WTO declares most EU sugar exports illegal

The World Trade Organisation dealt a blow yesterday to European Union farm subsidy policy by declaring much of the 25-nation bloc's sugar exports were illegal.

The verdict by the WTO's Appellate Body, its top court, could lead to a sharp fall in sugar exports by the EU, long accused by critics of "dumping" excess produce on world markets to the detriment of other exporters and developing countries.

Brussels had appealed against last year's finding by a panel of trade judges that several million tonnes of surplus EU sugar output, so-called "C" sugar, which should be exported without subsidies, was in fact benefiting from state aid.

In rejecting the EU appeal, the court also upheld a ruling that Brussels, which imports sugar from poor developing countries at inflated prices, could not export a similar amount at reduced prices to recover some of the cost.

Australian Trade Minister Mark Vaile, whose country, along with Brazil and Thailand, brought the case against Brussels, said the decision would boost Australian exporters.

"This will result in better conditions for Australia's sugar industry, which depends on the world market for around 80 per cent of its income," Mr Vaile said in a statement.

The European Union, which had been bracing for defeat, said it was disappointed, but would obey.

"We will abide by our international obligations... and will work closely with member states on the necessary reforms," Trade Commissioner Peter Mandelson said in a statement.