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)