Bridges Weekly Trade News Digest • Volume 8 • Number 30 • 15th September 2004
WTO Panels Confirm Victory For Brazil In Cotton, Sugar Cases
On 8 September, the WTO panel hearing Brazil’s challenge to US subsidies to upland cotton producers issued its final decision in favour of Brazil on all major claims. On the same date, the panel on Brazil’s case against the EC’s export subsidies for sugar issued its confidential final ruling to the parties to the case. Here as well Brazil largely won the case.
Prohibited US subsidies to be withdrawn "without delay"
The final cotton ruling now made public confirmed an interim ruling against US cotton subsidies issued on 26 April this year (see BRIDGES Weekly, 28 April 2004). The panel found that certain US payments to farmers, such as ‘Product Flexibility Contract’ (PFC) and ‘Direct Payments’ (DP) amounted to trade distorting domestic support. According to the panel, the PFC and DP payments were related to the type of production undertaken and could therefore not be categorised as allowed ‘decoupled payments’. The US had argued that its subsidies did not encourage overproduction because they were ‘decoupled’ from output (that is, they were provided independent of the yield of farmers).The panel further ruled that ‘export credit guarantees’ and ’step 2 marketing payments’ the US offered to its cotton producers were prohibited export subsidies and had to be withdrawn "without delay" — at the latest within six months of the date of adoption of the panel report or by 1 July 2005. Under the ’step 2′ programme, US cotton producers are paid the difference between the domestic cotton price and the world market price to ensure that their cotton can be sold profitably in foreign markets.
On other aspects of the case, the ruling was mixed. The panel did not, for example, rule in favour of Brazil’s claim that certain US measures had caused it "serious injury". Brazil had also argued that a basket of subsidies yet to be granted in the 2003-2007 marketing years would seriously threaten its cotton industry. On this point, the panel reasoned that the immediate withdrawal of the prohibited subsidies would significantly transform those subsidies from their current form. Therefore, the panel found it unnecessary to rule on Brazil’s ‘threat of serious prejudice’ claim.
The panel also ruled that the export and domestic subsidies did not qualify for exemption from WTO challenges under the so called "peace clause," under which countries agreed to refrain from challenging each other’s agricultural subsidies (see BRIDGES Weekly, 18 March 2004).
Possible effects on negotiations
Already following the release of the interim ruling, Brazilian trade officials voiced their satisfaction and highlighted the decision’s potential impact on trade distorting subsidies. While noting that both the cotton case and Brazil’s challenge against the EC sugar regime were not initiated with the aim of impacting WTO talks, Brazil’s ambassador to the WTO, Luiz Felipe de Seixas Correa, said that without these cases, the EC and US "would never change their policies”. In contrast, US Trade Representative Robert Zoellick announced that the US would appeal certain aspects of the ruling, and that the process would be lengthy. According to Zoellick, no immediate changes would occur in terms of cotton subsidies due to the ruling.
US faults Brazil for making outcomes public
In an unusual move, the US requested the panel to indicate in the final report that Brazil had breached the obligation of confidentiality of the interim report, and to note any information that the panel obtained with respect to those breaches. In its defence, Brazil noted that "the ostensible sources cited in such press reports could just as easily have been United States officials or other persons not connected with Brazil". The final report simply concluded that "We consider this lack of respect for confidentiality unacceptable".
EC’s sugar export subsidies above WTO limits
Another WTO panel hearing Brazil’s challenge against the EC’s sugar export subsidies issued its final report to the EC, Brazil and co-complainants on 8 September. This final report confirmed the ruling in favour of Brazil, made in an earlier interim report released on 4 August (see BRIDGES Weekly, 1 September 2004). Press reports of the decision, which will be made public in October, confirmed the interim panel decision that 2.7 million tonnes of exported EC surplus sugar (C sugar) was cross-subsidised by the high guaranteed prices paid for in-quota sugar (A and B sugar). The panel also held that an additional 1.6 million tonnes of refined sugar, which the EC exported to the world market, corresponded to the amount of raw sugar it had imported from India and the African, Caribbean and Pacific (ACP).
Gregor Kreuzhuber, EC spokesperson on agriculture, noted that a decision on whether or not the EC would appeal would be made in due course. In a statement, he highlighted two important dimensions of the ruling. First, he noted the concern raised by the ACP states relating to the future of their favourable EC sugar quotas under the Sugar Protocol of the Cotonou Agreement. Secondly, Kreuzhuber pointed out that the EC’s new sugar reform proposals would in any event substantially reduce "EU sugar exports and export refunds, abolish intervention, reduce EU production and the internal sugar price".
To access the final cotton panel report see http://www.wto.org/english/news_e/news_e.htm
To access the EU sugar reform proposals see http://europa.eu.int/comm/agriculture/capreform/sugarprop_en.pdf
The statement of Gregor Kreuzhuber is available at http://europa.eu.int/news/index_en.htm
ICTSD Reporting; "WTO issues final decision finding EU sugar subsidies exceed quotas," WTO REPORTER, 9 September 2004; "WTO Rules Against EU Sugar, U.S. Cotton Support, Backing Brazil," BLOOMBERG.COM, 8 September 2004.