Memorandum submitted by ACP London Sugar
Group
Submission from the ACP London Sugar Group representing
the sugar industries of Barbados, Belize, Congo, Fiji, Guyana,
Jamaica, Malawi, Mauritius, St Kitts-Nevis, Swaziland, Tanzania,
Zambia and Zimbabwe.
EXECUTIVE SUMMARY
— We are extremely concerned at the
Commission's proposals on the EU sugar regime.
— Some of the proposals are not in
conformity with the provisions of the Sugar Protocol and the Cotonou
Agreement to which it is currently annexed.
— The Cotonou Agreement, in Article
36(4), refers to the need to safeguard the benefits of the Protocol,
bearing in mind its special legal status. These benefits clearly
include the price, which under the proposals would be severely
eroded over a very short period.
— Currently, revenue is provided to
all producers through price, whereas under the proposals beet
growers will obtain their revenue through a combination of price
and direct payments. We however will suffer the price cuts with
no compensation.
— These proposals would thus not meet
our legitimate expectations and are in contradiction with the
Cotonou Agreement.
— We do not accept the Commission's
rationale for the radical price cuts proposed.
— The WTO Appellate Body ruling does
not seem to require price cuts of the magnitude proposed.
— There is little prospect of a huge
rise in imports from the LDCs, contrary to the claims of the Commission.
— The price cut should be no greater
than is required by the need to cut import duties under the Doha
Round, and any decision on price cuts should be deferred until
after the conclusion of the Round.
— The price cut should be far less
than the 39% proposed, should be effective from 2008 and should
be evenly spread over eight years.
— We oppose the Commission proposal
to impose a price cut on raw sugar in the first year to compensate
for the proposed abolition of the current cane sugar refining
subsidy.
— The intervention mechanism should
be reinstated, to enable the effective implementation of the provisions
of Article 5(4) of the Sugar Protocol on annual price negotiations.
— We believe it will be necessary to
radically redraw Articles 29 to 31 of the proposals so as to preserve
our long-standing marketing rights enshrined in the Sugar Protocol.
— Article 26(2) of the proposals should
be amended to give priority to supplies from the ACP and LDCs
able to supply Community deficits of raw sugar.
— The proposals would impact most severely
on the ACP, who are the most vulnerable stakeholders. Sugar has
a great socio-economic importance in ACP countries. The Commission's
proposals on "Accompanying Measures" for the ACP are
totally inadequate; they must be greatly improved and backed with
bankable assurances as to funding and timing as a prerequisite
for agreement on the new regime.
INTRODUCTION
1. Before commenting in detail on the EU
Commission's proposals, we feel it is important to put these proposals
in the context of the legal and historical framework in which
we operate as suppliers of sugar to the European markets.
Special status of the Sugar Protocol
2. The three major agreements which define
the obligations of the EU and UK obligations to the ACP countries
are:
— Protocol 22 of the UK Accession Treaty,
providing for the safeguarding of ACP interests and constituting
a "specific and moral commitment" that the Commonwealth
Sugar Agreement would be integrated into the EEC system. The UK
assurances given in 1971, reinforced by the Community's commitment,
provided the basis for the Sugar Protocol of 1975. One quotation
would sum up the importance of the Protocol:
"The Community will have as its firm
purpose the safeguarding of the interests of all the countries
referred to in this Protocol whose economies depend to a considerable
extent on the export of primary products, and particularly of
sugar. The question of sugar will be settled within this framework,
bearing in mind, with regard to exports of sugar, the importance
of this product for the economies of several of these countries
and of the Commonwealth countries in particular. "
— The Sugar Protocol (SP), comprising
for an indefinite duration guaranteed import quantities of some
1.3 million tonnes at a guaranteed price;
— The Cotonou Agreement, Article 36(4)
of which relating to commodity protocols including the Sugar Protocol
is probably one of the most important provisions of the Cotonou
Agreement as far as ACP sugar is concerned. This states:
"In this context, the Parties reaffirm
the importance of the commodity protocols, attached to Annex V
of this Agreement. They agree on the need to review them in the
context of the new trading arrangements, in particular as regards
their compatibility with WTO rules, with a view to safeguarding
the benefits derived therefrom, bearing in mind the special legal
status of the Sugar Protocol. ".
Benefits of the Sugar Protocol
3. The concept of safeguarding the benefits
of the SP is particularly important for the ACP. These "benefits",
to which Article 36(4) of Cotonou refers, clearly include the
price, which under the Commission proposals would be severely
eroded over a very short period.
4. Since the inception of the Protocol in
1975, the price and agreed quantities have been the main determinant
of the export earnings of the ACP suppliers. The ACP guaranteed
price has been aligned on the EU Intervention Price fixed annually.
This alignment of the ACP guaranteed price and, therefore, their
export earnings, with the EU intervention price ie the EU sugar
producers, have created a legitimate expectation. It has provided
a predictable level of earnings to the ACP comparable to the EU
producers, and has ensured the continuous modernisation and rationalisation
of the ACP sugar industries, as well as the sustainable development
of ACP countries through judicious diversification of their economic
base.
5. Under the Commission proposals, only
part of the income of the EU beet sector would be provided by
the price, the remainder being provided in the form of compensation
to beet growers. In contrast, no compensation is being offered
to the ACP cane sugar sector, and thus the link between our export
earnings and the earnings of the beet sector will be broken to
our disadvantage. The Commission proposals would thus not meet
our legitimate expectations in terms of safeguarding the benefits
of the SP and are in contradiction with the Cotonou Agreement.
THE PROPOSALS:
ANALYSIS OF
RATIONALE FOR
PRICE REDUCTIONS
6. Our long-standing relationship with the
EU as reliable sugar suppliers to the European markets is now
severely strained by the European Commission's plans for radical
price cuts which they propose to implement over a very short period
starting in 2006.
7. In the Agriculture Commissioner's recent
speech to a conference of stakeholders, she explained that the
Commission's radical proposals are driven by two external considerations:
the need to respond to the WTO panel ruling on EU export subsidies;
and the risk of imports from the LDCs disrupting the internal
EU market once duties are completely removed under the EBA initiative.[26]
8. We do not accept the Commission's justification
for their proposals.
WTO Appellate Body ruling
9. The Commission claims that it is imperative
to reduce production in order to bring exports down to the limits
agreed in the URAA and clarified by the recent WTO ruling against
the EU. However, the ACP have not been responsible for any increase
in supply contributing to this problem, and therefore should not
be asked to bear such a disproportionate and inequitable share
of the burden.
10. In any case, it is by no means clear
to us that price cuts of the magnitude proposed are needed to
bring about a fall in EU production such as seems to be required.
We are ready to support the recent proposals to allow a certain
level of exports within the agreed limits in order to alleviate
the problem, allow extra room for ACP/LDC sugar and to ensure
market balance.
Imports from LDCs
11. The Commission has stated that among
its motivations is the desire to ensure that imports from least
developed countries do not increase, by making it economically
unattractive for them to supply the EU market. Thus the Commission
acknowledges that an element of its strategy involves a targeted
attack on sugar suppliers in the LDCs, which contradicts the sustainable
development focus of the EBA initiative.
12. This is all the more inexplicable as
the prospect of an unmanageable rise in imports from the LDCs
is less clear than the Commission claims. In the case of the LDCs,
the logistical constraints they face and their need to keep their
local and regional markets supplied would make this exaggerated
threat groundless.
WTO Doha Round
13. We understand that because of the Doha
Round the EU may have to cut import duties, and it follows that
a price cut would be needed to accommodate this in order to avoid
the EU market being swamped with imported sugar. However, the
Commission's price reduction proposals go far beyond what could
be required in terms of the July 2004 Framework Agreement. The
price cut should not be larger than is strictly required by the
outcome of the Doha Round.
14. In this regard the EU should use all
its political weight to make the best of the provisions of the
July Framework Agreement as regards both the extent and timing
of any price cuts. These provisions, set out in paragraph 44 of
the Agreement and paragraph 16 of the Harbinson Text, include
special treatment for sensitive products, the possibility to invoke
safeguard clauses, and the recognition of the need to safeguard
long-standing preferences. We stand ready to work together with
the EU to promote such issues of common interest.
15. A decision on the extent and timing
of the price cut should therefore be deferred until after the
completion of the Doha Round, and the Commission should use other
mechanisms at its disposal to manage the market.
16. It is unnecessary to rely solely on
the price mechanism to achieve the desired end, especially in
view of its hugely disruptive effects. Consequently the price
cut should be more in line with the proposals made by other stakeholders,
NGOs, the European Parliament, etc. It should be far less than
the 39% proposed, should be effective as from 2008 and evenly
spread over a period of eight years.
Proposal to abolish refining aid
17. We must point out that the proposal
to eliminate the adjustment aid currently paid to EU refiners
is most unfair, as it will result in an immediate price cut for
raw sugar, which the Commission expects the ACP Protocol suppliers
to bear. This budget saving will, in effect, be used by the Commission
to finance part of the compensation to beet growers.
18. The cost of the adjustment aid should
be borne not by the ACP but, as presently, by the EU Agriculture
Budget. We therefore ask that the Commission proposal be amended
so as to reverse the imposition of the cut in raw sugar prices
in the first year of the new regime and ensure that this additional
cost burden is not imposed on the ACP countries.
OTHER ASPECTS
OF THE
PROPOSALS
Abolition of intervention buying
19. We maintain that the Commission's reform
proposals do not conform with Article 36(4) of the Cotonou Agreement
under which there is provision to safeguard the benefits derived
from the Sugar Protocol bearing in mind the special legal status
of the Protocol.
20. The Commission has proposed to abolish
intervention buying of sugar, which is the main price support
mechanism in the current regime. The intervention agencies are
the buyers of last resort and give effect to the concept of price
guarantee. The reform proposals do not provide the price guarantee.
21. Moreover, Article 5(4) of the Sugar
Protocol provides for the guaranteed price to be negotiated annually
within the price range obtaining in the EU market, taking into
account all relevant economic factors. If the intervention price
is replaced by a reference price, we would query how the Commission
proposes to implement Article 5(4) of the Protocol.
22. In short, we feel that abolition of
the intervention mechanism would seriously undermine the price
guarantee contained in Articles 5 and 6 of the Sugar Protocol.
We therefore maintain that the Commission proposal should be amended
so as to reinstate the intervention mechanism and enable the effective
implementation of Article 5(4) on annual price negotiation and
thereby comply with the provisions of the Sugar Protocol.
Regulation of preferential imports
23. The Commission proposes, in Articles
29 to 31 of the draft legislation, to introduce new rules governing
the import of preferential sugar. We would respectfully request
an explanation of how these rules can be reconciled with our rights
set out in Articles 1, 5 and 9 of the Protocol, freely to market
the Protocol Guaranteed Quantities as raw or white sugar, for
refining or otherwise, in the European market.
24. We believe it will be necessary for
Articles 29 to 31 to be radically redrawn so as to reflect fully
the terms of the Protocol and to preserve our long-standing rights.
This is all the more important given the pressure we will be under
to maximise our earnings from more value-added exports.
25. The proposed continuation of the MSN
in the form of a "traditional supply needs" mechanism
for refineries would severely hinder ACP countries from pursuing
their marketing strategies.
26. All additional quantities of sugar required
to supply refineries should be sourced from the ACP and the LDCs,
once supplies under the Protocol and the EU's other existing preferential
import arrangements have been exhausted. The ACP have established
a track record as reliable suppliers to the EU market. We therefore
ask that the relevant Article 26(2) of the Commission's draft
legislation be reformulated so as to give priority to supplies
from the ACP and the LDCs.
COMPARATIVE ANALYSIS
OF COMMISSION'S
PROPOSALS FOR
VARIOUS STAKEHOLDERS
27. In the broadest possible terms, analysis
of the Commission's proposals reveals that the EU beet growers
("CIBE"), EU beet processors ("CEFS"), EU
Refiners ("CERPSCA") and ACP raw sugar suppliers ("ACP")
would suffer losses in 2009-10 as follows:
| Stakeholder | Percentage loss in
price or margin
2005 to 2009
| Rough estimate of
annual revenue loss
in 2009 (millions)
|
| % |
|
| CEFS | -28 | 900
|
| CERPSCA | -64 | 100
|
| ACP | -48 | 300
|
| CIBE | -21 | 2,600
|
| | |
28. Overall, in broad terms, the cane sector (ACP and
CERPSCA) would lose out by approximately twice as much in percentage
terms as the beet sector, without taking into account any mitigating
impact of the accompanying measures for the ACP. For the ACP,
the size of the percentage loss is partly accounted for by the
fact that they, in contrast to the beet producers, have to bear
the cost of inland transport, storage, freight and insurance.
29. The table above gives detailed calculations. The
figures quoted above are as far as possible equivalent figures;
thus for all millers and refiners, the impact is compared the
ex-mill stage, however, for beet growers the impact is given at
the factory gate stage.
30. We need hardly add that this demonstrates the total
lack of balance and equity in the Commission's proposals, in that
the ACP as the most vulnerable stakeholder is treated far worse
than other producers.
Impact on Economies of ACP
31. The ACP Sugar Protocol Group comprises 18 countries
supplying sugar to the EU. Most have been reliable trading partners
with the EU since 1975 and for a much longer period with the UK.
Most can be categorized as small developing nations which are
vulnerable to severe climatic disruptions and external economic
shocks. Most have a high dependence on sugar exports for contributions
to GDP foreign exchange earnings and employment especially in
the rural areas. Some have been classified as LDCs and all have
significant sectors of poverty within their economies.
Socio-economic importance of sugar in ACP States
32. However mere statistics, impressive as they may be,
do not convey the full socio-economic importance of the sugar
industry which has a major multi-functional role in our countries.
In particular:
— It delivers a wide and transparent distribution
of sugar income especially in rural areas;
— In addition to direct employment, the multiplier
effect of indirect employment and benefits in ancillary and support
industries in the sugar cluster indicates that as many as three
million people derive part or all of the income from sugar;
— In many ACP countries the sugar industries are
directly responsible for the provision of primary health care
services (including hospital care and public health programmes),
local education, housing, recreation, and community services;
— It provides renewable and environmentally friendly
energy both for the mill and increasingly for the national electrical
grid, thus reducing dependence on costly fossil fuels.
33. Because of the sheer scale of its scope and its long
historical involvement, the sugar industry is woven into the tapestry
of our rural economies.
ACCOMPANYING MEASURES
FOR THE
ACP
34. We were initially encouraged by the EC's apparent
understanding of the crucial role of sugar and the EC statement
of a firm commitment to mitigate the devastating effect of such
a radical sugar reform proposal. It was stated that there would
be a financial support package from funds which would be additional
to the European Development Fund.
35. However, the Commission's proposed Action Plan for
Accompanying Measures for the ACP, published in January 2005,
will not provide the level of assistance required within the requisite
time frame. Its provisions are unnecessarily burdensome and time-consuming.
No monetary value has been placed on the assistance, and there
is no timetable for disbursement. No clear linkage has been established
between the financial assistance offered, the trade losses which
will be sustained and the resources required.
36. In contrast, the negative impact of reform on the
livelihoods of the EU's own beet and cane suppliers was acknowledged
from the outset and the reform proposals have been directly linked
to the provision of immediate financial payments to growers, irrespective
of whether or not they remain in sugar production.
37. Our industries are in need of immediate short term
funds to cater for the cash flow constraints caused by existing
restructuring activities, bearing in mind the loss in export earnings
with which we are faced in 2006. ACP industries should also qualify
to receive income support to take account of the lag between investments
and productivity gains to be reaped therefrom.
38. We concur with DEFRA's suggestion of a dedicated
consumer levy as a source of funding for Accompanying Measures.
39. It is essential to have a clear bankable commitment
of the amounts and timings of finance from the EU. Funding must
be front-loaded and disbursed according to simple fast-track procedures.
This should be a prerequisite for any agreement on the new EU
sugar regime.
CONCLUSION
40. The ACP have always remained ready to work with the
European Union in all appropriate fora to discuss strategies designed
to promote their sustainable socio-economic development through
trade, in particular sugar, in line with the Cotonou Agreement
and other binding instruments.
41. The need for reform of the EU sugar regime is accepted,
but we have to say, with regret, that so far the concerns of the
ACP have been completely ignored.
42. We realise that ACP sugar industries must continue
to pursue their modernisation and rationalisation plans to become
more competitive. However, we consider that the EU proposal for
reform is disproportionate and discriminatory vis-a"-vis
the ACP. The incoherence of EU policies undermines their capacity
to use trade as a vehicle to achieve the Millennium Development
Goals (MDGs).
43. The Commission's proposal in its present form has
far reaching consequences including the destruction of our sugar
industries, with devastating consequences for ACP states. In particular,
it will impact negatively on their social fabric, employment and
security, and the achievement of the MDGs to which the ACP and
EU member states attach the highest priority.
44. We consider that certain aspects of the Commission
proposal are not compatible with the provisions of the Sugar Protocol
and would urge the UK Government to insist on compliance.
45. We reject the contention of the Commission that the
opening of the EU market to LDC countries under the EBA initiative
would require the proposed radical price cuts. We also note that
such deep price cuts go far beyond the requirement implied in
the July Framework Agreement or needed to meet the EU's likely
WTO commitments.
46. The ACP and LDC Sugar Groups propose a managed market
through a quota system and an adequate level of price ensuring
that EU production and ACP/LDC improved market access match the
EU's internal consumption.
47. Many ACP/LDC countries will be able to benefit from
additional and accelerated access to the EU sugar market, and
moreover access for all qualities of sugar which will allow us
to add value to our sugar production at home rather than be condemned
simply to supply raw sugar for refining. As a group, we therefore
seek to supply more and higher value sugar to the EU market.
48. We register with regret that the European Commission's
offer of accompanying measures for the ACP states, amounting to
40 million in first year and an unspecified amount in subsequent
years, is utterly inadequate to provide the ACP states with bankable
assurances necessary to modernize, restructure and improve the
competitiveness of our industries in order to ensure their long-term
viability. The provision of adequate, front-loaded EU resources
for the ACP should be urgently addressed before the conclusion
of negotiations on the new regime.
49. In summary, the Commission's proposals are in contradiction
to the terms of the Sugar Protocol and the Cotonou Agreement.
The Commission has relied too much on price cuts as a management
tool. It has unnecessarily pre-empted the outcome of the Doha
Round, and has overstated the impact of the EBA initiative. Its
proposal discriminates unfairly against traditional cane sugar
suppliers, who are least able to withstand such a price shock.
A far less radical price cut, phased in over a much longer period
and commencing after the end of the Doha Round negotiations, would
meet the EU's objectives if combined with measures to cut EU production.
ACP London Sugar Group
October 2005
26
Speech by Mariann Fischer Boel, Agriculture Commissioner, "Preparing
Europe's sugar sector for a competitive future"; Conference
by CEPS, CIBE and EFFAT, Brussels, 28 June 2005. "We have
lost a WTO panel requested by Australia, Brazil and Thailand.
A panel which effectively requires us to cut back sugar exports
by 4.6 million tonnes-and which therefore takes away an important
safety valve for letting out pressure from our domestic market.
On the other side of the balance sheet, millions of tonnes of
sugar could start coming our way from the Least Developed Countries
from 2009 onwards under the Everything But Arms agreement. Any
changes we make to the sugar common market organisation have to
be measured against these trade-related challenges." Back
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