DSB Update: EC-Sugar, US-Cotton

18 March 2004

Two major agriculture cases -- targeting subsidies in the EC sugar sector and the US cotton sector -- recently saw a first submission from the EC, and new data provision from the US. Both cases were initiated before the expiry of the so called 'peace clause' under which Members agreed to refrain from challenging each other's domestic agricultural subsidies. No new agricultural cases have been brought to the WTO since the expiry of the 'peace clause,' and the ongoing sugar and cotton cases are not related to the specific issue of its expiration. Rather, in the cotton case, Brazil has asserted that the US has no defence under the 'peace clause,' as its subsidies are in excess of what the 'peace clause' covered. In addition, Members have expressed differing opinions about the exact expiry time of the 'peace clause'. During a hearing on the US-cotton case, Brazil referred to the now-expired 'peace clause' -- meaning it expired 10 years after it was activated in 1994 --while the US said for countries whose accounting was based on 1995, the 'peace clause' had not yet expired.

EC attacks legal basis of Brazil's claim in sugar dispute

In its first submission in the EC-sugar case (see BRIDGES Weekly, 17 July 2003), made on 11 March to the panel, the EC dismissed the argument of Brazil and two other complainants (Australia and Thailand) that it is subsidising surplus sugar for export beyond its WTO-agreed limit. The EC also rejected claims that it is illegally exempting sugar imported from certain African Caribbean and Pacific (ACP) states -- third parties in this case -- from its export subsidy reduction commitments.

Brazil argued in its own submission to the panel, made in February, that processors of sugar are guaranteed an intervention price for the production of in-quota A and B sugar and that all sugar produced in excess of A and B sugar quotas (i.e. C sugars) are subsidised and exported. Regarding ACP sugar imports, Brazil accused the EC of refining the imported raw sugar, treating the resulting white sugar as national domestic surplus and with the aid of direct subsidies re-exporting this sugar to third countries. Brazil claimed that the EC did not include these sugar exports in its calculation of exports subject to reduction commitments.

In response to the above arguments, the EC asserted in its submission that the complainants did not object when the EC first requested a sugar exemption during the Uruguay Round of trade talks which formally ended in 1994. In its claim that surplus sugar from EC sugar production quotas constituted an export subsidy, Brazil drew on the precedent set by an Appellate Body ruling in a case brought by the US against Canada's dairy export regime. This Appellate Body ruling had upheld a panel conclusion that Canada violated WTO rules by providing low-cost milk to dairy processors for export. The EC countered that the Canada-dairy case was inapplicable to this dispute, as the Canadian dairy and EC sugar regimes were fundamentally different. According to the EC, the Canadian dairy regime involved government management, whereas the EC sugar regime operated at the discretion of sugar producers without assistance from Brussels.

Sugar prices on the EC market are about three times the world market price, and as surplus production is exported at artificially low prices, even efficient producers like Brazil find it difficult to compete. While large agricultural exporters would like to see the system abolished, small developing countries like the ACP are worried about losing tariff preferences. The EC sugar regime, its reform and consequences, was the subject of a recent meeting in Brussels aimed at least developed countries (see BRIDGES Weekly, 10 March 2004).

The first substantive meeting of the EC-sugar panel is scheduled for 30 March to 1 April. Brazil and the other complainants will present their case, and the EC and third parties will also have a chance to comment in a special session. The parties will provide written rebuttals towards the end of April, with the panel holding its second hearing the week of 10-14 May.

US Produces Data in Cotton Case

On 3 March, the US responded to a data request of the WTO panel hearing the US-Brazil cotton case (see BRIDGES Weekly, 18 March 2003) by submitting eight data files to the panel. The panel and Brazil, the complainant, had been seeking more precise data from the US regarding the farm-level support the US grants its cotton industry. This complex data includes information on producer flexibility payments, market loss assistance, counter-cyclical payments and direct payments to farms. It will serve to establish the elements needed to prove or disprove that the use of subsidies by the US is harming Brazil and the other complainants by, inter alia, lowering the world market price for cotton.

The US had previously declined to supply information on the planting history of individual US cotton farms, arguing that the US Privacy Act of 1974 only allowed such information to be released with a farmer's prior consent. Taking note of this, the panel asked the US to provide aggregate values of farm-specific information, which would protect the identity of individual farmers.

ICTSD reporting; "EU Details Defence of Sugar Regime As Dates Set for WTO Panel Hearings," WTO REPORTER, 12 March 2004; "WTO Panel Sets March 3 Deadline for U.S. to Produce Cotton Dispute Details," WTO REPORTER, 2 March 2004.


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