The main questions the
EC appealed to the Appellate Body were: (1) whether or not Footnote
1 was part of the reduction commitments; and (2) whether or not payments
for A and B sugar were payments on export subsidies for C sugar.
A.
Footnote 1
The
EC appealed that the Panel erred in its interpretation, contending
that Footnote 1 was part of the reduction commitments.
Footnote
1 states:
Does
not include exports of sugar of ACP and Indian origin on which the
Community is not making any reduction commitments. The
average of export in the period 1986 to 1990 amounted to 1,6 mio t.
According to the Panel, Footnote 1 did not present any limitation
on export subsidies for sugar of ACP and Indian origin up to 1.6 million
tons, and it did not interpret Footnote 1 as a commitment limiting
subsidization.(80) Even if Footnote 1 could be interpreted as allowing an additional
1.6 million tons of sugar to be exported, the content of Footnote
1 still violated and conflicted with the AoA(81).
However, the EC argued that the Panel erred in its interpretation
of Footnote 1, contending that Footnote 1 was part of the reduction
commitments.
To interpret the meaning of Footnote 1, the Appellate Body applied
the rules provided in the Vienna Convention on the Law of Treaties.(82) It examined the plain language of Footnote 1, finding that the first
sentence did not specify the EC was bound by any commitment. On the
contrary, the first sentence suggested: first, the budgetary outlay
and quantity level commitments in the EC’s schedule did not
include sugar of ACP and Indian origin, and second, the EC made no
commitments, either by means of budgetary outlay or quantity commitment.(83) Moreover, the Appellate Body found that the second sentence did not
indicate that sugar of ACP and Indian origin could be exported with
a subsidy.(84) It merely mentioned that the average of exports of sugar from this
origin in the period 1986 – 1990 amounted to 1.6 million tons.(85) Thus, the Appellate Body concluded that the EC’s argument did
not broaden the plain meaning of this sentence to cover the exports
of sugar equivalent in volume to the EC’s imports from ACP and
India. (86)
The Appellate Body subsequently found that Article 3.3 of the AoA
required both budgetary outlay and quantity commitment in respect
of export subsidies listed in Article 9.1.(87) It reasoned that the drafters perceived the need to deal with budgetary
outlays and quantities together so as to restrict subsidized exports.(88) It also elaborated on its decision that “[a] commitment on budgetary
outlay alone provides little predictability on export quantities,
while a commitment on quantity alone could lead to subsidized exports
taking place that would otherwise have not taken place but for the
budgetary support.”(89)
The Appellate Body then concluded that the export subsidies given
to ACP/India equivalent sugar were subject to the reduction commitments.(90) Given that Footnote 1 was included as a commitment, it was not composed
of “both quality and budgetary commitments.”(91) As a result, it was inconsistent with Article 3.3 of the AoA.(92) Furthermore, Footnote 1 was not consistent with Article 9.1 of the
AoA on the grounds that exports of ACP/India equivalent sugar were
not subject to the reduction commitments.(93) When Footnote 1 violated Articles 3.3 and 9.1, it also violated Article
8 of the AoA.(94)