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EU Export Subsidies on Sugar

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Title: EU Export Subsidies on Sugar


1
EU Export Subsidies on Sugar
EU rt
  • Patti Mohr
  • Amanda Monson
  • Maria L. Ortiz

1
2
EC Export Subsidies on Sugar
  • Background
  • Parties Brazil vs. EU
  • WTO Issues
  • Impact
  • Analysis

2
3
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.

3
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4-Year Process
Arbitration Report Oct. 2005
Agreement June 2006
4
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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

5
6
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.

6
7
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.

7
8
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.

8
9
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

9
10
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
10
11
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.

11
12
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.

12
13
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.)

13
14
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

14
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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))

15
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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)

17
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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
18
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Export Schedule
Current notifications state that after May 2006
it includes exports of ACP and India.
19
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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.

20
http//trade.ec.europa.eu/doclib/docs/2003/october
/tradoc_113885.pdf
21
EU Top Domestic Producers
21
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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
22
23
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

23
24
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

24
25
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

25
26
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
26
27
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.

27
28
Cases filed with WTO
28
29
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

29
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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)

30
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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

31
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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.

32
33
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.

34
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