House of Commons - Environment, Food and Rural Affairs

Select Committee on Environment, Food and Rural Affairs Second Report

Annex 1: Background to the current regime

In this annex we set out how the regime came into being and why it is now to be reformed.[205] In 1967 the sugar sector of the six original EEC members (France, Germany, Italy, Netherlands, Belgium and Luxembourg) was regulated as a common market organisation for the first time. Sugar benefited from a system of support, whose chief elements were:

minimum prices for white sugar and also for sugar beet;
import tariffs at levels high enough to deter supply from the world market, and
export refunds to ensure that EU exports on the world market remained competitive (including refunds on sugar in exports of processed products known as 'non-Annex 1')

Production quotas were introduced from the outset, divided into 'A' quota (to cover domestic production) and 'B' quota (to cover exports). Above-quota 'C' sugar could only be exported outside the EC and without any subsidy. A small levy on 'A' sugar and a large levy on 'B' sugar meant that the cost of exporting quota sugar was said to be self-financing.

This structure has remained largely unchanged, although each enlargement has brought with it additional issues, especially the accession of the UK in 1973. This transferred the British agreement with the Commonwealth on the import of cane sugar into an EU agreement with the African, Caribbean and Pacific (ACP) countries. Under the 'Sugar Protocol', selected ACP countries supply 1.4 million tonnes of raw cane sugar to the EU market for refining.

Recent pressures for reform

As noted above, the sugar regime has survived all previous rounds of CAP reform. But recent developments have brought unprecedented pressure on the policy, which has convinced the European Commission that the current system is unsustainable and must be reformed. These developments include wider CAP reform, the 'Everything but Arms' initiative and the actions of the World Trade Organisation (WTO).

WIDER CAP REFORM

The CAP reforms agreed in June 2003 sought to minimise incentives to farmers to produce other than what the market demands. These reforms make the unreformed sugar regime anomalous in its structure of high support prices, quotas and export refunds.

'EVERYTHING BUT ARMS'

The Everything But Arms initiative was a unilateral decision taken by the EU in 2001 to suspend all customs duties and levies for almost all imports from the 46 Least Developed Countries. In the case of sugar, rice and bananas, duty-free access was deferred until 2009. A quota of raw cane sugar for refining has been allocated, increasing by 15% each year until 2009. From 2006-8, duties are to be phased out, without any volume limits, for all forms of sugar, by 20%, 50% and then 80%. From 1 July 2009, no duties will be levied. The Commission believes that the existing sugar regime will not be able to survive the surge of imports which this will bring.

THE WORLD TRADE ORGANISATION

The World Trade Organisation (WTO) agreement in Doha in 2001 promised "substantial increases in market access" for agricultural goods. The Doha framework agreement, concluded on 1 August 2004, calls for an end to all forms of export subsidies in all sectors, and reductions in import tariffs, both of which strengthen the need for substantive reform of the sugar regime. Since 2003, Australia, Brazil and Thailand have pursued a case in the WTO against the EU sugar regime. They argued that the EU was only able to export non-quota or 'C'—officially unsubsidised—sugar because of the high prices derived from quota ('A' and 'B') production. The complainants also stated that the EU should include, in the subsidised exports which count against WTO limits, the 1.6 million tonnes currently imported from ACP countries and India—a footnote to the Uruguay Round schedule currently appears to allow the EU to exclude these. The WTO Panel reported in autumn 2004 and upheld both complaints against the EU, and this ruling was confirmed by the Appellate Body in April 2005.

205 This section draws extensively on the partial Regulatory Impact Assessment published by Defra in June 2005 Back