WTO ISSUES by ert554898


									          Brazil vs. European Union.
                  Sugar Case.

Dzifa Acolatse
Jean-Guy Afrika
Sarah Ayers
Aleksandra Ciric
                  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
   Production 2002

                      15    12.8            13.7

                                                          4     4.5      4.8

                           EU-15   Brazil   India   Australia Thailand   US

Source: Statistical Bulletin of the International Sugar
Organization (ISO)
                    Dispute Process
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 . . .
                  Dispute Process
Consultations did not resolve the dispute, so . . .

July 21, 2003 - Brazil requested a panel to be established
   pursuant to:
 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’s Complaint

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
   Member’s Schedule.
      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
          paragraph 1.
         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
                 Brazil’s Position

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.
                        EU’s Position

   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.
                       EU’s Position

   The EU defended itself by stating that it was the biggest
    importer of sugar and hence a major supporter of farmers in
    poor countries.

            “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
                                             - Jamaica
   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
               Sugar Policy?

   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.”
               Potential Issues

   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
            In Conclusion

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
resolution system.
   http//www.wto.org/
   http://www.internationaltraderelations.com/
   http://news.bbc.co.uk/
   www.oxfam.org
   http://fsa.usda.gov/
   http://europa.eu.int/
   http://www.iata.org/
   http://trade-info.cec.eu.int/
   http://www.iht.com/
    -> Benson, Todd. “Brazil’s New WTO Success Could Spur More Cases”.
        New York Times. August 6, 2004.
   http://www.ictsd.org/weekly/03-17/story5.htm
   http://trade-info.cec.eu.int/doclib/

To top