EU Export Subsidies on Sugar

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EU Export Subsidies on Sugar
EU rt

• Patti Mohr
• Amanda Monson
• Maria L. Ortiz

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EC Export Subsidies on Sugar

• Background
• Parties Brazil vs. EU
• WTO Issues
• Impact
• Analysis

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Parties

• Complainants Australia, Brazil, and
  Thailand
  
• Respondent European Union
• Third Parties Barbados, Belize, Canada,
  China, Colombia, Cote dIvoire Cuba,
  Fiji, Guyana, India, Jamaica, Kenya,
  Madagascar, Malawi, Mauritius, New
  Zealand, Paraguay, St. Kitts and Nevis,
  Swaziland, Tanzania, Trinidad Tobago,
  The United States.

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4-Year Process
Arbitration Report Oct. 2005
Agreement June 2006
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Appellate Body Decision (8 2)

• EU acted inconsistently with its obligations
  under the Agreement on Ag. (Art. 3.3 8)
  
• EU financial supports are export subsidies under
  Agreement (Ag Article 9.1 (2))
  
• EUs sugar program nullify or impair trade
  benefits of Uruguay Rounds Ag Agreement for
  Brazil
  

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Following the AB Report

• Implementation (June 2005) The EU said it would
  implement the DSB recommendations and rulings
  within a reasonable period of time to implement
  them.  
• Request for Arbitration (August 2005) Parties
  were unable to reach agreement on a reasonable
  period of time for implementation.
  
• Arbitration Report (October 2005) A WTO
  arbitrator said the EU must implement the WTO
  ruling by no later than May 22, 2006.
  
• Agreement (June 2006) Parties reach agreement.

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Significance A hot commodity

• Sugar is crucial to developing countries b/c
  they have a comparative advantage in producing
  low-cost goods.
  
• Ag subsidies thwart trade talks.

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Background Brazil vs. EU

• 1 exporter vs. 2 exporter
• 1 raw sugar importer (of WTO) EU
• (1.9 million tons imported 1.7 million tons frm
  developing countries at zero/ low tariff.)
  
• EU imports raw sugar from ACP countries, under a
  preferential treatment mechanism negotiated
  during the Uruguay Round.
  
• EU refines and exports refined white sugar.

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Main issue

• Brazil issues a complaint against EU
• EU overproduction of sugar artificially depresses
  global market prices
  
• EU discriminates ag. imports discrimination on
  non-ACP countries

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Contested EU Regulations

• Council Regulations No 1260/2001
• Europes Scheduled Commitment to Reduce Sugar
  Subsidies excludes all products that have
  materials imported from ACP- and/or India.
  
• (Footnote 1, sect. II, Part IV of schedule )

Request for Consultations by Brazil
1 October 2002
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Brazils position

• EU Subsidies EU pays sugar farmers 2 billion in
  annual export subsidies.
  
• That encourages overproduction and it
  artificially boosts the price of sugar on the
  European market.
  
• It makes the global market price fall, making it
  hard for poorer sugar producers to compete.
  
• Price Guarantees The EU promises producers a
  price of 632 euros per ton, which is about 3
  times the world price. The EU buys the sugar from
  the farmer at this price, and puts it into
  storage. This is known as intervention buying.
  More often, it pays an exporter the difference
  between the world price and the higher European
  price. Meanwhile, countries wanting to export
  sugar into the EU face huge tariffs.
• Excess must be exported EU sets quotas for sugar
  production for the European market, and farmers
  must export any surplus sugar at lower prices.

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Brazil Position

• Main problem EU exports more subsidized sugar
  than is allowed under global trade agreements.
  
• Impact Brazil estimated that global sugar prices
  would rise almost 20 if EU scrapped its
  subsidies. Brazilian sugar producers lose 500
  million to 700 million in exports a year because
  of European subsidies.

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Main WTO Principle

• Non-discrimination/MFN
• (Brazil says the EU favors sugar imports from ACP
  countries WTO says members cannot discriminate
  between trading partners.)
  
• National Treatment
• (Brazil says EU fixed Intervention Price for
  in-quota sugar sold in the EC is only available
  to EU producers. thus provides less favorable
  treatment to imported products.)

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WTO Agreements

• WTO Agreement on Agriculture
• (Requires members to reduce all export subsidies,
  as defined in Article 9.)
  
• GATT Agreement
• Article III of the GATT

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WTO Specific Provisions

• Articles 3 and 8 prohibit members from providing
  export subsidies except as permitted by both the
  Agreement and in the Members commitment
  schedule. EU sugar annual scheduled limits are
  499.1 million (800 million) 1.27 million
  tons.
• Article 9.2 of WTO Agreement on Agriculture
  requires an approx. 1/3 reduction of existing
  export subsidies on agricultural commodities.
  Each WTO Member providing subsidies has
  established its reduction commitments on a
  schedule. These schedules became binding
  provisions. They include direct subsidies to
  producers contingent on export performance and
  payments on the export of an agricultural
  product that are financed by virtue of government
  action.
• (Articles 9.1(a) 9.1(c))

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EUs Position

• EU insists its preferential treatment of sugar
  imports from ACP countries from India help the
  poor.
  
• The treatment is provided under its agreement w/
  former colonies is allowed under WTO Uruguay
  Round.
  
• Other arguments
• Brazil is not harmed by EU trade rules. Its
  exports of sugar have increased.

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Specific EU Rebuttal

• 1) No export subsidies on C sugar
• 2) C sugar exports do not exceed ECs reduction
  commitments
  
• 3) ECs notification is consistent with Agreement
  on Agriculture
  
• 4) SCM Agreement does not apply to subsidies of
  agricultural products
  
• 5) Brazil not acting in good faith (Art. 3.10)

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ACP Countries

• Angola - Antigua and Barbuda - Belize - Cape
  Verde - Comoros - Bahamas - Barbados - Benin -
  Botswana - Burkina Faso - Burundi - Cameroon -
  Central African Republic - Chad - Congo
  (Brazzaville) - Congo (Kinshasa) - Cook Islands -
  Cte d'Ivoire - Cuba - Djibouti - Dominica -
  Dominican Republic - Eritrea - Ethiopia - Fiji -
  Gabon - Gambia - Ghana - Grenada - Republic of
  Guinea - Guinea-Bissau - Equatorial Guinea -
  Guyana - Haiti - Jamaica - Kenya - Kiribati -
  Lesotho - Liberia - Madagascar - Malawi - Mali -
  Marshall Islands - Mauritania - Mauritius -
  Micronesia - Mozambique - Namibia - Nauru - Niger
  - Nigeria - Niue - Palau - Papua New Guinea -
  Rwanda - St. Kitts and Nevis - St. Lucia - St.
  Vincent and the Grenadines - Solomon Islands -
  Samoa - Sao Tome and Principe - Senegal -
  Seychelles - Sierra Leone - Somalia - South
  Africa - Sudan - Suriname - Swaziland - Tanzania
  - Timor Leste - Togo - Tonga - Trinidad and
  Tobago - Tuvalu - Uganda - Vanuatu - Zambia -
  Zimbabwe

www.bidnetwork.org/page/46595/en
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Export Schedule
Current notifications state that after May 2006
it includes exports of ACP and India.
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Harm to developing countries

• EU 2003 Report "WTO challenge against EU sugar
  program will hurt developing countries."
  
• Pascal Lamy added "This WTO action could not
  only destabilise the sugar-dependent economies of
  small ACP countries, but is also a smoke screen
  to hide the real causes of the current depressed
  world sugar prices.

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http//trade.ec.europa.eu/doclib/docs/2003/october
/tradoc_113885.pdf
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EU Top Domestic Producers
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Europes Domestic Producers

• 1967 common market established to protect
  domestic sugar industry (producers, refiners,
  etc.)
  
• Import levies
• Reformed in 1974, 1981, 1999 2001

AGRI/63362/2004 A Description of THE COMMON
ORGANISATION OF THE MARKET IN SUGAR, September
2004 http//ec.europa.eu/agriculture/markets/suga
r/reports/descri_en.pdf
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No Suffer Injury Evidence

• ? Complaint is legally unfoundedand also
  unjustified because Brazil cannot claim to have
  suffered any injury as a result of the alleged
  violation.
• ? Brazils sugar exports have risen
  exponentially, while the Europes have remained
  static since the Uruguay Round.
  

http//trade.ec.europa.eu/doclib/docs/2004/april/t
radoc_116584.pdf First Written Submission BY EC
11 March 2004

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Not a new issue

• Long History
• 1978 Australia Brazil brought complaints
  against the ECs export subsidies under Article
  XVI of the GATT.
  
• 1995/96 Uruguay Round at no point during the
  negotiations did the complainants or any other
  participant suggest that exports of C sugar
  benefited from export subsidies and should be
  subject to the reduction commitments.

http//trade.ec.europa.eu/doclib/docs/2004/april/t
radoc_116584.pdf First Written Submission BY EC
11 March 2004

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June 2006 Agreement

• The EU will
• Gradually reduce internal sugar prices by 39
• Compensate domestic farmers
• Find a new way to assist ACP countries
• Simplify single quota system

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Winners Losers

• Winners Food industries and consumers
• Upset with the fixed quotas status quo, but
  very satisfied with the price fall
  
• Losers Refineries, sugar mills, farmers
• ACP countries will have to reform industries
• EU domestic producers upset w/ the price fall
  of the industry but are satisfied with the fixed
  quotas status quo.

http//ec.europa.eu/agriculture/publi/reports/suga
r/fullrep_en.pdf
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Analysis Why the case matters

• Developing countries/emerging economies can
  effectively use the Dispute Resolution system to
  level the playing field.
  
• Special trading relationships with post-colonial
  countries dont take precedence over global trade
  rules.

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Cases filed with WTO
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Embolden Brazil?

• Will Cotton Sugar cases encourage Brazil to
  file more complaints?
  
• Brazils foreign minister the ruling confirms
  that there are immense distortions in global
  agricultural trade
  
• Brazil filed 2 cases since 2005 AB decision
• July 2007 Complaint ag. U.S. ag subsidies
• Nov. 2008 Complaint against the U.S. treatment
  of orange juice

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Impact on Trade

• Developing countries will produce more sugar
• Impact on renewable energy
• EU sugar production could fall by 1/3
• Uncertain impact for countries w/ preferential
  access to sugar markets in EU US
  
• Potential for economic losses
• (Source Herald article)

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Beneficiaries of the Ruling

• Brazilbiggest winner b/c it is the lowest-cost
  producer b/c it can easily shift sugarcane
  devoted to ethanol production to sugar
  production
• Also African countries (Uganda, Cameroon,
  Rwanda, South Africa Kenya) Cuba
  

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Impact on U.S.

• The 2008 Farm Bill guarantees U.S. producers 85
  of the domestic sugar market. (U.S. to sell
  surplus at Ethanol auctions)
  
• Canadas Financial Post calls the sugar deal one
  the sweetest feats of protectionism ever to come
  out of Washington, probably the world.

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Impact on Doha Round Talks

• Rising powers gain negotiating power
• Might ease way for productive talks since EU
  trade negotiators will be (slightly) less
  beholden to vested interests.
  
• EU seen as a fairer negotiator. (It no longer
  dumps sugar on the world market.)
  
• But. EU/US Ag subsidies are still huge
  continue to thwart talks.

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Conclusion

• We agree with WTO rulings.
• The case is a example of a successful use of the
  DSU system.
  
• EU Brazil came to an agreement, following
  arbitration
  
• But it took a long time for the parties to reach
  agreement (4 yrs) and the implementation process
  is also lengthy.

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