ACP response on EU sugar regime proposal

> ACP response on EU sugar regime proposal

(posted on 11/10/04)



A. Obligations of the Parties

1. ACP-EU Sugar Protocol is a long-standing preferential trading agreement which, in 1975 at the time of its inception, consolidated the commitments of the United Kingdom and the European Community of Six Member States under the Commonwealth Sugar Agreement and the Yaoundé Convention respectively. The safeguarding of the interests of those economies dependent on sugar was paramount as evidenced in Protocol 22 of the UK Treaty of Accession which stated that: "The Community will have as its firm purpose the safeguarding of the interests of the countries referred to in this protocol whose economies depend to a considerable extent on the export of primary products and particularly of sugar".

2. Sugar Protocol is a free-standing contractual agreement between the ACP Signatory States and the European Community in which both parties have committed themselves to fulfill their respective obligations. Under Article 1 of the Protocol, "the EU undertakes for an indefinite period to purchase and import, at guaranteed prices, specific quantities of cane sugar, raw or white, which originate in the ACP States and which these States undertake to deliver to it."

3.Regarding price and an intervention mechanism, Article 5 of the Protocol states that, "(i) White or raw sugar shall be marketed on the Community market at prices freely negotiated between buyers and sellers; (ii) The Community shall not intervene if and when a Member State allows selling prices within its borders to exceed the Community’s threshold price; and (iii) The Community undertakes to purchase, at the guaranteed price, quantities of white or raw sugar, within agreed quantities, which cannot be marketed in the Community at a price equivalent to or in excess of the guaranteed price."

4. The  ACP have fully and faithfully met their obligations under the Sugar Protocol, i.e. exporting an unchanged amount of 1.3 million tonnes per annum since 1975, and the ACP legitimately expect the EU to continue meeting its obligations under the terms of the Protocol.

    5. The ACP and the EU, cognizant of the need to maintain the benefits derived from the Sugar Protocol jointly agreed, as provided for in Article 36(4) of the Cotonou Partnership Agreement, to safeguard these benefits.

    6. The EU EBA initiative has allowed the ACP-LDCs for the first time to export sugar to the EU market under a Framework Agreement which was signed by the LDC sugar exporting countries on 23 October 2001. EBA has not only provided an equitable share to beneficiaries, but it has also enabled an orderly delivery of the assigned allocations to the EU market. The EBA initiative has so far ensured that the benefits flow to those to whom they are intended, namely the sugar industries and communities in LDCs. The ACP are cognizant of the fact that sugar plays an important rôle in the development of LDCs, is making a substantial contribution to the well-being of the communities where the sugar industries are located and the countries at large, and is a major source of foreign exchange. The EBA initiative has already attracted investment in the sugar sector and hence has made a direct contribution to sustainable development and poverty alleviation.

7. The ACP and LDC sugar supplying States expect that the EU will honour the above legal and political commitments when considering the reform of its sugar regime.


B. Relevant factors from the ACP perspective

8. The sugar industry fulfils a multifunctional role in the ACP countries and through its linkages with other sectors of the economy represents a major pillar of economic development. The importance of this role and of the wide scope of the direct and indirect benefits obtained through the   sugar  industry has to be viewed against a background of very limited possibilities to diversify away from sugar.

    9. The Community and the ACP states have a shared vision of the multifunctional role of agriculture. While the Community has a wide array of measures and financial means to enable agriculture to fulfil this essential role, it has been jointly recognized that "for vulnerable countries, in particular LDCs, land-locked countries, Small Island Developing States, preferential market access is a key means to obtaining these resources" (Declaration adopted at the NTC IV Ministerial meeting-Rome June 2002). For the ACP and the LDCs, the maintenance of a high level remunerative price is a key element of preferential access arrangements.  

    10. The ACP cognizant of the need to curtail costs, to modernise, to enhance competitiveness and to expand the scope of the multifunctional role of the sugar industry, have embarked on reform programmes which have been intensified.

11. Reform in the ACP is especially costly due to the inherent physical constraints, the need to have a socially acceptable reform, and the cost of financing and debt-servicing.

    12. Notwithstanding these constraints, the ACP are ready and willing to continue reform given the critical role of the sugar industry and the importance of the benefits derived therefrom. However, for such reform to be sustained, the EU must address the ACP's legitimate expectations for a continuing steady flow of predictable and remunerative earnings.

     13. In the context of special and differential measures, the WTO Framework Agreement of 1 August 2004 states that, "agriculture is of critical importance to the economic development of developing country Members and they must be able to pursue agricultural policies that are supportive of their development goals, poverty reduction strategies, food security and livelihood concerns".

14. The  importance of long standing preferences, e.g. the Sugar Protocol, has not only been recognized by the ACP and the EU, but also at the multilateral level. Indeed, the WTO Framework Agreement approved by the entire WTO membership fully recognises the importance of long-standing preferences and makes provision for addressing the issue of preference erosion through inter alia reference to TN/AG/W/1/Rev.1, also known as the Harbinson text. In paragraph 16, reference is made to the need for the preference-granting countries in the exercise of implementing their tariff reduction commitments to "undertake to maintain, to the maximum extent technically feasible, the nominal margins of tariff preferences and other terms and conditions of preferential arrangements they accord to their developing partners".

15. Moreover, in paragraph 16 of the Harbinson text, a time frame of eight years, inclusive of a "grace period" of two years, is recommended to reduce the tariffs applicable to products covered by longstanding preferences. In addition to this, the August 2004 Framework Agreement provides for WTO Members to designate sensitive products for which tariff reduction commitments will be lower. In such circumstances, there is no compulsion arising from the WTO negotiations for the severe and immediate price reduction as proposed by the Commission.

16. The LDCs, the majority of which are ACP countries, on 3 March 2004 submitted a proposal in the context of the reform of the Sugar Regime with the objective of safeguarding the benefits offered under the EBA initiative and without prejudice to the acquis of the ACP.

    C. Initial response of the ACP to the Commission's 14 July 2004 proposals

17. The ACP have given careful consideration to the proposals of the Commission and submit the following initial response:-

(i) One of the basic elements of the Commission paper is the need to reduce domestic overproduction by the EU; however, the measures proposed will result in severe injury to the ACPs and LDCs and in fact will benefit only industrial users of sugar in the EU. It is to be noted that, since the inception of the Sugar Protocol in 1975, the ACP have not increased the quantities of sugar exported to the EU under the Protocol, whereas the EU has increased its membership.

(ii) The Sugar Protocol is an intergovernmental agreement with obligations to be met by all contracting parties. On the EU side, the obligation is to respect the commitments enshrined in the Protocol in terms of the three guarantees of price (taking into account the relevant ACP economic factors), access and indefinite duration. Accordingly, the EU sugar regime should be appropriately structured to maintain the existing guarantees.

(iii) The severity of the price reductions and timeframe for their implementation, and the dismantling of the intervention mechanism, as proposed, are totally unacceptable since they are tantamount to firstly, a breach of the EU obligations enshrined in the Sugar Protocol, secondly, represent an impairment of benefits derived therefrom, and thirdly the negation of the multi-functional role of sugar with dire consequences for the ACP countries.

(iv) The ACP and the LDC regret that the proposal of the LDCs of 3 March 2004 has been ignored by the European Commission, and express their strong reservations on the Commission's proposals, which would negate the development intent of the EBA initiative.

(v) In an industry based on a perennial crop and which requires a predictable environment, the proposal of the Commission to have a two tier reform, one starting in 2005 and another one in 2008 is unacceptable and constitutes a element of uncertainty and instability which is not conducive to the investments necessary to promote and enhance competitiveness.

(vi) The ACP note the reaffirmation by the Commission of the commitment of the EU to buy annually at a guaranteed price an agreed quantity of 1.3 million tonnes white sugar equivalent, but emphasize that access without a remunerative price that will ensure at least the current level of earnings will be meaningless.

(vii) The ACP consider that by 2008 there would be greater clarity in the sugar environment arising from issues related to the WTO, notably the implementation of the Doha Round (noting that the 1995/2001 sugar regime was only agreed after the Uruguay Round Agreement), the implementation of recommendations of the WTO Panel/Appellate Body in the sugar case, and the accession of Bulgaria and Romania with the possibility of additional market access for ACP countries to an enlarged EU. Accordingly, the reform cannot start in July 2005, and must be delayed until 2008.

(viii) Adjustment programmes need funding in advance of any reduction in earnings brought about by proposed EU reform. In this regard, a Competitiveness Fund must be established as early as 2005.

(ix) The ACP note that the outermost regions of the EU will benefit from special treatment taking account of the specific constraints of their agriculture and industry, as well as their logistic situation in relation to the EU market. The ACP, which are in a similar situation, therefore should benefit from comparable treatment.

(x) The ACP further note that compensatory mechanisms as appropriate have been provided for in situations where operations are not economically viable. The ACP expect comparable treatment as appropriate.

(xi) The ACP re-affirm that all losses due to possible price reductions should be fully compensated for with an automatic and predictable mode of disbursement. The ACP highlight the requirement that fund disbursement must be simple, timely and recurrent. This is of critical importance in the implementation of any adjustment programme. Resources relating to the Competitiveness Fund and compensation for price reductions should be separate and distinct from each other and additional to EDF resources.

(xii) The ACP note the reference to Article 36(4) by the Commission. This Article commits the parties to the Cotonou Agreement to safeguard the benefits of the Sugar Protocol and to recognize the special legal status of the Sugar Protocol.

(xiii) The ACP welcome the intent to maintain an orderly managed market although they consider that the severity of the price cut proposal will render the market unremunerative. The ACP welcome the continued limitation on isoglucose and on access from the Western Balkans as well as the provisions for avoiding distortion of competition between the LDCs and the ACP.

(xiv) The ACP consider the above as essential requirements against which they would be prepared to discuss an implementation period of not less than 8 years and other issues related to the reform of the EU sugar regime.

(xv) The ACP look forward to an open and structured dialogue on the reform proposals and the preparation of a plan of action in favour of the ACP States concerned.

(xvi) The ACP further welcome the EU Council proposal for a meeting at Ministerial level with the ACP sugar supplying States.