EU Sugar Dispute: WTO Appellate Body Confirms Brazil's Win

4 May 2005

On 28 April, the WTO Appellate Body released to the public its report on an appeal brought by Brazil, Thailand and Australia with regard to their challenge against the EU's sugar regime. Following closely on the heels of Brazil's recent win in the "cotton appeal" (see BRIDGES Weekly, 9 March 2005), the Appellate Body upheld all of the dispute settlement panel's findings. Furthermore, it disagreed with the panel's decision not to rule on Brazil's claim under the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement).

The panel had found that the EU subsidises sugar exports beyond the level formally notified to the WTO -- its so-called 'commitment schedule' -- and was thus in violation of the WTO Agreement on Agriculture (AoA, see BRIDGES Weekly, 15 September 2004). The Appellate Body upheld this major finding.

The panel had also found that sugar exports in excess of the EU's commitment level equalled the amount of sugar imported under preferential arrangements from the African, Caribbean and Pacific (ACP) countries and India, as well as that of sugar produced in excess of EU sugar quotas. The EU had argued that a footnote in its commitment schedule excluded 1.6 million tonnes of sugar -- equivalent to the quantity that it imported from the ACP and India -- from the scope of its subsidies reduction requirements. The panel dismissed this argument, holding that the footnote had no legal effect and could not enlarge or modify the EU's specified commitment levels.

The Appellate Body agreed with the panel on these points, which were also of significance to ACP countries (some of which were third parties in this dispute and filed submissions in the appeal). Nonetheless it ruled that contrary to the panel's reasoning, the footnote did indeed have legal effect -- but not "the legal effect of enlarging or otherwise modifying the [EU's] commitment levels as specified in its Schedule."

Panel erred in applying "judicial economy" on SCM claim

On 25 January 2005, Brazil, Australia and Thailand filed counter-appeals regarding the panel's decision not to rule on their claims that the EU's subsidies for sugar exports violated of the SCM Agreement. The panel had declined to rule on the matter because it found that its decisions under the Agreement on Agriculture (AoA) rendered such a ruling unnecessary and because the parties had not sufficiently substantiated their subsidiary claims relating to the SCM Agreement (see BRIDGES Weekly, 20 October 2004). The co-complainants had wanted to take advantage of the remedies provided for under this agreement, since they would have shortened the time frame granted to the EU to comply with the ruling.

The Appellate Body held that the panel was wrong in exercising "judicial economy," and had failed to discharge its obligation under dispute settlement rules. However, it declined to "complete the legal analysis and to examine the Complaining Parties' claims under the SCM Agreement left unaddressed by the Panel," saying that it had not been presented with enough information to allow it to determine the appropriate period of time for withdrawing any subsidies that would have been found to be "prohibited" under the SCM Agreement.

Complainants satisfied with ruling, EU, ACP concerned

Australia's Trade Minister, Mark Vaile, said in a 28 April statement that the "EU will be required to significantly reduce its sugar exports and expenditure on export subsidies,'' and that "removing up to 4 million tons of subsidised sugar from the world market will make a significant difference to Australian sugar producers who compete on the world stage.'' Linking it to Brazil's victory in the cotton case, Eduardo Pereira de Carvalho, president of Unica, Brazil's largest sugar industry association, said that "these two decisions have completely changed the way subsidies for agricultural products are viewed in international trade."

On the other hand, ACP countries, concerned about the ruling's impact on their preferential access to the EU sugar market, have expressed disappointment about the ruling. The general secretary of the Fiji National Farmers Union, Mahendra Chaudhry, said Fiji was expected to lose $120 million in sugar earnings because of the WTO decision. He said this could aggravate the acute poverty faced by 200,000 Fijian citizens who depended on the sugar industry for their livelihoods.

Alluding to the EU's promise to help ACP countries adjust to the consequences of the WTO ruling on their sugar preferences, EU Commissioner for Agriculture and Rural Development Mariann Fischer Boel said "naturally, I will take account of this verdict when I finalise the reform proposals we are due to publish on 22 June. We will continue to defend the valid interests of sugar producers and consumers in both the EU and the ACP countries. I am determined now to modernise our sugar regime to ensure it has a viable future." EU Trade Commissioner Peter Mandelson also noted that the EU would abide by "its international obligations on the sugar regime and will work closely with Member States on the necessary reforms ahead of the WTO Ministerial in December."

Aside from the WTO ruling, the ongoing internal EU reform on sugar is expected to cut internal sugar prices and quotas, reduce exports and export refunds, and provide tailored assistance to the ACP sugar exporting countries impacted by the reduction in EU prices.

The EU's 28 April press release in response to the sugar ruling "European Commission regrets attack on EU sugar regime, but will abide by WTO Appellate Body ruling" (IP/05/506) is available at http://www.europa.eu.int.

ICTSD reporting; "EU loses sugar price bid," FIJI TIMES, 30 April 2005; "EU Loses WTO Sugar Appeal, Paves Way to Revamp Export Policies" BLOOMBERG, 28 April 2005; "Europe Loses Sugar Appeal at W.T.O." NEW YORK TIMES, 28 April 2005.  

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