OAS

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
EEC12509,000 hectares
Rape seed and colza seed
EEC122,377,000 hectares
Sunflower seed
Spain1,411,000 hectares
Portugal122,000 hectares
The rest of the Community1,202,000 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).