In public affairs the importance of good timing should never be underestimated. It is for this reason that the timing of the release by the European Union (EU) of its sugar reform proposals last July has occasioned so much public comment. On the surface, it seems tactically unwise for the EU to have taken a firm position on the reform of its sugar regime, just prior to the imminent WTO Dispute Panel ruling on the challenge brought against it by Australia, Brazil and Thailand (ABT). As readers are aware, the WTO Panel's initial and then subsequent final ruling on September 8, indicated that the ABT countries had proved their case and the EU sugar regime has been deemed inconsistent with WTO rules.
Last week I gave an interpretation of the EU's timing, in which I claimed that irrespective of the WTO-ruling, the EU had to make a substantial gesture to cut its agricultural protection and subsidies if the effort by the developed countries to restart the WTO global negotiations after the Cancun collapse was to make any headway. With the USA in the grip of a close presidential election no such initiative could reasonably be expected from that source. This left the EU as the only other option. In disregarding the imminent WTO Dispute Panel ruling in its timing therefore, the EU is signalling its strong desire to put the WTO Doha Development process back on track and is willing to pay a high price for this.
Whether readers think this argument acceptable or not, the uncertainty in the sugar industry has become so palpable, and the gap between the EU sugar price and the world price has for some considerable time now become so wide that other major sugar producers find the EU sugar regime to be completely unacceptable. More that a year ago the Sugar Association of the Caribbean (SAC) had in a press release (May 2003) "noted the uncertainties surrounding the EU's sugar policy" and went on correctly to stress the importance of long-term stability for the industry. It listed those uncertainties as: 1) the outcome of the WTO negotiations 2) the EU's review of its agricultural and sugar policies 3) the effects of the EU being enlarged from 15 to 25 members 4) the Everything But Arms (EBA) initiative for the least developed countries (LDCs) 5) the proposed Economic Partnership Agreement (EPA) to be negotiated between the EU and Caricom and 6) the ABT challenge.
Despite the recent publicity the ABT challenge has been long in the making. From the inception of the WTO's Agreement on Agriculture (A0A), a group of highly competitive, large-scale agricultural producers had challenged the EU and the USA over their massive subsidisation of agriculture and the dumping of these subsidized commodities on the world market. A grouping of these countries, known as the Cairns Group, therefore challenged the WTO to move speedily to free trade in agricultural commodities. Over the years this group has regularly lambasted the EU and the USA for preaching 'free trade' and practising "protection, preferences and discrimination" in their agricultural trade, to the enormous benefit of their own agricultural producers.
Global alliance for sugar reform
In the case of sugar, several WTO member countries had formed a Global Alliance for Sugar Trade Reform and Liberalisation nearly five years ago, in November 1999. This alliance agreed to work for the abolition of preferential markets and all forms of domestic support and export subsidies on sugar. It therefore, committed itself to the effective termination of the Sugar Protocol as well as the US tariff rate quota system for sugar. In other words its ultimate goal is the full liberalisation of the sugar trade. The alliance's objectives are directed at undermining the benefits accruing to the African-Caribbean-Pacific (ACP) Group of countries in the Sugar Protocol. And, since the countries leading this charge are not developed industrial economies, it seems ironic that the ACP sugar position in the WTO is being championed by the rich countries. The fact that the ABT countries are seeking not only the liberalisation of sugar but all agricultural products has far wider implications than might be first assumed.
The three key challenges
There were three specific challenges, which the ABT countries directed at the EU's sugar regime. First, they claim that its export subsidies on sugar exceeded the limits permitted by the WTO. Second, they claim that the EU's sugar refineries are benefiting unfairly from the guaranteed intervention price for the production of sugar within their allotted production quotas. This refers to the A and B sugar quotas mentioned last week. The surplus sugar in the C quota is, as we saw last week, routinely subsidised and exported. Third, they claim that the raw sugar imported duty free under the ACP arrangements was in fact processed and re-exported (dumped) onto the world market.
The third challenge is to my mind the most stunning of them all. However, press reports on the WTO Dispute Panel's ruling indicate that the panel found that this had in fact been happening! It accepted that an additional amount of 1.6 million metric tonnes of refined sugar exported by the EU was the amount of sugar the EU imported from the ACP and India.
Deep deception
This ruling has revealed the depth of the deception practised by the EU over all these years. With no deceitful intent, the ACP countries had entered into a multilateral long-term sugar contract with the EU and enshrined this in an indefinite treaty - the Sugar Protocol. At the time of the agreement no one expected the world price of sugar to secularly decline. On the contrary, it was anticipated that there would be a global shortage of food, other agricultural supplies, and minerals. At the outset of the Sugar Protocol, the Caricom countries accepted a price for their sugar that was a fraction of the then world price. This was done in good faith, with the expectation that prices would rise and fall for cyclical and other reasons, but that the price provided would in the long run adequately remunerate reasonably efficient sugar producers in these countries. This has not occurred. Instead the EU rode on the back of the Protocol and a cleverly crafted internal sugar regime to which it was linked, and ended up being simultaneously the world's largest exporter of white sugar and importer of raw sugar.
To make matters worse, the EU has indicated in its sugar proposals that it intends to provide compensation and adjustment support for beet producers who are adversely affected by them and may have to give up production of sugar. No such unqualified support, however, has been indicated for the ACP producers who had for decades faithfully sought to honour their obligations under the Sugar Protocol.