
of any other contracting party shall be accorded treatment no less favorable
than that accorded to like products of national origin.
► Article XVI:1 of the GATT 1994
If any contracting party grants or maintains any subsidy, it shall notify
the contracting parties in writing of the extent and nature of the
In this dispute, Brazil must show that:
► The EU is exporting sugar over its commitment level;
those set in Article 42(2) of the Council Regulation
(EC) No.1260/2001 of its Common Market Organization
(CMO) in the sugar sector.
► The EU is subsidizing these exports.
► In the end, the EU is distorting the sugar market by
driving down prices.
The EU insisted that its practice of selling sugar bought from poor
countries in Africa, the Caribbean and the Pacific basin should not be
counted against permitted exports.
The EU maintains that its export of sugar is not beyond commitment
levels. Therefore, the EU believes that excess subsidies have not
been put towards such sugar exports.
The EU also states that Brazil is acting inconsistently with the ‘good
faith’ principle and Article 3.10 of the Dispute Settlement
Understanding by brining these claims against them.
The EU feels that this claim by the Brazil threatens their Special
Preferential Sugar Agreement with ACP plus India countries.
The EU defended itself by stating that it was the biggest
importer of sugar and hence a major supporter of farmers in
“If they are attacking the EU, they are attacking
developing countries.” - Gregor Kreuzhuber, European
Commission's agriculture spokesman. ~2002~
The EU had imported 850m euros ($833m) of sugar
from developing countries in the year 2000, more than
the combined total imported by the United States,
Japan, Australia and Canada. - Thorsten Muench, EU
EU - Helping Developing Nations
The EU has given trade
preference to a number of Developing Nations:
African, Caribbean and Pacific - Barbados - Kenya
(ACP) nations due to their - Belize - St. Kitts & Nevis
colonial era connections.
- Congo - Swaziland
- Fiji - Tanzania
As part of their sugar regime, raw
sugar is imported from 17 ACP - Guyana - Trinidad & Tobago
countries (plus India). - Côte d’Ivoire - Zimbabwe
These arrangements fall under
the EU’s Sugar Protocol and Least Developed Countries:
Special Preferential Sugar - Madagascar - Zambia
arrangement under the sugar
sector CMO of 1995. The CMO - Malawi
will expire in June of 2006.
Panel Findings and Decision
October 15, 2004 – Its August decision was made public.
The Panel’s Findings:
► The WTO Panel found that the EU is dumping large amounts of subsidized
sugar - the number is far beyond the allowed quantity outlined by the WTO
► The Panel concluded that the EU has been providing export subsidies since
► The Panel also found that the EU failed to comply with the WTO guidelines by
subsidizing the re-export of amounts corresponding to imports of sugar from
the ACP countries and India
► Under WTO rules, the Panel has the right to recommend how a ruling is to be
► The ruling Panel and other agencies that have followed the dispute closely
suggest that the EU should implement their ruling in such a way that it will not
harm the long existing partnership with its preferential countries.
► The EU has started the process of reforming its agricultural trading policy in
respect to sugar but at this point the EU’s proposals for sugar reform is far
from compliance with the WTO rules.
How Will This Decision Affect the EU
The ruling increases the pressure on the EU to
reform its sugar policy.
The EU can continue to import sugar on preferential
The ruling demonstrates that the EU’s use of
subsidies substantially harms the developing world.
If the EU should not comply with the panel’s ruling, it
would signal to the developing world that the WTO
rules are not substantial and could result in
Actions Towards Conformity
The EU has not taken action to conform after the panel
ruled in favor of Brazil.
On December 13, 2004, the Dispute Settlement Body
extended the time period for appeal or adoption to
January 31, 2005.
According to the EU, they will seek to appeal the decision
in the spring of this year (2005).
The EU Agricultural Commissioner Franz Fischler stated
that “we are dissatisfied with this ruling and will appeal it.
But the EU’s appeal will not prevent the EU to plough on
with a radical overhaul of its sugar regime.”
Actions towards conformity with WTO ruling will
have to be done on a gradual basis due to the
complexity of the EU reform system and law-
EU political commitment to ACP will make the
transition process difficult.
Impact of price cuts on ACP and EU sugar
Fully address impact of EU levels of border
Eliminate all direct and indirect export subsidies.
Protect small-scale European farmers from sharp
domestic adjustment costs.
Increase aid and transitional assistance to ACP
This dispute demonstrates that developing
countries can use the DSU system to bring
cases against developed nations and win,
therein giving legitimacy to the dispute
-> Benson, Todd. “Brazil’s New WTO Success Could Spur More Cases”.
New York Times. August 6, 2004.