European Communities – Export
Subsidies on Sugar (WT/DS266)
By: Charles Conner
Giovanella de Weever
Jacqueline Doll
Presentation Overview
 Background on sugar policies and trade regimes
 Analysis of dispute settlement case
 EU sugar sector reforms
 Potential impact on world sugar markets
Involved Parties
Complainant
Brazil, Australia, Thailand
Respondent
European Communities
Third Parties
Barbados;
Belize; Canada; China;
Colombia; Cuba; Fiji;
Guyana; India; Jamaica;
Kenya; Madagascar; Malawi;
Mauritius; New Zealand;
Paraguay; St. Kitts and
Nevis; Swaziland; Tanzania;
Trinidad and Tobago; United
States; Cote d’Ivoire
Timeline
Date
Action
September 27, 2002
Request for consultation
December 23, 2003
Panel Established
October 15, 2004
Panel Report
April 28, 2005
Appellate Report
May 19, 2005
Adoption of Appellate Body
report and the Panel report
April 28, 2005
Article 21.3 (c) Arbitration
report
June 8, 2006
Australia, Brazil, and
Thailand each reached an
understanding under Articles
21 and 21 of the DSU
EC’s Common Agricultural Policy
(CAP)
 Why it started
 Treaty of Rome
 Improving the lives of farmers
 Direct Subsidies
 Impact on Imports
 Quotas
 Structure
 Multifunctional
 Multilateral
Common Market Organization (CMO)
 Established in 1968, the CMO is a system of price
imports, quotas, and income arrangements to support
European sugar farmers
 A and B Sugar: two categories of sugar reaching certain
quantities that are guaranteed a minimum price
 C Sugar: any sugar produced in excess of category A and
B quantities. This sugar must be exported within a
certain time frame, or a charge will be levied.
 Quotas are allocated to the member states, who in turn
allocate quotas to each processor on the basis of its
production in a reference period
ACP Sugar Protocol
 Intergovernmental agreement
 Fixed quantities (raw/sugar cane)
 Indefinite period of time
 How much they’re guaranteed to import
 1.6 million tons of sugar
 Biggest ACP sugar producers
 Swaziland
 Mauritius
 The EU exports an equivalent amount to imports from
ACP countries.
European Sugar Market
(Sugar Regime)
 Consumption
 17.6 million tons
 12% of world market consumption
 Production
 Third largest producer
 Roughly 20 million tons per year
 14% of world market share
 Price of sugar
 Remains high in the EU
 Beet production is costly
 Net Exporter
Complainants Sugar Sectors
 Brazil
 Production: 35.8 million tons
 Consumption: 9.45 million tons
 Exports: 23.85 million tons
 Thailand
 Production: 7.7 million tons
 Consumption: 2 million tons
 Exports: 5 to 6 million tons
 Australia
 Production: 4.9 million tons
 Consumption: 1 million tons
 Exports: 4.1 million tons
Brazil’s Complaint
 “The EC under Council Regulation No. 1260/2001,
export subsidies for sugar and sugar containing
products above its reduction commitment levels
specified in Section II of Part IV of its schedule of
Concessions”
Inconsistent with:
 Article III: 4 and XVI of the GATT 1994
 Articles 3.3, 8, 9.1(a) and (c), and 10.1 of the
Agreement on Agriculture
 Articles 3.1 (a) and 3.2 of the SCM Agreement.
Consultations
 September 27, 2002 – Request for consultations by Brazil
and Australia concerning the European Communities’
support for its sugar, allegedly in excess of its
commitment schedule under Annex 2 of the Agreement
on Agriculture
 March 14, 2003 – Thailand requests consultations with
the EC on the same issue
 July 11, 2003 – Unable to reach a negotiated agreement
with the EC, Brazil requests the establishment of a
panel at the next DSB meeting
Complainants Argument/Position
 The European Communities had exceeded their
commitments on amber box subsidies under its
reduction commitments schedule
 Price supports of A and B quota sugar effectively crosssubsidize C quota sugar. C sugar must be exported or
carried over to fulfill the next year’s quotas
 ACP countries are guaranteed exports of 1.6 million tons
annually into the EC, and an equivalent amount must be
exported.
Terms of Reference
 EC: Complainants’ claims under the Agreement on Agriculture
are outside of the Panel’s terms of reference
 Violations of Article 3.3 and 8 are export subsidies, not “exports of
sugar”
 Identification of violations were not specific enough
 Complainants merely referenced “sugar regime” or Council Regulation No.
1260/2001, which is 45 pages long
 Sugar exports are private transactions, not government measures
within meaning of DSU 6.2
 Complainants: Article 10.3 of AA reverses burden of proof. EC
had to prove no export subsidies had occurred on exports in
excess of its commitments
 Panel: Complainants were sufficiently specific and demonstrated
that exports had occurred in excess of the EC’s Schedule, shifting
burden of proof onto the EC. Therefore Complainants’ argument
is within Panel’s terms of reference.
ACP/India Sugar
 EC: Exports of ACP/India sugar do not count towards its
reduction commitments because of “Footnote 1” in its
Schedule
 Footnote 1: “Does not include exports of sugar of ACP and
Indian origin on which the Community is not making any
reduction commitments. The average export in the period
1986-1990 amounted to 1,6 mio t.”
 EC referred exclusively to Footnote 1 in relation to ACP/India
sugar exports
 Panel: All export subsidies scheduled pursuant to Article 3 & 8
had to be subject to reduction commitments. Footnote 1 was
not, therefore it was invalid.
 The EC itself apparently did not consider Footnote 1 as a
commitment because it had not notified the WTO of its export
subsidies with respect to ACP/India Sugar.
C Quota Sugar
 Complainants: EC has created legal framework that encourages
overproduction of sugar, segregates the export market for C
sugar from the domestic market by imposing sanctions on
exports, and generates profits and capital used to fund exports
below the cost of production for C sugar. This framework is in
effect a payment under Article 9.1(c) of the Agriculture
Agreement.
 EC: C sugar exporters only get payment from world markets.
Those prices should be relevant benchmarks.
 Panel: A Quota Sugar purchased at 46.72 Euros/ton; B Quota
Sugar purchased at 32.42 Euros/ton. About 350 percent and 250
percent of world market prices respectively.
 Growers of A and B beet also grow C beet. There are no independent
C sugar beet producers, therefore the minimum prices paid to A and B
producers cross-subsidizes C producers.
C Quota Sugar, cont’d
 Inconsistent with Article 9.1(c) – payments made on the
export of an agricultural product that are financed by
virtue of government action.
 Canada-Dairy Appellate Body: Provision of an
agricultural input below its total costs of production
constitutes a “payment” to the processor of that input.
 A payment may be granted in a form other than money
payment, including revenue foregone.
C Quota Sugar, cont’d
 Panel: Below costs C beet sales to C sugar producers, crosssubsidization from profits made on sale of A and B sugar, and
exports of sugar below total costs of production constitute
export payments.
 Because C beet must be processed into C sugar which must be
exported, payments are made “on the export.”
 EC sugar regime arrangement results in C sugar producers
receiving payments on the export “financed by virtue of
government action.”
 Exports of C quota sugar are subsidized by the EC government
in excess of its reduction schedule, and are therefore
inconsistent with the EC’s obligations under Articles 3 and 8
of the Agreement on Agriculture
Panel Conclusions
 Panel found that the EC’s total exports of sugar exceeded its
quantity commitment level, inconsistent with Articles 3.3 and
8 of the Agreement on Agriculture
 Since 1995, the EC provided export subsidies within the
meaning of Article 9.1 (a) of the Agreement on Agriculture to
exports of “ACP/India equivalent sugar”
 Also since 1995, the EC provided export subsidies within the
meaning of Article 9.1 (c) of the Agreement on Agriculture to
its exports of C sugar
 The EC did not demonstrate that its sugar exports in excess of
its commitment levels were not subsidized, and was therefore
acting inconsistently with the Agreement on Agriculture
Panel Recommendations
 Bring EC Council Regulation No. 1260/2001 into
conformity with its export subsidies obligation under
Articles 3.3 and 8 of the Agreement on Agriculture
 EC should bring its production of sugar more into line
with domestic consumption while respecting its
international commitments with respect to imports
 The Panel recognizes the EC’s statement on its
commitment to ACP countries and India. Reform of its
sugar regime can continue import preferences.
Appellate Body Findings
 Upheld panel findings that the EC was in violation of its
commitments with regard to C Sugar and and
preferential treatment of ACP imports
 Disagreed that footnote 1 had no legal effect, but
agreed that it did not have the effect of enlarging the
EC’s quantity commitment levels
 Disagreed with the panel’s decision to not consider
complainants’ claims regarding the SCM agreement
Implementation
 May 19, 2005- The DSB adopted the Appellate Body
Report and also the Panel Report, which had been
modified.
 In recent 2010 discussions, the EC recently decided to
export an additional “half a million tons” of a particular
category of sugar, also known as “out of quota” sugar.
The total will now be two million tons, and Australia,
Brazil and Thailand objected to this decision.
 Australia, Brazil, and Thailand repeated their statement
recently made in the DSB in reference to WTO cases
DS265, DS266, and DS283
Souce: http://www.wto.org/english/news_e/news10_e/ag_com_10mar10_e.htm
EC’s Solution
 EC’s sugar reforms
 EU lost DS266, and the sugar regime was set to expire
on June 30, 2006
 The objectives of the reform included: 1. regular
supply of sugar 2. making the sugar sector more
competitive 3. market orientation 3. fair standard of
living for farmers 4. maintain preferential access for
ACP and LDC producers 5. Limit budget costs 6. Simplify
regime and make transparent
 The reforms resulted in a significant price reduction and
direct payments to farmers increased
Broader Implications and Issues
 Impact on world sugar market
 Impetus for the DOHA round, along with Brazil’s US
Cotton WTO Case DS 267
 Bilateral interest
 National and International Interests Involved
 The affects on US trade producers and ACP countries
 Diversification of Crops
Sources

ACP/EU Sugar Protocol. African, Caribbean and Pacific Sugar Group. 2005.
http://www.acpsugar.org/Sugar%20Protocol.html

Common Agricultural Policy. Wikipedia. http://en.wikipedia.org/wiki/Common_Agricultural_Policy

EU sugar sector: Facts and Figures. 2004.
http://www.deltha.ec.europa.eu/bic/news/newsfile/sugar_figures.pdf

Sugar and the European Union: Implication of WTO Findings, and Reform. USDA-Foreign Agricultural Service.
2004.http://www.fas.usda.gov/htp/sugar/2004/internet%20article%20on%20wto%20and%20reform%20rev1.pdf

Sugar: World Production Supply and Distribution. USDA-Foreign Agricultural Service. September 2009.
http://www.fas.usda.gov/htp/sugar/2009/Nov_sugar_2009.pdf

The Sugar Industry. Australian Government-Department of Agriculture, Fisheries and Forestry. 13 Feb. 2008.
http://www.daff.gov.au/agriculture-food/wheat-sugar-crops/sugar/industry

The Common Agricultural Policy: A Brief Introduction. Institute for Agriculture and Trade Policy. September
2007. http://www.iatp.org/iatp/publications.cfm?refid=100145

The Common Agricultural Policy Explained. European Commission: Agricultural and Rural Development.
http://ec.europa.eu/agriculture/publi/capexplained/cap_en.pdf

The Common Organization of the Market in Sugar. European Commission: Agriculture Directorate-General. September
2004. http://ec.europa.eu/agriculture/markets/sugar/reports/descri_en.pdf

The European Sugar Sector: A long-term competitive future. European Commission. September 2006.
http://ec.europa.eu/agriculture/capreform/sugar/infopack_en.pdf