WTO legal decisions are crushing the use of so-called ‘domestic’ supports to subsidize exports of agricultural products. Yesterday the WTO released the Panel’s condemnation of two forms of EU sugar subsidies—first reported “here”:http://www.inquit.com/article/309/sugar-case-victory-on-eu-subsidies—that have helped to cripple world markets
# Annual subsidies on 1.6 million tonnes of sugar that the EU imports, duty free, from former colonies in Africa, the Carribbean and Fiji—but promptly dumps back on world markets at much lower prices
# Subsidies to so-called ‘C’-class sugar whose production is nominally not supported by the CAP(Common Agricultural Policy) subsidies but that benefits, as the complainants alleged, from cross-subsidization due to the high level of subsidy that EU producers receive for production of controlled quantities of so-called ‘A’ and ‘B’ class sugar You can find a PDF file (about 1mb) of the Panel report “here”:http://www.wto.org/english/tratop_e/dispu_e/265r_e.pdf. The EU Commission “press release”:http://europa.eu.int/comm/trade/issues/respectrules/dispute/pr151004_en.htm promising to appeal the findings contains a good short summary of the complaint and the findings (as well as some grumbles from the Commissioners). The true significance of this case is not it’s impact on world sugar markets (see below) but it’s confirmation that the insane production subsidies for agriculture in North America and Europe are equivalent to export subsidies which are prohibited unless covered by the phase-down deal struck in the 1994 Uruguay Round Agreement on Agriculture. The WTO has now found three times in the space of 20 months, that overblown domestic production subsidies that are permitted by WTO (also subject to limits) leak into export markets, creating unfair subsidized exports in excess of the amounts permitted under the 1994 Agreement. This is the kernel of decisions on “Canada dairy subsidies”:http://www.ustr.gov/Document_Library/Press_Releases/2002/December/U.S.Wins_in_WTO_Challenge_to_Canadian_Dairy_Subsidies.html, “US Cotton subsidies”:http://www.inquit.com/article/356/wto-report-on-us-cotton-subsidies , and now EU sugar. The tripple whammy impact of these cases should consolidate the decision to eliminate the use of export subisidies and _should give a big boost to “efforts”:http://www.inquit.com/article/307/a-guide-to-the-wto-framework-agreement to more narrowly constrain the use of so-called ‘green’ and ‘blue’ domestic support payments. The case will not, unfortunately, have a big impact on world sugar markets. This finding won’t stop subsidies and it won’t lift prices for sugar. Why? Two reasons:
# WTO requires the losing side to change its laws to comply with the treaty rules: this is hardly ever the same thing as changing the underlying policy. It usually means finding a different way to do what you wanted to do in the first place.
# The global suger market has factored this case into its expectations long ago and there is simply too much sugar being produced around the world for even a favorable outcome to impact prices. In fact, EU sugar market regulations are doomed for other reasons. The Commission announced months ago that it will soon introduce some basic changes to the way sugar prices and production is controlled to open up production to more competition and, gradually, to cut back on the imports of duty-free sugar from it’s ex-colonies. See “my earlier story”:http://www.inquit.com/article/266/proposed-eu-sugar-reforms on the changes and the Commission’s “press release”:http://europa.eu.int/comm/trade/issues/respectrules/dispute/pr140704_en.htm
Peter Gallagher is a leading Australian consultant on trade and public policy.[bio].
"I can help you with strategies for, and analysis of, international markets, law and regulations, trade agreements, export policies, import restrictions… I also offer reports, conferences and master-classes for government officials and industry associations on international trade research."
Email: Peter Gallagher