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WTO disputes

European Communities Export Subsidies on Sugar - WT/DS 265

World Trade Organization

Panel established pursuant to Article 6 of the Understanding on Rules and Procedures Governing the Settlement of Disputes

Closing Statement by Australia at the Second Meeting of the Panel

12 May 2004

  1. Mr Chairman, Members of the Panel, in its closing statement Australia will briefly address various key issues at hand in these proceedings.

  2. The Panel has heard a great deal of argumentation relating to the EC sugar regime and the application of the legal rules in the WTO Agreements to this factual situation. Australia wishes to underscore that, unless the Panel is convinced that the EC has "established" that the export of sugar beyond the EC's reduction commitments is not subsidised, the outcome in this case is simple: the Complainants must prevail.

  3. I will first address the issue of the Panel's terms of reference and then a number of matters raised in the EC's oral statement.

Panel's Terms of Reference

  1. The EC has raised a number of times what it claims are omissions in the Panel Requests of the Complainants. Indeed, it appears that whenever the EC has no answer to an argument by the Complainants it raises a terms of reference issue. The issue of 'C2' beet payments is of particular significance. The EC effectively admitted in its statement yesterday that if the payment from the beet grower to the processor is considered by the Panel to be within its terms of reference the Complainants must prevail on this point. The EC admits that this payment fits within the application of the Canada-Dairy jurisprudence.

  2. This issue clearly falls within the Panel's terms of reference. Australia's legal complaint is that the EC is providing export subsidies in breach of its obligations. Australia identified 'C' sugar specifically and the relevant provision of Article 9.1 which it considered relevant. Australia also gave a summation of the reasons why it has concerns regarding Article 9.1(c). Australia did not, and is not required to, identify the specific elements of Article 9.1(c) and how these have been breached by the EC in the provision of export subsidies on 'C' sugar. This is part of the detailed legal argument which was included in Australia's submissions.

  3. DSU Article 6.2 does not require Australia to have set out in its panel request precisely how it believes the EC measures violate the Agriculture Agreement and Subsidies Agreement. This was confirmed by the Appellate Body in the EC-Bananas case when it said: "Article 6.2 of the DSU requires that the claims, but not the arguments, must all be specified sufficiently in the request for the establishment of a panel in order to allow the defending party and any third parties to know the legal basis of the complaint" (emphasis in original).[1]

  4. I would also recall that Australia does not bear the burden of proof on this issue. Therefore, Australia could not be expected to, and is not required to, provide detailed legal arguments in its panel request, which are rebuttal arguments due to the reversal of the burden of proof in Article 10.3.

'C' sugar

  1. I turn now to the issue of 'C' sugar. The EC has in its oral statement yesterday completely misconstrued both the Agreement on Agriculture and the Appellate Body decision in Canada-Dairy Article 21.5. For example, in paragraph 5 the EC stated that: The issue before the Panel is whether the exports of 'C' sugar provide an export subsidy to the same producers of 'C' sugar who make those exports. In other words, whether the fact of making exports may be, as such, an export subsidy.

  2. This is not the issue before the Panel. The issue is whether the specific requirements set out in Article 9.1(c) are present in this case. As Australia has shown in its various submissions and statements they clearly are.

  3. The EC also wrongly claims there is requirement that there be a 'benefit'. As we have stated, there is no benefit test in Article 9.1(c). The EC attempts to transform the Appellate Body's determination in Canada-Dairy that the crucial question was whether Canada's export production had been given an advantage into a requirement that a 'benefit' attach to the provision of goods.

  4. As Australia has clearly argued, even though there is no requirement to demonstrate a benefit it is clear that an advantage to export production does exist.

  5. The EC is attempting to argue that the payment only confers an advantage to the purchaser on the world market and that there is no advantage to the EC sugar producers in making exports at a loss. The EC ignores the fact that the reason the sugar producers are induced to produce 'C' sugar and are able to export it below cost is the advantage they have received through the payment financed by virtue of governmental action.

  6. This very clearly provides an advantage to the EC's export production of sugar. Indeed, without it there would be no export of 'C' sugar at all.

  7. The EC cannot argue that the exports of 'C' sugar which benefit from export subsidies would not exceed its reduction commitments when such commitments are "properly interpreted in the context of the Modalities text and in good faith". A finding by the Panel that exports of 'C' sugar benefit from export subsidies, would mean that the EC has exceeded its reduction commitments. The Modalities text provides no comfort to the EC in this regard.

  8. The EC claims that a finding against it on 'C' sugar would have the result that some terms in its schedule would be inaccurate. This would not be the case. The commitments specified in the schedule would stand and the EC would have to meet those commitments.

  9. The EC cannot argue that because of any apparent wrong judgement it ought now be allowed to correct such judgement. This would amount to a "grandfathering" of all pre-existing measures. There is no provision in the WTO Agreements which would allow this and it would clearly have troubling implications for future negotiations.

Modalities Text

  1. The EC returned in its Opening Statement to the interpretative value of the Modalities text. Australia has made clear its view on the status and interpretative value of the modalities text and refers to its answer to Panel Question 5 in this regard. The Modalities text does not provide context as defined in Article 31.2 of the Vienna Convention. That said, whatever interpretive value is ascribed to the Modalities text, the plain fact of the matter is that the text does not assist the EC cause.

  2. Pursuing its argument on the interpretative value of the Modalities text, the EC went on to make a novel and totally unsupported interpretation of Article 1(a) of the Vienna Convention. It argued that this provision could be interpreted to extend the coverage of the Vienna Convention to non-binding agreements and informal agreements. Such an interpretation flies in the face of the fundamental principle that a treaty is binding at international law upon the parties to it.

  3. In paragraph 38 of its Opening Statement, the EC accused the Complainants of contradicting themselves concerning the status of the Modalities text and the timing of the negotiations on commitments. While there is no contradiction on the part of the Complainants, there is confusion on the part of the EC. The Modalities text, as is clear from its title, detailed inter alia, the means by which participants were to establish and give legal effect to reduction commitments. The EC did not follow the Modalities text.

DSU Article 3.10 and Good Faith

  1. The EC returned to DSU Article 3.10 and the principle of good faith in its Opening Statement. Before advancing its legal arguments, the EC briefly recapitulated what it called the "relevant facts".

  2. At paragraph 45, it stated that "Australia suggested at the first meeting that it did raise the issue [of C sugar]", citing in a footnote paragraphs 21 and 64 of Australia's Opening Statement at the first hearing in support of this statement. Those paragraphs do not bear out the EC's assertion.

  3. The EC then returned to its estoppel arguments, which Australia has already comprehensively rebutted. Apart from the silence of the Complainants, the EC asserted in its Opening Statement that the Complainants and other participants shared its view on 'C' sugar. In attempting to make this point the EC has again referred to the policies of other sugar exporting countries. As Australia has done previously, we reject the assertion that Australia's sugar policies have any relevance to this dispute. Nevertheless, Australia would like to take this opportunity to correct the factual record.

  4. Australia's sugar policies bear no resemblance to the EC regime and it is beyond belief that Australia's regime gave comfort in any way to the EC concerning 'C' sugar. The EC asserts that Australia had in place until 1999 a price support system which subsidised exports. That is incorrect. Australia did impose a tariff on sugar exports in the past, but the scope for cross-subsidisation is minimal. At its highest the tariff was a fraction of the EC support levels and it was continuously reduced from 1989 to 1997. It applied to only 20 percent of Australia's production, 80 percent being exported at world prices. From July 1997 the applied tariff has been zero. There is no scope for cross-subsidisation.

  5. The EC asserts an equivalent between its regime and the sugar policies of other exporters, ignoring the elements of the EC regime which make it WTO inconsistent. Specifically, the exceptionally high level of EC support, the delivery of that support through quotas for sales on the domestic market, the restrictions on carryover of 'C' sugar and the requirement that 'C' sugar not carried over be exported. These elements of the EC regime drive the production and export of subsidised 'C' sugar and distinguish it from other regimes.

  6. The EC returned to the interpretation of DSU Article 3.10. It argued in paragraph 63 of its Opening Statement that "a dispute arises" from "the moment that two Members disagree on the interpretation of the WTO Agreement, whether or not they have taken any formal action under the DSU". Australia fails to see how Article 3.10 can apply to the actions of Members before dispute settlement is initiated.

  7. The EC cited DSU Article 4.7 in support of its position, which starts with the words "[i]f the consultations fail to settle a dispute". The EC seems to be suggesting that the good faith obligation expressed in Article 3.10 would apply to Members engaged in consultations. Australia does not accept this argument. Of course, Members must act in good faith during consultations. However, the source of this obligation is not Article 3.10 but Article 4.3 which requires Members to act in good faith during consultations.

  8. It is DSU Article 3.7 which addresses the launching of cases by Members. There is no textual or jurisprudential basis to limit its scope of operation as the EC has sought to do.

'ACP/India Equivalent' Sugar

  1. The EC started the section of its Opening Statement dealing with the footnote arguing that, by operation of Article 16 of the Vienna Convention, the Complainants had agreed to all of the WTO Agreement, including the footnote. Article 16 deals with the exchange or deposit of instruments which signify that a State consents to be bound by a treaty. Australia has certainly agreed to be bound by the WTO Agreement and to meet its obligations accordingly. But to suggest that Article 16 in some way operates to prevent Australia from taking WTO dispute action in relation to the obligations of another Member which that Member has attempted to circumvent through a unilaterally inserted footnote is unsustainable.

  2. The EC claimed that a finding of inconsistency in relation to the footnote would untangle the agreement previously reached and "undo the balance of concessions on which the WTO Agreement is based". These assertions are based on the fiction created by the EC that the footnote was negotiated - and that an offsetting concession was provided – and that they should be treated accordingly.

  3. The EC claimed in paragraph 78 of its Opening Statement that "there is no unavoidable conflict" between the footnote and the Agriculture Agreement. Australia has argued that there is a conflict which cannot be resolved by the application of the principle of effective interpretation. The EC contests the interpretation placed on the footnote by the Complainants, but none of the creative but unsupportable interpretations it offers avoids that conflict.

  4. As the conflict cannot be resolved, a choice must be made as to whether a unilaterally inserted footnote or a provision of fundamental importance contained in the Agriculture Agreement negotiated by the Members should prevail. Australia submits the answer is clear: the latter must prevail.

  5. As argued by Australia in its Rebuttal Submission, there is jurisprudence of the Appellate Body that serves to support this position. In EC-Bananas, the Appellate Body concluded that Schedules could yield rights but not diminish obligations. In doing so, the Appellate Body confirmed the earlier reasoning and conclusions reached in US – Sugar Headnote. The Appellate Body reaffirmed its jurisprudence in EC – Bananas on this point in Chile – Price Band and EC – Poultry.

  6. The EC attempted unsuccessfully to reject the applicability of the Sugar Headnote case in its Opening Statement, failing to mention the Appellate Body jurisprudence identified by Australia.

  7. Before closing, I would like to thank warmly the Panel members and the Secretariat staff assisting them for their work on this case.

[1] EC – Regime for the Importation, Sale and Distribution of Bananas Report of the Appellate Body WT/DS27/AB/R, paragraph 143.

Last Updated: 9 January 2013
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