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)