Published in Agra Europe, July 27, 2007.
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 (EPAs) 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 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 September 30 2009, with country quotas and ACP guaranteed prices abolished. In short, the EU would renege on its undertakings under this longstanding 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 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 October 1 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.
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/bio energy 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 socioeconomic 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