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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See also: One-page summary of key findings of this dispute
Consultations
Complaint by Thailand.
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:
- Articles 3.3, 8, 9.1, 10.1 and 11 of the Agreement
on Agriculture,
- Articles 3.1 and 3.2 of the SCM Agreement; and
- 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:
- 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; and
- 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:
- Article III:4 of GATT 1994;
- Articles 3.1(a), 3.1(b) and 3.2 of the SCM
Agreement; and
- 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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