Brazil/EU Sugar Case

1. Brazil/EU Sugar Case Melisa Bell. David Brecheisen. Karina Chamba. Mutale Chilangwa.

2. Historic Context of Sugar Ruling • Sugar can be produced from cane in tropical regions for half what it costs Europe to produce sugar from beet. • The EU is the world's fourth biggest sugar exporter in 2003 and imports about 2m tons per year. • The EU pays an exporter the difference between the world price and the higher European price. It guarantees sugar producers a price of 632 euros per ton, which is about three times the world price. • Production is about 20 million ton per year, more than half of which comes from France, Germany and Poland. Only four of the 25 member states have no sugar production - Cyprus, Estonia, Luxembourg and Malta.

3. World-wide Importance of Sugar

4. Sugar in the EU

5. Usage of Sugar in the EU

6. Current Laws regarding EU Sugar How the current sugar regime works 1. A minimum price to growers of sugar beet, and a guaranteed price to support the market); 2. Production quotas to limit over-production; 3. Tariffs; 4. Quotas on imports from third countries; 5. Subsidies to export surplus production out of the EU.

7. Sugar Quotas in the EU Two Sugar quotas • A quota (initially determined in accordance with domestic consumption) and • B quota (additional amount to fulfill export potential). Production quotas were set to distribute production of sugar amongst the Member States and to keep overall production within certain limits. They represent the maximum quantity of sugar eligible for price support. • The total quota for the EU-25 is 17.4 million tons (A quota: 82 %; B-quota: 18 %); Member States may produce more but that over-quota production (‘C sugar’) has to be sold outside the EU without subsidy.

8. EU Support prices • The minimum price for sugar beet is the minimum price at which sugar manufacturers are required to buy beet from growers for the production of quota sugar. • Currently EUR 46.72 per ton for beet used to produce A quota sugar and EUR 32.42 per ton for beet used to produce B-quota sugar. • Market support prices are EUR 631.9 per ton for white and EUR 523.7per ton for raw sugar. Current prices are unchanged since 1993/94.

9. Sugar imports • The EU has several international trade agreements with third countries and groups of third countries, allowing preferential access (i.e. at low or zero tariffs for quantities subject to quotas) to the high-priced EU sugar market. These are longstanding and enshrined in multi-lateral trade agreements.

10. EU Laws regarding Sugar • In accordance with Council Regulation (EC) No. 1260/2001 of 19 June 2001, EU provides export subsidies for sugar and sugar containing products above its reduction commitment levels specified in Section II of Part IV of its Schedule of Concessions. • The EC intervention price system for sugar guarantees a high price for the sugar that is produced within certain production quotas (A and B quotas). • Sugar produced in excess of these quotas (so-called C sugar) cannot be sold internally in the year in which it is produced: it must be exported or carried over to fulfill the following year’s production quotas. • By virtue of the EC's common organization of the sugar market and its regulatory framework, exporters of C sugar are able to export C sugar at prices below its total cost of production.

11. EU Laws regarding Sugar (cont) • EC's Schedule for sugar and the agricultural notifications submitted by the EC to the WTO for marketing years 1995/1996 through 2000/2001, the EC provides export subsidies in excess of its commitments to approximately 1.6 million tons of sugar per year. • The export subsidies provided by the EC (referred to in the EC Council Regulation (EC) No. 1260/2001 cover the difference between the world market price and the high prices in the Community.

12. Important note on the current sugar Regime!!! Expires on the 30 June 2006

13. History (cont) • On 4 August 2005, the WTO ruled in favor of Brazil and co-complainants Australia and Thailand (three of the world's biggest cane-sugar exporters) that claimed that EU subsidies provided were in excess of the bloc's WTO reduction commitment levels for sugar under the Agreement on Agriculture. • Claim was focused on two categories of sugar exports subsidized by the EU. • "C" sugar = Sugar produced in excess of "A" and "B" in-quota sugar that the EU subsidizes and exports. • Imported raw sugar from the African, Caribbean and Pacific (ACP) countries.

14. Ruling of the WTO • 2.7 million tons of exported EU "C" sugar was cross-subsidized by the high guaranteed prices paid for A and B quota sugar. • 1.6 million tons of refined sugar, which the EU exported to the world market, corresponded to the amount of raw sugar it imported from India and the African, Caribbean and Pacific (ACP) countries. • WTO ruled changes should be implemented by July 2006.

15. WTO Agreements & Provisions - GATT 1994 - Agreement on Subsidies and Countervailing Measures (SCM) - Agreement on Agriculture

16. GATT 1994 • Article III:4, National Treatment on Internal Taxation and Regulation: 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 in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use. The provisions of this paragraph shall not prevent the application of differential internal transportation charges which are based exclusively on the economic operation of the means of transport and not on the nationality of the product. • Article XVI, Subsidies: A.I. Subsidies in general, If any contracting party grants or maintains any subsidy, including any form of income or price support, which operates directly or indirectly to increase exports of any product from, or to reduce imports of any product into, its territory, it shall notify the CONTRACTING PARTIES in writingof the extent and nature of the subsidization, of the estimated effect of the subsidization on the quantity of the affected product or products imported into or exported from its territory and of the circumstances making the subsidization necessary. In any case in which it is determined that serious prejudice to the interests of any other contracting party is caused or threatened by any such subsidization, the contracting party granting the subsidy shall, upon request, discuss with the other contracting party or parties concerned, or with the CONTRACTING PARTIES, the possibility of limiting the subsidization.

17. SCM Agreement • Article 3.1 (a) & 3.2, Prohibition: Except as provided in the Agreement on Agriculture, the following subsidies, within the meaning of Article 1, shall be prohibited: subsidies contingent, in law or in fact [1], whether solely or as one of several other conditions, upon export performance, including those illustrated in Annex I [2] ; • 3.2 A Member shall neither grant nor maintain subsidies referred to in paragraph 1.

18. Agreement on Agriculture • Article 3.3, Incorporation of Concessions and Commitments: A member will not provide export subsidies 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 the Schedule. • Article 8, Export Competition Commitments: Each Member undertakes not to provide export subsidies otherwise than in conformity with this Agreement and with the commitments as specified in that Member’s Schedule. • Article 9.1 (a) & (c), Export Subsidy Commitments: 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;  (c) payments on the export of an agricultural product that are financed by virtue of governmental action, whether or not a charge on the public account is involved, including payments that are financed from the proceeds of a levy imposed on the agricultural product concerned or on an agricultural product from which the exported product is derived; 

19. Agreement on Agriculture • Article 10.1, Prevention of Circumvention of Export Subsidy Commitments: Export subsidies not listed in paragraph 1 of Article 9 shall not be applied in a manner which results in, or which threatens to lead to, circumvention of export subsidy commitments;  nor shall non-commercial  transactions be used to circumvent such commitments.  • Article 11, Incorporated Products: In no case may the per-unit subsidy paid on an incorporated agricultural primary product exceed the per-unit export subsidy that would be payable on exports of the primary product as such.

20. The Case Against the EU and WTO’s Decision - Brazil’s Case - EU’s Case - WTO Decision - EU’s Actions

21. Brazil’s Case • The European Union currently pays about 1.5bn euros ($1.8bn, £1bn) per year in support to the sugar sector, by artificially boosting the price of sugar on the European market. • Sometimes Brussels buys the sugar from the farmer at this price, and puts it into storage. This is known as intervention buying. • Brazil, Thailand and Australia brought the case to the EU based on the rational that the EU’s subsidies were against the WTO Agreement, and allowed EU farmers to sell their sugar at greatly reduced price.

22. EU’s Case • According to sugar producers in the EU, the agreement on agriculture at the Uruguay round implied the reduction of subsidised exports of sugar by 21%, rather than 72% • EU Sugar producers claim that the ruling hurts poorer countries, by increasing the cost of sugar.

23. WTO’s Decision • On 4 August 2005, the WTO ruled in favor of Brazil and co-complainants Australia and Thailand (three of the world's biggest cane-sugar exporters) that claimed that EU subsidies provided were in excess of the bloc's WTO reduction commitment levels for sugar under the Agreement on Agriculture. • The WTO determined that the EU must reduce its subsidised exports of sugar from an average of approximately 5 million tons a year to its scheduled commitment level of a maximum of 1.273 million tonnes • It is also required to reduce its budgetary outlays on export subsidies for sugar from an estimated €2 billion a year to its scheduled commitment level of a maximum of €499.1 million • The WTO ruling requires changes to be implemented by July 2006

24. EU’s Actions • The European Commission - the 25-strong executive of the EU - agreed on 22 June 2005 to slash the main subsidized price for white sugar by 39%, and the price for sugar beets by 42%, within two years of 2006-7. • Quotas for sugar production allocated to EU states will also be cut • intervention buying of sugar will cease. • The EU says this will allow imports from developing countries to increase. • As part of the reform, which will cause wholesale factory closures, the EU is proposing compensating sugar farmers for getting out of the business. A detailed reform package is due out in November.

25. Proposal • Discontinue intervention buying • Provide financial incentives for producers to get out of the industry in EU • Price cut and quota reduction from the EU • Partial compensation • Simplification of the quota system.