Notice of initiation of an examination procedure concerning an obstacle to trade, within the meaning of Council Regulation (EC) No 3286/94, consisting of subsidies afforded by the United States of America to oilseed production

(2003/C 58/03)

On 10 January 2003, the Commission received a complaint, pursuant to Article 3 of Council Regulation (EC) No 3286/94(1) (hereinafter the Regulation).

1. Complainant

The complaint was lodged by the European Oilseed Alliance (EOA). The EOA is a trade organisation made up of national associations from Germany, the United Kingdom, Spain, France and Sweden. These national associations' members include producers of oilseeds in all cases, as well as other professions in the sector, in some cases (e.g. grain stockers, processors and users). The EOA member organisations represent 86 % of European oilseed production.

The EOA is an association acting on behalf of a Community industry, oilseed production, within the meaning of Articles 2(5) and 3(1) of the Regulation.

2. Product

The complaint concerns subsidies afforded to oilseed production in the United States of America. Oilseeds are a group of plants grown for both their oil and proteins. Major oilseeds produced worldwide are soybeans, rapeseed and sunflower. Minor oilseeds include linseed, safflower and sesame. Oilseeds are covered by the following codes of the Combined Nomenclature: 1201, 1204, 1205, 1206 and 1207.

3. Subject

The complaint concerns a trade barrier allegedly caused by the United States of America due to the granting of subsidies to oilseed production.

The challenged United States subsidies are loan rates and marketing loan subsidies, direct payments and counter-cyclical payments. These payments are made under the United States Food Security and Rural Investment Act 2002 (FSRIA).

Under the loan rates system, producers may take out "non-recourse" loans offered by the government. The collateral for these loans is the oilseed crop, assessed at a government-set value. If the farmer can sell the oilseeds at a price higher than the loan rate, he then repays the loan. If he cannot, he forfeits the crop but need make no payments on the loan. The system thus acts as a price guarantee at the government-set loan rate. The loan rates are alleged to be lower than commercial loan rates. In practice however since market prices have been below the loan rate, the following measures have been applicable.

Under the marketing loans system, in order to prevent the build-up of public stocks, a marketing loan gains system is applied. Under this system, where a farmer has taken out a loan, he may simply reimburse the loan at the prevailing market price for oilseeds (where this is below the loan rate). He therefore receives an aid of the difference between the market price of the crops and the government-set loan rate. He is free to sell the crop on the market.

Further, to simplify procedures the instead of taking out a loan, if the market price of oilseeds is below the loan rate, the farmer may simply apply for an aid (loan deficiency payment) of equivalent value to the difference between the prevailing market price and the loan rate.

These mechanisms are available for a number of agricultural commodities, including oilseeds. The rates are set differently for different commodities. The payments of course are specific to each commodity.

It is claimed in the complaint that there is no limit set on the volume of subsidy available under these schemes.

Direct payments are made in respect of historical base areas for a specific range of various crops, including oilseeds. In practice, there is a freedom to plant a range of crops on the areas covered, although some products are excluded (e.g. fruits and vegetables) and the land must be kept in agricultural condition. The base areas may be updated to cover a 1998 to 2001 reference period.

Counter-cyclical payments are also related to the historical base areas for various crops. If the price of a particular crop on the world market drops below a certain level then a payment is made. Again, this is not dependent on actually planting the crop concerned on the base area, although growing some products is excluded (e.g. fruits and vegetables) and the land must be kept in agricultural condition.

The complaint also cites subsidies paid under previous United States Federal Agricultural Improvement and Reform Act 1996 (FAIR Act) which are now superseded by the FSRIA subsidies. Loan rates and marketing loan subsidies were granted similarly as under the FSRIA.

Direct payments known as "flexibility" or "AMTA" payments as well as "emergency" aid (paid in 1999, 2000 and 2001) were also made on the basis of historical reference areas. These reference areas included both oilseeds reference areas and those for certain other arable crops.

Expenditure under these measures to oilseeds is alleged to have been USD 1,2 billion in 1998, USD 2,5 billion in 1999, USD 2,8 billion in 2000 and USD 3,5 billion in 2001.

4. Allegation of obstacles to trade

The complainant claims that the abovementioned trade measures maintained by the United States of America:

- constitute subsidies as defined in Article 1 of the Agreement on Subsidies and Countervailing Measures (SCM), and that these subsidies are specific within the meaning of Article 2 SCM,

- are not exempted from a right of action under Articles 5 and 6 SCM by virtue of Article 13 of the Agreement on Agriculture (A on A) since the measures grant support to the specific commodity, oilseeds, in excess of that decided during the 1992 marketing year which is alleged to be practically nil,

- have caused adverse effects to the interests of the Community as set out in Article 5 SCM by causing serious prejudice to its interests in particular as set out in Article 6(3)(c) SCM as the effect of the subsidies is significant price depression on the world market, and by consequence the Community market since Community oilseed tariffs are low or zero, based in part on an econometric model, and

- thus give rise to a right of action for the Community under Article 7 SCM.

The complainant has provided sufficient prima facie evidence to justify initiating an examination procedure that the contested measures are inconsistent with the obligations of the United States of America under the WTO Agreement, in particular with Articles 5 and 6 of the SCM, and that they thereby constitute an obstacle to trade within the meaning of Article 2(1) of the TBR.

5. Allegation of injury

The complainant contends that it has suffered injury within the meaning of Article 2(3) of the Regulation.

In particular the complaint alleges that the existence of serious prejudice to the EC under Article 6(3)(c) SCM due to significant price depression on the world market, and by consequence the EC market, is in itself sufficient evidence of injury.

In addition to the allegation of price depression, the complaint also alleges that import volumes have risen as compared to Community production and that EC oilseed producer revenue has dropped. This analysis is in part based on an econometric model.

Community oilseed production of 14 million tonnes on average over the 1999 to 2002 period represents a value of over EUR 3 billion at current prices. Significant price depression could therefore represent sizeable injury to Community producers.

The complainant has provided sufficient prima facie evidence of injury as defined in Article 2(3) of the Regulation to justify initiating an examination procedure.

6. Community interest

The Community has a systemic interest in the application of WTO rules in the agricultural sector. The negotiations of such rules was a key element in the successful conclusion of the Uruguay Round. Support for oilseeds was itself an key element covered in the negotiations on the Agreement on Agriculture.

Further negotiations are underway in the WTO in the context of the Doha Development Agenda. Agriculture is again an element of these negotiations.

Given the above circumstances, it is considered to be in the Community's interest to initiate an examination procedure.

7. Procedure

Having decided, after consultation of the Advisory Committee established by the Regulation, that there is sufficient evidence to justify initiating an examination procedure for the purpose of considering the legal and factual issues involved, and that this is in the interest of the Community, the Commission has commenced an examination in accordance with Article 8 of the Regulation.

Interested parties may make themselves known and make known their views in writing, in particular by addressing the specific issues raised in the complaint, and by providing supporting evidence.

Furthermore, the Commission will hear parties who so request in writing when making themselves known, provided that they are a party primarily concerned by the result of the procedure.

This notice is published in accordance with Article 8(1)(a) of the Regulation.

8. Time limit

Any information relating to the matter and any requests for hearings should be sent in writing to: European Commission Directorate-General for Trade Mr. Ignacio Garcia Bercero, DG Trade D/3 CHAR 9/74 B - 1049 Brussels Fax (32-2) 299 32 64

Any such information or request for a hearing should reach the Commission not later than 30 days following the publication of this notice.

(1) Council Regulation (EC) No 3286/94 of 22 December 1994 laying down Community procedures in the field of the common commercial policy in order to ensure the exercise of the Community's rights under international trade rules, in particular those established under the auspices of the World Trade Organisation (OJ L 349, 31.12.1994, p. 71), as last amended by Council Regulation (EC) No 356/95 (OJ L 41, 23.2.1995, p. 3).