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EU Export Subsidies on Sugar

EU rt. EU Export Subsidies on Sugar. Patti Mohr Amanda Monson Maria L. Ortiz. EC Export Subsidies on Sugar. Background Parties: Brazil vs. EU WTO Issues Impact Analysis. Parties. Complainants : Australia, Brazil , and Thailand Respondent: European Union

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EU Export Subsidies on Sugar

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

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

  3. Parties • Complainants : Australia, Brazil, and Thailand • Respondent: European Union • Third Parties: Barbados, Belize, Canada, China, Colombia, Cote d’Ivoire Cuba, Fiji, Guyana, India, Jamaica, Kenya, Madagascar, Malawi, Mauritius, New Zealand, Paraguay, St. Kitts and Nevis, Swaziland, Tanzania, Trinidad & Tobago, & The United States.

  4. Consultations Sept. 2002 Panel July 2003 Panel Report Oct. 2004 Appeal Jan. 2005 Appellate Report April 2005 Implementation June 2005 Arbitration Aug. 2005 4-Year Process Arbitration Report Oct. 2005 Agreement June 2006

  5. 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)) • EU’s sugar program “nullify or impair” trade benefits of Uruguay Round’s Ag Agreement for Brazil

  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.

  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.

  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.

  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

  10. Contested EU Regulations • Council Regulations No 1260/2001 • Europe’s 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

  11. Brazil’s 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.

  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.

  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.)

  14. WTO Agreements • WTO Agreement on Agriculture (Requires members to reduce allexport subsidies, as defined in Article 9.) • GATT Agreement Article III of the GATT

  15. WTO Specific Provisions: • Articles 3 and 8 prohibit members from providing export subsidies except as permitted by both the Agreement and in the Member’s 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))

  16. EU’s 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.

  17. Specific EU Rebuttal: 1) No export subsidies on C sugar 2) C sugar exports do not exceed EC’s reduction commitments 3) EC’s 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)

  18. 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

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

  20. 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. http://trade.ec.europa.eu/doclib/docs/2003/october/tradoc_113885.pdf

  21. EU Top Domestic Producers

  22. Europe’s 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/sugar/reports/descri_en.pdf

  23. No “Suffer & Injury” Evidence ● Complaint is legally unfounded…and also unjustified because Brazil “cannot claim to have suffered any injury as a result of the alleged violation.” ● Brazil’s sugar exports have risen exponentially, while the Europe’s have remained static since the Uruguay Round. http://trade.ec.europa.eu/doclib/docs/2004/april/tradoc_116584.pdf First Written Submission BY EC 11 March 2004

  24. Not a new issue Long History: • 1978 – Australia & Brazil brought complaints against the EC’s 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/tradoc_116584.pdf First Written Submission BY EC 11 March 2004

  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

  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/sugar/fullrep_en.pdf

  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 don’t take precedence over global trade rules.

  28. Cases filed with WTO

  29. Embolden Brazil? • Will Cotton & Sugar cases encourage Brazil to file more complaints? • Brazil’s 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

  30. 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)

  31. Beneficiaries of the Ruling • Brazil—biggest 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

  32. 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) • Canada’s Financial Post calls the sugar deal “one the sweetest feats of protectionism ever to come out of Washington, probably the world.”

  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.

  34. 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.

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