TWN Info Service on WTO and Trade Issues (Feb10/02)
5 February 2010
Third World Network

Concerns voiced over EU's decision to increase sugar exports
Published in SUNS #6855 dated 3 February 2010

Geneva, 2 Feb (Kanaga Raja) -- Three major sugar producers and exporters - Australia, Brazil and Thailand - on Monday expressed concern over the decision by the European Union on 28 January to increase its out-of-quota sugar exports by 500,000 tonnes, which they said expands the EU's out-of-quota sugar export limits set at the WTO.

In a press release issued on Monday, the three countries - who were also co-complainants in a WTO dispute against the EC over its export subsidies on sugar - expressed regret that the European Union adopted this measure without prior consultations with them.

They said that the increase in out-of-quota exports by 500,000 tonnes means that total out-of-quota sugar exports by the European Union may reach 1,850,000 tonnes in marketing year 2009/2010. This amount is 576,500 tonnes over the 1,273,500 tonne ceiling that is the European Union's commitment under the WTO Agreement on Agriculture, they added.

According to the press release, the European Commission stated that circumstantial price patterns entitle it to disregard the WTO ceiling.

Australia, Brazil and Thailand said that they disagree that the trade distortions produced by the European Union's sugar regime were eliminated by circumstantially high international prices.

The three countries said that they are reviewing the European Union's measures and that no course of action is ruled out at this stage.

In a press release on 27 January, the European Commission announced that a draft Regulation would be submitted to the Management Committee on 28 January allowing the export of an additional 500,000 tonnes of out-of-quota sugar in the marketing year of 2009/2010 (to 31 July 2010).

According to the Commission, this "temporary measure", which it claimed fully respects the EU's international obligations, has been made possible by the "exceptional market conditions" at both the EU and world level.

The EC press release quoted EC Commissioner for Agriculture and Rural Development Ms Mariann Fischer-Boel as saying: "The current situation on the world market is exceptional. With production below consumption and diminishing sugar stocks, sugar prices have risen to unprecedented levels, to the detriment of consumers in poorer countries. This situation has coincided with the end of the restructuring of the EU sugar industry."

"The price situation on the EU and world market as well as production costs for beet and sugar in the EU are such that out-of-quota sugar produced in the EU can be exported without violating the EU's WTO subsidy commitments," she added.

She noted that world market sugar prices are currently at record levels, well above the market price for EU quota sugar. "Unfavourable weather conditions in India and Brazil have worsened the global sugar deficit and further diminished sugar stocks, triggering an upward pressure on world market prices."

In contrast, she said, a very good harvest in the EU in 2009 led to the production of higher-than-expected quantities of out-of-quota sugar. It also allowed the price for quota sugar to continue to converge towards the lower reference price applicable after the sugar reform, despite the trend of rising sugar prices on the world market.

The Commission also decided that it was not necessary to apply a final quota cut in order to reach a structural balance on the EU sugar market after the end of the restructuring period. Through voluntary renunciation through the Restructuring Fund, quotas have been reduced by 96.6% of the initial target of 6 million tonnes set out in the reform, said the EC.

Earlier, on 26 January, the Brazilian Sugarcane Industry Association (UNICA) had sent a letter to Commissioner Fischer-Boel urging the European Commission to adhere to its WTO commitment.

Subsequently, on 27 January, following the European Commission's announcement to allow an additional 500,000 tonnes of out-of-quota sugar exports, UNICA, in a press release, reiterated its call on the Commission to adopt "a cautious approach, taking into consideration all interests at stake and potential dramatic consequences."

According to UNICA, the European Commission is sending wrong signals to EU farmers, who are being incentivised to more sowings ahead of the next campaign, although current higher sugar prices on the global market are merely conjectural.

"This short-sighted policy is potentially damaging for the EU sugar market as EU farmers will be left with additional surpluses to be exported; this when global prices return below the EU price," said Marcos Jank, President and CEO of UNICA.

The head of the Brazilian sugarcane industry association called for the draft Regulation to be submitted to the WTO for a conformity assessment prior to its adoption.

On the other hand, the International Confederation of European Beet Growers (CIBE) and CEFS, representing European sugar manufacturers and refiners, welcomed the announcement by the European Commission allowing the export of an additional 500,000 tonnes of out-of-quota sugar in the 2009/2010 marketing year.

In a press release issued on 27 January, they said that the Commission had made the right proposal at the right time in response to an exceptional marketing year whilst preserving the internal market balance. Nobody can argue against these unusual market conditions: world sugar prices are soaring, reaching new heights, well above the market price for EU quota sugar as a result of adverse weather conditions in India and Brazil, they added.

At a press conference in the Brazilian Mission in Geneva on Monday afternoon, Ambassador Roberto Azevedo of Brazil referred to the approval by the Management Committee of the European Commission of sales of an additional 500,000 tonnes of sugar, which he said would not be covered by the EU's commitments under WTO disciplines.

He said that Brazil thoroughly disagrees with the EU's assessment that the measure at issue is in conformity with its WTO obligations. The assertion by the European Commission that the sugar produced and exported in the EU is no longer subsidized, in Brazil's view, lacks legal support.

"It appears that the Commission is referring to the fact that the exports at issue will not receive refunds, and that therefore these sales are not subsidized," he further said, adding that the refunds that the EU sugar exporters cease to receive was only one of the features of the EU sugar regime which was found to breach WTO disciplines.

In fact, he stressed, the WTO Dispute Settlement Body found that any export sales above the limit of 1, 273,500 tonnes would be illegal. Given the structure and functioning of the EU sugar regime, all sugar produced in the EU is subsidized, he said, and therefore, exports above the quantity that is bound in the EU's schedule is prohibited.

In Brazil's view, the EU cannot point to temporary market conditions to exempt itself from its WTO obligations. The Brazilian envoy reminded that "under the provisions of the Agreement on Agriculture - Article 10.3 - the EU has the burden of proving that its sugar exports above the scheduled limit are not subsidized."

The sugar that will now be dumped on the international market is the result of surpluses that were accumulated in a succession of artificially inflated crops, Ambassador Azevedo said. Therefore, the EU cannot claim that the surplus sugar is not subsidized because of market conditions today.

The decision taken by the Management Committee sends the wrong signals to the EU farmers and if it is not rectified, it will lead to continuous and illegal over-production, he concluded.

Ambassador Peter Grey of Australia, who was also present at the press conference, said that what is being talked about is not a minor adjustment - 500,000 tonnes is a very substantial quantity of sugar that will have an impact on the world market.

There is extreme concern that this will also encourage the EU sugar producers to put further pressure onto the EU itself to authorize further out-of-quota sugar exports, and that in turn would have the ability to undermine the EU sugar reform programme.

"It is an action of great concern to us," the Australian envoy said, pointing out that the panel and the Appellate Body in the WTO had found that all sugar exported from the EU was in receipt of export subsidies, even the out-of-quota sugar that did not receive export refunds directly from the Commission.

"It's not clear to us the logic of what they (the EU) are claiming to be the rationale for authorizing such exports..." he said, reiterating Australia's extreme concern. "We will be watching this process very carefully," he added.

Similar concerns were expressed by the Thai envoy at the press conference.

Asked if a formal complaint is going to be launched against the EU at the WTO, Ambassador Azevedo said that the common position of Australia, Brazil and Thailand is that no course of action is ruled out at this particular stage.

"We have not yet had time to analyse the measure, [and] its full impact on the market," he said, adding that the three countries are also looking at the legal obligations and are examining the situation, as well as the possible courses of action in all areas - bilaterally, plurilaterally and in the dispute settlement mechanism.

"None of that is ruled out," he said, adding that the three countries have not come to a conclusion at this point in time on what the course of action would be.

"Of course, one of the things we would like to see is explanations from the EU about what the rationale is for this and what they intend to do from this point on," he said, adding that as far as Brazil is concerned, what he would like to see is the withdrawal of this measure.

"It sends the wrong signals, it stimulates over-production, and it violates WTO obligations," he further said.

In response to another question, he said that this was not a case of "adverse effects" but one of "prohibited subsidies". The complainants do not have to establish adverse effects to show that the other party is in violation of WTO obligations.

"Any gram of sugar that goes above 1,273,500 tonnes is illegal exports," he said, pointing out that the burden of proof is on the EU to prove that that gram of sugar is not subsidized. +