House of Commons - International Development - Appendices to the Minutes of Evidence

Select Committee on International Development Appendices to the Minutes of Evidence

APPENDIX 4

Memorandum submitted by the London ACP Sugar Group

INTRODUCTION

We are grateful to the IDC for the opportunity which is given to us of submitting our views on the post-Seattle WTO negotiations. This is all the more appreciated as we have followed closely the work of the Committee on "The Renegotiation of the Lome Convention", many of whose recommendations were particularly relevant to the concerns of ACP sugar producing countries.

Of the terms of reference of the Committee, there are two which seem particularly relevant to ACP sugar producing states. We shall thus address the terms of reference described in the last two bullet points and give our point of view on these issues as representatives of ACP developing countries. In doing so we will focus mainly on agriculture. The two terms of reference appear below:

— Potential opportunities and threats for developing countries arising from negotiations on the "in-built" agenda due to start in January 2000 on agriculture and services;

— The potential for agreement on issues of particular importance for developing countries such as the proposal for tariff—and quota—free access for least developed countries.

So as to understand better our preoccupations, it is perhaps important to describe quite clearly from the outset what our interests are, how they could be threatened in the future, and what we consider to be the best strategy to promote them. The members of the International Development Committee are already familiar with the ACP sugar arrangements and we need only refer very briefly to the Sugar Protocol and the SPS as well as to their socio-economic importance for the ACP sugar producing states. Annex I gives more details about these agreements.[3]

When the UK joined the EEC, the preferential access of members of the Commonwealth Sugar Agreement (CSA) for this new market was one of the conditions of its accession (Protocol 22). The successor agreement to the CSA was in fact the Sugar Protocol.

The Sugar Protocol contains three essential guarantees:

1. a quota of 1.3 million tonnes;

2. a guaranteed price (equivalent to the EU intervention price); and

3. indefinite duration.

The Protocol has a special legal status which has been recognised by the EU. The Sugar Protocol forms part of the EU commitments at the WTO which gives it added legal security.

The Special Preferential Sugar Agreement (SPS) is an agreement which is distinct from the Sugar Protocol. It has been negotiated for a duration of six years (1995-96 to 2000-01). Its objective is to supply the shortfall of European refiners, and the quantities to be supplied are determined by the annual "bilan" mechanism, a variable tonnage of about 300,000 tonnes. The price is about 85 per cent of the Sugar Protocol guaranteed price. The agreement which is of a collective nature will have to be renegotiated before 2001.

The socio-economic importance of these agreements for the ACP sugar producing countries cannot be overstressed. They play a very essential part in the following:

— GDP—Exports—Employment.

— Social Services and social stability.

— Rural Development and balance between town and country.

— Professional training.

— Protection of the environment.

— Production of energy from bagasse.

In other words, they have a multifunctional role which "irrigates" the ACP sugar producing states' economies and societies.

As members of the Sugar Protocol and of the SPS we have preferential access to the EU sugar market. This preferential access could be threatened by unbridled liberalisation which could take place as a result of the implementation of the WTO agreements which would be negotiated in the next round. Such developments would have untold consequences for the socio-economic stability of our fragile economies.

Our strategy would, therefore, aim at preserving the advantages which we now have and in resisting radical liberalisation. With this end in view we consider that we should preserve and maintain the EU Sugar Regime, the Sugar Protocol and the Special Preferential Sugar Agreement (SPS) which make possible our preferential access to the EU sugar market and forge a strategic alliance with the EU in order to defend and promote our common interests in the framework of the WTO.

Before considering WTO matters, however, we would like to draw the attention of the Committee to some parallel developments which may impact on ACP sugar producing countries. These are developments which are all in one way or another related to the EU:

(i) the Review of the Sugar Regime;

(ii) the negotiation of the post Lome IV Convention (New Lome Convention for short);

(iii) CAP reform and Agenda 2000.

Our attitude to these issues has to be made clear as they condition our approach to the WTO negotiations. We shall, therefore, devote the next section of our memorandum to these questions and where necessary give more detailed information in the annexes.

SUGAR REGIME, LOME CONVENTION AND CAP REFORM

Review of the Sugar Regime

Recently, the UK Ministry of Agriculture Fisheries and Food (MAFF) conducted consultations on the EU Sugar Regime and asked for the views of the London ACP Sugar Group on this question. A summary of the memorandum which we submitted to the Ministry appears below.

"From our ACP Sugar Supplying principals' perspective, it is essential:

access

quotas

— that any quota cuts be carried out in accordance with the provisions of the current EU Sugar Regime;

price

intervention

import tariff

special safeguard clause

guaranteed access

stability of supply

adjustment aid

more competitive

lower cost

In other words, we argue for the maintenance and preservation of the ACP preferential access through the maintenance and preservation of the EU Sugar Regime. The best solution for the ACP would be a rollover of the regime.

THE NEW LOME CONVENTION

At the time of writing, it is most likely that the Lome negotiations will be concluded at the end of a joint ACP-EU Ministerial meeting which will be held during the first week of February. Agreement was reached on most questions in December 1999, and only a few grey areas will have to be clarified at the next meeting. It is, therefore, with this proviso in mind that the main points of the agreement which has been reached on trade and economic co-operation (Negotiating Group III) have been summarised in Annex II.

The main points of this agreement in the context of the present exercise are as follows:

The time factor:

Reciprocity

commodity protocols

non-LDC ACP

sensitive sector

greatest flexibility

Co-operation and co-ordination

— The Action Plan in favour of LDCs which will shortly be implemented by the EU.

Less positive aspects include the following:

— The necessity for WTO compatibility which implies moving towards a more liberal environment.

— The relative uncertainty as to the fate of non-LDCs unwilling to join Partnership Agreements as from 2004, although the equivalent of the Lome preferences would be guaranteed to them.

— There are still a few grey areas regarding the trade regime applicable to the preparatory period (2002-08).

Some of the above points will have special relevance in a WTO environment. The waiver, for example, should be stressed in this connection as well as the gradual and progressive integration of trade arrangements into the multilateral system through a partnership agreement which will be based in all likelihood on an FTA or regional agreements under article 24 of GATT. Such trade arrangements have so far excluded sugar as a sensitive product.

CAP REFORM (AGENDA 2000)

Although these subjects are of obvious relevance to the present exercise, it is considered that their importance will be felt in the medium term rather than in the short term. This in no way means that they are not important; on the contrary. Sugar, however, does not form part of Agenda 2000. Enlargement on the other hand is likely to take more years than initially forecast, probably not before 2004-05. The main preoccupations which these questions generate are outlined below.

There is the possibility that at a future date, decreases in prices if Agenda 2000 is adopted as the model for sugar reform, would be compensated by direct decoupled aid. This would be detrimental to the interests of the ACP because the present price support is a simple transparent way of providing revenue to ACP producers. ACP states would not be able to afford the direct aid component and would probably turn to the EU to obtain such compensation which would be less transparent and liable to decrease over the years because of the concept of degressivity.

On the other hand, the self financing nature of the Regime and the fact that strict limits have been imposed on agricultural spending at the Berlin Summit would work in favour of the ACP (and EU) producers because the cost of compensation to producers has not been provided for in the Berlin Summit Agreement.

EU ENLARGEMENT

The enlargement of the EU would render necessary the convergence of policies, notably price policies, of the two groups of countries. To achieve such convergence, prices would have to be reduced in the EU and increased in Eastern Europe. Thus it can be anticipated that the integration of new entrants from the East would result in lower prices for the EU and for the ACP.

It is also predictable that the price rise which will take place when the first waver enters the EU will lead to an increase in production. This, added to the fact that they as a group are net exporters would lead to a surplus of 400,000 or 500,000 tonnes in a market which is already oversupplied. This would cause problems to ACP sugar suppliers.

The factors common to the three sections above should be evident by now. The Review or reform of the Sugar Regime and CAP Reform (Agenda 2000) could have a negative impact on the preferential access of ACP countries. The ACP price frozen for a number of years could decrease as a result of such reforms. Adjustments might also have to be made to SPS quantities. Finally some third countries which would be more competitive could have access to the EU (and ACP) market if border protection (tariffs) were to be reduced.

ACP preferences which could be eroded by EU reforms could further be threatened by unbridled liberalisation which could take place as a result of the implementation of the WTO agreements which would be negotiated in the next Round. Such developments would have very negative consequences for the socio-economic stability of our fragile economies.

Our strategy, therefore, would aim at preserving the advantages which we now have and at resisting radical liberalisation. With this end in view, we consider we have every interest in preserving and maintaining the EU Sugar Regime, the Sugar Protocol and the Special Preferential Sugar Agreement (SPS) which make possible our preferential access to the EU market and in forging a strategic alliance with the EU in order to defend and promote our common interests in the framework of the WTO.

THE SEATTLE CONFERENCE: GENERAL ISSUES RELATED TO AGRICULTURE

The following issues were considered in Seattle and are likely to resurface during the next round. Taken together our comments on each of them represent a strategy which could be adopted by the ACP during the next round of negotiations in order to safeguard and maintain as much as possible their preferential access to the EU market.

Preferential Arrangements and Waivers

Preferential arrangements which have played such a vital role in the development of ACP economies should be maintained so as to prevent them from being further marginalised. Such preferences must remain predictable and commercially meaningful both in terms of access and earnings. Arrangements such as the Caribbean Basin Initiative and the Lome Convention are essential for the smooth and gradual integration of beneficiary countries in the multilateral system. WTO waivers for such arrangements provide security and predictability, important conditions for trade performance and economic development. Such waivers, particularly the Lome one which concerns us here, should be renewed.

Special and Differential Treatment for Developing Countries

This means inter alia: different time frames; different rates; flexibility concerning reciprocity and preferential access. In addition to these, specific objectives should be negotiated in order to improve access for products originating in these countries. Greater flexibility should also address concerns such as food security, rural development and poverty alleviation. Particular attention should be paid to the situation of Least Developed Countries (LDCs), Net Food Importing Developing Countries (NFIDCs) and Small Island Developing States (SIDS).

Small Island Developing States

Small Island Developing States (SIDS) are faced by many problems. Most of them are net Food Importing Developing Countries (NFIDC) and agriculture is vital to them in respect of food security ie the ability to have economic access to food. Moreover, these countries are remote from main trade routes and financial centres; have small internal markets; are subject to weather extremes such as cyclones and droughts. They also lack human and institutional capacity.

A petition to the Director-General was circulated in Seattle by some 15 small states. This initiative received the support of the EU and of like-minded countries. The objective is that recognition should be given to this specific category of countries and that an action plan should be considered for them. The category is now recognised and it is worth noting that the WTO Director-General indicated that work on small economies, SIDS and LDCs would not be lost and would continue despite the absence of a ministerial declaration. The Chairperson (Charlene Barshefsky) also shared this point of view.

Net Food Importing Developing Countries

Many ACP countries form part of this category which, by the way, would be helped by export subsidies which can result in savings in their food import bill. The WTO Committee in charge of this question has not been very active and there would be a need for more tangible concrete measures to be taken within a time frame to compensate for the higher food import costs caused by reform in Agriculture.

CONSIDERATIONS SPECIFIC TO AGRICULTURE

The following table shows the major areas of divergence between the US/Cairns Group on the one hand and the EU and like-minded countries on the other during the Seattle Conference. It is anticipated that when the new Round starts, the positions of both groups will not be altogether dissimilar.

Table 1

AREAS OF MAJOR DIVERGENCE BETWEEN THE EU AND LIKE-MINDED COUNTRIES[4] ON THE ONE HAND AND THE US/CAIRNS GROUP ON THE OTHER

The major areas of divergence between the two groups are summarized below:

Item Cairns/US EU and like-minded Countries

1. Integration of Agriculture into the WTO system Yes No

2. Applicability of Article 20 Article 20 is outdated and negotiations in agriculture should be based on other premises. Article 20 should be maintained. It provides for the long-term objective of substantial progressive reductions in support and protection.

3. Market Access Comprehensive market access covering all products leading to broadest possible liberalisation with particular regard to products of export interest to DCs. Comprehensive market access leading to further liberalisation with particular regard to products orginating in DCs.

4. Domestic support Substantial reductions. Further reductions.

5. Export subsidies Elimination of all forms of export subsidies, no reference to export credit (massively used by the US). Reduction of all forms of assistance to export (this proposal includes both export subsidies and export credits.

6. Special and differential treatment S&D (Special and Differential Treatment) for DCs (Developing Countries), including NFIDCs (Net Food Importing Developing Countries) as provided for in Agreement on Agriculture to be made an integral and effective part of the results of negotiations. S&D to be embodied in the schedules of concessions and commitments to be negotiated with a view to have more operational and effective provisions so that DCs when making concessions can take fully into account all the developmental needs of the DCs including food security and agricultural and rural development. Improvement of access for products of particular interest to DCs. S&D as provided for in part IV of GATT 1994 to be made an integral and effective part of the results of negotiations. In addition to these, specific objectives to be negotiated to improve access for products originating in these countries. Specific and concrete S&D provisions with regard to DC commitments, concessions and technical assistance to be provided in order to take fully into account developmental needs. Flexibility to enable DCs to address concerns such as food security, rural development and poverty alleviation. Particular attention to be given to the situation of LDCs, NFIDCs and SIDS (Small Island Developing States).

7. Other Considerations —Non trade distorting non-trade concerns
—Fair and market oriented agricultural trading system
—S&D —Paragraphs (a), (b), and (c) of article 20 (Implementation issues, world markets and S&D)
—Recognition of multifunctional role of agriculture[5]
—Fair and market oriented agricultural trading system
—Other objectives and concerns mentioned in the Preamble to the Agreement on Agriculture (AA)
—Animal welfare

8. Submission of proposals for negotiations 1 July 2000 1 July 2000

9. (i) Agreement on modalities 1 July 2001 1 July 2001

(ii) Comprehensive offer lists 31 January 2002 31 January 2002

(iii) Conclusion of Negotiations on commitments and legal texts 15 December 2002 15 December 2002

The following comments either amplify some of the positions described above in the right column or add other relevant points not covered in the table.

INTEGRATION OF AGRICULTURE INTO THE WTO SYSTEM

The ACP and other like-minded countries contend that agriculture has specificities such that it cannot be treated just like other goods under the WTO system. These specificities warrant special treatment.

ARTICLE 20

Article 20 is the basis of the mandated negotiations in Agriculture. The ACP attach great importance to this article which is of a moderate nature and provides for the "long term" objective of substantial progressive reductions in support. It also provides for "non trade concerns" to be taken into account and for Special and Differential Treatment for Developing Countries . . . Etc. There is no mention here of short term radical reform.

PRICE SUPPORT

The World Market price is an inappropriate benchmark for policy making because it:

(i) is a residual market of last resort;

(ii) is highly speculative;

(iii) is influenced heavily by currency changes;

(iv) bears no relationship to actual production costs;

(v) is highly volatile;

(vi) provides no guarantees of stable and predictable export earnings.

Price support is preferable to direct decoupled aid or income support as it is as fair and transparent way of providing revenue to ACP producers. It also promotes much needed reinvestment to improve competitiveness. Aid mechanisms are less transparent and more costly and more likely to be reduced (concept of degressivity).

In this connection, a global or sectoral approach is better than a product by product approach. The global or sectoral approach has given the EU great flexibility in determining which agricultural products would be earmarked for reduction. We consider that such a policy should be continued and would provide better room for manoeuvre in favour of developing countries than the product by product approach which would inexorably result in price reductions.

THE GREEN BOX

The Green Box is mainly used by the Developed Countries through Government fundings. ACP countries cannot afford such fundings. Green Box measures should be allowed to be financed by producers through their export receipts. Such measures involve crop insurance, national disaster relief, research, training and inspection services etc.

MULTIFUNCTIONALITY; NON-TRADE CONCERNS

Multifunctionality as a concept was at the centre of much controversy. At a certain stage in the negotiations, it was replaced by the following non-trade concerns: food security, protection of the environment, food safety based on precautionary principle, food quality, rural poverty alleviation, rural development, animal welfare, impact of non-trade concerns on non-trade policies and other multifunctional objectives. The concept also forms part of the ACP negotiation strategy. A paper to this effect was presented in the AIE process in Geneva by an ACP country.

Sugar in ACP countries produces not only food and fibre. It also preserves the landscape, protects the environment and contributes to social and economic development. Other examples of multifunctionality include medical, educational and social services; rural development; electricity for the public grid from bagasse and Training and Manpower development (see Introduction page 187).

The above points fully justify the contention that the revenue of sugar producers should be protected in order to enhance the welfare of ACP populations.

IMPORT TARIFFS

Reduction rates should be as low as possible. The Special Safeguard Clause should be retained. There should be "a standstill" during negotiations for tariffs and supports. Tariff quotas (TRQs) for ACP sugar should be maintained.

EXPORT SUBSIDIES

A major bone of contention. The ACP would prefer "reduction" to "elimination" in order to preserve the commonality of interests between the EU and the ACP.

PEACE CLAUSE

The peace clause should be renewed after 2003 to provide added legal security to the agreements reached in the course of the negotiations.

A DEVELOPMENT ROUND

Finally we favour the concepts of a comprehensive round of Negotiations and of the "single undertaking" which would enable trade offs across sectors and consider that Developing Countries should be fully consulted throughout the negotiations.

ACTION PLAN FOR LDCS

The Action Plan in favour of LDCs has already been referred to earlier in this report under the Lome section. This valuable initiative which was first put forward at the Singapore Ministerial Conference should be encouraged and the lead taken by the EU in this sphere should be commended. It is an initiative taken in a WTO context.

There are two or three aspects of this plan which should perhaps be commented upon. The first one has to do with differential treatment of DCs and LDCs in the ACP Group. In December last, during the meeting of ACP Ministers in Brussels, it was pointed out that there could be no discrimination among ACP countries and that this principle was enshrined in the present Lome Convention. This principle has been recognised by the EU and will continue in the arrangements for a successor agreement to Lome.

The EU initiative in favour of LDCs will not guarantee access to all products but to essentially all products. A certain number of products from LDCs will not be granted duty-free access, certain agricultural products, in particular, more specifically, the products covered by the Commodity Protocols (sugar, banana, beef and rice) which are special trade arrangements will not be affected by the initiative in favour of LDCs.

A final point which would be more in the nature of an interrogation would be to wonder what advantages an LDC would derive from joining an FTA and whether regional integration would be promoted by the Action Plan in favour of LDCs.

London ACP Sugar Group

January 2000

Annex II

ACP-EU Post Lome IV Negotiations (Trade and Economic Co-operation)

State of Play (Summary in Note Form)

— Trade development to be promoted through capacity building and competitiveness to be improved.

— Regional integration to be promoted.

— New Trade arrangements to be WTO compatible.

— Barriers to trade to be removed progressively.

— New trade arrangements to be introduced gradually. Need for a preparatory period.

— Present non-reciprocal trade preferences to be maintained and (improved) during Preparatory Period.

— Need to obtain a waiver and necessary co-operation and co-ordination to this effect.

— Importance of Commodity Protocols recognised.

— 2000 (signature)-2002 (beginning of preparatory period): initial preparations for negotiations.

— 2002-2008: formal preparatory period of 6 years coinciding with length of formal negotiations.

— 2004: Situation of non LDCs to be assessed re: participation in economic partnership agreements. Alternatives to be offered to ACP which should be equivalent to existing situation under Lome and in conformity with WTO.

— 2000-2005: Duty free access for essentially all the products from all LDCs. Rules of origin to be rationalised.

— 2006: formal and comprehensive review of situation of ACP to ensure, notably, that no further time is needed for preparation and negiotiations.

— Negotiations (2002-2008) to cover the following:

— Timetable for removal of barriers.

— More flexible rules of origin.

— Flexibility will also be exercised concerning:

— Transition period.

— Asymmetry.

— Product coverage.

— Sensitive sectors to be provided for.

— The new arrangements will have to be WTO compatible and co-operation and co-ordination between ACP and EU will be needed in WTO.

— Joint ACP-EU Ministerial Trade Committee meeting every year to review negotiations and ensure notably that benefits accrue to ACP in the context of new trading arrangements.

— During the Preparatory Period (2002-2008) provision has been made for the continuation of the validity of legal instruments ensuring the special status of the Protocol.

— The instruments of the new agreement will be used for the implementation of the SP.

— Some grey areas remain regarding the trade regime applicable during the preparatory period.

3 Annex I (Aide Memoire on ACP Sugar) describes the ACP Sugar Agreements, their background, and socio-economic importance. This annex also gives key facts and figures about the ACP Group and its objectives (not printed). Back

4 Like-minded countries: EU, Japan, Norway, Switzerland, Korea, some ACPs, some Eastern countries candidates for joining EU. Back

5 Non-trade concerns include the following: food security, protection of the environment, food safety based on precautionary principle, food quality, rural poverty alleviation, rural development, animal welfare, impact of non-trade concerns on non-trade policies and other multifunctional objectives. Back

6 "The parties note the importance of the commodity protocols and agree on the need to review them in the context of the negotiations of the new trading arrangements, in particular as regards their compatibility with WTO rules, with a view to safeguarding [and improving] the benefits derived therefrom, bearing in mind the special legal status of the Sugar Protocol." Back



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