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WTO disputes

European Communities - Export Subsidies on Sugar (AB-2005-2)

Before the Appellate Body of the World Trade Organization

Opening Statement of Australia

Geneva, 7 March 2005

Members of the Division,

  1. Australia does not intend to repeat its written submissions in this oral statement. Primarily, we will concentrate on certain matters raised in the EC's other appellee submission.
  1. But before getting to that I would like to remind the Appellate Body of the context and history of this dispute. I would also like to make some points concerning the EC's approach to this dispute.

The Context and History of this Dispute

  1. Australia brought this dispute because its direct commercial interests are at stake. The Australian sugar industry depends on the world market for 80% of its income. It has a direct stake in ensuring that the EC - the world's second largest exporter of sugar - fully observes its WTO export subsidy reduction commitments.
  1. The Panel has confirmed that the EC is exporting subsidised quantities of sugar substantially in excess of its budgetary outlay and quantity reduction commitment obligations under the Agreement on Agriculture. This excess consists of the ACP/India equivalent sugar and C sugar.
  1. The EC is seeking, through this appeal, to obtain a permanent exemption from its WTO obligations so that it can continue to provide unlimited budgetary outlays on an unlimited quantity of sugar exports. Effectively, the EC is claiming that it is entitled to treatment equivalent to that accorded to least-developed WTO Members. Article 15 of the Agreement on Agriculture makes no reference to any special and differential treatment for the EC.
  1. Moreover, if the Appellate Body finds that the EC can use a unilateral footnote to its schedule to escape its substantive treaty obligations in respect of the provisions of a WTO covered agreement, then others may seek to pursue a similar unilateral course of action in the current round.
  1. As Australia has repeatedly made clear, it did not bring this dispute in order to interfere with the preferential access accorded to certain ACP countries and India to the EC sugar market. The EC can provide this preferential access independently of the level of its subsidised exports and indeed is bound by treaty obligations to provide for duty free access of quantities of approximately 1.3 million tonnes. As confirmed by the Panel, that access is not conditional on any exceptional right being accorded to the EC to dispose of 1.6 million tonnes of ACP/India equivalent sugar onto the world market, or to acquire a right to dispose of unlimited quantities of subsidised sugar on to world markets as part of price support.
  1. Throughout this dispute, a legal burden has been on the EC to demonstrate that C sugar exports do not receive export subsidies. It has failed to do so. This is no surprise given that, currently, all of its quota sugar exports are only competitive on the world market because they are in receipt of an export subsidy of €400 per tonne.
  1. In respect of C sugar, the EC seeks to avoid the application of the directly relevant Appellate Body decisions in Canada - Dairy. The EC hopes to avoid its obligations even though it maintains a regime that is more egregious than that applied in Canada - Dairy. I would like to point out certain comparisons between the Canadian milk regime and the EC sugar regime:
  • Canada was not the world's second largest exporter of the product at issue.

  • In Canada - Dairy, the production of Commercial Export Milk (CEM "export only" milk) represented 3.6 per cent, by volume, of Canadian milk production, in other words, less than 4 per cent of quota. By contrast, C sugar has reached levels of 20% of total production. In some years, C sugar exports have been as high as 50% of total EC sugar exports.

  • In Canada - Dairy, approximately 100 milk producers managed to produce CEM milk without, at the same time, holding domestic quota. By contrast, there is not one single sugar producer in the EC who produces sugar for export - including C sugar - without holding domestic quota. There is not one single sugar producer in the EC who can compete on its own merits in the export market.

  • In Canada - Dairy, the cost of producing CEM milk was only 1.9 times the price received for it. In the case of C sugar, the cost of production is 3.7 times the world price. The regime in Canada - Dairy ran afoul of Article 9.1(c) when one of the inputs of the exported product was provided at approximately 53% of its cost of production. Under the EC sugar regime, the exported product itself is being sold at approximately 27% of its cost of production.

The EC's Approach to this Dispute

  1. The EC is requesting to be granted a privilege not accorded to any other developed or developing WTO Member. It does not deny that its subsidised exports are in excess of its reduction commitments. How then does it seek to claim such status in respect of its subsidised exports of sugar?
  1. The EC makes a range of assertions, from procedural arguments to definitional issues. Possibly the most astonishing assertion is that the complainants exercised their WTO rights in an unreasonable or abusive manner in seeking a ruling - in regard to C sugar - on what, according to the EC, would be at most "an excusable scheduling error".
  1. Throughout the course of the Panel proceedings the EC put forward temporal interpretations of its obligations. The EC also attempted to persuade the Panel, as it seeks to persuade the Appellate Body, that its breach of WTO obligations in respect of ACP/India equivalent sugar may be cured by greater transparency in its notifications to the WTO Committee on Agriculture. It appears however, that its "transparency" commitment was also temporal, given that the EC's latest Notification to the Committee on Agriculture does not give effect to the undertaking it so readily volunteered to the Panel and to the Appellate Body.
  1. In its appellant submission, the EC misrepresents the evidence before the Panel and seeks to overturn the Panel's findings of fact. These findings were made on the basis of authoritative economic evidence presented by the complainants (even although the complainants did not have the burden of proof under the Agreement on Agriculture to provide such evidence). In its appellee submission, Australia has identified the EC's misrepresentations of evidence and findings. Australia stands ready to provide clarification to the Appellate Body in respect of the economic evidence which was presented to the Panel.
  1. The EC also employs a double standard, not only in relation to its own actions in challenging the measures of other WTO Members, but also in relation to due process. The EC double standard is particularly apparent in its other appellee submission. Having accused the complainants - without any substantiation - of putting forward new arguments and evidence to the Appellate Body in respect of their SCM claims, the EC proceeds to do just that.
  1. In its other appellee submission, the EC continues to misrepresent the facts and to make unsubstantiated assertions. The EC also attempts to introduce arguments and evidence that were not before the Panel and which were not part of the Panel's legal interpretations. Australia requests that the Appellate Body disregard all assertions by the EC in its other appellee submission unless such assertions are documented by reference to the relevant paragraphs of Panel record or the relevant paragraphs in Australia's written submissions to the Panel, oral statements to the Panel or responses to Panel questions.
  1. The EC has also attempted to mislead the Appellate Body about the sufficiency of evidence before the Panel in regard to claims under the SCM Agreement and in regard to the extent of "executive action" delegated to the Sugar Management Committee under the EC sugar regime.

The EC's Other Appellee's Submission

  1. I would now like to address a number of issues raised by the EC in its Other Appellee's Submission.
  1. The EC argues that the Panel's in-principle finding of application of the SCM Agreement to the circumstances of this dispute should be read down to a finding that the SCM Agreement does not have application.
  1. Australia submits that:
  • Judicial economy cannot be used to determine a substantive legal issue of the application of a covered agreement. The EC could have sought a preliminary ruling from the Panel on the application of the SCM Agreement. It did not.
  • The EC is attempting an ex post facto reconstruction of what the Panel found. If the EC disagreed with that finding, or felt that the Panel's legal reasoning did not fully reflect the EC's arguments, it was open to the EC to appeal. It did not.
  1. The EC attempt to seek a ruling that the SCM Agreement does not apply to the circumstances of this dispute is based on misrepresentations of Australia's SCM claims.
  1. In its other appellee submission, the EC suggests that the parties were agreedthat the issue of consistency with the SCM Agreement was "peripheral" to the dispute and that the parties were agreed that among the key issues were what the EC describes as the "various alleged payments as export subsidies".
  1. There was no such agreement. The order of the Panel's examination does not reflect the importance which Australia attaches to a ruling under the SCM Agreement. Moreover, Australia has never argued - let alone claimed - that a payment in itself constituted an export subsidy.
  1. The EC attempts to extend the scope of the other appeal to arguments - not forming part of the Panel's legal reasoning - that the Panel's terms of reference do not cover Item (d) of the Illustrative List.
  1. Such arguments were not part of the Panel's reasons for exercising judicial economy. The EC did not seek any preliminary rulings by the Panel on terms of reference in regard to the SCM Agreement. The EC is applying a double standard. It does not put forward any terms of reference arguments in regard to Item (a) of the Illustrative List.
  1. The EC argues that since the burden of proof is on the Complainants in the case of the SCM Agreement, the Appellate Body cannot "import" the factual findings from the Agreement on Agriculture into its analysis of the SCM Agreement. This assertion is devoid of substance. Australia presented evidence that met its burden of proof under the SCM Agreement. There is sufficient material on the factual record to enable the Appellate Body to complete the Panel's analysis.
  1. There was no debate before the Panel on the allocation of burden of proof under the SCM Agreement. Australia does not dispute it has the burden of proof under the SCM Agreement. The allocation of the burden of proof under the SCM Agreement did not form part of the Panel's justification for the exercise of judicial economy.
  1. As acknowledged by the EC in its other appellee submission, the EC concentrated its legal arguments in regard to the SCM Agreement on the non-application of the SCM Agreement to export subsidies on agricultural products.
  1. The EC has argued that, should the Appellate Body uphold all of the EC's appeal claims, there would be no need for the Appellate Body to examine Australia's other appeal on judicial economy.
  1. The EC is incorrect. Should the Appellate Body find that C sugar exports are not subsidised within the meaning of Article 9.1(c) of the Agreement on Agriculture, it does not mean that that the EC has demonstrated that its exports of C sugar are not subsidised. The EC has not discharged its burden of proof under Article 10.3 in respect of export subsidies other than Article 9.1 listed subsidies. The EC has not attempted to make a case under Article 10.1 of the Agreement on Agriculture.
  1. The EC also seeks to limit "sufficiency" for the purposes of the Appellate Body's completion of the examination to factual findings by the Panel. As is clear from Australia's Notice of Other Appeal, the scope of the Other Appeal extends to "undisputed facts" before the Panel.
  1. Contrary to the EC's assertions, there is a material difference between standard DSU procedures and special procedures under the SCM Agreement.

  1. In asserting that there would be "no material difference" in regard to outcomes under standard DSU procedures and the SCM procedures, the EC misrepresents the facts and the procedures for determining the respective implementation procedures:
  • First, as noted by Brazil and Thailand, the implementation periods determined under Article 4.7 of the SCM Agreement are invariably shorter.
  • Second, the EC does not substantiate its assertion that arbitrated procedures mainly concern legislative or regulatory acts, as compared to what the EC describes as "executive actions". For instance, the arbitrated implementation period for Australia - Salmon was concerned with administrative procedures, in regard to the measure applied.
  • Third, there is a material difference in the way in which the implementation period is determined under standard and special rules. Australia does not want to expend resources- including financial resources - on bilateral negotiations which might come to nothing. Nor does Australia wish to engage in a litigation loop - of arbitration - involving significant costs in resources and budgetary outlays, to determine a time period as an alternative to the right to have the time period determined, as well as the right to countermeasures determined through the procedures of Article 4.10 of the SCM agreement.
  • Fourth, the EC attempts to import from Article 21.3(c) of the DSU the notion of a panel acting as arbitrator under Article 4.7 of the SCM Agreement. In accordance with Article 4.7, a panel does not act as an arbitrator in adjudicating between the parties on what might be "reasonable" in the circumstances.
  1. The EC attempts to characterise Article 4.7 of the SCM Agreement as limited to the specification of a shorter time period than that applied under standard rules. It is not. It is about the specification of a time period, as compared to an arbitrated period. It is a procedural right.
  1. The circumstances of this dispute do not relate to temporary or partial withdrawal of a measure. The subsidies in excess of the EC's commitments under the Agreement on Agriculture are not - as suggested by the EC - subsidies maintained under the Agreement on Agriculture, they are subsidies prohibited by that Agreement.
  1. The Panel made a finding of fact that the EC does not apply any limitations to its budgetary outlays on ACP/India equivalent sugar. The purported quantity limitation on that sugar is 1.6 million tonnes, a quantity above the EC's scheduled quantity commitment. It is also an undisputed fact that there are no quantity limits imposed on C sugar exports.
  1. As found by the Panel, all Article 9.1 subsidies must be subject to reduction commitments. The EC can never legally be in compliance with its obligations under the Agreement on Agriculture for so long as it applies no reduction commitment limits - let alone any limits - on budgetary outlays and export quantities in regard to Article 9.1 listed export subsidies. There is no question of the EC achieving compliance by a temporary or partial withdrawal of prohibited subsidies that are granted in excess of the EC's export subsidy commitments under the Agreement on Agriculture.
  1. Contrary to the EC's assertions, there are sufficient findings of fact and undisputed facts before the Panel that would enable the Appellate Body to complete the examination.
  1. The EC argues against itself. First, it asserts that different facts were necessary because of the difference in the export subsidy definitions under the Agreement on Agriculture and the SCM Agreement, respectively. Then it proceeds to try to rebut Australia's prima facie case on the basis of its own assertions before the panel in regard to Article 9.1(c) of the Agreement on Agriculture. Even on that basis, the Panel made findings of fact that serve to contradict the EC's unsubstantiated assertions.
  1. The EC does not contest the factual circumstances in regard to ACP/India equivalent sugar and offered no rebuttal whatsoever to Australia's arguments in regard to the application of Item (a) of the Illustrative List of the SCM Agreement.
  1. In regard to Item (d) of the Illustrative List, it is an undisputed fact that the EC regime provides for C beet to be used in export production on terms and conditions more favourable than for the provision of quota beet for processing into sugar for disposal on the domestic market. Nor did the EC contest before the Panel that the terms and conditions are more favourable than those commercially available on world markets.
  1. In regard to Australia's arguments in the alternative under Article 1.1(a)(2) of the SCM Agreement, the facts demonstrate that the EC maintains a price support system which operates directly or indirectly to increase exports. The facts are those of cross-subsidisation of exports, delivered through price support for quota sugar. All of the Panel's findings of fact in that regard are directly applicable. The undisputed facts confirm the export contingency element: C sugar must be exported.
  1. In regard to Article 1.1(b) of the SCM agreement, the undisputed facts also confirm that the "recipient" (the sugar processor) receives a benefit in regard to cross-subsidisation from quota sugar and from lower prices for C beet.
  1. Contrary to the EC's assertions, the Appellate Body is not prevented from specifying a time period for withdrawal of the measure.
  1. The EC asserts that the Panel made no factual findings on the relevant Community procedures which would have to be undertaken to revise the EC sugar regime. The EC goes on to argue that there are no factual findings on the record that would permit the Appellate Body to make a recommendation without affecting the EC's due process rights. The EC fails to identify what those due process rights might be. Even if "without delay" were to be interpreted as a "period possible under domestic law", the onus would be on the EC to explain why a period such as 90 days would be technically impossible for instituting at least an interim measure.
  1. Even if the EC's interpretation were correct - which it is not - it is notable that the Panel made a number of relevant factual findings, in regard to quota administration, the role of the Management Committee for Sugar, the export refund procedures and the system of export licensing. There was evidence before the Panel [1] that the EU Commission may decide to suspend export licences if exports risk breaching the EC's reduction commitment obligations under the Agreement on Agriculture. The EC itself provided detailed factual evidence regarding the administration of export refunds for quota sugar (in the context of its arguments in regard to ACP/India equivalent sugar). It is a fact that, apart from the institutional minimum prices and import tariffs, nearly all of the price support system and regulation of exports is in the hands of the Management Committee, including the capacity to declassify quota sugar to C sugar. As Australia has noted in its written submissions, in one year, the declassification of quota to C sugar resulted in an extra 800,000 tonnes of C sugar export availability.

Conclusion

  1. I would like to conclude by stepping back to look at the importance of this dispute to reforming the EC sugar regime.
  1. Sugar has long been recognised as one of the most distorted commodities in international trade. It is so distorted that even though the lowest cost EC producers have costs which are double those of competitive suppliers, the EC sugar regime has transformed the EC from a net importer of the 1970s to the world's second largest exporter of sugar today.
  1. Everyone in this room knows that the EC sugar regime is now, finally, in the process of being reformed. The outcome of this appeal will therefore go a long way to determining how far the EU will go in reforming these excessive features of its sugar regime and the pace at which the EC undertakes such reform. In regard to the existing regime, the EC makes important decisions around September each year which determine the quantities of export availability for the forthcoming marketing year. Subject to the outcome of this appeal, the EC will be under a WTO obligation to take decisions that will bring its export subsidies into WTO conformity by withdrawal of those subsidies in excess of its reduction commitment obligations without delay. The EC certainly has the capacity within its own legal system to do so immediately.

[1] Exhibit COMP-5J, Article 9a

Last Updated: 9 January 2013
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