Economy
Why
the new EU sugar trade offer is unfair for ACP countries
A
personal perspective by Mrinal Roy*
As
part of the current negotiations for new Economic
Partnership Agreements between the European Union and the
African, Caribbean and Pacific (ACP) countries, the EU has
made a questionable offer on market access for sugar to all
ACP countries.
What
may seem on the surface like a generous gesture by the EU
actually represents a disadvantageous trade-off.
The
ACP countries which are signatories to the existing EU-ACP
Sugar Protocol (SP) are being asked to renounce the current
guarantees of the Sugar Protocol -- market access for agreed
quantities for an indefinite duration, annually negotiated
guaranteed prices and a special legal status.
In
return, what they are being offered is enhanced market
access opportunities -- but without country quotas, for a
short-lived period, at unspecified lower non-guaranteed
prices, and at a lower return per tonne.
After
an assessment of the EU offer at the ACP Special Ministerial
Conference on sugar in Fiji and at the ACP Ministerial
Council comprising the 79 ACP States in May 2007, the ACP
responded to the Commission to state that the EU offer ‘is
tantamount to a unilateral renunciation of the Sugar
Protocol and as such it is totally unacceptable.’
In
reply, the Commission has threatened a ‘unilateral
denunciation of the Sugar Protocol’ should the SP
countries not agree ‘on jointly renouncing the Protocol
and integrating sugar into Economic
Partnership Agreements (EPAs).
Essence
of EU offer
The
EU offer on market access for sugar in essence proposes the
following:
The
Sugar Protocol would end as from 30 September 2009, with
country quotas and ACP guaranteed prices abolished. In
short, the EU would renege on its undertakings under this
long standing inter-governmental agreement.
Instead
of the annually negotiated ACP guaranteed prices, importers
of ACP sugar would be required to pay ‘not less than a
certain price level’ during the period October 2009 –
September 2012. After 2012, this unspecified price level
would be replaced by a price information system based on the
current system which monitors and reports on market prices
at intervals of 6 months.
In
return, the EU would provide improved duty-free quota-free (DFQF)
market access to both existing Sugar Protocol (SP) and Less
Developed Countries (LDC) countries, as well as offering
initial market access to ACP states which are not currently
party to the Protocol, during the period January 2008 to
September 2015.
However,
whilst LDC exports under the Everything but Arms
Initiative will be unrestricted as from 2009, the SP and
non-LDC ACP countries’ market access will be subject to a
discriminatory automatic double trigger volume safeguard
mechanism.
Non-LDC
exports would be allowed to exceed ‘a certain level close
to their current export level’ only if total LDC/ACP
imports into the EU are less than a ceiling of 3.5 million
tonnes imposed to assure the EU sugar market balance.
The
poor in competition
This
means that EU market access for current SP countries can
only rise above the current 2006/07 year baseline sugar
export level of 1.6 million tonnes as long as LDC exports
remain below 1.9 million tonnes.
Against
a background of depressed world market prices and a weak US
dollar, independent assessments of the EU offer predict that
with ongoing and new production expansion investments, LDC
exports could breach this threshold very soon -- thereby
limiting the benefit of any additional market access
provided to non-LDC SP/ACP countries.
With
the abolition of agreed country quantities, the exports of
traditional SP countries could thus even be curtailed below
their current levels by the end of the current regime in
September 2015.
As
from 1 October 2015, ACP sugar will benefit from duty-free
quota-free market access – but still subject to a special
(EPA) safeguard clause ‘adjusted to take account of the
sensitivity of sugar’ triggered in the event of market
disruption.
Essentially,
therefore, the EU offer thus aims at taking from the poor to
give to the poorer countries, in total disregard of the dire
socio-economic consequences. After their Special
Preferential Sugar Agreement export tonnages were cut in the
wake of the EBA Initiative in 2001 and the transfer of the
cost of the refining aid of €26.9 per tonne to them in the
context of the reform of the sugar regime, this is the third
time that traditional Sugar Protocol countries are being
made to bear an unfair burden.
Serious
concerns
The
ACP have serious concerns at the cavalier disregard of the
political commitments and moral undertakings under
long-standing ACP-EU Agreements, the more so as tariff
preferences accorded under the Sugar Protocol are part of
Community law.
The
European Court has clarified that under Article 300 (7) of
the EU Treaty, international agreements shall be binding on
the institutions of the Community and on the Member States.
The Sugar Protocol is a contractually binding
intergovernmental agreement, signed individually by the
traditional sugar supplying ACP states with the European
Community with clear legal rights and political commitments
by both parties, and is included in the EU WTO schedule as a
duty-free tariff rate quota (TRQ).
Historically,
it has been a vital vector of development and growth for a
number of small and vulnerable ACP countries who were former
colonies of Great Britain, France or Portugal.
The
Sugar Protocol is also an integral part of the EU sugar
regime under which it is implemented. Articles 30 & 31
of the new sugar regime ending in 2015 reaffirm the
commitments therein.
Benefits
not safeguarded
The
ACP countries had requested the Commission to undertake the
review of the Sugar Protocol at the all-ACP level in line
with Article 36.4 of the Cotonou Agreement, ‘with a view
to safeguarding the benefits derived from the Sugar
Protocol, bearing in mind its special legal status’.
But
the Commission persists in proposing the divisive approach
of effecting the review in the respective regional EPA
configurations.
Moreover,
the EU offer limits the benefits of the Sugar Protocol to
market access only and totally ignores the other tangible
and intangible benefits enshrined in the Sugar Protocol as
detailed in the Thornhill report commissioned by the ACP for
this purpose. These benefits include, among others, the
guaranteed access for individual country agreed quantities,
guaranteed prices and indefinite duration protected by the
EC Declaration on denunciation, exemption from the safeguard
clause of the Cotonou agreement, and the obligation of the
EU to buy agreed quantities as the ‘buyer of last
resort’.
In
addition, the EU offer does not meet the overriding
principle of the EPA negotiations themselves, as contained
in Article 37 of the Cotonou Agreement – which is to
improve on the current market access situation, building on
the acquis and ensuring that no ACP state is worse off. In
effect, it substitutes for the acquis of the Sugar Protocol
and significantly waters down its benefits. Any EU offer for
additional market access must necessarily build on (and not
substitute for) the Sugar Protocol, whose benefits must
remain intact.
The
EU offer also replaces the predictability of prices
envisaged under the new sugar regime up until the end of the
regime in September 2015 with the uncertainty of
unpredictable prices as from October 2009, thereby sapping
ACP business plans.
At
a time when SP countries are making costly investments to
reengineer their sugar sectors into competitive sugar/bioenergy
production clusters in order to adapt to the 36% price cut
of the 2005 EU sugar regime reform, the absence of
predictable prices and revenue flows undermines the
successful implementation of the respective ACP
restructuring plans.
Furthermore,
the abolition of country quotas and price benchmarks would
lead to a commercially unsustainable and detrimental
free-for-all situation to export sugar within an overall
total tonnage. This would favour those ACP/LDC countries
having an earlier cane harvest campaign and a closer export
delivery transit time.
This
situation could also undermine the EU sugar regime.
Negotiating
as partners
The
EU proposal to put an end to the Sugar Protocol is the most
serious challenge to this unique trade-driven instrument of
socio-economic development. These concerns must be urgently
addressed by the EU through the requested all-ACP
negotiating forum in order to build on the acquis, safeguard
the benefits of the SP, enhance market access and maintain
the price predictability envisaged under the new EU sugar
regime.
As
sugar is treated as a sensitive product, there is no reason
why the Sugar Protocol cannot benefit from more flexibility
than proposed in the EU offer until at least the end of the
new sugar regime in September 2015, and indeed beyond that.
In
the absence of such a logical process, the SP countries are
being compelled to examine every option available to protect
their interests at a time when their priority remains the
successful re-engineering of their sugar sector to tide over
the adverse consequences of the EU sugar regime reform.
*
Mrinal Roy is General Overseas Representative of the
Mauritius Sugar Syndicate and the Mauritius Chamber of
Agriculture, and Chairman of the ACP London Sugar Group
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