TRADE: Europe Grapples With the Future of ACP Sugar Imports

By IPS Correspondents Reprint | | Print |

Meghan Sapp

BRUSSELS, Mar 9 2007 (IPS) - The European Union (EU) has imported sugar at preferential prices from African, Caribbean and Pacific countries since the 1970s; but, failed sugar reform within the union and the prospect of unlimited imports from Least Developed Countries (LDCs) in the near future have put a question mark over this arrangement.

Europe reformed its sugar market in 2004, partly in response to a 2003 World Trade Organisation (WTO) ruling that it limit sugar exports to below a quarter of previous levels – to 1.273 million tonnes. The WTO noted that EU sugar subsidies allowed European farmers to get high prices for their sugar, sparking the production of an excess that could then be dumped on the global market at very low prices – undermining farmers in other countries.

EU sugar reform slashed prices by 36 percent, in a bid to reduce excess production by nearly six million tonnes.

Despite price cuts, many EU countries expected to quit sugar production didn’t, leaving much more sugar on the market than expected. And with the WTO ruling, they can’t export the excess.

The 36 percent price cut also applied to preferential imports from sugar producing countries in Africa, the Caribbean and Pacific (a bloc referred to as the ACP) – forcing certain farmers in these states out of business.

Under this scenario, the LDCs expectation of having duty-free, quota-free access for their sugar in Europe’s lucrative market from July 2009 is appearing less likely by the day. The European Commission (EC), the executive arm of the EU, is looking to limit LDC sugar imports until 2015, going against a 2001 agreement – this because of fears that local farmers might not be able to withstand competition from sugar producers abroad.

Under the 2001 Everything But Arms (EBA) agreement, LDCs were allowed unlimited access to the European market for everything but arms – and sugar, bananas, and rice. More time was deemed necessary for the last three goods to be given complete access, as the EC felt local producers of these goods needed a longer period to adapt to international competition.

But it isn’t only EU sugar reform and price cuts that are altering trade in the commodity between Europe and developing nations. The Cotonou Agreement, which sets out all preferential trade between the EU and ACP, as well as development and governance programmes, expires at the end of 2007. The Sugar Protocol, which is the basis for privileged access to the lucrative EU sugar market, will also wrap up at this time.

Stephen Thornhill, who authored a report exploring options for when the ACP Sugar Protocol expires, said the EC is worried about its domestic sugar prices falling because of too much international competition – and may look to LDC nations to limit their exports on a voluntary basis as it decides on the shape of future trade relations with the ACP.

Just under half of the ACP countries that export sugar to the EU are LDCs. The group of LDCs comprises the 50 poorest countries in the world – a category defined by the United Nations in 1971 in acknowledgement of the fact that such nations require special assistance.

By making the limits voluntary, the EC can deflect criticism from civil society that it is going back on trade agreements with the LDCs, Thornhill said.

In an effort to stem damage to ACP economies which were badly affected by the 36 percent price cut, he suggested in his report a gradual increase of the ACP’s quota over three years from the current 1.3 million tonnes to 1.9 million tonnes by 2010/11.

He proposed this increase as an accord attached to the Economic Partnership Agreements (EPAs) currently under negotiation between the ACP’s six regions and the EU. Coupled with a voluntary cap on Europe’s LDC imports, the plan may be more palatable to the EC than the perceived threat of unlimited LDC imports, Thornhill added. (EPAs are regional agreements scheduled to enter into force by the start of next year, to make EU-ACP trade compatible with WTO rules.)

“The additional 600,000 tonnes (of ACP quota) would be to offset the reduction in ACP export earnings post-EU reform. If that were in addition to unlimited EBA imports, the EC wouldn’t be happy,” said Thornhill, speaking to ACP and LDC representatives about his report.

He noted that including sugar in the EPAs would eliminate many of the benefits ACP countries currently get from the Sugar Protocol, including guaranteed tonnages rather than just access, and guaranteed negotiated prices.

He said that if sugar was included in the EPAs, it would become duty-free and quota-free but without price supports. The ACP countries would then run the risk of flooding the EU market and reducing prices for sugar, in effect hurting everyone.

Commercial LDC representatives speaking on condition of anonymity observed that Thornhill’s report, funded jointly by the ACP Secretariat and the EC, was similar to a proposal put forward by the LDCs during the two years before the EU’s 2004 reform.

The LDC proposal suggested limiting LDC imports in exchange for a 20 percent price cut rather than the reform’s full 36 percent price cut, with unlimited access. However, it was rejected by the EU Council of Ministers because the EU did not wish to limit LDC imports.

Thornhill said the EC was likely to accept his report’s proposals because of the EU’s current oversupply situation. He felt that, since most of the additional tonnage he proposed went to ACP countries who are also LDCs, the EC would be more likely to accept voluntary restrictions on EBA imports.

He also said the EC was exploring a three-tiered approach on LDC imports that would see lower imports until 2010 while the EU’s oversupply situation adjusted, a higher level of imports until 2015 as a transition period, and then quota-free access from 2015.

ACP diplomatic sources said on condition of anonymity that the EC was likely to base their proposals on Thornhill’s report because it had helped pay for the study.