6 Preferred approach
32. Our evidence makes clear that the current appraisal
of the sugar regime represents a vital opportunity for reform.
Changes to the regime have not kept pace with reforms to the other
agricultural sectors and this now means that sugar policy stands
out as an anachronistic throwback to the old CAP. The current
regime distorts the internal market for sugar and impedes the
European Union in international negotiations over trade. We
believe that, if reform is going to address properly the challenges
facing the sugar sector, then it must take a significant step
towards liberalisation. However, it would not realistically be
possible to move from such a highly managed market to a fully
liberalised position in a single step.
33. Therefore, our preferred approach to reform
is broadly consistent with the Commission's second option. It
envisages the following changes to the existing arrangements:
- the phasing out of the quota
system;
- a reduction in the internal market price;
and
- a lowering of the import tariff rate.
34. Of all the com
ponents of the complex sugar regime, the system of
production quotas does most to inhibit competition and efficiency.
Due to the rigid division of sugar production into national quotas,
sugar beet is grown in geographical areas that are climatically
ill-suited for this type of agriculture. Production quotas also
restrict the ability of the most efficient producers to expand,
impose limits on the production of competing products and create
barriers for new entrants. The removal of quotas would allow regional
specialisation and the exploitation of comparative advantages
within the single market. It would thus lead to increased efficiency
in growing and producing sugar within Europe, as well as allowing
other resources to move to more productive and competitive uses.
35. It is not sensible, however, to eliminate production
quotas while prices on the domestic market are sufficiently high
to sustain supply at a level far in excess of consumption. Lifting
quantitative restrictions while the market price is still so highly
supported would lead to the production of huge surpluses that
could only be disposed of with the help of export subsidies. Therefore,
it is necessary for institutional price levels to be adjusted
downwards in order to discourage domestic production and imports.
This is particularly important if the European Union is going
to be able to follow through with its offer to eliminate export
subsidies on all agricultural products.[35]
36. To allow the European Union sugar industry
time to adapt to the proposed changes, we believe it is desirable
for the price reductions to be phased in over time. Production
quotas should only be lifted when a market balance has been achieved,
with levels of domestic production and preferential imports matching
demand within Europe. The timetable for this transitional
approach will, to a large extent, be dictated by the European
Union's commitments to the LDCs and its trading partners, within
the framework of the WTO.
37. Reductions in the import tariff rate will
also be made possible, as institutional prices for domestically
produced and preferentially imported sugar are lowered. This will
afford the European Union some leeway in WTO negotiations on the
particularly contentious subject of market access.
38. It is our strong recommendation that the United
Kingdom adopt the position described above in negotiating with
other Members of the European Union about reform of the sugar
regime.
35 Letter from Commissioners Lamy and Fischler to all
ministers responsible for trade in WTO Member States, 10 May 2004 Back
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