31 March 1992
FOLLOWUP ON THE PANEL REPORT "EUROPEAN ECONOMIC COMMUNITY PAYMENTS AND SUBSIDIES PAID TO PROCESSORS AND PRODUCERS OF OILSEEDS AND RELATED ANIMALFEED PROTEINS"
Report of the Members of the Original Oilseeds Panel 1
(DS28/R - 39S/91)
I. INTRODUCTION
1. At its meeting of 25 January 1990, the GATT Council adopted
the report of the Panel on "European Economic Community
Payments and Subsidies Paid to Processors and Producers of Oilseeds
and Related AnimalFeed Proteins" (L/6627, dated 14 December
1989 and published as BISD 37S/86, hereinafter referred to as
the Oilseeds Panel Report).
2. The recommendations and rulings made to the European Economic
Community by the CONTRACTING PARTIES as a result of the adoption
of the report as expressed in the conclusions (paragraphs 155
to 157) are as follows:
"155. The Panel found that the Community Regulations providing
for payments to seed processors conditional on the purchase of
oilseeds originating in the Community are inconsistent with Article
III:4 of the General Agreement, according to which imported products
shall be given treatment no less favourable than that accorded
to like domestic products in respect of all regulations affecting
their internal purchase. The Panel recommends that the CONTRACTING
PARTIES request the Community to bring these Regulations into
conformity with the General Agreement.
156. The Panel further found that benefits accruing to the United
States under Article II of the General Agreement in respect of
the zero tariff bindings for oilseeds in the Community Schedule
of Concessions were impaired as a result of the introduction of
production subsidy schemes which operate to protect Community
producers of oilseeds completely from the movement of prices of
imports and thereby prevent the tariff concessions from having
any impact on the competitive relationship between domestic and
imported oilseeds. The Panel recommends that the CONTRACTING
PARTIES suggest that the Community consider ways and means to
eliminate the impairment of its tariff concessions for oilseeds.
157. The Panel finally considered that, as the inconsistency
with Article III:4 and the impairment of the tariff concessions
arise from the same Community Regulations, a modification of these
Regulations in the light of Article III:4 could also eliminate
the impairment of the tariff concessions. The Panel therefore
recommends that the CONTRACTING PARTIES take no further action
under Article XXIII:2 in relation to the impairment of the tariff
concessions until the Community has had a reasonable opportunity
to adjust its Regulations to conform to Article III:4."
3. Following discussions regarding the followup on the Oilseeds
Panel Report at previous meetings of the Council, the United States
proposed at the Council meeting on 8 October 1991 that the original
Oilseeds Panel be reconvened for the purpose of assisting the
CONTRACTING PARTIES in determining whether measures being taken
by the European Economic Community (the Community) would bring
its regulations into GATT conformity and would eliminate the impairment
of the Community's tariff concessions on oilseeds. Following
further discussions in the Council and informal consultations,
the CONTRACTING PARTIES at their FortySeventh Session reached
an agreement on 3 December 1991 (SR.47/1 and DS 28/1 refer) under
which the members of the original Oilseeds Panel were reconvened
to begin work on the basis of document W.47/22 which provides
as follows:
"Paragraph I.3 of the "Improvements to the GATT Dispute
Settlement Rules and Procedures," adopted 12 April 1989 (BISD
36S/61), provides that the Council shall monitor the implementation
of recommendations and rulings adopted under Article XXIII:2.
Acting pursuant to this provision, the CONTRACTING PARTIES hereby
request the DirectorGeneral to reconvene the members of the Panel
on European Economic Community Payments and Subsidies Paid to
Processors and Producers of Oilseeds and Related AnimalFeed Proteins,
adopted on 25 January 1990 (BISD 37S/86), for the purpose of examining
whether the measures taken by the European Community in Council
Regulation (EEC) 3766/91 of 12 December 1991, establishing a support
system for producers of soya beans, rapeseed, colzaseed and sunflowerseed,
comply with the recommendations and rulings, as expressed in the
Conclusions (paragraphs 155157), of the Oilseeds Panel Report
as adopted on 25 January 1990. The original Panel Members shall
provide such findings as will assist the CONTRACTING PARTIES within
90 days of this decision."
4. The Reconvened Members of the original Oilseeds Panel (hereinafter
referred to as "the Panel" see Annex B), comprising
Mr. Michael Cartland (Chairman), Mr. Janos Nyerges and Mr. Pierre
Pescatore, met with the parties to the dispute on 34 and 20 February
1992. At the meeting on 20 February the Panel also considered
the written submissions made by interested third contracting parties.
The Panel submitted its report to the parties to the dispute
on 16 March 1992.
II. FACTUAL ASPECTS
The Former (per tonne) Oilseeds Support System
5. The support system that was the subject of the original Panel's
examination and findings (hereinafter referred to as the "former
system"), which by virtue of Council Regulation (EEC) N°3766/91
has now been superseded, was based on a system of target and intervention
prices for rapeseed, colza and sunflowerseed harvested and processed
within the Community (Regulation N°136/66/EEC as amended)
and on a system of guide and minimum prices for soya beans (Council
Regulation (EEC) N°1491/85 as amended). In both cases provision
was made, where these prices were higher than world market prices,
for the payment of subsidies to compensate oilseeds processors
for the difference between the higher institutional prices payable
to Community oilseeds producers and world market prices as calculated
by the Commission.
6. These support arrangements were described in detail in paragraphs
12 to 34 of the Oilseeds Panel Report. The main features of this
support system may be summarized as follows:
(i) guaranteed prices payable to Community producers of oilseeds
were fixed independently of and at levels generally higher than
world market prices of competing imports of oilseeds;
(ii) the guaranteed price to Community producers of oilseeds
applied without limit to whatever quantity of oilseeds was produced;
(iii) under a system of budgetary stabilizers introduced in the
1982/83 marketing year and subsequently extended and reinforced,
production in excess of Maximum Guaranteed Quantities resulted
in reductions in guaranteed prices;
(iv) in the case of oilseeds other than soya beans provision
was made for monthly increments in target and intervention prices
to enable sales to be staggered.
The New (per hectare) Support System
7. Council Regulation (EEC) No. 3766/91 establishes a new support
system involving direct per hectare payments to producers of soya
beans, rapeseed, colza and sunflowerseed, without reference to
the quantity produced. Regulation 3766/91 was published in the
Official Journal of the European Communities on 24 December 1991
and entered into force three days after that date (No L 356/17,
attached as Annex A).
8. In terms of Article 1 of Regulation 3766/91 the new system
is to apply with effect from those plantings intended for harvest
in 1992. In effect, oilseeds harvested on or after 1 July 1992
(the beginning of the July/June marketing year) would be subject
exclusively to the new support arrangements. Oilseeds harvested
and identified before 1 July 1992 would continue to be eligible
for price support under transitional arrangements provided for
in Article 10 of Regulation 3766/91.
9. The new support system supersedes the provisions relating
to oilseed aids contained in Regulation 136/66 (rapeseed, colza
and sunflowerseed) and Regulation 1491/85 (soya beans), although
Article 10:4 provides that Regulation 136/66 as well as the implementing
rules thereof shall remain in force in so far as they are compatible
with the provisions of Regulation 3766/91.
10. In general terms the returns to Community producers of oilseeds
under the new support system will essentially consist of two elements:
firstly, the price received from the sale of oilseeds in the
Community market, which would be determined in part by the price
of competing imports; and, secondly, a direct per hectare payment
the amount of which depends on average historic yields of cereals
or oilseeds for the "production region" in which the
producer's holding is located and on the extent to which an observed
Community market reference price deviates from a projected reference
price of Ecu 163 per tonne. These and the other features of the
new support system are described in more detail in what follows.
Basis and Method of Calculation of Direct per Hectare Payments
11. Under Article 3:2 of Regulation 3766/91 a Community reference
amount for oilseeds, which provides the basis for calculating
the regionalised direct payments to eligible oilseeds producers,
is set at Ecu 384 per hectare. As explained by the Community,
EEC producers of oilseeds benefited during the 1980s from a level
of price support per tonne between 2.3 and 2.7 times greater than
the level of price support per tonne of cereals (i.e., between
2.3:1 and 2.7:1). The point of departure for the new system of
direct payments to Community producers is calibrated on a reduced
level of income support, equivalent to 2.1:1. The detailed calculations
supplied by the Community in an explanatory memorandum submitted
to the Panel are as follows:
Cereals price: | | 155 Ecu/t |
Equilibrium price relationship: | | 2.1:1 |
Representing: | 155 x 2.1 = | 325.5 Ecu/t of oilseeds |
Reference world market price | = | 163 Ecu/t of oilseeds |
Differential (325.5 163) | = | 162.5 Ecu/t of oilseeds |
EC average yield | = | 2.36 Ecu t/ha of oilseeds |
Oilseeds Reference Aid (162.5 x 2.36) | = | 383.5 Ecu/ha |
Regional Amounts
12. The Ecu 384 per hectare amount is a Community reference
amount for oilseeds which, as illustrated in the foregoing
calculations, is based on an average Community yield of 2.36 tonnes
per hectare. The amount that is payable to a producer is a function
of the designated average yield of either cereals or oilseeds
applicable to the production region in which the land planted
to oilseeds is located. The production regions and related regional
yields are determined by Member States on the basis of regionalization
plans which have to comply with the criteria specified in Article
2 of Regulation 3766/91. Average yields for each production region
are calculated for the five year period 1986/87 to 1990/91, excluding
the year with the highest and the year with the lowest yield during
that period.
13. Under Article 2:5 the Commission is required to ensure that
each regionalization plan is based on appropriate, objective criteria
and is consistent with available historical information, notably
the Community average yields for cereals (4.6 tonnes per hectare)
and oilseeds (2.36 tonnes per hectare) and the related national
averages. Regionalization plans to which the Commission objects
are subject to adjustment (Article 2:5). Regionalization plans
may be revised after they have become operational either at the
request of the Commission or at the initiative of the Member State
(Article 2:6).
14. By way of example, if the average oilseeds yield for a particular
production region is 3.0 tonnes per hectare, the regional amount
payable to producers would be approximately Ecu 488 per hectare.
Conversely if the average regional yield for oilseeds is 2.0
tonnes per hectare, the regional amount payable would be approximately
Ecu 325 per hectare. In each case the relevant regional amount
is obtained by dividing the Community reference amount (384 Ecu/ha)
by the Community average oilseeds yield (2.36 tonnes per hectare)
and then multiplying the result by the relevant regional yield.
Analogous calculations would be used to derive regional reference
amounts on the basis of cereals yields.
Adjustments to Community and Regional Reference Amounts
15. The Ecu 384 per tonne Community reference amount, and the
regional amounts derived therefrom, are based on a projected average
market price of Ecu 163 per tonne. Following the preceding harvesting
period and not later than 30 January of the marketing year (1
July 30 June) the Commission is required to determine the final
regional reference amounts on the basis of an observed
reference price for oilseeds (Article 3:4). As explained by the
Community, the observed reference price is an average wholesale
price in port areas.
16. If the observed reference price is not more than 8 per cent
above or below the projected Ecu 163 reference price no adjustment
is made to the reference amounts. For variations that are greater
than 8 per cent the reference amounts are adjusted by the difference
(e.g., 12 per cent variation minus 8 per cent "franchise"
= 4 per cent adjustment). In practice this would mean, on the
basis of a Community reference price of Ecu 163 per tonne, that
no adjustments are made within an observed average market price
range of about 150 to 176 Ecu per tonne.
17. The calculation of observed reference prices and regional
amounts are made by the Commission in accordance with the procedures
of Article 38 of Regulation No. 136/66/EEC. Under Article 3:5
of Regulation 3766/91 the Commission may make the final calculation
separately for each oilseed, inter alia, to avoid favouring
one oilseed rather than another.
Modalities of Payment
18. In order to qualify for payment, producers who are entitled
to apply ("Producers established in the Community who sow
and intend to harvest oilseeds": Article 4:1) must have
sown oilseeds and have lodged an application that includes (Article
4:4):
(a) the area planted to each oilseed; and
(b) a detailed cultivation plan for his holding showing the land
to be used for cultivating oilseeds, or a cultivation contract
with an approved first buyer.
19. Under Article 4:3 applications may only be made in respect
of arable land cultivated during the period 1989/90 to 1990/91,
including fallowed land under certain conditions. Under Article
7:1 access to the direct payments for growers of rapeseed and
colza is restricted to growers using seed of an approved quality
and variety.
20. Once entitlement is established, an advance of no more than
50 per cent of the projected regional reference amount is payable
(Article 4:5). Advances are not payable to producers who intend
to plant soyabeans as a catchcrop (Article 4:7). The balance
of the regional per hectare payment is payable once the final
regional reference amount and the related observed market reference
price have been determined. In order to qualify for the balance
payable (the difference between the amount of the advance and
the final regional reference amount), the producer must provide
proof of harvesting in the form of evidence that the crop has
been sold or is still owned by the producer (Article 4:6).
21. Under Article 6 of Regulation 3766/91 the final regional
amounts payable are subject to reduction if the total Community
area planted to an oilseed in respect of which payments are claimed,
exceeds the following maximum guaranteed areas, which are based
on an estimate of plantings for harvest in 1991/92 taking account
of the situation in what was "East Germany" and of specific
treaty obligations to Spain and Portugal. The relevant direct
payments are subject to a reduction of 1 per cent for each 1 per
cent overshoot. The maximum guaranteed areas are:
Soya beans |
EEC12 | 509,000 hectares |
Rape seed and colza seed |
EEC12 | 2,377,000 hectares |
Sunflower seed |
Spain | 1,411,000 hectares |
Portugal | 122,000 hectares |
The rest of the Community | 1,202,000 hectares |
22. In addition to the regional per hectare amounts that are
payable, Regulation 3766/91 makes provision for the payment of
an orderly marketing bonus to producers who retain ownership of
harvested oilseeds for a period and on conditions to be specified.
Other Aspects
23. Regulation 3766/91 provides for a range of matters to be
determined by the Commission in accordance with the procedure
of Article 38 of Regulation No. 136/66 (EEC), under which draft
measures are subject to consideration by a Management Committee
for fats and oils consisting of representatives of the Member
States.
24. The tariff concessions in question, their negotiating history
and the support measures applied by individual Member States at
the time these concessions were negotiated, are described in summary
form in paragraphs 9 to 11 and 13 of the Oilseeds Panel Report.
III. MAIN ARGUMENTS
Findings Sought by the Parties
25. The United States requested that the following recommendations
and rulings should be made by the Panel:
- that the new Community oilseeds régime does not comply
with the recommendations and rulings as expressed in the Conclusions
(paragraphs 155157) of the Oilseeds Panel Report;
- more specifically, that the new Community oilseeds régime
does not eliminate the impairment to benefits accruing to the
United States in respect of tariff bindings on oilseeds and oilmeals
in the Community Schedule of Concessions;
- that, to meet its obligation not to impair the bindings the
Community must restore the competitive conditions existing at
the time the tariff concessions were negotiated in 1962, in particular
that the Community must not subsidize oilseed production in a
more trade distorting manner than, nor at a level greater than,
that provided at that time;
- that the CONTRACTING PARTIES should recommend that the Community
expeditiously correct its regulations to restore the conditions
of competition that existed in 1962.
26. The Community requested that the Panel make the following
findings with respect to the measures taken by the Community in
Regulation 3766/91:
(a) Violation
The original Panel found (paragraph 155) that the Community Regulations
were inconsistent with Article III by providing for payment to
processors conditional on the purchase of oilseeds of Community
origin. The Community has abolished such payments to processors.
It has therefore taken steps in line with the normal solution
to a violation case i.e. the elimination of the measure found
inconsistent with GATT obligations.
The new direct payment system is a pure producer subsidy, paid
directly to the producer on the basis of the area cultivated and
decoupled from production performance.
As such it complies with Article III. Therefore it can be considered
that the Community has complied with the recommendations of the
CONTRACTING PARTIES to bring its Regulations into conformity with
the General Agreement.
(b) Non-Violation
The original Panel found (paragraph 156) that "as a result
of the introduction of production subsidy scheme which operate
to protect Community producers completely from the movement of
price of imports and thereby prevent the tariff concession from
having any impact on the competitive relationship between domestic
and imported oilseeds" the benefits of the zero tariff binding
were impaired.
In accordance with paragraph 157 of the Oilseeds Panel Report,
the Community while bringing its regulation into conformity with
the GATT has also taken steps to eliminate the impairment of the
tariff concessions found by the Panel.
The new regime has abolished any price support mechanisms based
on the guarantee of a domestic Community price per tonne, which
was found by the original Panel as having the effect of completely
protecting the domestic producer from world market price movements.
The new legislation does not establish a domestic Community price
regime, but an income support system, based on a calculation per
hectare and average historic regional yields. This has the effect
that the producer's return is affected by market price fluctuations,
i.e. the movement of world market price.
The Community producers are no longer completely protected from
the movement of the prices of imports. Moreover, imported oilseeds
can freely compete with Community oilseeds, which no longer benefit
from price support or intervention mechanisms guaranteeing their
marketing.
It is therefore considered that the Community has eliminated
the impairment of the tariff concessions found by the original
Panel and has complied with both paragraphs 156 and 157 of the
Oilseeds Panel Report (BISD 37S/86).
Submissions Regarding the Terms of Reference of the Panel
27. The Community, referring to the introductory comments
by the Chairman of the Panel at its 34 February meeting with the
parties (attached as Annex B hereto), considered that the
terms of reference do not include either a reexamination of the
original complaint nor an indepth review of the whole of the new
direct payment system established by the Community. In the view
of the Community the terms of reference preclude not only a wide
reexamination of the complaint of "violation" but also
"nonviolation impairment". Neither whether the new
system of "direct payments" leads to other "violations"
than those prescribed under Article III:4, nor whether the new
system of "direct payments" leads to new elements other
than those identified in the Conclusions of the Oilseeds Panel
Report as susceptible to create "nonviolation impairment",
are within the formal terms of reference of what the Community
described as this "ad hoc" group.
28. In the view of the Community it would be unreasonable
to expect a Contracting Party in complying with the recommendations
and rulings of a Panel to go beyond the specific clear guidance
given. In this regard the impairment of the tariff concessions
as found by the original Panel which the Community was recommended
to eliminate arose from "production subsidies which operate
to protect Community producers of oilseeds completely from the
movement of prices of imports and thereby prevent the tariff concessions
from having any impact on the competitive relationship between
domestic and imported oilseeds".
29. The Community noted that there was no recommendation
or ruling to reduce the level of subsidies. The Community could
not therefore have been expected to take measures to comply with
elements other than those ruled on by the original Panel. Moreover
one could not go beyond the "terms of reference" of
the "ad hoc" group to investigate whether there may
be other elements which might impair the concessions. The original
Panel's recommendations and rulings did not conclude that the
level of subsidies was either too high or indeed even relevant.
Accordingly the United States may, if it wishes, have further
recourse to either the normal dispute settlement process or consultations,
if it believes that the new Community legislation is inconsistent
with the General Agreement or even if consistent, impairs the
value of the tariff concessions in ways other than that found
by the original Panel.
30. The Community submitted that, in any event, the plaintiff
is responsible for supplying the proof and the Community could
see no good reason why it should be obliged to prove in an "ad
hoc" group that new legislation is not a source of impairment.
Indeed, in this context the United States has insisted on a timetable
which, while it might be consistent with the domestic requirements
of 301 legislation: prevents the Community from supplying all
of the detailed implementing legislation relevant to the new direct
payment system, because it is not yet finalized; and, precludes
the Community from the possibility of proving its practical application
and impact.
31. With regard to the Chairman's introductory comments on the
evidential aspects of the proceedings (Annex B, paragraph 5),
the Community made the following points:
- that the terms of reference of the "ad hoc" group
are restricted to "the" impairment found by the original
Panel. In consequence, it is sufficient to conclude that the
mechanisms and the effects of the old system that were
criticised do not persist. It is not necessary to see whether
the new measures might provide a source of impairment;
- while the Community expected to have to demonstrate that not
only had it abrogated the measures which led to the finding of
impairment, it also expected to be called upon to demonstrate
that this same impairment had not been reconstituted by the back
door, it did not believe that it is incumbent on the Community
to bear the burden of proof that its new system of direct payments
can not under any circumstances be a source or even a risk of
any kind of possible impairment.
In other words, the Community believed that to demonstrate
its compliance with the recommendations and rulings of the original
Panel, notably paragraph 156, it was sufficient to provide the
elements which show that the Community producers of oilseeds will
no longer be completely isolated from the movement of prices of
imports. However, in the view of the Community, it had gone much
further than simply following a literal interpretation of the
recommendations and rulings of the original Panel and had done
so earlier than originally undertaken.
32. The United States considered that the mandate of the
Panel is to determine whether, having been accorded a reasonable
period within which to adjust its oilseeds support system, the
Community continues under its new support system to impair the
benefits accruing to the United States under the General Agreement.
In the view of the United States, the Community accordingly
bears the burden of demonstrating that recent changes in its regulations
will eliminate the impairment. The United States rejected
the argument that by changing from a system of price support to
a system of direct producer subsidies akin to deficiency payments,
the Community has exposed its producers to fluctuations in world
market prices, and is thus immune from any substantive scrutiny
unless a new complaint is initiated under the dispute settlement
process. It also rejected the Community argument that the only
impairment that the Panel is entitled to examine is "the"
impairment resulting from the price support system that has been
abolished and not any impairment of the concessions resulting
from any other means of subsidization of oilseeds production.
Finally, the United States submitted that the Community
agreed to the timetable for this proceeding, and that the reference
to section 301 of the Trade Act of 1974 was misdirected as there
was no relevant action in progress under that section.
33. In the view of the United States the mandate of the
Panel provides the authority, and indeed the responsibility, to
determine whether the Community's new support system, regardless
of its structure, continues to impair the tariff concessions.
The original Panel's recommendations and rulings included the
conclusion that the Community had impaired benefits accruing to
the United States under Article II of the General Agreement as
a result of "production subsidy schemes". The mandate
of the Panel, as set forth in document W.47/22, is therefore to
examine whether recent changes in the Community's regulations
comply with those recommendations and rulings.
34. The United States further considered that the Community's
narrow interpretation of the mandate would render the current
proceedings meaningless and would have grave consequences for
the GATT dispute settlement process itself. The United States
complaint was presented more than four years ago and remains unresolved.
Two years had passed since the original Panel's recommendations
and rulings were adopted. It is unacceptable after the Community
had been accorded a reasonable period in order to comply, for
the Community to be permitted to continue to impair the benefits
of the tariff concessions merely by altering the means by which
subsidies are provided to producers. In the view of the United
States the Community's legal arguments on the mandate are
an attempt to avoid any real scrutiny of its new oilseeds support
system.
National Treatment: Article III
35. The United States did not make formal submissions
to the Panel on whether the measures taken by the Community were
in compliance with Article III and did not contest the Community's
argument in this regard. In the course of the proceedings the
United States confirmed that it did not claim that the measures
taken by the Community were inconsistent with Article III.
36. The Community noted that the original Panel had found
that the Community Regulations then in force were inconsistent
with Article III in that payments were made to processors conditional
on the purchase of oilseeds of Community origin. The Community
had therefore taken steps, as required in a case of violation,
to eliminate the measure found to be inconsistent with GATT obligations.
As a result of Article 1:2 of Regulation 3766/91 the system of
aids to processors and the related complex of institutional target,
intervention, intervention buyingin, guide and minimum prices
are abolished. Under the new support system payments are made
directly to producers and as such are not inconsistent with Article
III. In these circumstances it was submitted by the Community
that it had complied with the Recommendation made to the Community
by the CONTRACTING PARTIES in terms of paragraph 155 of the Oilseeds
Panel Report.
Impairment of Tariff Concessions: Article II
37. In summary, the United States submitted that the Community
had taken the production subsidies that were found to have impaired
the benefits of the 1962 tariff concessions accruing to the United
States under Article II of the General Agreement and had altered
their form without altering the level of those subsidies, nor
altering the impairment by those subsidies of the benefits accruing
to the United States under the General Agreement. In particular,
by replacing production subsidies based on a system of guaranteed
prices with production subsidies based on direct payments that
were designed, according to the Community's own calculations,
to continue to provide Community producers with returns equivalent
to approximately double the world price, the Community ensured
that the adverse impact on the competitive relationship between
domestic and imported oilseeds of the former support system remains
under the new system, and ensured that the benefits accruing to
the United States under the General Agreement would thereby continue
to be impaired.
38. In summary, the Community submitted that it had fully
complied with the Recommendations contained in the Conclusions
of the original Panel, including those relating to impairment
of the oilseeds tariff concessions resulting from "the introduction
of production subsidy schemes which operate to protect Community
producers of oilseeds completely from the movement of prices
of imports and thereby prevent the tariff concessions from having
any impact on the competitive relationship between domestic and
imported oilseeds" (paragraph 156: emphasis added). The
Community maintained that in bringing its regulations into
conformity with Article III of the General Agreement it had, as
envisaged in paragraph 157 of the original Panel's conclusions,
also taken steps to eliminate the impairment of the tariff concessions.
It had abolished the production subsidies involving price support
mechanisms based on the guarantee of a domestic Community price
per tonne, which had been found to have the effect of completely
protecting domestic producers from world market price movements.
39. In the view of the Community the new Regulation established
an income support system under which producers returns are affected
by the movement of world market prices and are no longer completely
protected from the movement of prices of imports. Imported oilseeds
could therefore compete freely with Community oilseeds which no
longer benefited from price support or intervention mechanisms
guaranteeing their marketing. It was submitted by the Community
that in these circumstances the impairment of the tariff concessions
as found by the original Panel had been eliminated.
Legitimate Expectations and Levels of Subsidization
40. The United States submitted that the new support system
introduced by the Community continued to deny the United States
the benefits of the improved competitive opportunities that it
legitimately expected from the 1962 tariff concessions. The fundamental
principle, as confirmed by the CONTRACTING PARTIES in 1955 (BISD
3S/222, 224), was that improved competitive opportunities resulting
from tariff concessions are not maintained when the country granting
the concessions introduces or successively increases subsidies
on domestic production of the product concerned. In the view
of the United States the conditions of competition prevailing
in 19611962 when these concessions were negotiated and bound under
Article II, which involved no Community oilseeds programme and
very limited Member State subsidization, were radically different
from what they had become over the succeeding thirty years. In
1962 Community production of oilseeds was 300,000 metric tonnes
and consumption 3.5 million metric tonnes. As a result of the
subsequent introduction and increase in subsidies under the former
support system, Community production had increased to 650,000
metric tonnes in 1977 and to 13 million metric tonnes in 1991.
41. In the view of the United States the new oilseeds
support system replaces one form of subsidy with another, but
continues to maintain the impairment of the benefits of the tariff
concessions accruing to the United States as a result of the high
level of subsidization and the payments to producers who are able
to sell their oilseeds insulated from the effects of price competition.
The fundamental premise of the new support system is to enable
Community producers to obtain a guaranteed return that varies
only marginally in response to supply, demand or price. The guaranteed
return of approximately double the world market price established
under the new system is equivalent to the level of support provided
under the former. Only the form in which this support is delivered,
direct payments to producers in place of payments to Community
oilseeds processors, had changed, not the substance.
42. The United States also pointed out that in addition
to the high levels of subsidy provided as a result of the level
of the per hectare reference amount itself, the new system contains
distortions which would enable producers from regions with lower
than average oilseed yields but relatively better cereals yields
to obtain still higher payments by virtue of the option to have
regional reference amounts calculated on the basis of cereals
yields. The United States submitted that this change in
the form in which subsidies are now provided would do nothing
to alter the significant incentives to produce oilseeds given
the high level of return and that Community production of oilseeds
would continue at recent high levels or above.
43. The Community pointed out, with regard to the expectations
of the United States at the time the tariff concessions were negotiated,
that the original Panel had recognized (paragraph 149) that the
evidence showed that the United States must have reasonably expected
the transformation of national producer support measures into
a Community support scheme. Furthermore, the Community
maintained that the level of subsidies on which the United States
relied, either in relation to the situation in 1962 or subsequently
in relation to the former price support system, was not a factor
which formed part of the original Panel's conclusions. If the
original Panel had considered the level of subsidies "per
se" as relevant, it would have so indicated.
TO CONTINUE WITH "EUROPEAN ECONOMIC COMMUNITY PAYMENTS AND SUBSIDIES PAID TO PROCESSORS AND PRODUCERS OF OILSEEDS AND RELATED ANIMALFEED PROTEINS"
1 This report was first considered by the Council at its meeting
on 30 April 1992. At its meeting on 19 June, the Council, without
adopting the report, authorized the Community to enter into negotiations
under Article XXVIII:4 for modification of tariff concessions
with respect to certain relevant tariff positions (see paragraph
92 of the report in this respect).
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