* Says EU decision puts at risk Brazilian investments
* Says driver for sugar price in 2010 is mainly supply
(Adds comment on WTO arbitration)
By David Brough
LONDON, Feb 4 (Reuters) - Brazil's largest sugar and ethanol marketing company, Copersucar, called an additional export of 500,000 tonnes of out-of-quota sugar by the European Union a "flagrant violation" of World Trade Organisation (WTO) rules.
"What really disturbs us is the flagrant violation of the free trade agreement established by the WTO," Paulo Roberto de Souza, CEO of Copersucar, told Reuters via email on Thursday.
The EU, responding to similar complaints from Brazil, Thailand and Australia, said on Monday its decision to allow extra exports of unsubsidised sugar to be exported was legal.
Souza said Brazil could take the EU to arbitration by the WTO if the bloc maintains its position.
"If the EU insists on breaking the (free trade) agreement, the next step will be to lodge a complaint," he said, responding to Reuters' questions ahead of the Feb. 7-9 Kingsman Dubai sugar conference.
Souza said the EU decision could set a precedent for future action.
"At a moment of imbalance between supply and demand, the EU wants to commercialise sugar stocks formed previously, at a time when prices were low," he said.
"In the long term, this could have negative consequences for the sugar market, since the EU might have even higher surpluses to export in future crops, when global prices return to lower levels."
Souza said that the EU decision could jeopardise the heavy investments Brazil is making in the sugar sector.
"Violations of commercial agreements generate uncertainty and discourage investments," he said.
Souza also said that Copersucar planned to increase its ethanol sales in Europe by some 30 percent during the 2010/11 crop. He gave no turnover figures.
"We believe that the lower grain prices may shift some of the feedstock away from sugar into grains, but since the European ethanol industry is running at about full capacity, it should not change the output significantly."
Souza said the sugar market, which rallied to a 29-year peak on Monday, was currently focusing on solving its nearby supply problems.
"The key drivers for the price during 2010 will be mainly supply driven," he said.
"On the demand side, we foresee a slower rate of expansion as a consequence of prices, but still positive." (Reporting by David Brough; editing by Anthony Barker)