Australia has said that it is to join Brazil and Thailand in launching a formal challenge at the World Trade Organisation against the EU’s sugar subsidy system.

Trade Minister Mark Vaile said the EU is exporting highly subsidised sugar, distorting world markets to the detriment of sugar exporters worldwide, including Australia.

The three countries will ask the WTO for a formal ruling on whether the EU is breaching world trade rules on sugar subsidies.

The EU hit back at the decision, saying a WTO challenge would hurt developing countries.

"These three countries are challenging the right of the EU to export sugar without export refunds, as well as the special arrangements for sugar imports from a number of African, Caribbean and Pacific (ACP) countries, as agreed in the Uruguay Round. In the last months sugar exporting ACP countries have expressed their strong concern and opposition to the Brazilian, Australian and Thai action, which runs the risk of undermining preferential ACP sugar exports to Europe," the European Commission said in a statement.

"The structure of the Australian sugar market, which Australia claims is free and non-distorting, is practically closed to imports from other countries, even if its internal prices are at least twice as high as world market prices. At the same time Australian production and exports have increased substantially since the early 1990s," the Commission said.