Select Committee on Trade and Industry Written Evidence


APPENDIX 15

Memorandum by UKISUG, the UK Industrial Sugar Users Group

  1.  UKISUG represents the UK's manufacturers of food and drink, including companies both large and small. Overall, they employ some 80,000 people in the UK, with consumer sales of around £15 billion per annum. They use 70% of UK sugar consumption (1.2 million tonnes) and are therefore an important stakeholder in the sugar regime.

THE EU SUGAR REGIME IS AN ANOMALY THAT MUST BE REFORMED

  2.  The sugar regime stands in defiance of all the principles of policy that the EU, in other contexts, tries to promote.

  3.  It rests on national quotas rather than European competition—there is in effect no single market in sugar.

  4.  It keeps ACP countries in relationships of dependency rather than enabling them to establish relationships of equality with the EU.

  5.  It stands in opposition to the broader long-term trend of world trade free from tariffs, quotas and subsidies.

  6.  We recognise that there are considerations other than those of immediate economic welfare in the debate about reform of the sugar regime, so we do not suppose that it will or should be abolished overnight. However, the EU needs to demonstrate to the other members of the WTO that it is a serious and reliable negotiating partner and shares the same long-term vision for the world trading system; it cannot do this if the sugar regime is unreformed.

  7.  In particular, this means that the dumping of European sugar production on world markets, distorting them and harming the interests of other countries, must come to a rapid end. This in turn requires a reduction in European sugar prices, as it is only the inflated EU price that makes such dumping affordable.

DECLASSIFICATION OF PRODUCTION

  8.  We are dismayed but not surprised at the decision in September 2005 to declassify substantial quantities of EU sugar production. This will lead to more dumping on world markets, depressing the price and claiming markets at the expense of sugar producers in some of the world's poorest countries. This is hardly consistent with the objectives of raising the living standards of the world's poor.

  9.  However, this decision was the natural consequence of the sugar regime and the high price that encourages production to meet the quota rather than production to meet demand. Under the Commission's current proposals, this structure will remain in the new regime. If this structure is not changed, we are likely to see a renewed round of dumping in a few years' time.

EXPORT REFUNDS

  10.  Within the context of the WTO Doha Development Round the EU has already made the commitment to the ultimate abolition of export refunds. UK government ministers have gone on record as stating that export subsidies should be phased out by 2010. This is a laudable ambition, but the government must respect the principle of coherence between the three pillars: domestic support; market access; export competition.

  11.  Export refunds are intended to bridge the gap between higher European and world raw material prices so that EU exporters of processed food products can remain competitive in third country markets. In the case of the current negotiations on reform of the EU sugar regime, it is imperative that export refunds are only removed once EU domestic prices are in balance with world prices. As export refunds disappear, the EU domestic support price for sugar must approximate towards world prices so as to allow EU exports of processed foods to remain competitive in third country markets.

  12.  The sugar reform proposals do not say much about the mechanism for export refunds. We welcome the recognition that export refunds for processed foods (Non-Annex I) will be necessary, but it is not clear how they will be calculated. As it is, sugar export refunds for processed foods do not reflect the full differential between EU and world market prices. Will the new sugar reference price act as a trigger in the relationship to world prices? Furthermore, if this is the case, will the calculation be on the full reference price or that net of the restructuring levy to be imposed for financing the restructuring scheme. This is particularly significant for sugar users/exporters, who will have to bear the burden of the restructuring amount while it is in place.

CONCLUSION

  13.  Reform of the sugar regime is a necessary part of the EU's contribution to the future of the world trading system. The Commission's proposals are a step in this direction but more needs to be done.

30 September 2005


 
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