Brazil Seeks 3-Month Deadline For EU Compliance With Sugar Ruling

International Trade Daily

March 09, 2005

GENEVA--Following its victory in the cotton dispute with the United States, Brazil has asked the World Trade Organization's Appellate Body to give the European Union no more than three months to cut its export subsidies for sugar should it uphold an earlier panel ruling condemning Brussels's excessive payments for the sector.

In an intervention delivered to a March 7-8 Appellate Body hearing on the sugar dispute, Brazil urged the Appellate Body to extend the panel's ruling and declare the EU's sugar subsidies in violation not only of the WTO's Agreement on Agriculture but also to declare the subsidies "prohibited" under the Agreement on Subsidies and Countervailing Measures (SCM Agreement).

A finding under the latter would oblige the Appellate Body to fix an early deadline for compliance, since the SCM Agreement requires prohibited subsidies to be removed "without delay." Under Article 4.7 of the SCM Agreement, a panel considering a prohibited subsidy complaint shall specify the time period within which an illegal subsidy must be withdrawn.

The EU "can readily abide by its reduction commitment levels within 90 days," Brazil argued, noting that the EU's basic framework regulation for the sugar sector, Regulation 1260/2001, "does not even need to be amended in order for the EU to fulfill its obligations."

The European Commission, the EU's executive arm, "routinely adopts implementing rules in the sugar sector in a matter of days," Brazil added, noting that the period needed to adopt six subsequent implementing rules to Regulation 1260/2001 ranged between nine to 22 days.

Australia, Thailand Agree

Officials taking part in the hearing said Australia and Thailand, the two other co-complainants in the dispute, also called on the Appellate Body to issue a finding against the EU under the SCM Agreement in order to ensure Brussels' quick implementation of the ruling. Australia complained the panel's findings as they currently stand are not sufficient to fully resolve the dispute. The Appellate Body's ruling is due toward the end of April.

In its decision made public Oct. 15, a WTO dispute panel backed the claims of Brazil, Australia, and Thailand that the EU had provided export subsidies for its sugar producers in excess of its WTO limits. In particular, the panel found that the EU illegally cross-subsidized exports by setting high prices for sugar under domestic quotas, which allowed EU producers to sell their sugar abroad at artificially low prices.

The panel declared that the cross-subsidized exports constitute an export subsidy under Article 9.1(a) and ( c) of the WTO's Agriculture Agreement and that these subsidized exports should be counted against its quantity and budgetary outlay commitments made during the previous Uruguay Round. As a result, since 1995 the EU has been subsidizing exports in excess of its 1.27 million ton annual quantity limits and its [Euros]499.1 million annual spending cap.

The panel, however, declined to rule on the three countries' claims that the cross-subsidized exports also constitute a prohibited export subsidy under Article 3 of the SCM Agreement. The panel said it was refusing to do so on grounds of judicial economy, arguing that its finding against the EU under the Agriculture Agreement "should be sufficient to fully resolve the matter" without examining the complaints under the SCM Agreement.

Narrower WTO Opinions

Officials attending the Appellate Body hearing said the claims under the SCM Agreement were debated March 8, with many of the interventions focusing on the issue of judicial economy. Critics note that WTO panels and the Appellate Body appear to have become more conservative in their rulings, often refusing to consider other legal claims after finding a violation under one of the WTO provisions and failing to fully resolve the dispute at issue.

In the case of cotton, for example, the WTO panel and the Appellate Body declined to rule on Brazil's claim that U.S. cotton subsidies were causing serious prejudice to the trade interests of Brazil by increasing the U.S.

share of the world market for cotton, arguing that, because it had already been found that the U.S. subsidies caused serious prejudice by depressing global cotton prices, it was not necessary to issue a finding (42 WTO,

03/4/05) .

In cotton, the Appellate Body ruling, issued March 3, upheld the panel's findings that U.S. export credit guarantee programs for cotton as well as payments used to compensate U.S. mills and exporters for the purchase of higher-priced U.S. cotton constituted prohibited export subsidies under the SCM Agreement. The Appellate Body let stand the panel's recommendation calling on the United States to remove the illegal subsidies by July. 1.

Not Addressing All Claims

The WTO notes that panels are not required to address all the legal claims that the complainant makes. "It is sufficient for a panel to deal with the claims that are necessary to resolve the matter at issue in the dispute. If the panel has already found that the challenged measure is inconsistent with a particular provision of a covered agreement, it is generally not necessary to go on and to examine whether the same measure is also inconsistent with other provisions the complainant invokes."

"There is a limit to this discretion, however, since the principle of judicial economy must be applied consistently with the objective of the dispute settlement system: to resolve the matter at issue and 'to secure a positive solution to a dispute' as required under Article 3.7 of the WTO's Dispute Settlement Understanding (DSU)."

In an earlier submission to the Appellate Body, Australia said the panel "incorrectly applies the principle of judicial economy" in regard to the claims made under the SCM Agreement.

A finding under the SCM Agreement that the EU is providing prohibited subsidies "leads to a recommendation that the subsidies in excess of reduction commitments under the Agreement on Agriculture be withdrawn without delay," Australia argued. "Hence, a recommendation under the SCM Agreement is more conductive to resolution of the matter at issue and to a positive solution to a dispute, in keeping with the objectives of Article 3.7 of the DSU."

Australia warned that the panel's reasoning on the exercise of judicial economy, if accepted, "could mean that export subsidies on agricultural products could not be challenged under the SCM Agreement. Such practice would render inutile the relevant provisions of the SCM Agreement and the Agreement on Agriculture, which are expressly predicated on the application of the SCM Agreement to agricultural export subsidies except as provided in the Agreement on Agriculture."

European Agriculture Commissioner Mariann Fischer Boel has said that Brussels will not be able to finalize plans for reforming its sugar sector until the Appellate Body has issued its ruling. An informal proposal put forward by the Commission in July last year has split EU member states, with some fearing the proposed minimum intervention price and production quotas could drive their producers out of business.

Sugar producers in the African, Caribbean, and Pacific (ACP) group of countries, which benefit from preferential market access to the EU, have also warned the proposed sugar reforms, combined with the WTO's ruling, could spell doom for their industries.

The Commission proposal would maintain preferential market access to the EU but at prices lower than the ACP producers currently receive.