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WTO disputes

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

Statement by Australia at the Second Meeting of the Panel

11 May 2004

INTRODUCTION

1. Mr Chair, members of the Panel;

2. Australia takes the opportunity of this statement to respond to the legal issues raised in the EC's rebuttal submission and in its written responses to questions. Australia also takes the opportunity to correct some of the EC's more egregious misrepresentations of factual circumstances.

3. Before proceeding to the issues of legal interpretation and procedural matters, let me first make some observations:

4. First, anyone unfamiliar with this dispute may have gained the impression - on the basis of reading the EC rebuttal submission and the EC's supplementary exhibits - that this dispute concerns an EC challenge to the sugar policies of the three complainant parties, together with the policies of many other sugar exporters.

5. All of us present in this room know otherwise.

6. Second, the continued characterisation of this dispute as an attack on ACP preferential access has no basis in reality. This dispute does not concern the preferential access of ACP members to the EC sugar market. Australia's assurances in that regard stand. Despite being invited to do so, the EC has failed to give assurances to ACP countries that, notwithstanding the outcome of this challenge, it will maintain the guaranteed access arrangements for ACP sugar, some of which the EC has bound in the WTO treaty.

7. Third, as to 'ACP/India equivalent' sugar, the EC now acknowledges that such sugar is not eventhe 'equivalent' of imports from the ACP and India, but is in fact in excess of its imports from those countries during the base period.

8. Fourth, anyone unfamiliar with this dispute might also have gained the impression that the EC negotiated special exceptions from its WTO export subsidy reduction commitments for sugar. The EC did not. The EC cannot cite any provision in the Modalities text - let alone any of the WTO Agreements - for what it has described as an entitlement to differential treatment[1], a treatment more favourable than that accorded to developing country sugar exporters under the provisions of the Agriculture Agreement. It cannot point to any document signifying agreement by any participant in the Uruguay Round that the EC should enjoy differential treatment.

9. In signing on to the Final Act embodying the results of the Uruguay Round, the EC undertook to ensure the conformity of its laws, regulations and administrative procedures with its obligations as provided in the annexed Agreements to the WTO Agreement[2]. It also accepted the treaty obligation that no reservations may be made in respect of any of the provisions of the Multilateral Trade Agreements, except to the extent provided for in those Agreements[3]. There is nothing in the Agriculture or Subsidies Agreements that permits the EC to "grandfather" pre-existing measures inconsistent with its WTO obligations for sugar export subsidies. Yet that is what the EC is arguing.

10. Fifth, the EC rebuttal submission and associated documents contain some misleading assertions and false analogies. The EC continues to submit selective - and often unsubstantiated or misleading - material, which is legally irrelevant to this dispute. Further, the EC has failed to respond in full to certain of the questions from the Panel. It has also failed to fully respond to Australia's request for statistical clarification. Some of these mattersare relevantto the extent that they bearon substantive legal issues; others are relevantto the EC's accusations of bad faith on the part of the Complainants.

11. Having made these general introductory remarks, I now turn to a number of issues of legal interpretation

ISSUES OF LEGAL INTERPRETATION

(a) The EC has not discharged its burden of proof

12. As the EC has asserted that it does not apply export subsidies to 'C' sugar, the EC is required to establish that no export subsidy has been granted to sugar in excess of its reduction commitment level. The EC must bear the consequences of failing to remove any doubt concerning its exports of 'C' sugar.

13. How has the EC attempted to meet its burden of proof?

14. First, it has misconstrued Article 9.1(c) of the Agriculture Agreement, advocating totally unsupported interpretations of the elements of that provision. For example, the EC contends that even if the price support to 'A' and 'B' quota sugar cross-subsidises 'C' sugar production, there is no export subsidy because any payment is not made 'on the export' of 'C' sugar. Specifically, the EC is arguing that, because quota sugar price support is not contingent on 'C' sugar export, there is no payment on the export of 'C' sugar. This argument is not tenable and contradicts the jurisprudence of Canada-Dairy.

15. The plain wording of Article 9.1(c) refers to 'payment on the export'. The EC confuses the method of financing with an 'export subsidy'. Australia is not suggesting that import tariffs or safeguard measures are export subsidies per se. It is not the elements which, taken together, deliver financing through price support, which need to be on the export. It is the payment.

16. The EC offers no rebuttal to Australia's argument that the financing element also includes export subsidies on quota sugar. Instead, the EC limits itself to asserting that domestic price support is outside the scope of Article 9.1(c). Such assertions are unsustainable on the basis of fact or law. As the EC itself has stated, the export of 'C' sugar is an integral component of domestic price support. The EC therefore has failed to observe a distinction between domestic and export support arrangements.

17. Having misconstrued the elements of Article 9.1(c), the EC seeks to add a new interpretation: a requirement (on the part of a complainant) to demonstrate a "benefit" in regard to a "payment". A panel cannot read into a treaty text words that are not there.

18. Second, Article 10.1 of the Agriculture Agreement requires the EC to demonstrate that it is not circumventing its commitments by applying any form of export subsidy, other than an Article 9.1 listed subsidy, to a covered product. The EC has not done so.

19. In the context of Article 10.1, the EC has misconstrued the export subsidy definitions of the GATT 1994 and of the Subsidies Agreement as having no application to the subsidisation of exports of agricultural products through domestic price support schemes. In fact the opposite is the case. Such forms of cross-subsidisation were identified early in the GATT system and were incorporated in the Subsidies Agreement, in addition to the specific provisions of Item (d) of the Illustrative List of export subsidies. The EC confuses the specificity of the obligation under Article XVI of GATT 1994 with the actual definition of an export subsidy.

(b) The subsidies on 'C' sugar exports constitute export subsidies within the meaning of Article 9.1(c)

20. The EC incorrectly dismisses the jurisprudence of Canada-Dairy on the basis of an inaccurate depiction of Canada-Dairy as being limited to a dispute involving subsidised inputs. This is a factually incorrect depiction. If that had been so, the legal examination in that casewould have been conducted under Article 9.1(f). It was not. Australia has shown that, while there are some differences of detail, the regimes in Canada- Dairy are markedly similar and that, if anything, there are even more compelling reasons to apply a cost of production benchmark to 'C' sugar.

21. The EC attempts to argue that, in the case of sugar, a different benchmark should be applied to determine whether a payment has been made. It considers a cost of production benchmark to be inappropriate, but fails to present any credible arguments to support this assertion. Instead, it proposes an alternative benchmark of a world market price, without developing any arguments as to how such a benchmark might identify a payment. The Appellate Body in Canada-Dairy clearly stated that the world price does not provide a valid basis for determining whether there are payments under Article 9.1(c). This conclusion was reached for the obvious reason that pricing of sugar at the prevailing world market price would be necessary to conclude a sale.

22. Essentially, the EC limits its arguments to assertions that domestic price support is outside the scope of Article 9.1(c). As Australia has already stated such assertions are unsustainable on the basis of fact and law.

23. Article 9.1(c), together with the other provisions of Article 9.1, reflect the outcome of negotiations designed to impose meaningful disciplines ondirect and indirect export subsidies designed and implemented by WTO Members through agricultural price and income support arrangements. Prior to the inception of the WTO, the operation or result of such arrangements in regard to exports had already been defined as export subsidies, but the specific obligations in regard to agriculture were relatively weak. If the Uruguay Round participants had not intended to develop specific disciplines for covered agricultural products, they would have simply replicated the Illustrative List of the Subsidies Agreement or the relevant provisions of GATT 1994. The export subsidies enumerated in Article 9.1 reflect the considerable preparatory work undertaken in the GATT Committee on Agriculture[4] and the mandate accorded under the Punta del Este Declaration.

24. Further, the application of export subsidy disciplines to cross subsidies delivered through price support is not a revolutionary concept. They have come within the definition of export subsidies since the earliest days of the GATT. This is evident from the plain words of Article XVI of GATT 1994. Article XVI.1 - that defines an export subsidy as "... including any form of income or price support, which operates directly or indirectly to increase exports of any product... " Clearly, the export subsidy definition is not limited to industrial products. The export subsidy definitions (as compared to the obligation) of Article XVI:3 of GATT 1994 (including the Ad Note) are directly relevant. They do not, as suggested by the EC, form part of some crude anti-dumping test, for the very reason that they involve governmental action in their financing

(c) The export subsidies on 'ACP/India equivalent' sugar constitute export subsidies within the meaning of Article 9.1(a) of the Agriculture Agreement

25. The EC does not contest that the export refunds it applies to 'ACP/India equivalent' sugar constitute export subsidies within the meaning of Article 9.1(a) of the Agriculture Agreement.

26. On the basis of the evidence provided by the EC, the EC places no limitation on the budgetary outlays provided for a quantity of 1.6 million tonnes of exports. The EC has not applied any reduction commitment to the level of 'ACP/India equivalent' exports. Indeed, it appears to have increased such exports since the base period.

(d) The EC has not complied with its reduction commitment obligations under Article 9.1(c) and 9.1(a) of the Agriculture Agreement

27. Should the Panel find that the EC sugar regime provides for a payment on exports of 'C' sugar which is financed by virtue of governmental action, the Panel must find the EC to be acting inconsistently with its export subsidy reduction commitments under Article 9.1.

28. Assuming that the EC statistics supplied in its Notifications to the Committee on Agriculture[5] are correct, the EC is exporting quantities substantially in excess of its reduction commitment obligations. It imposes no quantitative limit on the export of 'C' sugar or on the level of budgetary outlays on its export refunds on 'ACP/India equivalent' sugar.

29. The EC contests that the reduction commitment obligation requires the EC to actually make a reduction commitment in respect of all of the export subsidies listed in Article 9.1 of the Agriculture Agreement. It also contests that it is required to make both budgetary outlay and quantity reduction commitments.

30. The EC accords the Modalities text the status of an "Agreement". Leaving aside the legal status of the Modalities text, that text provides, inter alia, that quantities in receipt of certain listed subsidies - identified in an Annex to the text[6] - were to be reduced over a six year period by 21%[7] from a base period level. The text also provided for a reduction in budgetary outlays by 36% over the same period and in respect of the same base period. Those provisions of the Modalities text find reflection in Article 9 of the Agriculture Agreement. Article 9.1 of the Agriculture Agreement replicates the export subsidies identified in the Modalities text as subject to budgetary outlay and quantity reduction commitments.

31. The EC has not complied with the obligation to subject its Article 9.1 subsidies to a reduction in budgetary outlays and subsidised quantities. It has not subjected its Article 9.1(a) subsidies - that is, export refunds that are not financed from the proceeds of levies on quota sugar - to any quantity reduction limits and does not even impose any limit on budgetary outlays on Article 9.1(a) subsidies. In regard to its Article 9.1(c) export subsidies, it imposes no limits on the quantities exported, because 'C' sugar exports are not subject to any quantitative limit (let alone reduction commitment).

32. The Footnote to the EC schedule is irrelevant to the reduction commitment obligations of Article 9.1, as that obligation is separate from the obligations relating to the scheduled reduction commitment obligations of Article 3.3. In any event, exports of 'ACP/India equivalent' sugar do not come within the definitional scope of the Footnote, as the Footnote is limited to exports of sugar of ACP and Indian origin.

(e) The EC is exporting sugar at levels in excess of its scheduled commitment levels, inconsistently with the provisions of Articles 3.3 of the Agriculture Agreement

33. The EC does not maintain any limits on the budgetary outlays on export subsidies on 'ACP/India equivalent' sugar. The current level of export subsidies on such sugar - of the order of € 8-900 million, is significantly in excess of the EC's final budgetary outlay commitment in its schedule. The EC does not contest this fact.

34. Nor does the EC impose any limit on the quantities of sugar in receipt of Article 9.1 listed subsidies which may be exported, let alone a reduction commitment level.

35. The levels of those budgetary outlays and quantities exported are in excess of the EC's scheduled reduction commitments for sugar.

The EC cannot justify its inconsistency with Article 3.3 on the basis of the Footnote to the EC's schedule of export subsidy reduction commitment

36. The EC has incorrectly claimed that the Footnote has the status of a derogation from its schedule of export subsidy reduction commitments. Its claims rest on an assertion that the Modalities text provided for such derogation. The EC has failed to cite any provision of the Modalities text which would have served to permit the excision of 1.6 million tonnes of its subsidised exports from its scheduled obligations. Moreover, there is no such provision in the Agriculture Agreement.

37. In its attempt to justify its mischaracterisation of the Footnote as a derogation, the EC draws false analogies with Australia's scheduling of particular products within a group of products. There is no parallel.

  • First, 'ACP/India equivalent' sugar comes within the definition of "sugar"; it is not some separate category or sub group of a product;
  • Second, Australia's scheduled commitments for the milk products cited by the EC involve both budgetary outlay and quantity reduction commitments. with specific quantity limits set for two sub-groups of milk products;
  • Third, this form of scheduling was expressly envisaged by paragraph 8 of Annex 8 of the Modalities text. On the other hand, a form of scheduling based on a quantity of the same product was not so envisaged;
  • Moreover, the specific quantity limits for the product sub-groups serve to impose tighter disciplines on quantities of "particular products" which may be exported than an overall reduction limit for a group of products.

38. Nor is there any parallel between the EC and New Zealand schedules. Had the EC adopted the New Zealand approach - in scheduling the elimination of all export subsidies on all covered products by the end of the implementation period - Australia would not have initiated dispute settlement proceedings in regard to EC export subsidies on sugar, provided, of course that the EC had complied with such scheduled obligations. Australia understands that the New Zealand export subsidies in question were in fact eliminated in 1994/1995. Australia notes the clarification provided by New Zealand to the Committee on Agriculture - in response to a question from the EC - that it was not possible to identify the product-specific quantities of subsidised exports for the base period, as the historical taxation arrangements were non-product specific.[8]

39. In any case, the EC cannot claim legal justification for an inconsistency because of assertions - unfounded in this case - of inconsistency on the part of other WTO Members.

40. The EC also draws a false analogy with incorporated products[9], which comprise a very diverse range of highly processed agricultural products and of basic products incorporated into the processed products. Paragraph 9 of Annex 8 of the Modalities text specifically envisaged that the reduction commitment for incorporated products could be expressed in terms of aggregate budgetary outlays.

The Footnote was not negotiated

41. The EC has wrongly claimed that it negotiated the Footnote. The Footnote was not negotiated before or during the verification period in 1994.

42. The EC attempts to accord the Footnote the status of negotiated treaty text, even although, unlike the multilaterally-negotiated Articles and Annexes to the Agriculture Agreement, the Footnote was not negotiated. On the basis of the EC arguments, a participant in a multilateral trade round could unilaterally insert a footnote to a schedule that could serve to void the application of any commitment that might be enforceable through scheduling.

43. The verification process was not accorded the status of negotiations - as is evident by the absence of any formal documentation for that period. On 15 December 1993, the Trade Negotiations Committee determined that a verification period was to be set aside to enable participants to ensure that the agreed results of the negotiations were accurately reflected therein. Document MTN.TNC/W/131, which preceded the verification process, refers to outstanding tasks to be accomplished prior to Marrakesh, including "finalization of schedules and verification to ensure that they reflect what was agreed on 15 December and that they are in the proper legal form." It is clear from other paragraphs of that document that "finalization" of schedules in the goods sector was limited to market access schedules, under which no adjustment of an offer or elements of offers would be permitted, while leaving open the possibility of improved offers, particularly in textiles and clothing. The document contains no reference to negotiation of export subsidy reduction commitment schedules.

44. The EC would have in its possession the note circulated by the Chair of the verification process to participants in an informal meeting of 4 March 1994. The EC would also have in its possession the 14 January 1994 letter from the GATT Deputy Director-General to Heads of Delegation. While that letter is concerned with market access conditions, it is relevant to the nature of the verification process and serves to disprove the EC's assertions that its exclusion of 'ACP/India equivalent' sugar formed part of the negotiated balance of concessions[10]. In that letter, the Chair states:

" - as already agreed, as of 15 December 1993, the existing market access results shall not be reduced, except for minor adjustments which should have no significant impact on the overall and bilateral balances. Additional concessions could, of course, be incorporated in the final schedules; ..."

The Footnote does not cover 'ACP/India equivalent' sugar

45. Nor can the EC justify the non-application of scheduled reduction commitments to 'ACP/India equivalent' sugar on the basis of terms of the Footnote. The plain words of the Footnote mean that any exclusion is limited to exports of sugar of ACP and Indian origin, not 'ACP/India equivalent' sugar.

46. The wording of the Footnote does not inform that the Footnote would cover 'ACP/India equivalent' sugar. There was no such clarification in the accompanying letter to the Schedule submitted by the EC at the end of the verification process.[11]

47. Further, as we now know, the reference in the second sentence of the Footnote, to an average of 1.6 million tonnes during the base period, is not even a factual statement.

  • First, under its own regime, the EC limits subsidies on exports of sugar of ACP and Indian origin to a quantity of 1.3 million tonnes of sugar derived from cane or beet harvested in those countries;
  • Second, the EC does not dispute that the greater proportion of imports from the ACP and India are actually consumed within one Member State and are not exported;
  • Third, as the EC has belatedly acknowledged - in response to Australia's question for clarification of statistical data - the EC imported less than 1.6 million tonnes from the ACP and India during the base period.

48. I quote from the EC response to Australia's request for statistical clarification:

"... imports of ACP/India origin did not amount to an average of 1.6 million tonnes during the base period [1986-90] ... The EC does not have on record the manner in which the 1.6 million figures for export was calculated. ... One explanation is that since the EC negotiators knew that the 1.6 million tonnes was going to operate as a ceiling, they anticipated the fact that the EC was about to start (following negotiations with the ACP supplying states) importing approximately 1.6 million tonnes of ACP/India sugar, that such a volume of imports would start around the time of entry into force of the WTO Agreementand they adjusted the average for the base period accordingly." [12]

49. Notwithstanding the ECadmission that the second sentence of the Footnote is factually incorrect, the EC states, in the body of its rebuttal submission:

"It is true that the second sentence makes a factual statement."[13] .

50. To the extent that the Panel considers that the Footnote has any legal effect or application to 'ACP/India equivalent' sugar, Australia considers that the EC should provide further clarification on the imports of sugar from the ACP and India during the base period. In its draft schedule submitted on 7 November 1990[14] - which included a commitment for sugar "equivalent of quantities imported into the EC from ACP countries and India" - the EC referred to a figure of 1.3 million tonnes of that "equivalent". The cited figure equates to the sum of quotas under the "Preferential" arrangements with the ACP and India. Australia understands that the 'Special Preferential system' or 'SPS', did not form part of the EC sugar regime until 1995. Moreover the SPS system is a balance sheet arrangement related to estimates of the supply needs of cane sugar refineries. The SPS does not accord fixed quota quantity entitlementsand imports under this arrangement - which are not eligible for export refund - are declining.

51. Australia also notes that the EC - but not Australia - has available to it statistical documentation on imports (other than Eurostat) which would enable the EC to respond to Australia's request for a break down of the data in Table 10 of the EC's first written submission, according to the different import arrangements of the statistics provided in that table. Australia draws attention to footnote 105 of the EC's first written submission, which suggests that the data provided in Table 10 constitutes an aggregation of imports under different import arrangements.

(f) If the export subsidies on 'C' sugar do not come within the definitional scope of Article 9.1(c), such subsidies are subject to the provisions of Article 10.1 of the Agriculture Agreement

52. As noted earlier, the EC also has the burden of proof to demonstrate that is not applying export subsidies, other than Article 9.1-listed subsidies, to 'C' sugar.

53. The EC dismisses Australia's arguments in regard to export subsidies as defined in Item (d) of the Illustrative List of export subsidies in the Subsidies Agreement. Its sole basis for doing so rests on the proposition that it does not compel the production of 'C' beet. In so doing, the EC misapplies the plain words of Item (d). The mandatory element of that definition does not attach to the production of a good, but to the government scheme. In regard to 'C' beet, the EC scheme mandates that sugar processors are not required to pay the fixed minimum price for beet that they are required to pay for beet for processing into quotasugar for sale on the domestic market.

54. The EC fails to address the other export subsidy definitions in the Subsidies Agreement, including subsidies which, by virtue of the requirement to export 'C' sugar, are subsidies contingent on export performance in the case of 'C' sugar.

55. The EC makes no attempt to address the export subsidy definitions of the GATT 1994, other than a sweeping observation that agricultural export subsidies are not prohibited under Article XVI of GATT 1994. This observation ignores the export subsidy definitions of Article XVI:I and XVI:3, which explicitly address export subsidies provided through domestic price support systems. Those definitions have application to the export subsidies covered by the provisions of Article 10.1 of the Agriculture Agreement.

(g) As the EC is acting inconsistently with its obligations under Articles 9.1 and 3.3, or Article 10.1, it has failed to observe its undertakings under Article 8 of the Agriculture Agreement.

56. In signing on to the Final Act embodying the results of the Uruguay Round, the EC provided an undertaking, under Article 8 of the Agriculture Agreement, that it would not provide export subsidies other than in conformity with the Agriculture Agreement. As the EC is providing export subsidies on sugar other than in conformity with the provisions of Article 9.1 and/or Article 10.1of the Agriculture Agreement, it follows that it is also acting inconsistently with the provisions of Article 8.

57. The EC also provided an undertaking - in Article 8 of the Agreement - that it would not provide export subsidies otherwise than in conformity with the commitments specified in its schedule. It has failed to comply with this undertaking in regard to its scheduled commitment obligations.

(h) The export subsidies on 'C' sugar and 'ACP/India equivalent' sugar are prohibited under Article 3 of the Subsidies Agreement

58. The EC asserts that the export subsidy prohibitions of the Subsidies Agreement do not apply to agricultural products. This is unsustainable in the context of the plain words of the Agriculture and Subsidies Agreements.

59. The EC misapplies the jurisprudence of the US-FSC dispute, by reading into the texts of the Agriculture and Subsidies Agreements a requirement that the Subsidies Agreement may only apply to agricultural products in circumstances where different programs are involved. No such limitation can be ascertained from the texts of the Agreements or in the jurisprudence. The EC also misreads the jurisprudence of EC Bananas in regard to "specific provisions dealing specifically with the same matter." The 'same matter' relates to the provisions of the Agreement, as compared to a program.

60. The definitions of Article 9.1 of the Agriculture Agreement, while bearing some similarities to the export subsidy definitions of the Subsidies Agreement, address matters that are specific to agricultural export subsidies. The Agriculture Agreement provides for some legal tolerance of export subsidies, provided of course they come within defined reduction commitments in regard to Article 9.1 listed subsidies and/or provided that other export subsidies are not applied in a manner which would circumvent the reduction commitment obligations of Article 10.1.

61. Read together, Article 21.1 of the Agriculture Agreement and the chapeau to Article 3 of the Subsidies Agreement make it clear that export subsidies - as defined in the Subsidies Agreement - are prohibited unless they fall within the permitted tolerances of the Agriculture Agreement

(i) The EC violations of its WTO export subsidy obligations for sugar nullify or impair Australia's WTO benefits under the Agriculture and Subsidies Agreements

62. In India-Patents areliance on expectations was a consideration preceding the establishment of a violation. The jurisprudence of that case does not support the EC interpretation in regard to "expectations" arising from a violation.

63. No-one compelled the EC to schedule its commitments at the levels it determined. The EC did so in full knowledge of the consequences.

64. In the case of 'ACP/India equivalent' sugar the EC was put on notice that its declared intent to unilaterally depart from its commitment obligations would be open to challenge. In the case of 'C' sugar, the EC was not obliged to schedule reduction commitments in excess of the specified percentages, but nor was it prevented from doing so. It was also fully aware that it would be bound by the levels specified in its schedule.

65. At the very least, the EC did not act with due diligence in regard to 'C' sugar. The EC knew that cross-subsidisation as a result of the operation of price support systems fell within the export subsidy definitions of the GATT and Subsidies Agreements and that there was intent on the part of the negotiators to impose disciplines on such subsidies in the Agriculture Agreement in defined circumstances. That intent was given effect through Articles 9.1(c) and 10.1.

66. Contrary to the EC assertions, the relevant provisions of the Agriculture and Subsidies Agreements do not merely serve to confer legitimate expectations in regard to a certain volume of reductions. The Agriculture Agreement confers a right to expect that the EC will act in conformity with its obligations, including that the EC will subject its export subsidies to reduction commitments, that it will not provide export subsidies in excess of scheduled commitments and that it will not circumvent those commitments. The Subsidies Agreement confers upon Australia a right that the EC will not grant or maintain export subsidies on sugar except as provided in the Agriculture Agreement.

(j) In bringing this claim, Australia is not acting inconsistently with the provisions of Article 3.10 of the DSU or with the principle of good faith.

67. Australia has comprehensively rebutted the EC's subsidiary arguments that, in bringing this complaint, Australia has acted inconsistently with the principle of good faith and DSU Article 3.l0. Australia has also rebutted the EC arguments in relation to estoppel.

68. The EC asserts that Article 3.10 and the principle of good faith prevents a Member from exercising a right to request a panel in an abusive manner so as to extract an unfair advantage, or in circumstances where a Member is estopped from doing so by virtue of its previous conduct.

69. This argument lacks any legal basis in either the wording of Article 3.10 or in WTO jurisprudence. In its rebuttal the EC wrongly cites the Appellate Body jurisprudence of US-Carbon Steel (Japan) as lending support to its assertions. The cited statement does not support the EC's arguments. The clear purpose of the Appellate Body's statement was to put Members on notice that they must be prepared to comply with Article 3.7 and 3.10 in relation to a panel process.

70. Contrary to the EC's assertions, DSU Article 3.7, not 3.10, is the relevant provision addressing the launching of disputes. The EC has not cited Article 3.7 of the DSU in support of its arguments. Australia has comprehensively rebutted the EC arguments in regard to Article 3.10.

71. As to the EC's assertions of Australia's conduct outside of these proceedings - which in Australia's view are not legally relevant - Australia has explained, in its response to the Panel questions, that it did not have access to information that was available to the EC, including the many sugar-producing Member States and through the formal dialogues between the EC with the beet producer organisations and the companies involved in sugar processing. The situation is no different from that described by the EC in relation in the US-FSC dispute, when, as stated by the EC, it did not have full access to all information of the application of the scheme at industry level.

72. The EC provides significant manufacturing subsidies to sugar processors and would know that there is no independent production of 'C' sugar. The Commission has acknowledged to its own Court of Auditors that, in determining price support levels for sugar under the EC regime, it has a broad range of information available to it. The EC has undertaken a study of its refining industry, which, Australia suggests, would necessarily involve comparisons of the economic viability of its beet and cane sugar processing sectors, given the institutional price support links between the two. The fact that it may not have a system in place for data collection does not mean that it cannot obtain relevant data.

73. On the basis of the EC supplementary Exhibits, the EC is seemingly actively engaged in the collection of data on the sugar policies of other WTO Members and conducts analyses - albeit superficial and of unknown authorship[15] - of their sugar policies. The EC displays a profound misunderstanding of the sugar industries and policies of other countries, as illustrated by its false assertion that, in most cane sugar producing countries, sugar cane is grown by a salaried workforce in "vast tracts of land owned by the processors"[16]. The EC's carelessness with the facts in that instance - and the inferences it draws -does not inspire confidence in its analyses of the sugar industries and policies of other countries.

74. The EC incorrectly assigns to sugar policies in other countries a relevance to the Panel proceedings. Yet the EC tells us that it does not bother to collect data on its own regime and informs us that any EC assessments of its own regime are irrelevant to the Panel's examination.

75. If the EC did not avail itself of the information sources available to the EC institutions and the Member States - but not available to others - then it stands condemned for lack of due diligence in regard to its sugar-using industries, other consumers and to its own taxpayers, as well as in regard to its approach to performance of its treaty obligations.

There was no scheduling error

76. The EC is solely responsible for the levels of the bindings of the base period and final commitment levels in its schedule. Its schedule was developed in the full knowledge that the base period and final commitment levels were irrevocable. It knew that, unlike tariff bindings, there is no WTO procedure for the deconsolidation of scheduled bindings on export subsidy reduction commitments. The EC was also aware that it would be accountable under the terms of Article 10.3 of the Agriculture Agreement, in relation to Articles 3.3, 9.1 and 10.1, for any exports in excess of reduction commitment levels.

77. As stated earlier, the EC did not negotiate the Footnote to its Schedule, let alone the levels of its scheduled commitments. It did not negotiate for the application of the Footnote to 'ACP/India equivalent' sugar.

78. If the EC failed to undertake an assessment of the application of Article 9.1(c) to 'C' sugar, it failed to follow the prudential practice of many other participants in the Uruguay Round negotiations, who, for the purposes of drawing up their schedules, undertook assessments of the arrangements applying to different agricultural products against the export subsidies identified in the Modalities text. In some instances, the assessments were voluntarily 'road tested' on an informal and without prejudice basis with other participants. Australia has no record of the EC availing itself of this opportunity in respect of sugar.

79. During the course of the Uruguay Round the EC had at its disposal sources of information from the EC institutions, numerous Member States, several research institutes and the structures in place for obtaining information through the interprofessional arrangements of beet grower and sugar processors. It provides substantial manufacturing and export subsidies to sugar processors but seemingly, did not consider it appropriate to conduct a survey of the EC sugar companies to establish how their loss-making activities were being financed. Australia did not have access to any of those resources. The EC continues to unreasonably refuse to provide information which Australia considers relevant.

80. In conclusion, any EC expectation that Australia was in a position to speak, let alone that it had a "duty to speak", is not reasonable.

The EC is required to perform its treaty obligations in good faith

81. As this dispute involves claims that the EC is not complying with its WTO treaty obligations, it is the EC's performance of its treaty obligations that is at issue. Those treaty obligations cannot be extinguished by an assertion that, prior to the conclusion of the WTO treaty, the complainants had a responsibility to draw certain matters to the attention of the EC. The principle of good faith provides no refuge for the EC in this regard.

82. As provided in Article XVI:1 of the WTO Agreement, the customary practice of GATT and WTO serve to guide the WTO. The WTO Agreement constitutes the most definitive and substantial body of public international law in regard to international trade.

83. There is nothing in the text of the WTO Agreement or the customary practice of the GATT and WTO that provides for a denial of the exercise of a right to enforcement of obligations through the WTO dispute settlement processes. As provided in Article 3.2 of the DSU, the dispute settlement system of the WTO is a central element in providing security and predictability to the multilateral trading system and serves to preserve the rights and obligations of Members under the covered agreements. A denial of the exercise of a right to dispute settlement would serve to deny to Australia the rights to preservation of its rights under the WTO.

84. Article XVI:4 of the WTO Agreement imposes a requirement on a WTO Member to ensure the conformity of its laws, regulations and administrative procedures with its obligations in the covered Agreements. To the extent that the EC has laws, regulations oradministrative procedures in place which provide for export subsidies for sugar in contravention of its obligations under the Agriculture and Subsidies Agreements, the EC is not observing its obligations as articulated in Article XVI:4 of the WTO Agreement.

TERMS OF REFERENCE

85. The EC has introduced an additional argument, that so-called claims relating to payments are not covered by the terms of reference. Again, the EC is confusing arguments with claims. Australia cited Article 9.1(c) in its request for a panel. Article 9.1(c) refers to "payments", so clearly the EC was informed that payments would be raised. As noted by Australia in its rebuttal submission and in its response to the panel questions, DSU Article 6.2 does not require a complainant to articulate its legal arguments in a panel request

CONCLUSIONS

86. Australia believes that it has conclusively demonstrated that the EC has not discharged it burden of proof and also that the EC is acting inconsistently with its obligations under Articles 3.3, 8, 9.1 or, in the alternative, Article 10.1, of the Agriculture Agreement. The EC is also acting inconsistently with its obligations under Article 3.1(a) and 3.2 of the Subsidies Agreement. The EC has not been accorded any derogation from those obligations and cannot justify its claims for differential treatment, nor for a denial of Australia's exercise of its rights to dispute settlement.

87. Australia requests that the Panel find accordingly.

88. Australia requests that the Panel recommend:

(a) that the EC bring its export subsidies on sugar into conformity with its obligations under the Agriculture Agreement;

(b) that the EC withdraw the export subsidies inconsistent with the Subsidies Agreement within 90 days.


[1] Para 111, second written submission

[2] Article XVI:4 of the WTO Agreement

[3] Article XVI:5 of the WTO Agreement.

[4] Exhibit ALA-2

[5] Exhibit COMP-17

[6] Annex 7 of 10 December 1993 Modalities text

[7] Article XI of 20 December 1993 Modalities text.

[8] G/AG/R/2 and 3

[9] EC Second Written Submission, para 130

[10] EC Second Written Submission, para 119

[11] Exhibit ALA-7

[12] Annex I to EC second written submission

[13] para 117

[14] pursuant to MTN.TNC/15

[15] Exhibit EC-23

[16] EC response to Panel question 35, para 13

Last Updated: 9 January 2013
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