European Communities Export Subsidies on Sugar - WT/DS 265
Panel established pursuant to Article 6 of the Understanding on Rules and
Procedures Governing the Settlement of Disputes
1 April 2004
- Over the last few days there has been a barrage of legal and factual arguments exchanged in this room. These exchanges are fundamental to assisting the Panel in its task.
- I wanted this afternoon to take a step back from the legal engagement and reflect on the context of this dispute and the reasons why we have asked you to help solve the matter.
- The three complainants have been at the forefront of efforts in the WTO and its predecessor the GATT to negotiate fundamental reform in global agricultural trade.
- As competitive producers and exporters of agricultural products, we have been seeking to establish a fair and market-oriented agricultural trading system and to carry out a reform process through negotiated commitments on support and protection and through the establishment of strengthened and more operationally effective rules and disciplines.
- The way in which this interest, for a fairer and more market-oriented agricultural trading system, is advanced is critical to the future of the multilateral trading system and for the support of the WTO.
- Sugar is one of the most distorted commodities in international trade, if not the most distorted. Farmers in Thailand, Brazil and Australia face world market prices and yet have to compete with huge subsidies provided to uncompetitive producers in Europe and the US. Not only are we effectively denied any possibility of competing in those markets but the EC goes one step further by providing massive subsidies to shift their surplus onto third markets, further distorting trade.
- We have sought for years to remedy this situation. Our efforts to get the EC to negotiate a fairer market-oriented system and to live up to their international commitments date back to the sixties, soon after the European Common Market was formed.
- Despite the fact that the lowest cost EC producers have costs which are double those of competitive suppliers, the EC has transformed itself from a net-importer of sugar in the 1970's into the world's second largest exporter of sugar in 2004.
- Australia's first GATT sugar dispute with the EC was in 1978. In those days it was much more difficult than it is today for smaller countries to have much impact through the dispute settlement system and of course the rules lacked the teeth they have today.
- When we concluded the Uruguay Round in 1994 we were encouraged that after nearly fifty years of trying we had finally reached agreement with the EC to place modest reduction commitments on sugar export subsidies as part of the Uruguay Round outcomes.
- The EC has suggested that in reaching that agreement, we shared an understanding that C sugar was not receiving export subsidies from the EC's sugar regime and for that reason we shared in the EC's "excusable error" in omitting C sugar from the EC's sugar subsidy reduction commitments. This claim is false and unsupportable. Also false and offensive is the EC's claim that Australia and the other complainants are being opportunistic and acting in bad faith in bringing this dispute.
- Brazil and Thailand have also outlined the way in which the EC has over the years sought to circumvent its commitments. It has hidden behind a lack of published information on its sugar regime. However, the EC's own Court of Auditors report and the Netherlands Economic Institute study have shown us clearly that the EC could not produce C sugar without the subsidies provided to quota sugar. The Appellate Body has clarified that cross-subsidisation of this sort is an export subsidy within the meaning of Article 9.1(c) of the Agriculture Agreement. The EC has escaped the strictures of the Agriculture Agreement's disciplines for nearly a decade and we are now asking the Panel to confirm that this cannot continue. There is sufficient evidence regarding the support to C sugar to show unambiguously that it receives a payment on the export which is being financed by governmental action.
- Australia is also concerned about the subsidised exports of EC sugar that the EC denotes as 'ACP and India equivalent'. We have heard this morning from the many ACP countries which have grave concerns about the potential impact of an adverse finding in the case on their sugar industries. We have sympathy for those concerns and we recognise that for many of those countries preferential access to the EC's market is important to their sugar industries. We are also sympathetic to the concerns of Brazil, Thailand, Colombia and Paraguay as affected developing country sugar exporters. But we would reiterate the point we made at the Consultations: this dispute is not directed at ACP preferential imports, it is directed solely at the EC's subsidised exports. The EC can, and should, comply with its legal obligations to the ACP countries to import sugar and also comply with its legal obligations under the WTO Agreements regarding export subsidies. There is no legal link between the ACP imports and the EC's exports. It is the EC which has made the connection through its sugar regime which delivers structural surpluses which must be exported.
- It is important to remember that Europe has been importing ACP sugar for over fifty years, well before the EC became a net sugar exporter. Recall also that the EC exports nearly three times as much sugar as it imports.
- The EC should make the clear commitment to the ACP countries that, no matter what the outcome of the present dispute, their preferential access will not be affected. We invited the EC to make this commitment at the Consultations, we invited them to do so in the Dispute Settlement Body. We repeat it here again today. The EC could clearly allay the concerns of ACP countries if they made this commitment.
- In relation to the legal questions on ACP and India equivalent, Australia confirms that it advised the EC before, at and after the conclusion of the Uruguay Round that the EC's unilateral exclusion of so-called ACP and India equivalent sugar from its export subsidy reduction commitments was illegal and subject to challenge. We maintain this position today.
- There is no basis in the text of the Agriculture Agreement for the EC's claim that they had the right to make a "commitment" that they would retain export subsidies at existing levels. Article 9.2(b)(iv) of the Agriculture Agreement, and the Modalities paper which the EC itself has cited widely in this dispute, clearly state that Members must make budgetary and quantity reduction commitments to a specified percentage. It was not an option for a Member to only make gradual reductions on part of its exports. A Member has to apply the precise reduction commitment percentages to all exports receiving export subsidies.
- The interpretation of its footnote put forward by the EC, that the footnote is a ceiling commitment, is also not credible when examined in accordance with customary rules of interpretation of public international law, as contained in the Vienna Convention on the Law of Treaties. This requires that text be interpreted in accordance with the 'ordinary meaning' of their terms. It sets out a very specific context for that interpretation. The EC has provided no support for its interpretation other than a reference to unilateral adherence to its own interpretation. The apparent budgetary 'commitment' is even more bizarre. Apparently, the Complainants should have inferred from the footnote that the EC had a commitment to limit budget outlays based on multiplying the quantity of exports by the amount of refund.
- I would like to address briefly the EC's assertion in its oral statement that the Australian sugar industry had in place a similar price support scheme to the EC's C sugar regime at the time of the conclusion of the WTO Agreement. The only similarity was that we both had a tariff on imports. Australia has moved on. The tariff in Australia has gone. The EC regime is unchanged.
- Finally, let me quote from a 1979 panel report which found that the then EU sugar regime "constituted a permanent source of uncertainty in world sugar markets'. Nothing has changed in 25 years.