Australian Year Book of International Law
Tim Stephens[∗] and Brett Williams[∗]
Prashanthan Anton Chelliah v Australia
Communication No 2111/2002
UN Doc CAT/C/34/D/211/2002
Committee Against Torture
Views adopted on 17 May 2005
The author of the communication was a Sri Lankan national of Tamil ethnic origin detained in immigration detention in Australia awaiting removal to Sri Lanka. He claimed that the removal would constitute a violation by Australia of Article 3 of the 1984 Convention Against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment. The complainant contended that given a previous association with the Liberation Tigers of Tamil Elam that he was at risk of harm if he were returned to Sri Lanka.
The Australian government contested the admissibility and merits of the complaint. It was observed that the Refugee Review Tribunal, on reviewing the original decision to refuse the author’s protection visa application, concluded that the author’s claims lacked credibility and were based upon evidence that was fabricated. It was also submitted that the author’s complaint was inadmissible as he had not exhausted domestic remedies in respect of his claim. The Committee agreed, finding that the author provided no explanation for failing to appeal against the decision of the RRT, and a later decision of the RRT, that rejected a second application for a protection visa on jurisdictional grounds. Accordingly, the Committee concluded that the complainant failed to exhaust available domestic remedies are required by Article 22(5)(2)(b) of the Convention, and therefore that the communication was inadmissible.
Arbitrary and unlawful interference with privacy, family or home – Right of children to measures of protection
Elizabeth Karawa, Josevata Karawa, Vanessa Karawa v Australia
Communication No 1127/2002
UN Doc CCPR/C/84/D/1127/2002
Human Rights Committee
Views adopted on 4 August 2005
Mr and Mrs Karawa, both nationals of Fiji, brought the communication on their own behalf and on behalf of their daughter Vanessa, an Australian national. They claimed that their expulsion from Australia to Fiji would amount to a violation by Australia of articles 17, 23 and 24 of the 1966 International Covenant on Civil and Political Rights.
The authors were granted temporary visas by the Australian government but remained in Australia illegally at the expiry of the permits. The authors commenced a relationship, and Vanessa was born to the authors and, on reaching the age of ten, she became an Australian citizen. An application by the authors for a protection visa was refused. An appeal against the decision was lodged with the Refugee Review Tribunal but later withdrawn.
Mr and Mrs Karawa contended that their daughter could not be removed to Fiji as she did not possess knowledge of the Fijian language or culture. In addition, it was argued that an expulsion to Fiji that separated the parents from the child would constitute an ‘interference’ with family within the meaning of Article 17 of the Covenant.
The Australian government submitted that the claim was inadmissible for failure to exhaust domestic remedies, on the basis that the family withdrew its application to the RRT. In relation to the merits it was argued that ‘interference’ with the family unit is an act inevitably separating a family unit, rather than simply a substantial change to long-settled family life. In this case it was said that the entire family are free and have the right to leave Australia and enter Fiji.
The Committee agreed with the submissions of the Australian government that the communication was inadmissible. It was noted that the authors initiated, but then withdrew, their case before the RRT and that this deprived the state party of an opportunity to address the authors’ claims before its own administrative appeals tribunal and through subsequent judicial review. It was immaterial whether the application to the RRT was withdrawn by the authors or by their legal representative. As a consequence of the withdrawal the authors had not exhausted domestic remedies as required by Article 5(2)(b) of the Covenant.
Prohibition on forced or compulsory labour – Right to an effective remedy
Bernadette Faure v Australia
Communication No 1036/2001
UN Doc CCPR/C/85/D/1036/2001
Human Rights Committee
Views adopted on 23 November 2005
The author was a dual national of Malta and Australia. She claimed to be a victim of a violation by Australia of her rights under articles 2 and 8 of the 1966 International Covenant on Civil and Political Rights (the Covenant). The author had drawn unemployment benefits continuously since leaving high school in 1996. Pursuant to the Social Security Legislation Amendment (Work for the Dole) Act 1997 (Cth) her unemployment benefits were reduced and ultimately cancelled on the basis that the author did not comply with the ‘work for the dole’ requirements set out in the Act. Before the Committee the author claimed that she was required to perform forced or compulsory labour in violation of Article 8 of the Covenant, and further that she was without remedy for this complaint in violation of Article 2.
The Australian government contested the admissibility of the communication on the grounds that the author failed to exhaust domestic remedies in order to challenge the work for dole program through social security review and appeals procedures. In relation to the merits of the claim, the Australian government argued that the communication raised issues of compulsory rather than forced labour given the absence of any physical or other constraint. The author’s participation in the program did not reach the threshold of compulsory labour as neither the necessary intensity of penalty or of involuntariness were involved.
In relation to the Article 2 claim by the author, the Committee found that:
[i]n the State party’s legal system, it was and remains impossible for a person such as the author to challenge the substantive elements of the Work for Dole program, that is, the obligation imposed by law on persons such as the author, who satisfy the preconditions for access to the program, to perform labour in exchange for receipt of unemployment benefits.
As regards the principal claim under Article 8(3) the Committee observed that:
[t]he term “forced or compulsory labour” covers a range of conduct extending from, on the one hand, labour imposed on an individual by way of criminal sanction … through, on the other hand, to lesser forms of labour in circumstances where punishment as a comparable sanction is threatened if the labour directed is not performed. The Committee notes, moreover, that Article 8, paragraph 3(c)(iv), of the Covenant exempts from the term “forced or compulsory labour” such work or service forming part of normal civil obligations. In the Committee’s view, to so qualify as a normal civil obligation, the labour in question must, at a minimum, not be an exceptional measure; it must not possess a punitive purpose or effect; and it must be provided by law in order to serve a legitimate purpose under the Covenant. In the light of these considerations, the Committee is of the view that the material before it, including the absence of a degrading or dehumanising aspect of the specific labour performed, does not show that the labour in question comes within the scope of the proscriptions set out in Article 8. It follows that no independent violation of Article 8 of the Covenant has been made out.
The Committee concluded that there had been a breach of Article 2 of the Covenant. However, it found that while the Australian government was under an obligation to provide an effective remedy, in the present case its views on the merits constituted a sufficient remedy for the violation found.
United States – Subsidies on Upland Cotton (WT/DS267)
Panel report circulated 8 September 2004
Appellate Body report circulated 3 March 2005
Both adopted by the Dispute Settlement Body 21 March 2005
Australia was a third party to this dispute in which Brazil was the complainant. Brazil challenged a number of United States subsidies on cotton under both the Agreement on Agriculture (AoA) and under the Subsidies and Countervailing Measures Agreement (SCM Agreement). The challenged subsidies applied under the Agricultural Adjustment Act of 1933 and the Agriculture Act of 1949 as amended. The three most recent amending Acts were the ‘farm bills’ of 1990, 1996 and 2002, known respectively as the FACT Act 1990, the FAIR Act 1996 and the FSRI Act 2002. Most of Brazil’s challenges were on the basis that the Act as amended in 2002 mandated payments that constituted violations of either the AoA or the SCM Agreement, but some claims were based on the effects of the payments over the period since 1999. The complaint was brought and the Panel established (18 March 2003) before the expiry of Article 13 of the AoA, known as the peace clause.
The two points to be considered here related to alleged export subsidies, the User Marketing (Step 2) Payments and the United States Export Credit Guarantee programs. The Appellate Body’s consideration of the User Marketing (Step 2) Payments may be relevant to any future (post peace clause) challenge under Article 3.1 of the SCM Agreement to an export subsidy on an agricultural product. The Appellate Body’s consideration of the United States’ Export Credit Guarantee program is relevant for the fact that it tested the ambiguity arising out of AoA Article 10.1 being drawn widely enough to cover export credits and AoA Article 10.2 having deferred negotiations on disciplines of export credits and led to only the second instance of an Appellate Body (the AB) report recording a separate opinion.
The Step 2 payments were not payments to cotton farmers but were payments to those who purchased cotton from cotton farmers. The law set out that domestic users were eligible for the Step 2 payment when they opened a bale of cotton and that exporters were eligible for the Step 2 payment when they exported a bale of cotton. Brazil made separate arguments relating to the Step 2 payments to domestic users and the Step 2 payments to exporters so the Panel also split its consideration in the same way.
In relation to Step 2 payments to domestic users, the Panel considered whether the payments were import substitution subsidies inconsistent with SCM Article 3.1(b). In deciding to apply SCM Article 3.1(b), the Panel found that neither Article 21.1 of the AoA nor the first clause of SCM Article 3.1 prevented the application of SCM Article 3.1(b) to import substitution subsidies on agricultural products because there was no inconsistency between the prohibition of such subsidies under Article 3.1(b) and the requirement under the AoA for payments to processors to be included in AMS calculations. The Panel then had to decide if the payments were contingent upon the use of domestic over imported goods within the meaning of Article 3.1(b). The Panel acknowledged that United States law made the subsidy payable not only to domestic users purchasing United States cotton, but also to exporters purchasing United States cotton. However, the Panel examined separately the payment to domestic users and found that for them receipt of the subsidy was contingent upon them using domestic over imported cotton. Having found a violation of SCM Article 3.1(b), the Panel decided that it was unnecessary for it to determine the alternative claim that the subsidy to domestic purchasers of United States cotton was a violation of GATT Article III. On appeal, Brazil did not challenge this exercise of judicial economy.
In relation to Step 2 payments to exporters, the Panel first considered consistency with the AoA. The Panel said that since the United States had not scheduled budgetary or volume commitments with respect to export subsidies on cotton, then the effect of articles 3 and 8 was that any export subsidy on cotton within the meaning of AoA Article 9.1 would violate those provisions. In other words, the omission from the Schedule was the same as a zero commitment level. The Panel considered whether the Step 2 payment to exporters was ‘contingent on export performance’ within the meaning of AoA Article 9.1(a). The United States argued that the law provided for payment of the Step 2 payments to either exporters or to domestic users and that therefore, the payments were not contingent upon export performance. The Panel decided that the Step 2 payments were paid in two factual situations and that in one of those factual situations, purchases by exporters, and the receipt of the payment was contingent upon export performance. Having found the violation of AoA Article 8, the Panel concluded that Article 13 of the AoA does not prevent an action under SCM Article 3.1(a) in respect of the same subsidy. The Panel also found that the Step 2 payment to exporters (which it considers in isolation from the Step 2 payment to domestic users) is contingent on export performance within the meaning of Article 3.1(a).
On appeal, the AB followed the Panel’s approach in separating its consideration of Step 2 payments to domestic users and the Step 2 payments to exporters.
The United States challenged the finding that the payment to a domestic user violated SCM Agreement Article 3.1(b). In doing so, the United States contested the findings that AoA Article 21.1 and the introductory proviso to SCM Article 3.1 did not limit the application of SCM Article 3.1(b) to a payment to a processor of an agricultural product. On this point the AB reached the same conclusion as the Panel but there was a significant difference in the reasoning. The Panel had interpreted the wording of AoA Article 21.1 (‘subject to the provisions of the [AoA]’) and the introductory proviso of SCM Agreement Article 3.1 (‘[e]xcept as provided in the [AoA]’) as precluding or modifying the application of Article 3.1 only to the extent of any direct inconsistency with the AoA. The Panel had said that there was no direct inconsistency between the prohibition in Article 3.1(b) of the SCM Agreement and the AoA’s requirement that a payment to a processor be included for the purpose of calculating whether a member is conforming to its AMS limit, and therefore, neither AoA Article 21.1 nor the introductory proviso excluded or modified the application of SCM Article 3.1 The AB said that Article 21.1 could apply more broadly than just to the situations of direct inconsistency identified by the Panel. In this respect the AB quoted its decision in EC-Bananas:
The Appellate Body has interpreted Article 21.1 to mean that the provisions of the GATT 1994 and of other Multilateral Trade Agreements in Annex 1A apply ‘except to the extent that the Agreement on Agriculture contains specific provisions dealing specifically with the same matter’.
The AB then reviewed certain provisions of the AoA, Article 6.3 and paragraph 7 of Annex 3, and found that the AoA does not contain specific provisions dealing specifically with subsidies that are contingent upon the use of domestic over imported goods. Therefore, nothing in the AoA excluded the application of SCM Article 3.1(b) to import substitution subsidies on agricultural products.
The United States also challenged the findings that the Step 2 payments to exporters violated AoA Article 9.1(a) and SCM Article 3.1(a). The United States argued again that the payments were not ‘contingent upon export performance’ because they were available to both exporters and domestic users. The AB agreed with the Panel that the law applied to two distinct situations and that in respect of the application of the law to exporters, the payment was contingent upon export. Having found that the subsidy was contingent on export and therefore in breach of Articles 3.3 and 8 of the AoA, the AB proceeded quickly to also confirm the Panel’s finding that the subsidy was also in violation of SCM Agreement Article 3.1(a). It appears that the United States did not argue that Article 21 of the AoA excluded the application of Article 3.1(a) of the SCM Agreement so the Panel did not address AoA Article 21.
The second issue noted here relates to export credits. Brazil argued that certain United States Export Credit Guarantee programs violated Article 10.1 of the AoA because they constituted ‘export subsidies not listed in [Article 9(1)] … [which were] applied in a manner which results in, or which threatens to lead to, circumvention of export subsidy commitments’. Brazil also relied on Article 10.3 to place the burden of proof on the United States to prove that quantities of exports in excess of its commitment levels were not subsidised. Among other arguments, the United States contended that Article 10.2, under which members agreed to develop disciplines on, inter alia, export credit guarantee programs, indicated that the reference in Article 10.1 to ‘export subsidies’ should not include export credit guarantees.
On the effect of Article 10.2, the Panel found that since the provision did not contain any explicit provision saying that export credits or the export credit guarantee program should not be subject to the circumvention rule in Article 10.1, then Article 10.1 should not be limited in the manner argued.
The Panel determined that the United States export credit guarantee programs would be within the meaning of ‘export subsidies not listed in [Article 9.1]’ as required by Article 10.1 if they were ‘export subsidies’ within the meaning of the SCM Agreement, in particular if they fell within Item (j) of the Illustrative List of Export subsidies in the SCM Agreement. The Panel found that the United States programs did fall within Item (j).
In respect of some unscheduled products (which were treated as having a zero commitment) including cotton, Brazil had shown that the United States had actually provided export credit guarantees, and for these the Panel found that the United States had failed to establish that no export subsidy had been granted. Among scheduled products in relation to which Brazil had shown that the United States had actually provided export credit guarantees, it was only in relation to rice that Brazil had shown that the United States had actually exported a volume that exceeded the schedule volume commitment (rice seems to be the only one of these products where the United States did not contest the evidence provided by Brazil). The Panel found that the United States had failed to establish that the excess volume of rice had not received an export subsidy.
Brazil also argued that the United States statutory provision that directed the United States government agency to make available not less than a specified sum in credit guarantees was itself a threat of circumvention regardless of whether the United States had actually provided the credit guarantees. The Panel found that the law did not require the United States agency, especially allowing for the discretion available to it under the program, to issue guarantees in a manner that would threaten circumvention of export subsidy commitments.
Before the Appellate Body, the United States appealed the finding that Article 10.1 of the AoA could apply to export credits, arguing again that the effect of Article 10.2 was to exclude export credits from the operation of Article 10.1. This issue gave rise to a divergence between the majority opinion and a dissenting statement of on member of the AB. The majority agreed with the Panel, but the dissenting member argued forcefully that Article 10.2 was evidence that the parties had not agreed to subject export credits to the reduction commitments or to the rule in Article 10.1, and had deferred negotiations on the point until after the Uruguay Round. This member did not dissent from the other findings.
European Communities – Export Subsidies on Sugar
(WT/DS265, 266 and 283)
Panel report circulated 15 October 2004,
Appellate Body report circulated 28 April 2005,
Both adopted by the Dispute Settlement Body 19 May 2005
The complainants, Australia, Brazil and Thailand, alleged that European Community (EC) regulations relating to the market in sugar and sugar beet constituted violations of articles 3, 8 and 9 of the Agreement on Agriculture (AoA) and Article 3 of the Agreement on Subsidies and Countervailing Measures (SCM Agreement).
The EC set an intervention price more than twice the world price. The EC undertook to purchase from EC sugar producers at the intervention price, but limited this undertaking to two maximum volumes: Quota A, which was 11.89 million tonnes and Quota B which was 2.58 million tonnes. The EC also paid an export refund on exports of Quota A or Quota B sugar approximately equal to the difference between the EC price and the world market price. The EC passed on some of the cost of the scheme to the EC sugar producers by charging them a levy of up to 2 per cent of the intervention price per unit of the Quota A quota and up to 37.5 per cent of the intervention price per unit of the Quota B volume. Any sugar in excess of the Quota A and Quota B volumes was classified as ‘C sugar’. C sugar was not eligible for intervention purchasing or for payment of export refunds.
In fact, intervention purchasing occurred only very rarely because the EC price for Quota A and B sugar tended to be higher than the intervention price. The EC price had on average been between 10 per cent and 20 per cent higher than the intervention price. That high price was partly a result of the EC applying a high specific import tariff on sugar (in Euros/ton) that had been approximately 150 per cent of the world price, and was effectively a prohibitive tariff. The other factor that helped to maintain a price above the intervention price was the fact that the EC prohibited the sale in the internal EC market of any C sugar. Any sugar beyond Quotas A and B, that is C sugar, could only be exported.
The EC also regulated the price of some sales of sugar beet. The EC sugar producers who themselves were guaranteed an intervention price for sugar were required to pay a minimum price for purchase of sugar beet from EC suppliers for processing into Quota A and Quota B sugar. This price for purchase of sugar beet was set at about 60 per cent of the intervention price for white sugar and was lower for beet purchased for processing into Quota B sugar (Quota B beet) than for beet purchased for processing into Quota A sugar (Quota A beet). The quantity of purchases of beet that received these minimum prices were limited by the fixed volumes of Quota A and Quota B sugar. Any sugar beet in excess of the total volume of Quota A beet and Quota B beet was categorised as C beet. Sugar producers were not required to pay any minimum prices for the purchase of C beet from EC sugar beet producers. The export subsidies section of the EC Schedule provided for maximum outlays on export subsidies and maximum volumes of subsidised product for each year from 1995 through to a final commitment to apply from 2000. For sugar, the commitments for the years from 2000 onwards were a volume of 1.273 million tonnes, and a budget outlay of €499.1 million. A footnote to the schedule (hereafter FN1) provided:
Does not include the exports of sugar of ACP [Africa-Caribbean-Pacific] and Indian origin on which the Community is not making any reduction commitments. The average of exports in the period 1986 to 1990 amounted to 1.6 miot.
The EC had actually exported 4.097 million tonnes of sugar. In two separate complaints it was alleged that the EC was paying export subsidies on this entire volume, which was considerably larger than the volume commitment in the EC’s schedule (which was 1.273 million tonnes).
The first complaint related to export refunds being paid by the EC on the re-export of certain volumes of sugar imported from ACP (Africa-Caribbean-Pacific) countries and India. Pursuant to treaties with those countries, the EC imported certain volumes of sugar at an agreed minimum price, the EC intervention price. The EC re-sold an equivalent quantity on the world market. The world price was lower than the intervention price and the EC effectively paid an export refund equal to the difference between the two prices. The EC had imported 1.725 million tonnes of sugar from ACP countries and India under these arrangements and had paid export refunds on 1.725 million tonnes of sugar over and above the export refunds that it paid on Quota A and Quota B sugar produced in the EC. The complainant argued that FN1 had no legal effect, that the EC’s volume commitment was 1.274 million tonnes and that, therefore, the export refunds on the additional volume equivalent to the imports of ACP/India sugar (the 1.725 million tonnes) violated the volume commitment.
The EC’s response was that their schedule set out a volume commitment which consisted (1) a first component to be reduced down to a level of 1.273 million tonnes by the year 2000; plus (2) a second component consisting of an amount equivalent to the volume of imports from ACP/India, up to a cap of 1.6 million tonnes (which would not be reduced).
The Panel interpreted FN1 and said that the words did not indicate that the EC was making a commitment to limit export subsidies on exports of ACP/India sugar to a cap of 1.6 million tons. The Panel concluded that FN1 did not enlarge or modify the commitment level specified in the schedule.
The Panel then considered whether, if FN1 did provide for a second component of the volume commitment, would that schedule entry be consistent with the provisions of the AoA. Two reasons were given why such an entry would not be consistent with the AoA. First, the Panel found that export refunds on ACP/India sugar were subsidies of a type that were required by Article 9.1 to be subject to reduction commitments. Therefore, the text of FN1 purporting to exclude certain export subsidies covered by Article 9.1 from reduction commitments was inconsistent with articles 3, 8, 9.1 and 9.2(b)(iv). The second reason was that the AoA required reduction commitments to specify both outlay and volumes, so the alleged schedule entry was also inconsistent with the AoA for this reason. For both reasons, the Panel found FN1 in conflict with the AoA and concluded that FN1 did not enlarge or otherwise modify the EC commitment level.
This issue was reargued before the Appellate Body (the AB). The AB considered the argument that FN1 constitutes a second component of the EC’s export subsidy commitment of a volume equivalent to the volume of ACP/Indian sugar imports up to a cap of 1.6 million tonnes. The AB confirmed the Panel’s finding that FN1 does not contain a commitment to limit its export subsidies to a volume equivalent to the volume of imports of ACP/India sugar up to that cap.
The AB also considered whether, if FN1 could be interpreted as constituting the alleged second component of the commitment, it would be inconsistent with articles 3, 8 and 9 of the AoA. The AB agreed with the Panel that even if FN1 constituted a second component of the commitment, it was inconsistent with Article 3.3 because it did not contain a limit in terms of budget outlays.
The AB also agreed with the Panel that FN1 is in conflict with Article 9.1 because that provision requires all subsidies of the types listed to be subject to reduction commitments. The AB found that FN1, which purported to exclude the export refunds in respect of ACP/India sugar from reduction commitments, was inconsistent with Article 9.1.
The complainants’ second claim related to the remaining portion of the 4.097 million tonnes, which was C sugar. They argued that even though the EC was not paying direct export refunds on C sugar, the EC was paying export subsidies within the meaning of AoA Article 9.1(c), by making ‘payments on export ... that are financed by government action’. The complainants submitted two controversial bases for this claim. First, that in requiring that EC sugar producers pay a minimum price for purchasing Quota A and Quota B sugar beet from EC beet producers, the EC was financing a transfer of resources in the form of the sale of C sugar beet to EC sugar producers at less than its average total cost. Second, that cross-subsidisation by sugar producers of exports of C sugar with profits from A and B sugar constituted a payment on export financed by government intervention.
The Panel found that EC sugar beet farmers were selling C beet to EC sugar processors for less than its average total cost of production. It further found that the sale from EC beet farmers of the C beet at less than its average total cost of production to EC sugar processors constituted a payment in kind that was a ‘payment’ within the meaning of Article 9.1(c).
The Panel found that these payments were payments ‘on export’ within the meaning of Article 9.1(c), and that the requirement that a payment be ‘on export’ does not require that a payment be contingent upon export, but only that it be ‘in connection’ with exports. The Panel observed that sugar made from C beet is C sugar and that processors are not permitted to sell C sugar in the EC market (except to a limited extent by carrying it forward into the following year’s volume of A sugar). The below cost sale of the C beet constituted a payment in connection with, and therefore on, the export of C sugar.
The Panel then found that the payment was ‘financed by virtue of government action’. The sales of C beet at prices below average total cost are financed by government regulation which sets minimum prices for sales of A and B beet because all of the government action that controlled the price of sugar was:
‘indispensable’ to the transfer of resources from consumers and tax payers to sugar producers for A and B quota sugar and, through them, to growers for A and B quota beet.
On appeal, the EC contested the finding that the payment on export was ‘financed by virtue of government action’, but did not challenge the findings that the below cost sale of C beet was a ‘payment’, nor the finding that it was a payment ‘on export’.
The AB concurred with the Panel that the payments in the form of low-priced sales of C beet to sugar producers were ‘financed by virtue of governmental action’ within the meaning of AoA Article 9(1)(c). Article 9.1 explicitly contemplates that a payment might occur in a situation in which there is no charge on the public account, but there must be a sufficiently close nexus between the government action and the financing of the payment. The AB identified such a connection saying that:
without the highly remunerative prices guaranteed by the EC sugar regime for A and B beet, sales of C beet could not take place profitably at a price below the total cost or production;
the continued production of such large volumes of over-quota beet, at prices well below its cost of production, could not take place but for governmental action.
The Panel also considered the complainant’s second argument under Article 9.1(c), namely that there were ‘payments in the form of cross-subsidisation resulting from the profits made on sales of A and B sugar being used to cover the fixed costs of the production/export of C sugar. The Panel concluded that the transfer of financial resources arising from the cross-subsidisation of export sales of C sugar with the high revenues from sales of A and B sugar constituted a payment within the meaning of Article 9.1(c). The Panel’s explanation is confusing. The explanation of cross-subsidisation makes sense only as a reference to sugar exporters receiving a transfer of resources from domestic purchasers of A and B sugar that enables those exporters to sell C sugar at prices below average total cost. However, at times, the Panel appears to be referring to the sale of C sugar at below average total cost to foreign purchasers as the relevant transfer of resources rather than the transfer of financial resources from the domestic consumers buying A and B sugar to the domestic sugar producers.
The Panel also found that the payments were payments ‘on export’ of the C sugar within the meaning of Article 9.1(c) of the AoA. The Panel found that payments in the form of high prices from the sale of A and B sugar were payments ‘on export’ of C sugar because C sugar must be exported and cannot be sold on the internal market.
Finally, the Panel concluded that the payment on export is one that has been ‘financed by virtue of government action’ within the meaning of Article 9.1(c). In this respect the Panel referred to various governmental actions: guaranteed intervention prices; production quotas; import restraints; quotas on supply of domestic sugar to the domestic market; collection of production levies; and high import tariffs. It was said that these governmental actions result in the high prices of A and B sugar, that in turn generates profits for sugar producers that allow them to sell C sugar at less than average total cost.
The EC appealed the finding that there was a payment on export in the form of cross-subsidisation on two bases: (1) that cross-subsidisation is not a payment because it does not involve a ‘transfer of resources’ to the sugar producers; and (2) that the alleged payment is not made ‘on the export’ of C sugar, because the sugar producers are not required to produce or export C sugar.
In reviewing the finding that cross-subsidisation constituted a ‘payment’ within Article 9(1)(c), the AB considered two arguments made by the EC. The EC characterised the payment identified by the Panel (the cross-subsidisation) not as a payment but merely as an internal allocation of the sugar producers’ resources. It was said that a payment requires a transfer of resources from one entity to another. The AB concluded that the term ‘payment’ does not necessarily require a transfer of resources from one entity, to another but can include a transfer of resources within a single entity. The AB also rejected the EC’s second argument that the Panel erred in finding that Article 9.1(c) does not require demonstration of a benefit in order to find that a measure is payment.
In reviewing the Panel’s finding that the alleged cross-subsidisation ‘payment’ was a payment ‘on export’, the AB considered two arguments of the EC. The EC alleged that the Panel erred in interpreting the term ‘on the export’ as meaning ‘in connection’ with exports rather than ‘contingent on’ exports and that the alleged payment could not be regarded as a payment on the export of C sugar because there was no requirement to produce or export C sugar. The AB, without engaging in any detailed interpretation of Article 9.1 itself, simply said that it agreed with the Panel that the term ‘on the export’ required only that payments be ‘in connection’ with exports, not that they be ‘contingent upon’ exports. The AB did not agree with the EC’s view that the absence of any obligation to produce C sugar means that the payments are not payments on the export of C sugar. The AB stressed that the Panel relied on the fact that C sugar, if produced, had to be exported.
The EC also argued that the Panel’s approach to ‘on the export’ was wrong because it blurred the distinction between the disciplines on domestic support and on export subsidies. The AB responded by quoting statements from the AB decision in the Canada Dairy First Recourse to Article 21.5 that members should not be allowed to use domestic support in ways that undermine their export subsidy commitments. The AB also asserted that its decision did not erode the distinction between export subsidies and domestic support because the EC legislation requires the exportation of C sugar, and prices obtained for C sugar on the world market are significantly below the average cost of total production of sugar in the EC.
The AB report also makes comments relevant to Article 21 of the AoA and to the important question of whether the general prohibition of export subsidies in Article 3.1 of the SCM Agreement can apply to export subsidies on agricultural products. The AB also deals with issues involving the terms of reference of the Panel, whether the complaint had been brought in good faith under Article 3.10 of the Understanding on Dispute Settlement, and whether the complainants were estopped from challenging the EC schedules.
[∗] Sydney Centre for International and Global Law, Faculty of Law, University of Sydney.
  ATS 21. Art 3(1) provides that ‘[n]o State Party shall expel, return (“refouler”) or extradite a person to another State where there are substantial grounds for believing that he would be in danger of being subjected to torture.’
  ATS 23.
 Art 17 provides that ‘1. No one shall be subjected to arbitrary or unlawful interference with his privacy, family, home or correspondence, nor to unlawful attacks on his honour and reputation; 2. Everyone has the right to the protection of the law against such interference or attacks.’
 Art 8 relevantly provides that ‘3. (a) No one shall be required to perform forced or compulsory labour … (c) For the purpose of this paragraph the term “forced or compulsory labour” shall not include … (iv) Any work or service which forms part of normal civil obligations.
 Art 2(3) provides that ‘Each State Party to the present Covenant undertakes: (a) To ensure that any person whose rights or freedoms as herein recognized are violated shall have an effective remedy, notwithstanding that the violation has been committed by persons acting in an official capacity; (b) To ensure that any person claiming such a remedy shall have his right thereto determined by competent judicial, administrative or legislative authorities, or by any other competent authority provided for by the legal system of the State, and to develop the possibilities of judicial remedy; (c) To ensure that the competent authorities shall enforce such remedies when granted.’
 UN Doc CCPR/C/85/D/1036/2001, [7.3], <http://www.familyrelationships.gov.au/agd/WWW/rwpattach.nsf/VAP/(CFD7369FCAE9B8F32F341DBE097801FF)~7zFaure+views.doc/$file/7zFaure+views.doc> .
 Ibid [7.5].
 Food, Agriculture, Conservation and Trade Act of 1990 (FACT Act 1990), Federal Agricultural Improvement and Reform Act 1996 (FAIR Act 1996) and the Farm Security and Rural Investment Act 2002 (FSRI Act 2002).
 WT/267/AB/R,  quoting EC-Bananas WT/DS27/AB/R .
 WT/DS265/R [7.291].
 WT/DS265/AB/R .
 WT/DS265/AB/R .
 Canada – Dairy First Recourse to Art 21.5, WT/DS103, 113/AB/RW .