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The WTO Sugar Panel

by Simon Harris

Presentation at the IPC Seminar, Brussels, 17 May 2004

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The Complaints

• The complainants are Australia, Brazil and Thailand

• They have 2 main arguments, both with the same result: that the EU is subsidising its sugar exports in breach of its UR commitments.

• These are:-

(i) The EU is cross-subsidising the export of C sugar;

(ii) The EU is exporting with subsidy a quantity of sugar equivalent to ACP imports which should have been included in the EU’s UR subsidised export commitments

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The C sugar claim

• The C sugar case depends on the application of the recent Canadian Dairy Panel cases where it was determined that exporting at a price below average total cost of production, where there is Governmental involvement, is prima facie cross subsidising.

• In effect the complainants are trying to apply to the EU’s longstanding (since 1967) C sugar export system an interpretation of the UR disciplines that was not envisaged at the time, but only came about due to the post-UR Canada Dairy Panels.

• This is despite the participants in the UR having known at the time, and not queried, the non-inclusion of C sugar by the EU (on the basis that C sugar was not covered by subsidised export commitments, as it was not subsidised)

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The ACP re-export claim

• This claim is opportunistic as, in the UR, the EU explicitly did not take a commitment on the re-export of 1.6 mt of sugar, equivalent to ACP imports, beyond the commitment to cap this re-export at 1.6 mt. At the time, this was stated in letters from the EU’s Ambassador in Geneva to the GATT and then spelt-out in a specific footnote to the EU’s commitment schedules.

• Further it should be remembered that, as part of the UR verification process, all participants circulated to each other their draft commitment schedules for comment. The EU then held meetings with several participants including some of the complainants, but the issue of the 1.6 mt footnote was not raised.

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Implications

General

• Good faith in negotiations

• The erosion of the distinction between domestic support and export subsidisation

Specific

• Other countries’ sugar support policies

• Specific impact for the ACP: a perverse outcome for the Doha Development Round

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Good faith in negotiations

• This case is a threat for all WTO members, as it means countries negotiating in good faith in a trade round can now no longer be sure that what they have negotiated will not be over-turned by the legal process embodied in the Dispute Settlement procedure.

• Were the complainants to win this Panel it would show that what was agreed during the Uruguay Round can be called into question, 'reinterpreted' and disallowed.

• The result would be that rules can be radically changed without there having to be a negotiation. The Dispute Settlement procedure would create uncertainty, rather than the certainty its elaboration in the UR was meant to bring.

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Erosion of the distinction between AMS and export subsidies

• As part of the UR it was agreed to distinguish between domestic support, export subsidisation and import access. This approach is being followed in the DDR.

• If the complainants win the C sugar part of this Panel, it throws into question whether it is possible to continue to maintain this distinction. As any agricultural support regime that makes it possible (even in the most tangential way) for farmers to cross-subsidize may be interpreted as a WTO violation.

• This would make many countries’ agricultural support systems vulnerable, going far beyond what countries wished to put on the table in the WTO.

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Other countries’ sugar support policies

• The implications are profound for agricultural support policies, as many have the effect of raising internal prices and yet countries continue to be able to export.

• To take the example of sugar, Table 1 shows that many of the world’s main sugar exporters have domestic market prices that are higher than their export prices. It must be assumed that in most cases there are administrative arrangements maintaining this higher domestic price and, it could be argued, “cross subsidizing” exports.

• It would appear therefore that the EU, when exporting C sugar, is doing no more than many other exporters. Further all countries have the equivalent of C sugar in terms of the annual variation of their crops and the need to export to maintain internal prices.

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Table 1: Sugar prices in major sugar exporters: US$/tonne for 2001/02

White sugar Raw sugar Domestic World

Market export Preferential export

World Market export

Australia 288 233 436 179 Brazil 191 174 394 151 Colombia 500 209 409 152 Costa Rica 636 206 415 140 El Salvador 509 206 415 140 Fiji 406 252 436 179 Guatemala 381 212 421 146 Guyana 246 237 433 174 India 262 214 418 130 Mexico 514 199 414 136 Nicaragua 484 206 415 140 Pakistan 302 193 na 149 Poland 479 228 na 158 South Africa 379 225 424 173 Sudan 399 193 392 135 Thailand 261 217 406 150 Turkey 655 228 na 158 na = not applicable Source: LMC, Protected domestic sugar markets, 2003

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The complainants’ sugar supportpolicies

• Another relevant point is that all countries support their sugar industries in any number of ways (Table 2).

• In Brazil’s case there is a huge cross-subsidy from the alcohol programme, put at >US $1 bn annually by LMC, which takes half of all Brazil’s cane and where there is heavy Government involvement. By varying the statutory alcohol incorporation rate in fuel, the Government can regulate the flow of sugar to the world market (each percentage point is equivalent to 600 kt of sugar).

• Thailand’s sugar support system is the same as the EU’s (as it was directly modelled on the EU system) with sales quotas and A, B and C sugar – the latter the millers have to export, just as in the EU.

• In Australia the Government are producing yet another support package for the industry worth some A$ 450 million.

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Import tariffs

 Non-tariff barriers (1)

Domestic market sharing quotas 

Single channel Marketing (2)

 Government institutional price setting

        Domestic Export  

Australia X X X

Brazil X X X X X

Canada X X X X X

China X X X X

Colombia X X

Cuba X

EU X X X

India X X X

Japan X X N/A

Malawi X X X

Mexico X X X X X

Russia X X X N/A X

South Africa X

Swaziland X

Thailand X X

US X X X X

Zambia X X X

Zimbabwe X

 Source: LMC International (2000)

 Notes: (1) These include measures such as the retention of import agencies and the requirement for import licenses.(2) Single channel marketing also applies to countries where only one sugar company operates.N/A = not applicable and applies to countries that do not export.

Table 2: Summary of policy measures in selected countries, 2000

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ACP impacts

• The ACP countries said the request for a Panel is “a blatant attack by the big players [in sugar trade] on the small and vulnerable, motivated by pure mercantilist considerations”.

• Table 3 shows the importance of their sugar industries for ACP sugar exporters. Most of these countries’ exports are on preferential terms to the EU where they receive the same price as EU producers.

• Quite obviously anything that upsets the operation of the EU Sugar Regime could threaten the value of these preferences for the ACP and it is disingenuous of Brazil to say otherwise.

• It would be a perverse outcome to the DDR if one of the outcomes of the WTO process is to threaten the value of the ACP preferences into the EU market.

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Table 3: Importance of sugar for the ACP sugar exporters

Sugar revenue as a % of: Country Gross domestic Product Total agricultural

Production Barbados 1.8 41.4 Belize 9.5 61.9 Congo N/a N/a Cote d’Ivoire 0.9 3.3 Fiji 8.1 93.0 Guyana 15.8 30.0 Jamaica 1.0 13.9 Madagascar 3.9 N/a Malawi 4.9 N/a Mauritius 8.0 70.0 St. Kitts 28.0 74.0 Swaziland 24.0 51.0 Tanzania 3.1 5.0 Trinidad &Tobago 0.6 27.8 Zambia 2.3 15.0 Zimbabwe 2.3 17.2 N/a = not available ACP London Sugar Group, Trade and Development: aspects of the Doha agenda, memorandum submitted to the House of Commons Select committee on International Development, May 2003