Brazil vs. European Union. Sugar Case.

1
Brazil vs. European Union.Sugar Case.
Dzifa Acolatse Jean-Guy Afrika Sarah Ayers Alek
sandra Ciric

2
History and Context

• The international sugar industry is considered
  one of the last, heavily protected agricultural
  sectors. With the exception of just a few
  countries, most producers benefit from many
  protectionist programs such as quotas, import
  tariffs, export subsidies, debt financing and so
  forth. The EU is one of the major producers and
  consumers of sugar and also has one of the most
  protected markets.
• The EU is one of the world's highest-cost sugar
  producers and supplied nearly half of global
  white sugar exports last year. The EU also is the
  largest importer of sugar and it is for this
  reason that it has had to re-export part of its
  own sugar.
• Brazil is the largest exporter, shipping 13.1
  million tons, followed by the EU shipping 5.8
  million tons. (Nov. 2002).
  
• Sugar is one of EUs most heavily subsidized
  crops and government supports have helped
  European sugar producers become the worlds
  second-largest exporters behind Brazil, the
  largest sugar producer.

Sources New York Times, Aug. 2004 Bridges
Weekly Trade News Digest, July 2003
3
History and Context

• Filed in August 2003 by Brazil along with
  Australia and Thailand, the argument brought
  before the WTO was that the almost 2 billion in
  annual export subsidies that the EU pays its
  sugar farmers, encourages overproduction and
  artificially depresses international prices.
• The EU sets quotas for sugar production for the
  European market and any surplus sugar must be
  exported at a lower price. In its complaint,
  Brazil accused the 25-nation EU of exporting more
  subsidized sugar than is allowed under global
  trade agreements.
• The WTO complaint brought by Brazil estimated
  that global sugar process would rise almost 20
  if the EU scrapped its subsidies. Brazilian
  sugar producers claim they lose 500-700 million
  in exports a year because of European subsidies.

Source New York Times, Aug. 2004
4
World Production of Sugar (2002)
Source Statistical Bulletin of the International
Sugar Organization (ISO)
5
Dispute Process

• September 27, 2002 - Brazil requested
  consultations with the European Communities
  pursuant to
  
• Article 4 of the Understanding on Rules and
  Procedures Governing the Settlement of Disputes
  
• Article XXII1 of the General Agreement on
  Tariffs and Trade 1994 ("GATT 1994")
  Consultations
  
• Article 19 of the Agreement on Agriculture, and
• Articles 4.1 and 30 of the Agreement on Subsidies
  and Countervailing Measures ("SCM Agreement")
  with regards to export subsidies provided by the
  European Communities to its sugar industry.
• November 21 and 22, 2002 Consultations were
  held in Geneva.
  
• HOWEVER . . .

6
Dispute Process

• Consultations did not resolve the dispute, so . .
  .
  
• July 21, 2003 - Brazil requested a panel to be
  established pursuant to
  
• Articles 4.7 and 6 of the Dispute Settlement
  Understanding
  
• Article XXIII2 of the GATT 1994
• August 29, 2003 -The Dispute Settlement Body
  (DSB) established a panel pursuant to Brazils
  request
  
• Brazil (WT/DS266/21) in accordance with Article 6
  of the DSU and pursuant to Article 9.1 of the DSU.

7
Brazils Complaint

• Brazil challenged that the EUs Common
  Organization of the Market in
  
• Sugar (CMO) on two aspects
• They argued that C-sugar effectively benefits
  from cross-subsidization of A and B quota sugar,
  so that benefits in excess of profits allow EU
  sugar producers to subsidize their exports and is
  effectively a form or export subsidy resulting
  from government intervention.
• They argued that the EU does not reduce its
  export subsidy commitments, nor does it include
  these export subsidies in its WTO notifications
  of export subsidies. Therefore, the EU is
  inconsistent with its obligations under various
  WTO articles of the Agreement on Agriculture and
  various Articles under the Agreement on Subsidies
  and Countervailing Measures.

Source Sugar and the EU Implication of WTO
Findings, and Reform Robert Knapp, Foreign
Agricultural Service, USDA
8
Brazils Position WTO Issues

• Brazil considers that the extent and manner in
  which the EC subsidizes
  
• the exports of sugar violate the obligations of
  the EC under the Agreement
  
• on Agriculture, the Agreement on Subsidies and
  Countervailing Measures
  
• and 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 Subsidies and
  Countervailing Measures Agreement
  
• Article III4 and XVI of GATT 1994.

9
Brazils Position WTO Issues

• The EC violates Article 9.1(a) of the Agreement
  on Agriculture since it does not
  
• subject to its reduction commitments all of the
  sugar to which it grants direct export
  
• subsidies.
• ? Article 9.1(a), (Export Subsidy Commitments),
  Agreement on Agriculture
  
• The following export subsidies are subject to
  reduction commitments under this Agreement
  
• (a) 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.

10
Brazils Position WTO Issues

• The exports that the EC grants to A and B quota
  sugar and to ACP/India sugar are
  
• subject to the ECs reduction commitments for
  sugar the EC therefore grants
  
• subsidies in excess of its quantity reduction
  commitment for sugar inconsistently
  
• with Articles 3.3 and 8 of the Agreement on
  Agriculture.
  
• ? Article 3.3 (Incorporation of Concessions and
  Commitments), Agreement on Agriculture
  
• Subject to the provisions of paragraphs 2(b) and
  4 of Article 9, a Member shall not provide
  export subsidies listed in paragraph 1 of Article
  9 in respect of the agricultural products or
  groups of products specified in Section II of
  Part IV of its Schedule in excess of the
  budgetary outlay and quantity commitment levels
  specified therein and shall not provide such
  subsidies in respect of any agricultural product
  not specified in that Section of its Schedule.
• ? Article 8 (Export Competition Commitments),
  Agreement on Agriculture
  
• Each Member undertakes not to provide export
  subsidies otherwise than in conformity with this
  Agreement and with the commitments as specified
  in that Members Schedule.

11
Brazils Position WTO Issues

• The ECs export subsidies for quota sugar, C
  sugar and ACP/India
  
• equivalent sugar are granted inconsistently with
  Articles 3.1(a) and 3.2 of
  
• the SCM agreement.
• ? Article 3.1(a), (Prohibition), Subsidies and
  Countervailing Measures Agreement
  
• Except as provided in the Agreement on
  Agriculture, the following subsidies, within the
  meaning of Article 1, shall be prohibited
  
• (a) subsidies contingent, in law or in fact(4),
  whether solely or as one of several other
  conditions, upon export performance, including
  those illustrated in Annex I(5)
• ? Article 3.2 (Prohibition), Subsidies and
  Countervailing Measures Agreement
  
• A Member shall neither grant nor maintain
  subsidies referred to in paragraph 1.
  

12
Brazil Also Believes That. . .

• The EU is in violation of both Article III4, due
  to its preferential
  
• treatment of ACP/India countries, and Article XVI
  of the GATT.
  
• ? Article III4 National Treatment
• The products of the territory of any contracting
  party imported into the territory of any other
  contracting party shall be accorded treatment no
  less favorable than that accorded to like
  products of national origin.
• ? Article XVI1 of the GATT 1994
• If any contracting party grants or maintains
  any subsidy, it shall notify
  
• the contracting parties in writing of the
  extent and nature of the
  
• subsidization.

13
Brazils Position

• In this dispute, Brazil must show that
• ? The EU is exporting sugar over its
  commitment level those set in Article 42(2) of
  the Council Regulation (EC) No.1260/2001 of its
  Common Market Organization (CMO) in the sugar
  sector.
• ? The EU is subsidizing these exports.
• ? In the end, the EU is distorting the sugar
  market by
  
• driving down prices.

14
EUs Position

• The EU insisted that its practice of selling
  sugar bought from poor countries in Africa, the
  Caribbean and the Pacific basin should not be
  counted against permitted exports.
• The EU maintains that its export of sugar is not
  beyond commitment levels. Therefore, the EU
  believes that excess subsidies have not been put
  towards such sugar exports.
• The EU also states that Brazil is acting
  inconsistently with the good faith principle
  and Article 3.10 of the Dispute Settlement
  Understanding by brining these claims against
  them.
• The EU feels that this claim by the Brazil
  threatens their Special Preferential Sugar
  Agreement with ACP plus India countries.
  

15
EUs Position

• The EU defended itself by stating that it was the
  biggest importer of sugar and hence a major
  supporter of farmers in poor countries.
  
• If they are attacking the EU, they are attacking
  developing countries. - Gregor Kreuzhuber,
  European Commission's agriculture spokesman.
  2002
• The EU had imported 850m euros (833m) of sugar
  from developing countries in the year 2000, more
  than the combined total imported by the United
  States, Japan, Australia and Canada. - Thorsten
  Muench, EU
• spokesman.

16
EU - Helping Developing Nations

• The EU has given trade preference to a number of
  African, Caribbean and Pacific (ACP) nations due
  to their colonial era connections.
  
• As part of their sugar regime, raw sugar is
  imported from 17 ACP countries (plus India).
  
• These arrangements fall under the EUs Sugar
  Protocol and Special Preferential Sugar
  arrangement under the sugar sector CMO of 1995.
  The CMO will expire in June of 2006.

• Developing Nations
• - Barbados - Kenya
• - Belize - St. Kitts Nevis
• - Congo - Swaziland
• - Fiji - Tanzania
• - Guyana - Trinidad Tobago
• - Côte dIvoire - Zimbabwe
• - Jamaica
• Least Developed Countries
• - Madagascar - Zambia
• - Malawi

17
Panel Findings and Decision

• October 15, 2004 Its August decision was made
  public.
  
• The Panels Findings
• ? The WTO Panel found that the EU is dumping
  large amounts of subsidized sugar - the number
  is far beyond the allowed quantity outlined by
  the WTO
• ? The Panel concluded that the EU has been
  providing export subsidies since 1995.
  
• ? The Panel also found that the EU failed to
  comply with the WTO guidelines by subsidizing the
  re-export of amounts corresponding to imports of
  sugar from the ACP countries and India

18
Implementation

• ? Under WTO rules, the Panel has the right to
  recommend how a ruling is to be implemented.
  
• ? The ruling Panel and other agencies that have
  followed the dispute closely suggest that the
  EU should implement their ruling in such a way
  that it will not harm the long existing
  partnership with its preferential countries.
• ? The EU has started the process of reforming
  its agricultural trading policy in respect to
  sugar but at this point the EUs proposals for
  sugar reform is far from compliance with the WTO
  rules.

19
How Will This Decision Affect the EU Sugar Policy?

• The ruling increases the pressure on the EU to
  reform its sugar policy.
  
• The EU can continue to import sugar on
  preferential terms.
  
• The ruling demonstrates that the EUs use of
  subsidies substantially harms the developing
  world.
  
• If the EU should not comply with the panels
  ruling, it would signal to the developing world
  that the WTO rules are not substantial and could
  result in embargos.

20
Actions Towards Conformity

• The EU has not taken action to conform after the
  panel ruled in favor of Brazil.
  
• On December 13, 2004, the Dispute Settlement Body
  extended the time period for appeal or adoption
  to January 31, 2005.
  
• According to the EU, they will seek to appeal the
  decision in the spring of this year (2005).
  
• The EU Agricultural Commissioner Franz Fischler
  stated that we are dissatisfied with this ruling
  and will appeal it. But the EUs appeal will not
  prevent the EU to plough on with a radical
  overhaul of its sugar regime.

21
Potential Issues

• Actions towards conformity with WTO ruling will
  have to be done on a gradual basis due to the
  complexity of the EU reform system and
  law-making.  
• EU political commitment to ACP will make the
  transition process difficult.
  
• Impact of price cuts on ACP and EU sugar
  producers.
  

22
Recommendations

• Fully address impact of EU levels of border
  protection.
  
• Eliminate all direct and indirect export
  subsidies.
  
• Protect small-scale European farmers from sharp
  domestic adjustment costs.
  
• Increase aid and transitional assistance to ACP
  countries.

23
In Conclusion

• This dispute demonstrates that developing
  countries can use the DSU system to bring cases
  against developed nations and win, therein giving
  legitimacy to the dispute resolution system.

24
Sources

• http//www.wto.org/
• http//www.internationaltraderelations.com/
• http//news.bbc.co.uk/
• www.oxfam.org
• http//fsa.usda.gov/
• http//europa.eu.int/
• http//www.iata.org/
• http//trade-info.cec.eu.int/
• http//www.iht.com/
• - Benson, Todd. Brazils New WTO Success Could
  Spur More Cases.
  
• New York Times. August 6, 2004.
• http//www.ictsd.org/weekly/03-17/story5.htm
• http//trade-info.cec.eu.int/doclib/