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DISPUTE SETTLEMENT: DISPUTE DS266

European Communities — Export Subsidies on Sugar. DISPUTE SETTLEMENT: DISPUTE DS266. Justin Badlam Brian Behringer Kojo Boateng. History and Context: How The Case Came to Be. EU Sugar Production Total production broken into two quotas; Quota A and Quota B

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DISPUTE SETTLEMENT: DISPUTE DS266

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  1. European Communities — Export Subsidies on Sugar DISPUTE SETTLEMENT: DISPUTE DS266 Justin Badlam Brian Behringer Kojo Boateng

  2. History and Context: How The Case Came to Be • EU Sugar Production • Total production broken into two quotas; Quota A and Quota B • Production distributed amongst Member States (MS) • Overproduction of Sugar • Called “C Sugar” • C Sugar cannot be sold within the EU, must be exported European Communities — Export Subsidies on Sugar DISPUTE SETTLEMENT: DISPUTE DS266

  3. History and Context: How the Case Came to Be • Exportation of EU Sugar • EC Council Regulation No. 1260/2001 • Exporters of C Sugar are able to export at prices below that of production costs • “Export Refunds” are granted to cover price differential • “Export Refunds” used for raw sugar and sugar containing products • Amount of C Sugar approximately 1.6 million tons per year European Communities — Export Subsidies on Sugar DISPUTE SETTLEMENT: DISPUTE DS266

  4. History and Context: How the Case Came to Be • Consultations • Australia and Brazil, on Sept. 27, 2002, request consultations with EU • Complaint(s) • Providing subsidies to C Sugar and sugar products • Brazil claimed that the EU was in violation of the following: • Articles 3.3, 8, 9.1(a) and (c), and 10.1 of the Agriculture Agreement • Articles 3.1(a) and 3.2 of the SCM Agreement • Ariticles III:4 and XVI of GATT 1994 European Communities — Export Subsidies on Sugar DISPUTE SETTLEMENT: DISPUTE DS266

  5. History and Context: How the Case Came to Be • Brazil Said, Brussels Said • Brazil • European Union also applies its internal sugar policy, consisting of production quotas and guaranteed prices to African and Caribbean nations • Brussels • Sugar policy is legal; warned that if Brazil chooses to boost sugar production and prices fall, this could harm poorer developing countries European Communities — Export Subsidies on Sugar DISPUTE SETTLEMENT: DISPUTE DS266

  6. History and Context: How the Case Came to Be • Consultations Fail • Brazil, Australia, and Thailand each request the establishment of a panel on 9 July, 2004 • Third Parties: Australia, Barbados, Belize, Canada, China, Cambodia, Cuba, Fiji, Guyana, India, Jamaica, Kenya, Madagascar, Malawi, Mauritius, New Zealand, Paraguay, St. Kitts and Nevis, Swaziland, Tanzania, Thailand, Trinidad and Tobago, US, and Cote d’Ivoire European Communities — Export Subsidies on Sugar DISPUTE SETTLEMENT: DISPUTE DS266

  7. History and Context: How the Case Came to Be • Director-General • 15 December, 2003, Brazil, Australia, and Thailand request the Director-General to determine the composition of the panel • 23 December, 2003, Director-General composes the Panel • 23 June, 2004, Chairman of the Panel announces that it is unable to complete within six months due to complexity European Communities — Export Subsidies on Sugar DISPUTE SETTLEMENT: DISPUTE DS266

  8. History and Context: How the Case Came to Be • The Panel’s Findings • EC’s exports of sugar have exceeded annual commitment levels since 1995 • Former colonies exporting to the EU received subsidies within the meaning of Article 9.1(a) of the Agriculture Agreement • Producers/Exporters of C Sugar also received payments by virtue of government action • EC had acted inconsistently with its obligations under Articles of 3.3 and 8 of Agreement on Agriculture • EC had not established adequate evidence that its sugar exports were not subsidized under Article 10.3 of the Agriculture Agreement • 13 January, 2005; EC notified its intention to appeal European Communities — Export Subsidies on Sugar DISPUTE SETTLEMENT: DISPUTE DS266

  9. WTO Issue: Subsidies • Export Subsidy: An agricultural subsidy is a governmental subsidy paid to farmers and agribusinesses to supplement their income, manage the supply of agricultural commodities, and influence the cost and supply of such commodities. • WTO Context: • Original GATT did apply to agricultural trade, but contained loopholes. • Non-tariff measures such as import quotas, and to subsidize. • Subsidies & EU: 40% of EU’s Budget European Communities — Export Subsidies on Sugar DISPUTE SETTLEMENT: DISPUTE DS266

  10. SUBSIDY PAYMENTS IN 2008 • OECD: $265 billion in 2008 • 1/5 of Total Farm Earnings • United States: $23.3 billion • Brazil: $??? • The European Union: $150.4 billion European Communities — Export Subsidies on Sugar DISPUTE SETTLEMENT: DISPUTE DS266

  11. Arguments for Subsidies: • Secure food supply (self-sufficiency) • Guarantee high quality standards • Positive impact of agriculture on society (preserve cultural heritage, landscape management, generation of bio-energy, and agro-tourism) • Growing populations will demand more agricultural commodities in the future. European Communities — Export Subsidies on Sugar DISPUTE SETTLEMENT: DISPUTE DS266

  12. Arguments against: • Higher Prices • Distorts Markets • Subsidies Go To Relatively Few • Does Not Benefit Consumers (Higher Taxes, Higher Prices) • Bio-farmers Successes • Doesn’t Guarantee High Quality Food • Environmental Problems European Communities — Export Subsidies on Sugar DISPUTE SETTLEMENT: DISPUTE DS266

  13. WTO Agriculture Agreement: • The objective of the Agriculture Agreement is to reform trade in the sector and to make policies more market-oriented. • The new rules and commitments apply to: • market access — various trade restrictions confronting imports • domestic support — subsidies and other programs, including those that raise or guarantee farmgate prices and farmers’ incomes • export subsidies and other methods used to make exports artificially competitive. Export Subsidies: Agreement Prohibits • Developed countries agreed to cut the value by 36% over the 6 years. • Developing countries agreed to cut 24% over 10 years. • Least-developed countries do not need to make any cuts. European Communities — Export Subsidies on Sugar DISPUTE SETTLEMENT: DISPUTE DS266

  14. Agriculture Agreement & Articles Article 3: The domestic support and export subsidy commitments in Part IV of each Member’s Schedule constitute commitments limiting subsidization and are hereby made an integral part of GATT 1994. Member shall not provide support in favor of domestic producers in excess of the commitment levels specified in the Agricultural Agreement. Article 8: 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. Article 9.1: Members will make reduction in export subsidies commitments and government support of agricultural programs: “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;”

  15. WTO Obligations Vs. National Interest • EU Leads World In Subsidizing Agricultural Industry • $158.4 billion in 2008 • 40% of EU’s Budget • EU was hurting developing countries by undercutting their producers' prices • EU acted out of National Interest – Against WTO Obligations European Communities — Export Subsidies on Sugar DISPUTE SETTLEMENT: DISPUTE DS266

  16. Export Subsidies on Sugar: Positions by Major Parties  Brazil, Australia, Thailand & Other Third Parties: • Export Subsidies: Encourage overproduction and artificially depress international prices. • EU export subsidies of sugar outside of Europe should be accounted for. • EU: • Sets quotas for sugar production & farmers must export any surplus • Claimed its sugar policy was legal and warned that if Brazil chooses to boost sugar production and prices fall hurting poor countries. • Disputed the claim that sugar purchased should count for export subsidies. European Communities — Export Subsidies on Sugar DISPUTE SETTLEMENT: DISPUTE DS266

  17. What These Agreements and Provisions Mean: • By providing export subsidies in excess of its commitments the EU was acting inconsistently with principles of the WTO and Agriculture Agreement. Brazil, Australia, and Thailand’s Arguments: • The EC sugar regime accords less favorable treatment to imported sugar and is a violation of Article III:4 of the GATT 1994 • “C sugar” have been accorded export subsidies which violates the obligations of the EC under the Agreement on Agriculture, Agreement on Subsidies, Countervailing Measures, and GATT 1994. • EU provides export subsidies (known as export refunds)that cover the difference between the world market price and the high prices in the EU. European Communities — Export Subsidies on Sugar DISPUTE SETTLEMENT: DISPUTE DS266

  18. Implementation Timeline • Request For Consultations Received  September 27, 2002 • Panel Report Circulated  October 15, 2004 • Appellate Body Report  April 28, 2005 • WTO ordered the EU to stop dumping subsidized sugar or face trade sanctions. • EU  15 months for compliance with global trade rules. • The Appellate body rejected contention that the EU comply within 90 days. European Communities — Export Subsidies on Sugar DISPUTE SETTLEMENT: DISPUTE DS266

  19. Implementation: • EU: 72% Reduction • EU: Sugar Production Overhaul  $2 Billion Annually • June 8, 2006: Australia, Brazil, and Thailand  Understanding of Articles 21& 22 DSU w/ EU European Communities — Export Subsidies on Sugar DISPUTE SETTLEMENT: DISPUTE DS266

  20. Our Observations of WTO Ruling DS266 • EU: Violated Agricultural Agreement • 40% of EU Budget • Brazil: Unfair for Sugar Producers • “The almost $2 billion in annual export subsidies that the European Union pays its sugar farmers encourage overproduction and artificially depress international prices.” • ''This ruling, just like the cotton decision, confirms that there are immense distortions in international agricultural markets. And it also confirms that serious negotiations need to take place to do away with farm subsidies, both for exports and domestic consumption.'’ - Clodoaldo Hugueney, The Under Secretary For Economic Affairs At Brazil's Foreign Ministry European Communities — Export Subsidies on Sugar DISPUTE SETTLEMENT: DISPUTE DS266

  21. Sources • “WTO Law, Litigation and Policy,” Malawer • WTO Dispute Settlement: Dispute DS266; “European Communities – Export Subsidies on Sugar.” • EU Memo 04-177: EU Sugar Facts and Figures; Brussels, 14 July 2004 • “WTO raps EU over sugar policy.” BBC, August 4, 2004 • “W.T.O. Rules for Brazil in Sugar Dispute”, NYT, August 5, 2004. • http://ec.europa.eu/budget/budget_glance/what_for_en.htm • “Agricultural subsidies”, The Economist, July 23, 2009, http://www.economist.com/markets/indicators/displaystory.cfm?story_id=14098262 European Communities — Export Subsidies on Sugar DISPUTE SETTLEMENT: DISPUTE DS266

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