## Facts

- Australia, Brazil, and Thailand challenged the European Communities’ sugar export subsidy practices under the Agreement on Agriculture (AoA) and, secondarily, the SCM Agreement.
- The EC had scheduled reduction commitments limiting both the quantity of subsidized sugar exports and the related budgetary outlays.
- The EC sugar regime divided production into quota sugar (A and B) and out-of-quota sugar (C).
- A and B sugar benefited from guaranteed high internal prices and could receive export refunds when exported.
- C sugar was produced above quota levels and had to be exported without export refunds, but complainants alleged the regime conferred indirect financial support enabling C sugar exports.
- The EC also exported sugar originating in ACP States and India with export refunds, relying on a schedule footnote it argued excluded those exports from its reduction commitments.
- A WTO panel found the EC provided export subsidies in excess of its AoA commitments and that aspects of the C-sugar regime constituted export subsidies under AoA Article 9.1(c).
- The EC appealed; the Appellate Body report was adopted by the Dispute Settlement Body on May 19, 2005.

## Issues

1. Whether claims concerning exports of ACP/India-origin sugar were within the panel’s terms of reference.
2. Whether a footnote in the EC’s AoA Schedule excluded ACP/India-origin sugar exports (for which export refunds were paid) from the EC’s export subsidy reduction commitments.
3. Whether indirect advantages associated with C sugar—such as below-cost sales of C beet and cross-subsidization from A/B sugar—constituted “payments” on export “financed by virtue of governmental action” under AoA Article 9.1(c).
4. Whether the EC thereby granted export subsidies not provided for in its Schedule, or in excess of its reduction commitments, contrary to AoA Articles 3.3 and 8 and related provisions.

## Decision

- The Appellate Body upheld that the relevant ACP/India-origin sugar claims were properly before the panel.
- The Appellate Body upheld the conclusion that the EC schedule footnote did not exclude ACP/India-origin sugar exports (for which export refunds were paid) from the EC’s export subsidy reduction commitments.
- The Appellate Body largely upheld that the EC’s C-sugar arrangements involved “payments” under AoA Article 9.1(c), including advantages arising from below-cost sales of C beet and cross-subsidization enabled by the quota and pricing system.
- The Appellate Body upheld that the EC granted export subsidies on sugar in excess of its scheduled commitment levels, breaching AoA Articles 3.3 and 8.
- The Appellate Body recommended that the EC bring its measures into conformity with its AoA obligations.

## Legal Principles

- AoA export subsidy reduction commitments in a Member’s Schedule apply to subsidized exports covered by the relevant product entry; a schedule footnote cannot be read to remove subsidized exports from commitments in a manner inconsistent with AoA disciplines.
- AoA Article 9.1(c) covers “payments” on the export of an agricultural product even when support is not structured as a direct cash refund; “payments” may take forms that confer export-linked financial advantages.
- “Financed by virtue of governmental action” is satisfied where a government-organized regime (including quotas, administered prices, and intervention mechanisms) generates the financial conditions enabling export-contingent support.
- The absence of a formal budgetary outlay labeled as an export refund does not preclude a finding of an export subsidy under AoA Article 9.1(c).
- Where the AoA specifically disciplines agricultural export subsidies, it functions as the primary framework for assessing consistency, with the SCM Agreement operating in a secondary role where applicable.
- DSU Article 3.10 (good faith) does not, by itself, impose freestanding legal obligations that bar Members from initiating dispute settlement absent specific procedural abuse.

## Conclusion

The Appellate Body held that the EC’s sugar regime resulted in export subsidies exceeding its scheduled AoA limits, counting both subsidized exports of ACP/India-origin sugar and indirect, government-enabled support for C sugar as export subsidies subject to reduction commitments, and directed the EC to bring its measures into compliance.


European Communities—Export Subsidies on Sugar, WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R (WTO App. Body 2005)