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EXPORT SUBSIDIES ON SUGAR

EXPORT SUBSIDIES ON SUGAR. Brazil vs. European Community. Leticia Isambo Mike Lenzen James Marsh February 28, 2007. Brazil’s Sugar Industry. 2000/01 produced 18.5 million tonnes of sugar 2000/01 exported about 10 million tonnes. Annual domestic consumption of 9.45 million tonnes

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EXPORT SUBSIDIES ON SUGAR

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  1. EXPORT SUBSIDIES ON SUGAR Brazil vs. European Community Leticia Isambo Mike Lenzen James Marsh February 28, 2007

  2. Brazil’s Sugar Industry • 2000/01 produced 18.5 million tonnes of sugar • 2000/01 exported about 10 million tonnes. • Annual domestic consumption of 9.45 million tonnes • Largest producer of ethanol produced by sugar cane.

  3. Complainants:Brazil, Australia, Thailand • Brazil requested of the Consultation of the European Community on September 27, 2002 (DS266). • Australia requested consultation same day (DS265). • Thailand requested consultation March 14, 2003 (DS283).

  4. EC Sugar Exports • EC is bound under Agriculture Agreement to reduction of subsidized exports. Sugars are broken into A, B, C groupings. • Sugars A & B total 1.6 million tons per year. • Sugar C are surpluses that are not under quota restrictions, yet cannot be sold internally but must be exported.

  5. Contested Issue • EC produced greater amount of subsidized sugars than allowed for under current agriculture agreement • EC took funds accumulated from the extra monies collected due to artificially high (subsidized) prices to “cross-subsidize” sugars not protected under current agriculture agreement, most of which are C sugars • Used imported raw sugars from ACP and India, refined and sold as C sugars (surplus)

  6. Brazil charges of EC violationsAnnex 1, Agreement on Agriculture • 9.1 (a) - Failed to reduce exports per Agriculture Agreement to obligatory levels of subsidized sugars • 9.1 (c) - Subsidized of surplus C sugars • 3.3 and 8 – Subsidization greater than commitment levels

  7. Brazil charges SCM Agreement Violations • 3.1(a) and 3.2 – Cannot treat ACP and Indian raw sugar as domestically produced sugar • Tantamount to circumvention of agreed to limits (violation of AA 10.1)

  8. Complainant’s Dispute • The EU has engaged in subsidizing sugar production in excess of amounts allowed under numerous agreements. • Misrepresenting of ACP and Indian sugar

  9. Data of Violations for Years 95/96 – 00/01 • The EC provides export subsidies in addition to its commitments of about 1,273,500 tonnes of sugar per year (years 95/96 – 01/02) • EC refined raw sugars provided by India and Africa, Caribbean, and Pacific suppliers upon refinement sold as domestic overproduction (approximately 1.6 million tonnes) • Exports 2,823,500 tonnes greater than commitment level. Total of 4,097,000 tonnes

  10. Facts of Violations • The EC provides export subsidies in addition to its commitments to about 1.6 million tons of sugar per year • EC refined raw sugars provided by India and Africa, Caribbean, and Pacific suppliers upon refinement sold as domestic overproduction

  11. C Sugars • C Sugars include imported ACP and Indian raw sugars. Brazil believes that all 1.6 million tonnes of ACP and Indian sugar is exported and is included in exports

  12. World Sugar Market • Many global sugar players maintain high tariffs for sugar, and some operate import quotas, while others combine a mixture of the two. • The EU currently operates a system of export subsidies; other countries subsidise production, and therefore trade, via indirect subsidies or use currency devaluation as a means to improve terms of trade. • All these factors have affected the development of world trade in sugar.

  13. EU Exports of Sugar • While the EU is a net exporter of sugar, it lags way • behind Brazil in exports while providing a valuable market for sugar from less developed countries. • Brazil is the leading sugar exporter with 25 % of world exports (more than 10 million tonnes), followed by the EU-15 with 15 % (six million tonnes). • In Brazil the share of exports compared to domestic production is very high (above 40 % since 1995). In 1999, exports were even higher than food uses.

  14. EU in the World Market • The share of the EU-15 in world exports is close to its share in world production, while the higher rate of Brazil shows its export orientation. • Australia, Thailand and Cuba make up the top five exporters, each exporting between three and four million tonnes of sugar yearly. These five account for up to 70 % of world exports.

  15. World Exporters

  16. EU Versus World Prices • International prices for sugar are extremely volatile following a cyclical, though erratic, path. Since 1995, prices have been on a downward trend mainly attributed to an overall excess of production over consumption. • Data show that the EU price for sugar – i.e. the price of white sugar as it leaves the sugar factory – is three times the ‘world price’. • The Commission does not dispute the figures, however the world price is not a true market indicator as it is a residual price resulting from surpluses that are traded if not taken up by internal consumption. • Almost all exporters are selling sugar at world market prices and hence at a lower price than their domestic prices.

  17. World Market History

  18. Current Regulations Under the present Council Regulation 1260/2001, the Commission has no legal authority to limit the exports of C sugar on the ground that such exports exceed the reduction commitments. As a result, according to the European Communities, "to the extent that the Commission has no control over the exports of C sugar, it cannot ensure compliance with the recommendations and rulings of the DSB.“ The European Communities also argues that if it refuses to grant export licences for exporting C sugar, it would act inconsistently with Article XI of the General Agreement on Tariffs and Trade 1994.17

  19. Future of EU Sugar • The EU has a structural surplus in sugar production. Much of this surplus is exported to third countries, by means of subsidies. Pending the WTO panel ruling on certain trade-related aspects of the sugar regime, the EU might have to curtail such exports. • Various recent preferential import arrangements (EBA, Balkans agreement) will probably lead to the EU importing significantly increased amounts of sugar, again exacerbating the structural surplus in sugar production. • The Commission (and many other stakeholders) believes that sugar production in several EU regions is unsustainable in the long-term. This view applies to sugar beet growers and to some factories in the processing sector.

  20. WTO main Issues and Ruling Brazil Vs E.U

  21. The Contested Law: • The request of consultation concerned the Council Regulation (EC) N0. 1260/2001 in Article 42 (2) of June 19, 2001.

  22. Specific WTO Agreement involved: • Articles 3.3, 8, 9.1 (a) and (c), and 10.1 of the Agreement on Agriculture • Articles 3.1 (a) and 3.2 of the SCM Agreement, and • Articles III:4 and XVI of GATT 1994

  23. Findings of the Panel: • EC exports of sugar had exceeded its annual commitment levels since 1995, and in particular since the marketing year 2000-2001. • Producers/exporters of “ACP/India equivalent sugar” that exceeded the European Communities’ reduction commitment levels received subsidies within the meaning of Article 9.1 (a) of the Agreement on Agriculture.

  24. Findings of the Panel: • Producers/exporters of C sugar that exceeded the European communities’ reduction commitment levels received payments on export by virtue of governmental action, within the meaning of Article 9.1 (c) of the Agreement on Agriculture.

  25. Ruling: • The Panel concluded that the European Communities, through its sugar regime, had acted inconsistently with its obligations under Articles 3.3 and 8 of the Agreement on Agriculture, by providing export subsidies within the meaning of Article 9.1 (a) and (c) of the Agreement on Agriculture in excess of the quantity commitment level and the budgetary outlay commitment level specified in Section II, Part IV of Schedule CXL

  26. Ruling • The sugar ruling panel suggested that the EU “should consider measures to bring its production of sugar more into line with domestic consumption” • The EU should implement reforms that protect preferential access for ACP countries and India

  27. Decision of the Appellate Body • In April 2005, Appellate Body upheld Panel decision of 2004. • WTO gave EU a “reasonable period of time” of 7 months from October 2005 to May 2006 to end illegal government handouts to sugar producers.

  28. Proposed Reforms: • Cut EU production quota by one third or 5.2 million tones. • Eliminate all direct and indirect export subsidies with immediate effect. • Implement a program of measures including increased aid and transitional assistance for ACP countries to compensate them.

  29. Implications of Ruling: Winners and losers • Within the EU, the sugar production might be reduced to 5 million tones, a considerable lost for the EU. • Brazil would be the biggest winner because it is the lowest cost producer of sugar and can easily expand its production.

  30. Sources Cited • The European Sugar Sestor: A long – term competitive future. Mariann Fischer Boel, Commissioner for Agriculture and Rural Development • http://ec.europa.eu/agriculture/capreform/sugar/infopack_en.pdf • http://www.ers.usda.gov/Briefing/Brazil/braziliansugar.pdf • http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds266_e.htm • http://eur-lex.europa.eu/ • http://www.wto.org • http://www.worldtradelaw.net/uragreements/scmagreement.pdf • http://www.oxfam.org.uk/

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