INTRODUCTION

          Export subsidies on agricultural products are one of the most controversial issues among members of the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO) because of different, conflicting perspectives on free trade and protectionist practices in the agricultural sector. Two cases regarding export subsidies on sugar were brought to GATT in 1979 and 1980. The Panels’ decisions supported the view that agricultural export subsidies could be used legitimately. In 2005, the WTO also decided another landmark sugar case entitled “European Communities – Export Subsidies on Sugar(1)” In contrast to the earlier cases, the decision supported the view that export subsidies must be limited by reduction commitments. The importance of sugar to a large number of WTO Members meant this case would seriously impact many countries(2), particularly developing countries whose economies are influenced by the world sugar market.

         The 2005 case was a battle among the world’s largest sugar exporters. Thailand, Australia and Brazil, which support free trade, filed against the European Communities (EC), which strongly protects its agricultural sector. The main claim was that the EC exported subsidized sugar over the quota provided in its reduction commitments. The WTO ultimately decided in favor of Thailand, Australia and Brazil, requiring that the EC reduce its exports of over-subsidized sugar to its commitments.

         The outcome of the 2005 sugar case particularly impacts Thailand because its economy is distinct from Australia’s and Brazil’s in important ways. Thailand is a developing country, unlike Australia, that is highly dependent on agricultural exports. Sugar is one of the country’s largest sources of foreign income, which compensates for the deficit caused by non-agricultural trade. In contrast, Australia heavily relies on other exports, such as coal, iron ore, and crude, to bring in a large amount of foreign income(3). Similarly, Thailand’s economy is far more dependent on sugar exports than Brazil’s. Approximately 70 percent of Thailand’s sugar production is exported each year(4). Even a small change in the world sugar market will immediately and significantly affect Thailand.

          In 2002, Thailand lost more than 154 million dollars when the EC heavily subsidized its exported sugar(5). This caused the world sugar price to fall lower than the cost of Thai sugar production. Approximately 1.5 million Thai cane farmers and sugar producers were further impoverished, becoming more than 250 million dollars in debt(6). Many Thai farmers were pushed away from growing cane and began faced to grow alternative crops. Cane production decreased from 74 million tons in 2002/2003 to less than 65 million tons in 2003/2004(7). The ramifications of the EC subsidies motivated Thailand to submit its case against the EC before the WTO.

          An analysis of the recent sugar case provides an opportunity to discuss the effectiveness of WTO law and the Dispute Settlement Body’s adjudication mechanism. It also reveals how the outcome of the case has influenced other WTO Members. Part One explores how the law of agricultural export subsidies has evolved from the beginning of GATT to the Agreement on Agriculture (AoA) overseen by the WTO. Part Two explains the economic circumstances in Thailand surrounding sugar production and exports, demonstrating the extent to which developing countries depend on agricultural exports. This part explains how the EC’s subsidies adversely affected Thailand’s economy. The final part discusses the key issues and the outcome of the 2005 sugar case in light of how, and to what extent, the law worked to protect the rights of WTO Members in the world sugar trade.