EU Agriculture Council
Meeting with the ACP Ministers Responsible
for Sugar
24 January 2005
Justus Lipsius Building, Brussels
- Background Notes
Hon. Mr. BODHA, Minister of Agriculture, Food Technology
& Natural Resources (Mauritius)
Spokesman for the ACP
"Historical Context and Political Aspects of the Sugar Protocol and
Cotonou Agreement"
Hon. Dr Galal Yousif EL DEGEIR, Minister of Industry (Sudan)
Spokesman for the LDCs
Hon. Mr Roger CLARKE MP, Minister of Agriculture (Jamaica)
"EU sugar Reform and the socio-economic implications for ACP Sugar producers"
Hon.
Mr. Clement J. ROHEE, Minister of Foreign Trade & International
Cooperation (Guyana)
Item ... (III) - Trade Dimension: Guaranteed Price, Maximum
Supply Needs, Refining Margins etc."
The
Hon. Senator Mabili D. DLAMINI, Minister of Foreign Affairs
and Trade (Swaziland)
"Legal Aspects"
Mr
Graham Clark, Director, Illovo Sugar Ltd., Chairman of the
LDC London Sugar Group
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BACKGROUND NOTES
(24 January 2005)
Hon. Mr. BODHA
Minister of Agriculture, Food Technology
& Natural Resources (Mauritius)
Spokesperson for the ACP
Historical Context and Political Aspects of the Sugar Protocol and
Cotonou Agreement
Mr President,
Honourable Ministers,
Commissioners responsible for Agriculture, Development Cooperation
and Trade,
Excellencies,
Ladies and Gentlemen,
I would like, on behalf of the ACP and LDC sugar supplying states,
to thank you Mr. President and, through you, the EU Council of Ministers
of Agriculture for this very important meeting.
We welcome this opportunity for high level political dialogue
at Ministerial level on an issue of vital trade and economic importance
to our countries and, indeed, to our people whom we represent.
In fact, we are talking about the livelihood of poor farmers and
workers with little or no alternative strategy to survive. We are
talking also about agriculture, about a crop which in most of our
states is intricately linked to our cultural and
social fabric as well as to our political emancipation. Sugar cane
plantation is a way of life. It is our life line.
Our first priority is first and foremost to take fully into account
ACP concerns, interests and the need to comply with international
legal, political and moral commitments and then address the after
effects of the reform, notably through a tailor-made Plan of Action.
The sugar sector is-an area of cooperation which fits into a strategy
to achieve the three inter-linked objectives of Cotonou and the Millennium
Development Goals. It is against such a background that we have to
consider any reform proposals for the EC sugar regime under which
the Sugar Protocol and the EBA initiative are implemented.
That is also why we particularly welcome the presence of Commissioner
Boel, Commissioner Michel and Commissioner Mandelson at this meeting
because this issue is cross-cutting. And the effects of the reform
will have wide-ranging consequences. Any solution will require a holistic
approach in our.fight against poverty and in the promotion of sustainable
development and the gradual integration of our States into the world
economy through sustained growth and development.
Mr. President,
We were comforted by the EU Agriculture Council's statement that
the EU fully stands by its commitment to the ACP countries and that
the ACP/LDC concerns must be taken into account.
We have noted with interest the proposals of the Commission relating
to the retention of the preferential import of 1,3 million tonnes
of ACP and Indian sugar under the Sugar Protocol.
While we take note of the proposal of the Commission for a Plan
of Action for the ACP to enable them to adapt to a post reform situation,
we have to lay stress on our first priority, that is: we need to work
towards a fair and equitable reform which will enable us to remain
sustainable in the long term . It is only then that that we can work
on an Action Plan. The Plan should not distract us from our prime
objective.
Mr President,
The ACP and the EU have a long history of privileged relationship
underpinned by long-standing preferential trading arrangements of
which the Sugar Protocol, and now the EBA, are model trade agreements
for North-South Cooperation.
In this respect, it would be appropriate and opportune to take
you briefly down memory lane to better situate the historical perspective
and political commitment to our exemplary cooperation in the vital
sector of sugar.
Sugar has been exported to the UK and other countries for more
than a century. This long-established trading relationship has been
institutionalised by various trade instruments.
When the UK acceded to the European Communities, its commitments
were taken on board by the EC, which unequivocally stated in Protocol
22 that, I quote:
"The Community will have as its firm purpose the safeguarding
of the interests of the countries referred to in this protocol whose
economies depend to a considerable extent on the export of primary
products and particularly of sugar"
Accordingly, the Commonwealth Sugar Agreement was incorporated
in the Sugar Protocol whose Article 1 states, I quote:
"The Community undertakes for an indefinite period to purchase
and import, at guaranteed price, specific quantities of cane sugar,
raw or white, which originate in the ACP states and which these states
undertake to deliver to it." Unquote
The Sugar Protocol has a life of its own as stipulated in its Article
8 and it has been annexed to the successive Lome Conventions and the
Cotonou Agreement for purely administrative purposes.
The Sugar Protocol has precedence over the EC Sugar Regime and
any reform of the Sugar Regime should not diminish the rights and
obligations of the Contracting Parties. Moreover, any modification
to this Agreement cannot be unilaterally imposed.
Its "implementation is carried out within the framework of
the Common Organisation of the Sugar Market which, however, shall
in no way prejudice the commitment of the Community" as stipulated
in Article 1.1. My colleague from Swaziland will later deal with this
aspect.
The Signatory States of the ACP-EU Protocol on Sugar come from
all regions of the world. They are regarded as vulnerable countries
and may be categorised as follows:
- Small Island Developing States (SIDS) Least Developed Countries
(LDCs)
- Landlocked countries
- Single Commodity exporters
- Net Food Importing Developing Countries (NFIDCS), and
- Low-lying and Coastal States
The vulnerability of ACP sugar producers can be defined in various
ways, notably in relation to their size, often small suffering from
the absence of economies of scale, remoteness, insularity, landlocked
situation, also generally no or little natural resource endowment,
and the lack of financial resources to provide assistance to sustain
a viable agricultural sector as a necessary feeder to other sectors
of the economy such as tourism, energy, etc.
These inherent and permanent features seriously affect their competitiveness
and the possibility to diversify agricultural production and their
industrial base.
Their competitiveness can, in no way, match that of the major multi-commodity
producers/exporters such as Australia, Brazil and Thailand which are
huge. These countries enjoy significant economies of scale and have
considerable natural resource endowments while being prone to minimal
adverse climatic conditions and with immense economic resilience which
we do not have and can never aspire to have.
In addition to their inherent constraints and limited diversification
options, the ACP States concerned depend heavily on the predictability
and security of preferences to be able to participate in the multilateral
trading system and thus finance the import of basic foodstuffs and
their sustained growth and sustainable development if they are not
to be marginalized in a fast globalising world economy.
The Sugar Protocol is a legally binding contractual agreement between
the ACP signatory States and the European Community in which both
parties have committed themselves to fulfil their respective obligations.
May I remind you that under Article 1, it incorporates three inter-linked
guarantees of price, quantities and duration and is a good example
of mutuality of interest.
Our small and vulnerable countries can devote limited budgetary
resources to agriculture. Consequently, funds for the part fulfilment
of key developmental objectives are provided by stable export earnings
secured through preferential trading arrangements. In this regard,
the Sugar Protocol is a development cooperation instrument "par
excellence".
Mr. President,
The ACP States have fully and faithfully met their obligations
under the Sugar Protocol, i.e. exporting an unchanged amount of 1.3
million tons per annum since 1975 representing less than 10 % of the
EU consumption. In this regard, and in line with Article 1 of the
Sugar Protocol, the ACP legitimately expect the EU to continue meeting
its obligation to the Protocol. They have legitimate expectations
in terms of export earnings just as the EU farmers for their income.
The reform should not destabilise this equation.
The reform Communication of the Commission if adopted, will destroy
this equation, affect our mutuality of interest and will once again
shift the entire burden of the reform on to the ACP This is most unfair
and unjust
The Sugar Protocol is a partnership between the ACP sugar supplying
states and the EU, which ensures the viability of the long standing
port refiners' activities in the European Union and is complementary
to the beet processing industry. This also reflects the mutuality
of interest that prevails between the ACP and the EU and which has
made us work together in other fora, like the WTO. We are committed
to this partnership, including in the WTO, to pursue our common interest.
The ACP and the EU, fully cognizant of the need to maintain the
benefits derived from the Sugar Protocol, jointly agreed, pursuant
to Article 36(4) of the Cotonou Partnership Agreement, to safeguard
these benefits which are economic, social
and environmental We have to uphold this commitment.
Therefore, the future regime should be respectful of the political
and legal commitments endorsed both in the Sugar Protocol and Article
36(4) of Cotonou.
Mr. President,
We are aware that the EC sugar regime is under pressure, including
within the context of the reform of the EC Common Agricultural Policy.
But sugar has its own specificities and financing system and the type
of legal and political commitments that make the adaptation of the
regime somewhat complex and difficult. But the reform proposals should
take the interests and concerns of all stakeholders fully into account.
We also recognize the need for reform. But, the reform does not
mean throwing away the baby with the bath water. We cannot and should
not move from one extreme to another. We need to preserve the basic
elements and essence of the regime and the Protocol. The over-arching
element is a high remunerative price. My colleague, Minister Rohee
will address this issue in detail later.
In our view, any future reformed Sugar Regime should have the following
characteristics which would enable the Parties to the Sugar Protocol
to honour their political, economic, contractual and moral commitments;
1. An orderly management of the sugar sector based on a quota system
and a guaranteed remunerative price for the benefit of all stakeholders
including the LDCs who have made it clear that the EBA initiative
would only be of benefit to them if they obtain remunerative prices
for their sugar exports. Quantity without remunerative price will
be commercially meaningless and such a reform will not provide neutrality.
2. A relatively long duration that will provide stability and predictability
necessary for investment and development.
3. The maintenance of a system that will guarantee, at the very least,
the present level of benefits.
4. A system which recognizes the vulnerabilities of ACP sugar supplying
states which is comparable to those of DOMs and outer regions of the
EU. They share the same need to maintain agricultural production for,
inter alia, environmental preservation. The ACP's limited potential
for agricultural diversification requires that they be provided with
similar treatment.
5. Provision for the prevention of fraud through circumvention of
the rules of origin.
We, therefore, urge the EU Member States and the Commission to fully
honour the commitment enshrined in the Cotonou Agreement, Sugar Protocol
and the EBA- In our meetings so far with most of the EU Members States,
who share our concerns generally, we have had very positive response
and a deep sense of understanding. In Madrid, after the Meeting with
the Hon. Minister of Agriculture we came forward with a Madrid Declaration
covering issues of common interests. We very much appreciate this
and look forward to continuing this process with all the Member States.
Mr President,
The various points I have stressed, together with my colleagues are
vital to us. We urge that they be fully taken on board when the Commission
drafts its final legislative texts.
The Commission has also shown its readiness to discuss with us
on the best way forward to safeguard the vital trade, economic and
social interests of all parties.
In this regard, I would like on behalf of the ACP and LDC sugar
supplying States, to assure you of our availability and willingness
to continue the very useful and meaningful dialogue that we have started
to-day.
I thank you.
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BACKGROUND NOTES
(24 January 2005)
HON. DR. GALAL YOUSIF ELDEGEIR
Minister of Industry (Sudan)
Spokesperson for the LDC
Mr. President, Ministers, Excellencies, Commissioners, Ladies and
Gentlemen
I am privileged to address you today on behalf of LDC Sugar producers.
The 50 LDCs, 41 of whom are ACP countries, warmly welcomed the EBA
initiative in 2001. The initiative has accorded the poorest countries
prospects for duty free access for all exports except arms to the
EU market. We count on the initiative to address the problems of LDCs
who all face the challenges of poverty and limited development prospects.
EBA should enable LDCs to take full advantage of the opportunities
offered by the EU trading system and thereby contribute to the socioeconomic
development of LDCs which they so desperately require.
LDCs recognize the benefits that could be derived from the EBA initiative,
notably in improving productive capacity generating export revenue
and attracting investment so necessary for the growth of our economies.
With regard to sugar, the initiative, despite the limited quantities
made available in the initial years, has enabled many LDC sugar producers
to export sugar for the first time to the EU market at predictable
and remunerative prices. It has also started to attract much needed
investment in the sugar sector and has already been able to contribute
to the welfare of the many people engaged in the sugar sector, primarily
in poor underdeveloped rural areas.
We have been closely following the proposed EU Reforms to the sugar
sector and fully understand the need for these reforms, however we
are concerned as to their potential negative impact on LDC sugar exporting
countries . The LDC sugar producing states have responded to the proposed
EU sugar reforms following the communication of 14 July, having previously
adopted a detailed LDC proposal on their own position which was also
presented to the EU Commission. The LDC proposal was endorsed by the
first LDC Ministerial meeting on Sugar in Brussels in March 2004 and
revisited by another Ministerial conference in September 2004. LDC
Ministers have engaged in discussions with the EU Commission at all
levels and have conducted a number of missions to EU Member States
either independently or with ACP colleagues. Up to date the Commission
has seen fit not to take heed of the calls from the LDC.
My statement is intended to further explain the LDC proposal and
clarify its rationale, and to emphasize the need for more time to
adjust and develop LDC sugar industries which generally have immense
potential and are seen as being able to contribute effectively to
sustainable development in the poorest countries on earth.
THE LDC PROPOSAL :
The LDC proposal was officially presented by LDC ministers to Commissioners
Lamy and Fischler in Brussels on 3rd March 2004. It is intended to
create a predictable `development environment' in order to build on
the modest investments already made as a result of the EBA sugar initiative.
It will attract future investment that could contribute to the expansion
and upgrading of LDC Sugar industries in a more compelling manner
and hence contribute to sustainable development.
The LDC proposal, is based on creating a reasonable transition period
by deferring the introduction of the existing progressive tariff elimination
currently scheduled to commence from 1st July 2006 to 1st July 2016,
which is in line with the ACP call for a transition period ending
in 2016. This would create a more realistic time-frame to harness
the benefits of EBA and enable LDCs to prepare more effectively for
further future market orientation.
In the context of the renewal of the generalized system of preferences
(GSP) and to improve market access conditions over an extended transition
period the LDC proposal envisages a new tariff quota for sugar of
LDC origin. The LDCs have been given to understand that amendment
to the existing EBA provisions in the context of the GSP regulation
would require an adaptation of the Commission's proposal of 20th October
2004 on the renewal of GSP which is presently being discussed in the
relevant Council working groups. Although the LDC proposal of 3rd
March 2004 was presented to Commissioner Lamy personally, we are not
aware that the LDC sugar'proposal has even been given serious consideration
in the discussions on GSP renewal. We request that the LDC sugar proposal
be given serious consideration both in the GSP debate and in the ongoing
discussions on the sugar reform.
need not be as severe as proposed by the Commission and could be effected
within the EU's minimum commitments in the WTO process, treating sugar
as a sensitive product and taking into account the relevant provisions
of the July WTO package as regards the need to maintain the value
of preferential arrangements.
The consequences of a price reduction as drastic as that envisaged
by the EU over a three year period would be to exclude the majority
of small vulnerable LDC suppliers whilst encouraging other LDC producers
to maximize export volumes. This would undoubtedly increase the incidence
of swap trading and open the opportunity of market abuse.
The LDC require a more predictable environment to enable all of them
to plan in an orderly fashion and to be able to attract desperately
needed investment. Should this not be achieved, then investment in
sugar will cease with disastrous consequences for our development.
The benefits of sugar cane as a development crop in rural communities
are well-known and the multifunctional role of sugar in our economies
cannot be over-emphasized. For many of us sugar cane is not only an
ideal crop but often is the only viable crop that can be produced.
Meaningful but managed access for our sugar to the EU market at remunerative
prices over an extended transition period would consolidate and enhance
these fundamentals. The LDCs recognize the importance of the multifunctional
aspects of agriculture in the EU, and the role that EU farmers play
in that context. Our proposal provides certainty to them and facilitates
quota management to enable sugar production to be spread in
the fairest possible way throughout the EU.
In conclusion, honourable colleagues, we note with regret that the
LDC proposals have not been taken seriously to date by the European
Commission despite widespread support by Member States, all 50 LDCs,
all 79 ACPs, and NGOs including Oxfam. I assure you Mr President that
the position has the blessing of all LDCs, and in order to renew this
support, Bangladesh, the UN coordinator of all LDCs is calling for
an LDC meeting in the near future. We renew the LDC request for an
open dialogue with the EU to work together to secure the benefits
to all LDCs of the EBA initiative and to secure for them defined access
to the EU sugar market. What we seek is to build on the opportunity
which has been created by the EBA initiative to develop our economies.
The Commission's proposed reforms would have the opposite and disastrous
effect.
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BACKGROUND NOTES
(24 January 2005)
Hon. Mr Roger CLARKE MP
Minister of Agriculture (Jamaica)
EU SUGAR REFORM AND THE SOCIO-ECONOMIC IMPLICATIONS FOR ACP SUGAR
PRODUCERS
ACP sugar producing countries are largely small island developing
states and least developed countries, with one highly indebted poor
country. In most of these countries, sugar is the very backbone of
the economy. In all ACP sugar producing countries, the contribution
of the sugar industry to the national socio-economic fabric is incalculable
and goes beyond foreign exchange earnings and GDP indicators. ACP
sugar production is an outstanding demonstration of multifunctional
economic activity, with characteristics which can be summarised as
follows:
Sugar accounts for a major percentage of overall agricultural output;
in some countries it accounts for the highest percentage of agricultural
output.
Sugar is one of the highest contributors to GDP and one of the
main foreign exchange earners; in some countries it is the highest
contributor to GDP and the largest foreign exchange earner.
The sugar industry provides direct employment for over 300,000
persons on estates and on smallholdings and indirect employment for
thousands of others, mainly in rural areas, and by extension supports
the livelihoods of hundreds of thousands, if not millions, of family
dependents.
The sugar industry provides health, education/training, social,
community and sport services in rural districts.
In some countries, the sugar industry also provides drainage and
irrigation services, which facilitate other agricultural activities.
There is secondary business development around sugar estates.
Sugar plays a vital role in maintaining rural stability and reducing
migratory pressure on urban areas.
Sugar cane cultivation is environmentally friendly and prevents
soil erosion.
The sugar cane produces renewable green/clean energy.
The sugar cane has also been proven over time to be the
most resilient plant to natural disasters such as hurricanes
and floods.
In most ACP countries, the sugar cane is the most economically
feasible plant for large-scale cultivation.
For ACP sugar producers, the most damaging element of the proposals
is the cut in the guaranteed price of imported raw sugar by at least
37%, in two steps, over three years, beginning in July 2006. This
would be a mortal blow for small, vulnerable ACP economies and whole
societies.
ACP sugar industries, in recognition of impending changes in the
sugar trade, have been developing and implementing plans to modernise,
reduce production costs, enhance competitiveness and ensure long-term
financial and economic viability. Further, our emphasis on diversification
within the industry will allow us to take advantage of the industry's
versatility, broadening thus our income stream. These plans are central
to the macroeconomic policies of ACP countries. Regrettably, the Commission's
untimely proposals are leading to a loss of bankable assurance essential
to both domestic and international financial institutions. They are
therefore undermining ACP efforts to advance their modernisation programmes,
ultimately posing a serious threat to national development programmes
and to the livelihoods of millions.
The Commission's proposals, as they stand, would lead to:
A loss of foreign exchange earnings of up to Euros 250 million
annually
Currency vulnerability;
Macro-economic instability;
The crippling of national development efforts;
Closure of estates;
Failure of smallholders' cooperatives and collapse of local farmers'
banks;
Massive unemployment and urban migration;
A dramatic and fearful increase in poverty;
Increased crime and, in the Caribbean especially, increased narco-trafficking;
National destabilisation in all ACP countries and heightened insecurity
in the Caribbean region; and
Environmental degradation.
The proposed reforms are linked to a broader desire by the EU for
international trade liberalisation. It is unfortunate that this policy
objective is often confused with measures for reducing world poverty,
since the reforms are in grave danger of perversely producing the
opposite result in the specific case of ACP sugar.
These proposed reforms would be harmful to the legitimate aspirations
of ACP developing nations. Reform implies a change for the better,
but those in favour of reform seem to lack a real appreciation of
the dire implications of the proposals, such as economic devastation,
loss of livelihoods, increased poverty and stagnated development in
ACP countries. What is needed is an approach to reform which allows
equitable and fair treatment for ACP sugar producers, rather than
the injury which these proposals would cause.
All ACP sugar producers recognise the need for reform, but such reform
must not be at the cost of our socio-economic development. In Jamaica,
for example, we are totally committed to a commercially viable sugar
industry and current evidence makes us fully confident of becoming
increasingly competitive. I must also stress that in an island state
such as ours, subject to natural disasters, the resilience of the
sugar cane makes it vital to our agro-industries. Hurricanes of the
last season wrought tremendous havoc in our agricultural industry
and the only crop which withstood their impact, was the sugar cane.
Now we are forced to import even vegetables and other foods, yet we
are harvesting cane and look forward to sugar production this year.
In conclusion, we cannot overemphasise the need to review the Commission's
proposed reform in advance of focussing attention on any action plan.
Though accompanying measures are of great importance to us all, they
cannot respond to our realities if based on a flawed Communication.
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BACKGROUND NOTES
(24 January 2005)
Hon. Mr. Clement J. ROHEE
Minister of Foreign Trade & International Cooperation (Guyana)
Item ... (III)
TRADE DIMENSION :
Guaranteed Price, Maximum Supply Needs, Refining Margins etc.
In our view, the issue of price is both fundamental and central to the
EC sugar regime and the effective implementation of the Sugar Protocol
and the Everything But Arms Initiative in order to guarantee a stable
and predictable level of earnings and income.
- It is argued that the EU domestic intervention price is three times
the world market price.
- But the Commission also recognises that the world market price is
not a representative price for comparison purposes because the world
market for sugar is a residual market used for the dumping of excess/surplus
production by some major producers/exporters.
- Besides, domestic prices paid by consumers in both developed and
developing countries, including LDCs, are much higher than the world
market price. In some EU Member States, it is in excess of 1,000 per
ton.
- It is to be recalled that, when the Sugar Protocol was negotiated
and concluded in 1975, the world market price for sugar was more than
three times higher than the EU intervention price.
- Some ACP States made a deliberate political and economic choice to
opt for stability and predictability in export earnings by legally undertaking
to supply agreed quantities to the EU at a guaranteed low price. Indeed,
there was nothing like a global quota shared by the interested ACP States.
The current total is the sum of the individually agreed quantities
offered by the ACP States.
- The ACP guaranteed price has remained unchanged for the last 18 years.
Indeed, when account is taken of the growing cost of ocean freight and
insurance, the real export earnings have decreased for the ACP suppliers.
It is also to be noted that the ACP guaranteed price is aligned with
the minimum EU intervention price. In most EU Member States, there are
regional prices which are even higher than the minimum institutional
price to reflect, and rightly so, the regional and other constraints
and specificities. The situation of the ACP is comparable to that of
the OCTs. This is a fundamental element which needs to be addressed
when the Commission will propose special treatment for OCTs.
- The current level of the ACP guaranteed price allows them to continue
to honour their obligations to the EU and at same time to address the
socio-economic needs and ensure the livelihoods of hundreds of thousands
of poor farmers and workers in the ACP States, who do not have alternative
sources of employment and income or even alternative crops.
- The maintenance of a remunerative guaranteed price is therefore critical
not only for the survival of the sugar industry in the ACP States, but
also to enable the ACP States to generate resources from within to invest
in their re-structuring and modernisation programmes on a sustainable
basis and not fall into the debt trap. These issues are critical for
the competitiveness and profitability of their industries.
- The reform proposals of the Commission will be destructive, will
affect the mutuality of interest and will shift the entire burden of
the reform on the ACP. This is most unfair and unjust.
- The proposals for a 33 % cut in price for white sugar and 37 % cut
in raw sugar within a short period would be catastrophic to the ACP.
- The proposed cut of 37 % in the price of raw cane sugar will in reality
amount to a cut of 43 % for the ACP because the ACP, unlike the European
beet sugar producers, will have to pay ocean freight and insurance amounting
to 55/ tonne on average.
- According to the Commissions proposals the intervention price of
raw sugar will be reduced from 523 to 329 per tonne. If the costs
of ocean freight and insurance premium, amounting approximately to
55/tonne, are taken into account, the reduction in export earnings will
effectively be 43 % for the ACP/LDCs, whereas the EU farmers, whose
production levies averaging 23/tonne will be abolished, will be given
60 % direct de-coupled income support, with the result that they will
obtain nearly 90 % of the present price level against 57 % for the ACP.
This will be grossly unfair and discriminating. Loss of earnings will
amount to at least 255 million yearly.
- The loss in earnings will be permanent and the ACP States will not
be able to sustain it. In fact, the proposal is a recipe for disaster,
social upheaval, and political instability.
- It also seems to us that the ACP raw sugar price is equated to the
price of sugar beet. Apparently this is due to the internal price fixing
system of the EU. But Article 5 (4) of the Sugar Protocol requires the
EU to take into account all economic factors relevant to the ACP while
negotiating the ACP guaranteed price within the price range obtaining
in the EU.
This is mind boggling because raw cane sugar is not harvested from
the soil like sugar beet. Raw cane sugar is produced from sugar cane
and heavy investments have been made to process the sugar cane into
raw sugar which in some case can be considered even finished products
suitable for direct consumption.
- This equation is an aberration which needs to be addressed and the
implied discrimination removed.
- All these factors indicate that the level of price cut, its entry
into force, and the timeframe within which it will be effected, are
not justified
- The ACP/LDC have made a collective submission to the effect that
the new sugar regime should enter into force in 2008, and be implemented
over an 8-year period with a price cut required that is less burdensome
to the ACP/LDCs.
- The current proposals will neither benefit EU consumers or poor farmers
and workers in ACP States. In reality, only the intermediaries and the
industrial users of sugar will benefit. This has been amply demonstrated
in other commodity sectors. 70 % of the EU sugar consumption is for
industrial use.
- The issue of coherence between trade, agriculture and development
policies needs to be addressed. In this respect, the external effect
of the CAP reform should also be taken into account.
- Reform in the cereals and poultry sectors has resulted in the destabilisation
of national production and regional trade in cereal-based products and
chicken for example. The proposed deep price will cut affect existing
and potential regional market for sugar. This aspect may have serious
implication for regional cooperation and integration which the EU is
actively promoting.
- The argument for such a drastic proposal is that the EC regime is
being subjected to both internal and external pressures. I will restrict
myself to the WTO.
- There is no doubt that CAP reform in general and the reform of the
EU sugar system are linked to the Doha agenda. The abandonment of export
subsidies and cuts in domestic, production-linked support are key features
of this link.
- However, the basic instruments of market access protection which
are the key to maintaining Community preference have essentially remained
intact even though negotiations on special safeguards are still pending.
- The EU should have no problem in meeting its Doha Round commitments
on domestic support because most support is now decoupled from production.
- As regards export competition, the EU Commission's planned quota
cuts should go a long way towards bringing its subsidised exports close
to zero, while the level of imports should be maintained or even increased.
- While the liberalization of the sugar market is clearly of major
interest to several producers, there is nothing in the July text that
would
suggest a direct attack on the EU's sugar regime or that would question
the legitimacy of the Sugar Protocol.
- WTO Members also agreed that the July Framework "shall not be
used in any dispute settlement proceeding under the DSU".
- While there are attempts being made to tighten disciplines in a number
of areas, the flexibility is there in the July Package to offer sugar
the needed protection as a sensitive product and to allow the EU to
maintain its sugar regime for a considerable period. The July Framework
on agriculture remains fairly general with very few numbers, thereby
providing members with substantial room for interpretation when the
detailed "modalities" are being worked out.
- Nothing in the July Package suggests that EU sugar reforms should
start in July 2005 or 2006 and cannot be delayed until 2008.
- The main threats to ACP sugar interests lie not within the WTO negotiations
but in the context of the EU's own reforms, the EBA and the current
(and possible future) dispute settlement challenges to aspects of the
regime.
Maximum Supply Needs
- Under Articles 1 & 5 of the Sugar Protocol, the ACP Sugar Supplying
States can supply both white and raw sugar.
- This is also clearly borne out by the fact that when the ACP negotiate
the annual guaranteed price, the guaranteed price is fixed for both
white and raw sugar for the sake of Intervention and to fulfil the requirement
of the buyer of last resort. The ACP are free to sell any type of sugar
under the Protocol.
- But the ACP chose to reinforce the mutuality of interests with the
EU sugar refiners, to supply raw sugar and limited quantities of direct
consumption sugars, which gave the EU refiners the security of supply.
- This puts the ACP and the EBA sugar supplying states in a disadvantageous
and uncompetitive position because they cannot supply the type of sugar
that would allow the ACP to supply other value added sugar products.
- It also prevents the ACP and the EBA suppliers from fully utilising
the price ranges and the demand for the different types of sugar which
the EU market requires. In the context of price reduction, especially
when it is proposed to reduce the price of raw sugar more significantly,
the ACP should be given the option to maximise its export earnings by
supplying all types of sugars for which there is a market in the EU
- The Maximum Supply Needs (MSN) constitutes a marketing restriction
which is in contravention of articles 1 & 5 of the ACP EU Sugar
Protocol.
- Therefore, the MSN issue as raised in the reform proposals may not
be in order. We are prepared to work with you to find a mutually satisfactory
solution.
- This takes me to the related issue of refining margins.
Refining Margin
- Colleague Ministers will note that the ACP supply sugar on a Cost
Insurance Freight (CIF) basis which means they have to pay increasing
ocean freight cost and insurance premium. On the other hand, the EU
refiners, up to now, have been provided with refining aid so that they
can produce and compete with the EU beet sugar producers at par.
- It is to be recalled that in 1984, an attempt was made to pass on
the burden of the refining aid to the ACP suppliers by proposing a differential
increase in the price of white and raw sugar for the ACP.
- The Commission, at that time, was made to understand that this was
discriminatory and the situation was resolved by removing the discrimination.
- It is surprising that today an attempt, through the reform proposals,
is being made for the burden of the refining aid again to be shifted
to the ACP Sugar Supplying States by proposing a 37% price cut for raw
sugar against a 33% cut for white sugar. This is unacceptable because
the ACP are already being penalised by the significant increase in ocean
freight and insurance premium.
Point for clarification
- The proposal for the abolition of the intervention mechanism will
not be in conformity with Article 6 of the Protocol which provides that
if the ACP SP suppliers do not find a buyer, the EU is under obligation
to purchase the ACP agreed quantities at the ACP guaranteed price. In
the absence of the intervention mechanism, we do not know how the EU
will fulfil its obligations under the Sugar Protocol, as the reference
price mentioned in the Commissions Communication is not clearly defined.
We wondered therefore whether the proposed private storage scheme will
fulfil the requirement of an intervention mechanism. Will the Commission
help us in clarifying these points?
- What is the status of the MSN (Maximum Supply Needs) and how is it
in compliance with the Sugar Protocol and the Commissions Proposal
for the production of value-added sugar products?
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BACKGROUND NOTES
(24 January 2005)
The Hon. Senator Mabili D. DLAMINI
Minister of Foreign Affairs and Trade (Swaziland)
Legal Aspects
With regard to the Legal Aspects of the ACP EU Sugar Protocol and
its direct link with the EC Common Market Organisation for the sugar
sector, we would like to make the following preliminary observations:
The ACP EU Sugar Protocol is a legally binding Inter Governmental
contractual agreement between the EC and individual ACP States from
the three regions of the ACP.
Article I provides that the Community undertakes for an indefinite
period to purchase and import, at guaranteed prices, specific quantities
of cane sugar, raw or white, which originate in the ACP States and
which these States undertake to deliver to it.
The Sugar Protocol has been signed separately by ACP States who
have individually undertaken the obligation to supply "agreed
quantities" of sugar as indicated in Article 1 of the Protocol.
The implementation of the Protocol is carried out within the framework
of the management of the common organization of the sugar market which,
however, shall in no way prejudice the commitment of the Community.
This means that the Sugar Regime is the vehicle whereby the Community
has to discharge its legal obligations vis a vis the ACP Sugar Supplying
States.
In this regard, the Sugar Protocol has precedence over the EC Sugar
Regime and any reform of the Sugar Regime cannot diminish the rights
and obligations of the Contracting Parties. Moreover any modification
to this Agreement can only be
through mutual agreement and not unilaterally imposed.
The Sugar Protocol is a special legal status and it has been attached
to the successive Lome Conventions and the Cotonou Agreement for purely
administrative purposes. It has been concluded for an indefinite duration
and has a life independent of the Cotonou Agreement.
The Commission's Communication suggests the abolition of the intervention
mechanism. The Intervention Agency is provided for in the Article
6 of the ACP EU Sugar Protocol. Without the Intervention Agency, it
will be difficult to ensure a guaranteed price whose annual negotiations
are compulsory under Article 5(4) of the protocol. There is no clear
indication of the mechanism to replace intervention and how this will
address the ACP concerns. The proposal to abolish intervention takes
away the provision of the buyer of last resort. This is not in conformity
with Article 6 of the Protocol.
In Article 36(4) of the Cotonou Agreement, the Parties reaffirm
the importance of commodity protocols and 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.
The importance of longstanding preferences for Developing Countries
has been fully recognised by the entire WTO membership in the WTO
July Framework Agreement. The EC has bound the Protocol quantities
in its schedules of commitments on market access as a tariff rate
quota. The WTO July Framework Agreement also provides that modalities
be developed to enable Developing Countries in particular to fully
benefit from market access opportunities under tariff rate quotas.
This aspect must be fully taken into account in the context of
the negotiations of Economic Partnership Agreements. Moreover, as
regards the EPAs themselves, the issue of parties to the EPAs is still
nebulous and ambiguous. Any reference to the Sugar Protocol in the
context of the EPAs is therefore premature and out of order.
As the ACP Ministerial Spokesperson said earlier, the ACP is appreciative
of the various statements made at different levels, both at the levels
of the Commission and Ministers that the EU will stand by its political
and legal commitments. We therefore urge the Commission and the EU
to take on board the observations we have just made
We hope that while preparing the legislative text on the future
of the sugar regime, the Commission will be mindful of the EU commitments
and will respect the sanctity of the ACP EU Sugar Protocol.
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BACKGROUND NOTES
(24 January 2005)
Mr Graham Clark
Director, Illovo Sugar Ltd.
Chairman of the LDC London Sugar Group
Mr President, honourable Ministers, Excellencies, colleagues;
The Everything But Arms (EBA) initiative in relation to sugar captures
not only the true spirit and essence of sustainable development in
the poorest countries in the world but is a working model of what
the LDCs so desperately require in their fight to lift themselves
from being the poorest of the poor.
The European Commission proposals for the reform of the sugar regime
pose a threat to the fundamentals of LDC development and have prompted
the LDCs to propose what in their opinion is a reasonable and meaningful
adaptation of EBA.
Rural development, poverty alleviation, food security and the beginnings
of a better quality of life for those who need it most can already
be seen in the LDCs who have been able to take advantage of this opportunity
to date.
In countries as widespread and diverse as Mozambique and Malawi,
Zambia and Tanzania, Ethiopia and Sudan, Togo and Benin, Bangladesh
and Nepal, Burkina Faso, the Democratic Republic of Congo and Madagascar,
sugar has been exported to Europe, in most cases for the first time,
and is making a difference.
A remunerative price and a predictable level of export earnings is
enabling those sugar industries to consolidate and undertake expansion
and modernization.
The request of the LDCs for accelerated but managed market access
over an extended transition period in conjunction with a more modest
and gradual reduction in price, together with a plea to defer duty-free
and quota-free entry for sugar of LDC origin, is a position which
has not been taken lightly.
Widespread consultations between LDC governments, sugar cane farmers,
sugar producers, investors and NGOs have concluded that participation
in an orderly managed market over an extended transition period, would
create and enhance the predictable investment environment necessary
to build capacity in these sugar industries and thereby transfer benefits
to the widest number of people in these poor countries. Companies
such as Illovo Sugar have already invested many millions of dollars
in a number of LDC sugar industries. Having taken account of the high
investment risks, and having evaluated EU market opportunities, they
require the predictability envisaged by the LDC proposal to sustain
their current investments and to enable them to commit further investment.
The economies and in particular the administrative capacity of most
LDCs are fragile and weak. Against this backdrop, and in a. system
of quota free and duty free access, the opportunities for arbitrage
trading and carousel or swap trading would flourish. Improper trading
practices and abuse of rules of origin would be difficult to control,
and considerable disruption and instability could result in the EU
sugar market, whilst in the LDCs themselves the financial benefits
would be trapped in the hands of relatively few traders, rather than
filtering down as returns to farmers and producers and the communities
in which they operate.
Managed market access under controlled conditions, over a meaningful
transition period, would avoid this situation, limit market instability
and enable the LDCs to build capacity at both the production and institutional
level. The ability to fully supply domestic and regional export markets
could also be developed in this timeframe so as to further sustain
and diversify sugar revenues in the LDCs.
The level of price reduction proposed by the European Commission
would nullify the LDC's proposal as presented. In addition it is our
view that combined with a short implementation period and unchanged
EBA regulations, the majority of small, vulnerable LDC producers will
be excluded on a cost and freight basis, whilst other LDC producers
in a position to do so would have no choice but to maximize export
volumes adding further potential for instability in the EU market.
Regulated and managed market access for LDCs, together with remunerative
prices, would facilitate a fairer spread of market opportunity to
all LDC producers through the internal allocation mechanism for quantities
currently adopted by the LDCs in solidarity with each other. The ability
to establish defined market access for LDCs will also support anti-fraud
measures, strengthen rules of origin, and give fair opportunity to
all farmers and producers both internally within the EU, the ACP and
LDC regions.
The LDCs have at all times held themselves available for negotiation
and further clarification on their proposal. We wish to take this
opportunity to re-state our readiness to play a meaningful part in
the GSP review and in the debate on the reform of the sugar regime.
Our view on price reduction is that this should be gradual and modest,
which would be possible within the expected WTO comnnitments of the
EU.
Quantitative access for LDCs during the proposed transition period
could be accommodated by a modest reduction in EU beet quotas. Furthermore,
the raw cane sugar requirements of future new EU Member States will
also offer an added market access opportunity.
Our proposal is WTO compliant, within the findings of the WTO Disputes
Settlement Panel which has ruled in favour of differentiation on behalf
of Least Developed Countries. The maintenance and expansion of preferential
access is also consistent with the Doha Development Agenda.
The future prosperity of LDCs is largely dependent on investment
from the private sector, reinforced by public/private sector cooperation.
Predictable market opportunities as contained in the LDC proposal
would create the right environment for investment and sustainable
development.
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