In a 2 June status report to WTO Members, the EU insisted that it had "fully complied" with the dispute ruling against its sugar regime, within the 22 May deadline that an arbitrator had set for doing so.

Brussels points to its formal adoption in February of regulations (Council Regulation No. 318/2006) reforming its sugar sector -- most significantly, lowering the guaranteed price given to domestic sugar producers -- in support of its assertion that it had implemented the recommendations of the Dispute Settlement Body (DSB). It said that the EU was therefore now "in a position to maintain its subsidised exports of sugar within its commitments as from the marketing year 2006/2007, as well as applied on a pro rata basis for the remaining of the marketing year 2005/2006."

This report comes after a 17 May DSB meeting where the co-complainants in the sugar case, Brazil, Australia and Thailand had expressed concern that the EU would not be able to comply by the 22 May date. They had also maintained that the EU's budget expenditures and exports of subsidised sugar were still in excess of the limit formally notified to the WTO in its so-called "commitment schedule."

In April 2005 a WTO Appellate Body confirmed a panel ruling that the EU subsidised sugar exports beyond legal limits in violation of the WTO Agreement on Agriculture (see BRIDGES Weekly, 4 May 2005). On 10 May 2006, the EC announced that from 23 May it would reduce its exports of excess-quota sugar in accordance with the ruling while providing financial compensation to the African, Caribbean, and Pacific countries that export sugar to the EU under a preferential arrangement (see BRIDGES Weekly, 10 May 2006).

The EC's 2 June communication (WT/DS265/35/Add.1,WT/DS266/35/Add.1,WT/DS283/16/Add.1)
can be found at http://docsonline.wto.org.

ICTSD reporting.

RULES: INDUSTRIAL SUBSIDY NEGOTIATIONS HEAT UP

WTO negotiations on industrial subsidies were enlivened during the 29-31 May rules group meeting by an EU proposal to prohibit governments from making local inputs -- including fuel -- available to domestic industries at prices below international market rates. It would also prohibit governments from making below-cost loans to domestic manufacturers (TN/RL/GEN/135).

One negotiator said that the submission had given the group "something big to talk about." Another said that the practices targeted caused "the same types of trade distortions as conventional subsidies." The proposal, which implicitly aims at measures such as export taxes, received mixed reactions: some developing countries and major oil producers complained that it would limit their ability to protect their natural resources.

Negotiators discussed submissions directed at the group's Doha mandate to clarify and improve WTO disciplines on subsidies, disagreeing on some of them. Both Brazil and Canada suggested reinstating a lapsed provision that would specify some additional grounds for making subsidies subject to legal challenge (TN/RL/GEN/113 and TN/RL/GEN/112). Australia proposed clarifying what constitutes the withdrawal of a subsidy in cases where production is affected for several years, such as one-time grants for the purchase of factory equipment (TN/RL/GEN/115). Egypt, India, Kenya, and Pakistan submitted a paper (TN/RL/GEN/136) linking the requirement for developing countries to phase out export subsidies to changes in their level of export competitiveness.

A US proposal (TN/RL/GEN/130) outlining potential ways in which to determine whether subsidies should be counted in the year in which they are granted or over a period of several years was largely well-received, according to sources.

Delegates indicate that while "an enormous amount of work" lies ahead, they expect the rules group to agree on a draft text on schedule by the end of July, so long as Members are able to reach an agreement on agriculture and industrial tariffs.

ICTSD reporting.