[ World trade ]

Bitter sugar politics

[ By Rudolf Buntzel-Cano ]

The European Union’s common market organisation (CMO) in the sugar sector, which has been in existence since 1968, is finally on the brink of reform. The protectionist monster has survived three agricultural reforms and the Agricultural Agreement of the World Trade Organization (WTO). For 36 years, sugar processors and sugar beet producers have increased their output and conquered the world’s markets under the protective umbrella of the CMO. Now, they face the prospect of a drop in production of 30 to 50 percent. For 20 years, subsidy profiteers and lobbyists have defended their privileges. But the CMO is no longer in tune with the times – and both trade and development experts are in favour of change.

Not normally known for philanthropic fervour, the desperate sugar sector has now discovered a passion for human rights, poverty reduction and development assistance. One line of arguments it puts forward is directed at archrival Brazil, the country likely to gain most from liberalisation. The “Brazilians” are denounced as the personification of evil, their sugar sector reportedly dominated by rural barons belonging to a clique of 18 families. They are claimed to be wrecking the environment and to tolerate inhuman conditions on plantations. The fight against liberalisation is being turned into a campaign for the preservation of high social and environmental standards in Europe.

But that is not fair. The Brazilian sugar industry may well deserve criticism but that does not justify European protectionism. Commitment to the cause of preserving biodiversity, defending human rights and reducing poverty in Brazil is a laudable thing but it does not make a case for trade sanctions. President Inacio Lula da Silva will not accept any interference. If anyone is to bring more justice to his country, he will be the one. Apart from that, Brazil is under intense pressure – from European banks, amongst others – to service its international debts. If Europe’s sugar lobby really wanted to support social and ecological progress in Brazil, it ought to campaign for debt relief.
Instead, Europe’s sugar sector fields a second bogus argument against reform, which relates to the contribution the CMO makes to the economies of the EU’s special associates in Africa, the Caribbean and the Pacific (ACP states). EU members’ former colonies are allowed to export 1.6 million tons of sugar to Europe on the same terms as domestic producers. So reforming the CMO would also affect those countries.

Indeed, ACP countries like Fiji, Mauritius, Guyana and Swaziland, which account for 80 percent of ACP trade preferences, are keen to see the CMO, and its high prices, stay in place. However, all the other ACP states – as well as developing countries in general – are more hurt than helped by Brussels’ sugar regime. This is so in spite of 15 other countries enjoying minimal supply quotas for Europe. After all, the large volume of subsidised EU sugar on the world market depresses prices internationally. Indeed, some ACP sugar is re-exported in this manner too. All summed up, what the EU gives to four particular countries, it takes away form others many times over.

Both propaganda arguments clash with the logic of liberalisation for which the WTO and its multilateral rules stand. In acting as they do, Europe’s sugar interest groups are riding a wave favoured by populist critics of globalisation. According to them, Europe should not abandon supposedly “efficient”, time-honoured family farms and transfer jobs abroad. As they would have it, that would only lead to suffering in poor countries and the growth of profit-hungry, export-dependent monocultures.

In truth, however, the sugar market regime has long been obsolete even in Europe. Only four percent of European farmers profit from it. The high price of sugar beet permits margins at least twice as high as those for other market produce. Compared with other agricultural markets, the sugar market has long been an exception. Everywhere else, we have seen the introduction of market prices, with direct subsidies paid to the farmers. Only in the sugar market has a highly developed quota system – with a 350 percent rate of duty and other special rules – led to the preservation of a price level which exceeds the world market by a factor of three.

That makes sugar the most glaring example of farm protectionism within the EU’s much-criticised common agricultural policy (CAP). Quotas are awarded at national and regional levels and then handed down to the individual farmers. Those who need regulating, actually regulate themselves. That, at any rate, is how the situation is seen by the OECD, which complains of restricted competition leading to monopolist profits of the big sugar groups.

Any criticism within the farming community is silenced by accusations of envy – as if the privileges of one group of farmers had nothing to do with the difficulties of all others. The big sugar processors have ensured farmers’ solidarity in a united front by astutely establishing corporate links with them.

The WTO ruling on a case submitted for arbitration by cane sugar producing countries (Brazil, Thailand and Australia), however, shows the need for reform of the CAP. The WTO document officially confirms that the EU has, for years, exceeded its allotted ceiling of 1.2 million tons of subsidised sugar exports by at least 2.8 million tons annually. The EU has also overshot a 466 million euro ceiling on export subsidy spending. Accordingly, the WTO panel demands that the EU bring its sugar market rules into line with WTO obligations.

The current Doha Round of WTO talks, with its declared goal of a new agreement on agriculture, also puts pressure on the EU. Admittedly, there is speculation that sugar might be placed in the special category of “sensitive products”. Such a measure would side step all obligations. But massive international attention has made the sugar CMO a touchstone for the seriousness of EU commitment to the WTO. Declaring sugar a “sensitive product” would jeopardise the entire Doha Round and even the very existence of the WTO itself. This multilateral institution cannot afford a failure like Cancún at this year’s ministerial conference in Hong Kong.

Additional pressure for reform is building up on the trade policy front because of the WTO’s special approval of the Cotonou Agreement between EU and ACP states. It will expire in 2009 – and approval of the ACP Sugar Protocol is linked to it. The EU wants to transform the special economic relationships with former colonies into regional free trade zones compliant with WTO rules. Under such Economic Partnership Agreements (EPA), however, duties or quotas can only be applied to 20 percent of all goods at most. The present ACP Sugar Protocol could not be maintained – especially in the case of the sugar exporting countries Fiji, Mauritius, Swaziland and Guyana.

The fourth area of trade pressure for reform derives from the assurances, which the EU gave to the world’s least developed countries (LDCs) to fully liberalise sugar trade with them by 2009. The “Everything but Arms” (EBA) initiative holds out the prospect of massive import volumes from those countries if the EU retains its high internal sugar prices.

The EU Commission presented proposals for CMO reform last summer, stating that quotas would be reduced by 2.8 million tons (16 percent). The internal sugar price was projected to fall by 36 percent. The sugar industry and ACP states are opposed to these ideas, but trade and development experts think they do not go far enough.

The main problem the world has with the CMO concerns the subsidised surpluses sold abroad. Reform would bring relief to the market only if there was a dramatic decrease in the volume of subsidised exports. That volume exceeded six million tons in 1999, 2001 and 2002, and constantly topped five million tons in other years. Even the Commission’s proposal, however, anticipates a downturn in exports of only two million tons. That means that the EU continues to speculate on exports, even though the WTO panel has declared it must not do so. Brussels evidently plans to delay implementation of the ruling by taking the case to appeal.

The Commission proposal also takes account of ACP interests and promises to retain the sugar protocol, although the buying-in price would be lower. It would also apply to “Everything but Arms” sugar from the LDCs. The EU officials are probably hoping the new price level will be too low for many suppliers in poor countries and will thus eliminate their competition.

To help struggling ACP states to adjust, the Commission proposes assistance from the European Development Fund (EDF). It is thus apparent that the 800 million euros a year currently spent on re-exporting ACP sugar will not be made available as compensation or structural aid for ACP states. And that is likely to be the biggest bone of contention between agricultural and development politicians in the clash over the Commission’s reform proposal.