The ruling was hailed as a victory by Brazil, which along with Thailand and Australia had challenged the EU's subsidies, the Wall Street Journal said Thursday.
"This has been an important step in the elimination of distortions in agricultural markets," said Brazilian Foreign Minister Celso Amorim.
The EU exports about 5 million metric tons of sugar a year, making it the world's second-largest sugar exporter after Brazil.
The WTO arbitration panel's ruling wasn't made public and was distributed only to parties in the dispute.
Under WTO rules, parties to a dispute have a period during which they can question the panel's decision, but preliminary rulings are almost never overturned before they are officially made public.
EU critics say the current subsidies flood the world with government-subsidized sugar, driving down market prices and hurting the economies of poor nations that depend on the crop.