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The Brazil/Australia challenge was made at the World Trade Organisation (WTO) last September and is expected to go before the WTO Dispute Resolution Board towards the end of the year.
The challenge posed by Brazil/Australia is specifically based on the EU's obligations to the WTO.
The 14th Inter-Sessional meeting of Caribbean leaders two weeks ago in Port of Spain expressed "profound concern" over the threats to the Sugar Protocol and the Special Preferential Sugar (SPS) Agreements under which Caribbean Community(CARICOM) member states export sugar to the EU.
"It stressed the adverse political, economic and social consequences for the CARICOM countries concerned and recalled the experience of the banana challenge and its disastrous fallout for the economies of the banana producing countries in the region.
"The conference expressed its strong support for the position of the ACP (African, Caribbean and Pacific) countries which export sugar to the European Union and reiterate the call for Australia and Brazil to withdraw their challenges," the leaders said.
Secretary-General of the ACP Group, Jean-Robert Goulongana said the claims made by Brazil and Australia against the EU are a matter of concern to the ACP Group as a whole.
"The issues at stake for ACP states are high. Through preferential market access to the EU, the small, vulnerable, low-income and least developed ACP sugar-producing countries, which are also single-commodity producing/exporting countries and net food-importing developing countries, are provided a vital lifeline, both in terms of employment and foreign exchange earnings," Goulongana said in a statement in response to the challenge.
"Through their challenges, both Australia and Brazil are threatening the livelihood of a large number of poor farmers and workers in the ACP states concerned," he noted.
Sugar is by far the largest contributor to agricultural Gross Domestic Product (GDP) in many CARICOM countries and in some, it is the largest contributor to total GDP and the largest single employer.
For instance, some 80 per cent of Guyana's total sugar produced is exported to the EU. Sugar contributes 20 per cent of Guyana's total GDP and more than 50 per cent of the agricultural products.
Of the US$121M earned by sugar, just under US$100M comes from export to the EU and is largely due to the preferential price offered by the EU to ACP states.
Under the ACP/EU Sugar Protocol, ACP sugar suppliers enjoy preferential terms for their exports to the EU.
These prices are related to the price paid to Europe's beet sugar producers and a reduction of the domestic price paid in Europe ultimately reduces the price paid to ACP sugar suppliers.
The ACP/EU Sugar Protocol was formed and took effect in February 1975.
It is a government-to-government agreement between the EU and ACP states and covers individual quantities of cane sugar for each ACP country party to the agreement.
The SPS agreements introduced by the EU in 2001 allow the importation of additional quantities of ACP sugar at a price below the sugar protocol price but above the world market price.
Brazil and Australia allege breaches of the WTO Agreement on Agriculture (AoA), Subsidies and Countervailing Measures Agreement (ASCM), and GATT 1994.
A few weeks ago, a lobbying mission representing the Enlarged Bureau of the ACP consisting of Mauritius, Fiji, Guyana and Swaziland visited Brazil but failed to convince the Brazilians not to take the challenge to the stage of a Dispute Panel.
Caribbean Ministers attending a Council for Trade and Economic Development (COTED) meeting in Guyana earlier this month said the Brazil/Australia challenge, if successful would be disastrous for CARICOM economies that are dependent on their sugar industries.
"Ministers considered this challenge as the most serious threat to CARICOM'S most important agricultural crop," they said in a statement at the end of their meeting.
The threat to the EU sugar arrangement would also have a devastating impact on the social and economic situation within the region given the inextricable link between the arrangements and the SPS in terms of price and market access.
Further, that the role of sugar in the small vulnerable economies of the Caribbean region proportionately is of far greater importance than it is in the larger, more developed and diversified economies of Brazil and Australia.
CARICOM sugar producing countries produce less than 750,000 tonnes of sugar annually and together with the rest of the ACP producers, represent less than five per cent of the world market.
Brazil and Australia produce more than 22,000,000 and 4,500,000 tonnes of sugar, respectively.
Stating that CARICOM does not pose a threat to the trade interests of Brazil and Australia in sugar, COTED said that under the Cotonou Agreement, the EU is committed to retain the benefits of the Sugar Protocol.
They argue that the EU/ACP Sugar Protocol was among a few remaining practical examples of Special and Differential Treatment for a group of small, vulnerable developing countries and that Special and Differential Treatment is an integral part of all WTO agreements as outlined in the Doha Development Agenda.
ACP Secretary-General Goulongana has called on Brazil and Australia to take account of the vital interest of the ACP countries and to withdraw their challenge.
"Should Brazil and Australia, however, persist with their complaints, ACP states will participate in the dispute settlement proceedings - to defend their interests."
A negative outcome for ACP States in terms of recommendations of the WTO Dispute Settlement Body - would be subject to swift implementation, that is, "the withdrawal of the subsidy without delay" leaving ACP sugar producers in dire straits.