EU SUGAR REFORM A BITTER PILL FOR POORER PRODUCERS

By David Kleimann and - - Reprint | | Print |

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GENEVA, Feb 6 2008 (IPS) - For more than three decades, the EU has maintained an extremely costly supply management scheme for its domestic sugar market which insulates domestic producers from international market forces with price supports and tariffs and has resulted in domestic prices triple world market prices and a major production surplus. At the same time, the EU has granted duty free market access for guaranteed quantities to some of its former colonies at guaranteed prices, writes David Kleimann, a German expert on International Law and International Relations. In February 2006, the EU adopted a radical reform programme of its sugar regime which is having severe effects. Some ACP high-cost producers are very likely to cease production because of the price reductions, while others will face a sharp reduction in their export earnings, and only a small group of competitive LDCs will be able to comfortably continue to supply the EU market after the price reductions have been implemented and the preferences terminated. The EU has the moral and legal obligation to provide the small and vulnerable ACP economies with market access for sugar that is worth no less than the previous trade arrangement and that continues to contribute to the realisation of ACP countries economic development and poverty reduction.

At the same time, the EU has granted duty free market access for guaranteed quantities to some of its former colonies at guaranteed prices. The Sugar Protocol, which provides these preferences to 18 African, Caribbean, and Pacific (ACP) countries, has proven to be highly remunerative for ACP producers.

In 2003, three of the world’s most efficient sugar producers which do not have access to the highly-protected EU market – Brazil, Australia, and Thailand – filed a complaint against Brussels, claiming that the EU subsidised sugar exports beyond the levels agreed to in Uruguay Round world trade negotiations.

A World Trade Organisation (WTO) panel and its Appellate Body ruled in favour of the complainants. In turn, the EU was obliged to bring its domestic market regulation into conformity with its WTO obligations.

In response, in February 2006, the EU adopted a radical reform programme for the period 2006/07 to 2009/10. The reform aims primarily at significantly reducing domestic sugar production from about 20 to 12 million tonnes and reducing the domestic price by 36 percent over four years. The price reductions, however, stand in stark contradiction to the interests of ACP beneficiaries of the Sugar Protocol, the majority of which are African.

But the EU reform has yielded even more severe consequences for the signatories of the Sugar Protocol. In September 2007, the EU denounced the Protocol, providing for the termination of preferences by October 2009. There were two primary reasons for this denunciation: First, EU policy-makers sought to take pressure off the oversupplied domestic market, which has proven to be relatively resistant to the initial reform efforts. The elimination of guaranteed imports hence complements efforts to reduce domestic over-supply. Second, it is unlikely that the Sugar Protocol preferences, if upheld indefinitely, would withstand a legal challenge under WTO law.

Both the EU reform and the denunciation of the Sugar Protocol are having severe effects, and some ACP high-cost producers are very likely to cease production because of the price reductions, while others will face a sharp reduction in their export earnings, and only a small group of competitive LDCs will be able to comfortably continue to supply the EU market after the price reductions have been implemented and the preferences terminated.

In order to mitigate the adverse effects of the reform on ACP sugar producers, the EU has made available 1.284 billion euros in adjustment assistance. The aim is enhanced competitiveness, diversification, and the financing of broader adjustment needs of individual states. These funds, however, are available only to those countries with a low degree of competitiveness and that rely on the preferences.

On a parallel track, the EU has made ACP countries a market access offer on sugar as part of the EU-ACP negotiations of Economic Partnership Agreements (EPAs). The EPAs are supposed to succeed the unilateral, non-reciprocal trade preferences of the Cotonou Agreement for which the WTO waiver expires by the end of 2007. Under the new conditions, ACP countries, like the most vulnerable economies worldwide, would find themselves in a competition for access to the EU market that would exert downward pressure on prices and hence have adverse effects on export earnings. In the worst case scenario, one or more ACP countries could be driven out of the supply market and previously made investments in the sugar sector would be lost.

The EU market access offer on sugar is disappointing in several respects and leaves most Sugar Protocol beneficiaries worse off. First, the EU seeks to make non-LDC sugar exports subject to a safeguard clause which might render it impossible for these states to offset losses from price reductions by expanding their exports to the EU. Second, not even the new domestic reference price would be guaranteed to ACP exporters.

This scenario contradicts the EU obligation under the Cotonou Agreement to provide ACP countries with benefits comparable to the pre-EPA situation. Therefore, ACP countries need to stand firm in EPA negotiations in order to prevent an unacceptably restrictive safeguard clause, to receive guaranteed export prices, and to receive initial quotas which are large enough to offset losses due to price reductions.

Against this background, an assessment of the value of the new EU market access offer for ACP sugar, which was announced within the context of the current negotiations of the EPAs, is of crucial importance. The EU has the moral and legal obligation to provide the small and vulnerable ACP economies with market access for sugar that is worth no less than the previous trade arrangement and that continues to contribute to the realisation of ACP countries economic development and poverty reduction. (END/COPYRIGHT IPS) (IPS/South Centre)