Global Sugar Alliance members are active participants in processes to improve the world sugar trading environment. Members works closely together to ensure the fair and equal treatment of sugar in the WTO negotiations on agriculture.
The Need for EU Sugar Reform
Published: 30/11/1999
Author: Ms Julie Steward
Source: Speech
Abstract: In this presentation, I plan to cover the issues within the EU Sugar regime and our specific priorities for this WTO round.
Full Article:
Good morning.
I would like to thank the organisers for inviting me to speak at this forum. As CIUS we welcome this initiative to raise the debate on sugar.
CIUS is the European Union's Committee of Industrial Sugar Users. We represent the sugar interests of the European food and drink industry. We represent some 3000 businesses, who in turn employ over 350,000 people. CIUS members purchase over 9mt of sugar, accounting for 70% of EU consumption. Exports form a significant element of our members turnover. In our finished goods exports alone we export 680,000T of community sugar.
As European exporters of Food and Drink our competitiveness on the world markets is critical. We are therefore looking for these WTO talks to:-
- address the exceptionally high EU sugar prices
- provide open access to all markets for our processed products
- ensure coherent strategies are applied across market access, domestic support and export competition.
In this presentation, I plan to cover the issues within the EU Sugar regime and our specific priorities for this WTO round.
Before going on to more specific priorities, let's first look at Sugar within the EU, some history and current market facts.
The EU Sugar regime was created in 1968 based on the Treaty of Rome. It has remained essentially unchanged since that time
The Treaty of Rome has five objectives,:-
To increase agricultural productivity, deliver a fair standard of living for the agricultural community, stabilise markets, assure supply and deliver reasonable prices to consumers.
The regime has delivered against the first four objectives. The EU for 1999/2000 will have over 21 million Tonnes of sugar available with EU production accounting for the majority of this.. Consumption within the EU is expected to be 12.7 million Tonnes, with a further 800 KT exported in finished goods. So an overcapacity of almost 70%. Some of this overcapacity - 2.9 million tonnes of quota sugar will be exported at world price levels, using export subsidies. 3.2 million Tonnes of C sugar is expected to be exported, which although not receiving any direct subsidy, it's export is made possible through the high return made by producers on A and B quota.
Despite this overcapacity, and contrary to the Treaty's last objective, consumer prices are not reasonable. The effective support price within the EU is some 3.9 times the world market, whilst the actual market price can be as high as 4.7 times the world price. This premium versus support is driven by the lack of competition within the EU. We have few players operating in national markets and producers are able to export sugar with subsidies onto the world market and keep supply pressure on internal markets.
CIUS have been lobbying for changes for many years, so why should their now be a change?
Now there are many pressures being exerted on the EU sugar regime:-
- firstly the distortion that now exists between the EU and world market is at such a level that world pressure is increasing, as the EU continues to dump subsidised sugar
- there is increasing distortion between sugar and other EU agriculture. Sugar escaped the CAP reforms in 1992 and also the recent CAP reform of Agenda 2000, where for example cereals and dairy moved further towards market reform. Sugar now looks more and more isolated
- looking to enlargement the EU sugar regime forms part of the acquis communitaire that applicant countries are required to apply as part of their accession to the European Union. If the current regime would be adopted by Central European countries it would cost their economies an estimated 3.6 billion Euro (report by National Economic Research Associates "Extending the EU sugar regime to CEEC's Nov. 1997) to adopt the current regime. Sugar prices are much lower in these countries than in the EU and introducing Union's pricing would lead to:
– inflationary pressure
– significant added costs to consumers, which are still spending around 30-40% of their revenue on food.
– a deeply unfair income distribution at farm level, leading to social problems and delays in the necessary structural reform.
– quotas for sugar manufacturers and continued lack of competition
- fourthly, the current regime does not deliver reasonable consumer prices and consumer groups are now adding to user's voices requesting sugar reform.. The Consumer Committee, which is a consultative committee to the commission said recently of sugar
" Given that sugar was not included in the Agenda 2000 reform package an effort should be made to reduce the very high consumer burden and trade distortion effects of this sector now", they went on to say "We would also like to express concern at the lack of competition in the EU sugar sector. By fixing the beet price and the intervention price paid to processors, the Commission insulates the sugar processors, for example, from competition"
- and finally and most critically the maintenance of high internal EU prices, whilst processed good exporters are face with export refund budget pressure, is restricting our ability to source materials at world price and compete on world markets.
All of these factors together mean that sugar has to now change.
CIUS major priorities for sugar for this WTO round are for reduction in the high level of protection that continues to distort world markets and in particular the elimination of the special safeguard clause, which currently isolates EU Sugar Producers from competition from the world market.
We need the opening up of markets to processed foods and drinks through the elimination of all tariff rate quotas, tariffs and non-tariff barriers to processed foods and drinks, including all sugar containing products, by 2003 and certainly not later than 2006.
CIUS believe it is vital to have coherence among market access, export competition and domestic support negotiations. Reductions in export refunds should be conditional on reductions in the domestic price support for each raw material.
The conclusion of this round in a short time is essential to ensuring EU processed food and drink exports remain competitive on world markets.
Let's look at each of the pillars of EU Domestic Support, Export Competition and Market access in more detail.
EU Domestic Support
The EU sugar regime supports sugar beet and its processing into sugar through a system of price guarantees within a ceiling of national production quotas (A and B quota). The sugar regime also includes a quota limitation for isogluocse and inulin. Prices are protected by a system of import tariffs and a special safeguard clause, which I will come back to in more detail later.
Export refunds are available for the export of B quota sugar. C sugar has to be exported without a refund. In addition, payments are made to sugar producers to cover the cost of holding sugar in storage, whether it is from A, B or C sugar.
The sugar regime is often cited as being a "Self financing system" and this has often been used as a reason for no change. Let's look at the costs.
- the greatest proportion is funded for by the consumers through the high price they pay for sugar, a figure in excess of 6 billion Euros per year
- in addition, to this there is also 1.229 billion of direct EU budget required to cover mainly the exports subsidies for ACP sugar.
The whole structure of domestic support has prevented a truly competitive EU internal market from developing. This highly protected market has a number of recent anti-competitive cases involving sugar processors to demonstrate the point.
Commission Decision of 14 May 1997 re. Irish Sugar plc
Commission Decision of 14 October 1998 re. British Sugar plc, Tate & Lyle plc, Napier Brown & Co. Ltd., James Budgett Sugars Ltd,
Italian Antitrust Authority (IAA) inquiry into sugar-beet and sugar sector, 16 August 1998.
Spanish sugar companies fined a record 100m Euro by Tribunal de Defensa de la Competencia (1999)
It is key that reform measures address the need for increased competition within the EU and on world markets.
Within WTO, the domestic support given to sugar sits within the overall Aggregate Measure of Support (AMS) for agriculture. Sugar, and in fact most EU agriculture, has seen little impact in recent years from the current AMS commitments. Versus the base of 1986-88, by the time the Uruguay round was concluded the EU had already fulfilled it's commitment to reduce the total AMS. This was as a result of the MacSharry reforms of 1992, which excluded sugar. Looking forward from today on a commodity basis, taking into account recent Agenda 2000 reforms, sugar is currently the only major commodity that has not yet seen change.
Sugar represent half of European processed goods need for export refunds, therefore it is vital that sugar is specifically targeted for domestic support reduction and it is not left only to the other sectors. CIUS is therefore looking for:-
- commitments on AMS should be binding for each specific commodity and this is used to deliver significant cuts in price related support for sugar.
Export Competition
In the Marrakech Agreement, EU export refund commitments were contracted independently of cuts in domestic support prices and independently of the evolution of the prices of European raw materials. However sugar-containing products were subject to an annual 6% cut in Non Annex 1 export refunds.
This means that commitments on export refunds for EU processed food and drink have been very difficult to respect and are severely limiting the export potential of the European industry. Indeed, the maximum budgetary outlay for processed food and drink from 2000/01 onwards is restricted to 415 m Euro while the current needs of the industry are estimated over 600 m Euro per annum.
The maintenance of the very large price differentials between the EU and world markets means that CIUS members will continue to depend on export refunds to compete in third markets.
It must not be forgotten that export refunds for processed goods exports are, in fact, compensation for the absence of access to raw materials at world prices. It is impossible for value-added food and drink products to compete fairly on world markets if export refunds are removed while EU internal prices remain artificially high. CIUS insists that export refund commitments for processed food should:
- be conditional on reductions in internal agricultural price support
- cover all raw materials incorporated in the finished product.
- and also looking forward take full account of the likely needs, current commitments and impact on the EU budget from Enlargement.
Any other result will severely curtail the ability of European food and drink businesses to compete on world markets and jeopardise new investment and job creation.
Market Access
CIUS exporters are still facing unreasonably high tariff and non-tariff barriers in key export markets. For example, tariff barriers such as Hungary (56%), Poland (45%) and India (40%) persist. These must be addressed.
Market access improvements via the forthcoming round of negotiations will be critical if our members are to take advantage of new export opportunities in expanding overseas markets.
Therefore on market access for processed goods CIUS is calling for.
- higher tariff rates subjected to deeper cuts than lower tariff rates
- tariff cuts negotiated from applied tariffs and not current bound tariffs and then bound at the lower rate in order to ensure tangible market access improvements. Tariff cuts negotiated on a reciprocal basis.
- immediate elimination of all in-quota tariffs.
The EU's Uruguay Round commitments have been particularly disappointing for the sugar using sectors. Sugar tariffs were subject to only a 20% reduction instead of 36%, as was the case for most agricultural commodities. Furthermore, a safeguard duty is levied on sugar imports, further isolating the internal market from international economic realities. This safeguard duty is applied consistently and has meant that in reality the EU sugar producers have seen no impact of the reduction in tariffs.
In fact, even with world prices at 13 year lows and GATT import tariff reductions at their highest, then it will still cheaper to buy within the EU. In fact even if we were given the sugar free of charge then the import price will be still 44 $/T above the EU Effective Support Price.
Therefore on market access for sugar CIUS is calling for.
- abolition of the additional special safeguard duty on sugar imports
- as well as reduction in the high tariff rate for sugar.
CIUS also supports a new WTO initiative on trade facilitation. The simplification of trade procedures benefits all business and the world economy. The WTO should seek agreements on the reduction and harmonisation of customs data requirements, customs modernisation, and increased transparency of customs procedures.
Developing Countries
CIUS believes that the upcoming round will only be successful if the benefits for developing countries are tangible. We fully support the EU initiative to grant free-access to all least-developing countries (LDCs) for essentially all products, but believe that this is clearly insufficient to secure the support of developing countries to the wider objectives which the EU has for the Millennium Round.
A crucial aspect of international trade in sugar is its importance for certain developing countries, some of whom benefit under the EU Sugar Protocol. The EU regime harms the economies of those developing countries that have a natural advantage in growing cane but do no benefit from the Sugar Protocol. Current world market prices are influenced by the ability of the EU to dump sugar on the world market. Some developing countries, such as Brazil or Thailand are amongst the most efficient sugar producers in the world, but their development is hindered by the lack of access to the EU, and US, Markets.
CIUS urges the EU, as part of its declared commitment to ensuring the Millennium Round brings tangible and rapid benefits for developing countries, to negotiate the immediate opening of the EU market to sugar from all developing countries.
EU Sugar Reform and WTO
Within the EU the current regime comes to an end in June 2001. Therefore it must be reviewed and re-agreed before that date. The Commission has begun a study of sugar due out in early 2000 and will be developing proposals for change. It is essential that the EU takes this opportunity, as well as that of WTO, to push forward changes which increase the competitiveness of the EU Sugar industry.
In addition we urge the EU to increase the transparency in the way the regime is managed.
Conclusion
In conclusion, CIUS in representing the European sugar using industry urges the EU to use this WTO round to:-
- ensure access to competitively prices raw materials through reduction in the high level of protection for sugar that continues to distort markets and to eliminate the safeguard clause which continues to protect the EU from any competition from the world
- and open up markets to processed foods and drinks through tariff reduction
- within these changes it is critical that there is coherence among the three pillars and that export refund reductions are conditional on reduction in domestic support.
This will ensure that the European sugar using industries remain major employers and key contributors to the European economy.
Thank you.
TOP
