First, whether
sales of C beet involved export subsidies within the meaning of Article
9.1(c),
and second, whether “payments” in the form of “cross-subsidization”
constituted export subsidies within the meaning of Article
9.1(c).
(1)
Whether sales of C beet involved export subsidies within the meaning
of Article 9.1(c)
The
EC appealed the Panel finding that payments for sales of C beet were
“financed by virtue of governmental action.”(95) The Appellate Body found that there was a “nexus” between
the “governmental action” at issue and the financing of
“payments.” According to the Panel, profits on the sales
of A and B beets were used to cross-subsidize the sales of C beet.(96) The Panel considered that a number of farmers of C beet supported
sales of C beet below the cost of production by selling A and B beets
at a high price under the regime regulated by the EC(97).
As a result, “a part of C beet [was] produced because beet growers
[were] able to obtain ‘additional profit’ by selling [C]
beet below its average total cost of production, but above its marginal
costs, while covering their fixed cost from sales A and B beets.”(98)
The Appellate Body also found that beet growers sold C beet at prices
that were approximately 60 percent of the C sugar world market price.
C sugar prices were much lower than its average total cost of production.(99) Subsequently, the Appellate Body reasoned that “the continued
production of such large volumes of over-quota beet, at prices well
below its cost, could not take place but for governmental action.”(100) The Appellate Body then upheld the Panel’s decision for this
question that sales of C beet involved export subsidies within the
meaning of Article 9.1(c) of the AoA.(101)
(2) Whether “payments” in the form of “cross-subsidization”
constituted export subsidies within the meaning of
Article 9.1(c).
The
Panel found that “cross-subsidization” by transferring
financial resources from the high revenues resulting from sales of
A and B sugar, for the export production of C sugar constituted an
export subsidy within the meaning of Article 9.1(c).(102) The EC appealed this finding arguing it did not constitute a transfer
of resources to the sugar producers.(103) Furthermore, payment was not made on the export of C sugar because
C sugar producers were not required to produce or export C sugar.(104)
The Appellate Body upheld the Panel’s decision that there was
cross-subsidization from A and B sugar to exported C sugar(105).
The Panel applied the average total cost of production as a benchmark
to find whether there was cross-subsidization(106).
The Appellate Body then concluded that sales of C sugar below the
total cost of production could not obtain over the long term unless
they were supported from some other sources(107).
Since C sugar was sold below the average total cost of production,
C sugar must indeed be subsidized with payments transferred from A/B
sugar refunds by virtue of governmental action(108).
In addition, the Appellate Body concluded that this cross-subsidization
was relevant to exports because, according to the EC’s Regulation,
C sugar must be exported.(109)
The Appellate Body then concluded that the export subsidies given
to ACP/India equivalent sugar were subject to the reduction For these
reasons, according to Article 9.1(c), the production of C sugar obtained
payments on export financed by virtue of governmental action in the
form of transfers of financial resources through cross-subsidization
from the occupation of the EC’s sugar regime.(110)