DISPUTE SETTLEMENT: DISPUTE DS266

European Communities — Export Subsidies on Sugar


This summary has been prepared by the Secretariat under its own responsibility. The summary is for general information only and is not intended to affect the rights and obligations of Members.

  

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One-page summary of key findings of this dispute
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Current status  back to top

 

Key facts  back to top

Short title:
Complainant:
Respondent:
Third Parties:
Agreements cited:
(as cited in request for consultations)
Request for Consultations received:
Panel Report circulated: 15 October 2004
Appellate Body Report circulated: 28 April 2005
Article 21.3(c) Arbitration Report circulated: 28 October 2005

  

Summary of the dispute to date  back to top

The summary below was up-to-date at
See also: One-page summary of key findings of this dispute

Consultations

Complaint by Brazil.

On 27 September 2002, Australia and Brazil requested consultations with the European Communities concerning the export subsidies provided by the EC in the framework of its Common Organisation of the Market for the sugar sector. The requests concerned Council Regulation (EC) No. 1260/2001 of 19 June 2001 on the EC’s common organization of the markets in the sugar sector, and all other legislation, regulations, administrative policies and other instruments relating to the EC regime for sugar and sugar containing products including the rules adopted pursuant to the procedure referred to in Article 42(2) of Council Regulation (EC) No. 1260/2001, and any other provision related thereto. On 14 March 2003, Thailand requested consultations with the European Communities on the same matter.

Australia contended that the EC provides under the above measures export subsidies in excess of the export subsidy commitments that it has specified in Section II of Part IV of its Schedule of Concessions, in relation to “C sugar” and an amount of 1.6 million tons of sugar per year and possibly also sugar in incorporated products. It further alleges that the EC may also be paying a higher per unit subsidy on incorporated products than on the primary product. In addition, under the EC sugar regime refiners are paid a subsidy, in the form of the intervention price, for refining EC sugar which is not available to imported sugar, thus affording less favourable treatment to imported products.

According to Australia, the regulation and related instruments and measures taken thereunder appear to be inconsistent with, at least:

  1. Articles 3.3, 8, 9.1, 10.1 and 11 of the Agreement on Agriculture,
     
  2. Articles 3.1 and 3.2 of the SCM Agreement; and
     
  3. Articles III:4 and XVI of GATT 1994.

According to Brazil, the EC provides, under Council Regulation (EC) 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. Brazil explained that the EC intervention price system for sugar guarantees a high price for the sugar that is produced within certain production quotas (A and B quotas). Sugar produced in excess of these quotas (so-called C sugar) cannot be sold internally in the year in which it is produced: it must be exported or carried over to fulfil the following year’s production quotas. Under the EC’s common organization of the sugar market and its regulatory framework, exporters of C sugar are able to export C sugar at prices below its total cost of production.

In addition, according to the EC’s Schedule for sugar and the agricultural notifications submitted by the EC to the WTO for marketing years 1995/1996 through 2000/2001, the EC provides export subsidies in excess of its commitments to approximately 1.6 million tons of sugar per year. The export subsidies provided by the EC (referred to in the EC Council Regulation (EC) No. 1260/2001 as “export refunds”) cover the difference between the world market price and the high prices in the Community for the products in question, thus enabling those products to be exported.

Brazil also believed that the EC sugar regime accords less favourable treatment to imported sugar and is thus in violation of Article III:4 of the GATT 1994.

Brazil claimed that, by providing export subsidies for sugar in excess of its reduction commitment levels the EC is acting inconsistently with at least the requirements of:

  1. Articles 3.3, 8, 9.1(a) and (c), and 10.1 of the Agreement on Agriculture;
     
  2. Articles 3.1(a) and 3.2 of the SCM Agreement; and
     
  3. Articles III:4 and XVI of GATT 1994.

According to Thailand:

  • The EC sugar regime accords imported sugar a less favourable treatment than that accorded to domestic sugar and provides for subsidies contingent upon the use of domestic over imported products;
     
  • The EC sugar regime accords export subsidies above its reduction commitment levels specified in Section II of Part IV of the EC’s Schedule to the sugar produced in excess of its production quotas (so-called C sugar);
     
  • The EC provides export subsidies (known as “export refunds”) that cover the difference between the world market price and the high prices in the EC for the products in question, thus enabling those products to be exported.

Thailand considered that the above subsidies are inconsistent with the EC’s obligations under:

  1. Article III:4 of GATT 1994;
     
  2. Articles 3.1(a), 3.1(b) and 3.2 of the SCM Agreement; and
     
  3. Articles 3.3, 8, 9.1 and 10.1 of the Agreement on Agriculture.

In the dispute WT/DS265, Barbados, Belize, Brazil, Canada, Colombia, Congo, Côte d’Ivoire, Fiji, Guyana, India, Jamaica, Kenya, Madagascar, Malawi, Mauritius, St. Kitts and Nevis, Swaziland and Zimbabwe requested to join the consultations. On 24 October 2002, the EC informed the DSB that it had accepted the requests of Barbados, Belize, Brazil, Canada, Colombia, Congo, Côte d’Ivoire, Fiji, Guyana, India, Jamaica, Kenya, Madagascar, Malawi, Mauritius, St. Kitts and Nevis, Swaziland and Zimbabwe to join the consultations.

In the dispute WT/DS266, Australia, Barbados, Belize, Canada, Colombia, Congo, Côte d’Ivoire, Fiji, Guyana, India, Jamaica, Kenya, Madagascar, Malawi, Mauritius, St. Kitts and Nevis, Swaziland and Zimbabwe requested to join the consultations. On 24 October 2002, the EC informed the DSB that it had accepted the requests of Australia, Barbados, Belize, Canada, Colombia, Congo, Côte d’Ivoire, Fiji, Guyana, India, Jamaica, Kenya, Madagascar, Malawi, Mauritius, St. Kitts and Nevis, Swaziland and Zimbabwe to join the consultations.

On 9 July 2003, Australia, Brazil and Thailand each requested the establishment of a panel. At its meeting on 21 July 2003, the DSB deferred the establishment of the panels.

 

Panel and Appellate Body proceedings

Further to second requests to establish a panel from Australia, Brazil and Thailand, the DSB established a single panel at its meeting on 29 August 2003. Barbados, Canada, China, Colombia, Jamaica, Mauritius, New Zealand, Trinidad and Tobago and the US reserved their third-party rights. On 1 September 2003, Belize, Cuba, Fiji and Guyana reserved their third-party rights. On 2 September 2003, Paraguay and Swaziland reserved their third-party rights. On 5 September 2003, India, Madagascar and Malawi reserved their third-party rights. On 8 September 2003, Australia, Brazil, St. Kitts and Nevis, Tanzania and Thailand reserved their third-party rights. On 26 September 2003, Kenya reserved its third-party right. On 5 November 2003, Côte d’Ivoire reserved its third-party right.

On 15 December 2003, Australia, Brazil and Thailand requested the Director-General to determine the composition of the panel. On 23 December 2003, the Director-General composed the Panel. On 23 June 2004, the Chairman of the Panel informed the DSB that it would not be able to complete its work in six months due to the complexity of the matter and that the Panel expected to complete its work by early September 2004.

On 15 October 2004, the Panel circulated to Members its separate but identical reports with respect to WT/DS283, WT/DS266 and WT/DS265 respectively. The Panel found, inter alia, that:

  • the European Communities’ annual budgetary outlay and quantity commitment levels for exports of subsidized sugar were determined with reference to the entries specified in Section II, Part IV of its Schedule and the content of Footnote 1 in relation to these entries was of no legal effect and did not enlarge or otherwise modify the European Communities’ specified commitment levels.
     
  • the European Communities’ exports of sugar had exceeded its annual commitment levels since 1995, and in particular since the marketing year 2000/2001.
     
  • producers/exporters of “ACP/India equivalent sugar” that exceeded the European Communities’ reduction commitment levels received subsidies within the meaning of Article 9.1(a) of the Agreement on Agriculture.
     
  • producers/exporters of C sugar that exceeded the European Communities’ reduction commitment levels received payments on export by virtue of governmental action, within the meaning of Article 9.1(c) of the Agreement on Agriculture.

In light of Article 10.3 of the Agreement on Agriculture, which provides that where a Member exports an agricultural product in quantities that exceed its quantity commitment level, that Member will be treated as if it has granted WTO-inconsistent export subsidies for the excess quantities, unless the Member presents adequate evidence to “establish” the contrary, the Panel reached the conclusion that the European Communities had not demonstrated that the exports of C sugar and “ACP/India equivalent” sugar in excess of its annual commitment levels were not subsidized.

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

At its meeting of 13 December 2004, following a request from all the parties, the DSB agreed to extend the 60-day period for the adoption of the Panel report until 31 January 2005. On 13 January 2005, the European Communities notified its intention to appeal certain issues of law and legal interpretations developed by the Panel.

On 28 April 2005, the report of the Appellate Body was circulated. The Appellate Body found that: 

  • Footnote 1 does not enlarge or otherwise modify the European Communities’ commitment levels as specified in its Schedule; Footnote 1 does not contain a commitment to limit subsidization of exports of ACP/India equivalent sugar; and that Footnote 1 is inconsistent with the Agreement on Agriculture, because it does not contain a budgetary outlay commitment and does not subject subsidized exports of ACP/India equivalent sugar to reduction commitments.
      
  • in the particular circumstances of this dispute, there is a “payment” in the form of a transfer of financial resources from the high revenues resulting from sales of A and B sugar, to the export production of C sugar, within the meaning of Article 9.1(c) of the Agreement on Agriculture; such payments were “on the export” within the meaning of Article 9.1(c), because C sugar, under European Communities’ law, must be exported; and that the European Communities had acted inconsistently with Articles 3.3 and 8 of the Agreement on Agriculture by providing export subsidies in excess of its commitment levels as specified in its Schedule.
      
  • the Panel erred in not ruling on the Complaining Parties’ claims under the SCM Agreement, because the Panel’s ruling under the Agreement on Agriculture was insufficient to fully resolve the dispute, especially in relation to implementation of a remedy; but that because there was insufficient material before it, it was not in a position to complete the legal analysis and to examine the Complaining Parties’ claims under the SCM Agreement that were left unaddressed by the Panel.

At its meeting of 19 May 2005, the DSB adopted the Appellate Body report and the Panel report, as modified by the Appellate Body report.

 

Implementation of adopted reports

At the DSB meeting on 13 June 2005, the European Communities informed the DSB of its intention to implement the recommendations and rulings of the DSB, and stated that it would require a reasonable period of time to implement them.  

On 9 August 2005, the complaining parties to the dispute informed the DSB that as the parties had been unable to reach agreement on a reasonable period of time for implementation in accordance with DSU Article 21.3(b), the complaining parties would like to request that the reasonable period of time be determined through binding arbitration, pursuant to Article 21.3(c) of the DSU.  On 30 August 2005, the parties jointly requested Mr. A.V. Ganesan to act as an arbitrator under Article 21.3(c). On 5 September 2005, Mr. Ganesan accepted the appointment. On 28 October 2005, the Award of the arbitrator was circulated to Members, in which the arbitrator determined that the reasonable period of time is 12 months and 3 days, expiring on 22 May 2006.

Separately, at the DSB meeting on 27 September 2005, the complaining parties expressed their concern about the European Communities’ decision to increase exports of sugar by almost 2 million tonnes through a declassification system, which would regard quota sugar as “C” sugar.  The European Communities responded that it would comply with the DSB’s recommendations and rulings within the reasonable period of time to be fixed by the arbitrator.  

On 8 June 2006, Australia, Brazil and Thailand informed the DSB that they each had reached an Understanding under Articles 21 and 22 of the DSU with the European Communities.

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