EU subsidies to sugar producers are illegal, rules WTO

THE World Trade Organisation yesterday ruled that the European Union’s subsidies to sugar producers are illegal, upholding an earlier decision that European sugar exporters are getting more in government handouts than is allowed under trade rules.

The WTO appellate body upheld a 2004 decision by a WTO panel, which said that EU subsidies were bringing down the price of sugar on the world market and making it impossible for producers in other countries to compete.

“We had hoped the appellate body would take account of our arguments,” said EU agriculture spokesman Michael Mann. “Of course, we will comply with the ruling.”

“We are already planning a far-reaching reform of our sugar regime,” he added, saying changes that needed to be made because of the ruling would be written into the reform proposal before it is released on June 22.

Brazil, Australia and Thailand, all major sugar producers, made the original complaints. Yesterday’s ruling is final and cannot be appealed.

“This result today means an important victory for us,” said Luiz Felipe de Seixas de Correa, Brazil’s Ambassador to the WTO.

The decision is important for Brazil, the world’s largest sugar producer, because “it will force the EU to reduce subsidies,” said Roberto Azevedo, a top trade official with the country’s Foreign Ministry.

Mr Azevedo also predicted the decision would help Brazil grab a larger share of the world’s sugar market.

The EU will have to “significantly reduce its sugar exports”, said Australia’s Trade Minister Mark Vaile.

British aid group Oxfam said the ruling confirmed the EU had been breaking international trade law and harming developing countries’ economies. “The writing has been on the wall for ages, but the EU has been refusing to read it,” said Oxfam’s Phil Bloomer.

EU sugar prices are more than four times higher than the global market rate and are protected by massive import tariffs. Brussels also pays out export subsidies to get millions of tons of sugar a year off its market, helping to keep EU prices high and support Europe’s farmers. The 1994 WTO Agriculture Agreement sets a quota of 1.3 million metric tons for which the EU is allowed to pay subsidies.

EU producers don’t receive direct payments for the three million metric tons they export beyond this quota, but the complainants alleged that payments for the “quota sugar” effectively subsidise the rest, and that sugar producers can buy sugar beets at less than the cost of production.

Since sugar is so expensive to produce in the EU, opponents of European policy argue, producers wouldn’t be able to sell it elsewhere unless they were subsidised.

In last year’s ruling, the panel said that the EU had failed to prove that sugar above the quota wasn’t getting government support, and therefore it should be considered as subsidised.

It also ruled that illegal subsidies were being paid on the re-export of 1.6 million metric tons of sugar bought from mostly poor former European colonies in Africa, the Caribbean and the Pacific - which enjoy preferential import tariffs in the EU.

It ordered the EU to “bring its measures into conformity” with WTO rules. To avoid affecting the poor nations with preferential deals, it suggested this should be done by considering “measures to bring its production of sugar more into line with domestic consumption” - in other words, by discouraging EU farmers from growing sugar beets and producers from refining sugar from them.

The EU has already announced plans to gradually reduce export aid and the quantities of sugar that qualify for it. But the bloc may now be forced to cut the payments more abruptly.