Michigan State University Extension
Extenstion International Trade Res. - 10179504
03/31/96
The long-awaited reform of the EU sugar regime will lead to only minor changes and will do little to reduce the price EU consumers pay for sugar. The reform will not significantly affect the U.S. sugar sector as the United States does not directly compete with the EU as an exporter or import sugar from the Community. In April, the EU Council of Ministers agreed on the sugar regime reform, and it took effect July 1, 1995. The changes will be relatively minor, but should allow the EU to meet its GATT commitments. The system of production quotas and financing will continue unchanged, at least through 2000/01. Provisions were established for reducing subsidized exports in excess of GATT limits.
Sugar produced in excess of the quota--C sugar--must be exported without a subsidy or carried forward into the next marketing year as the first tranche of A quota sugar. Beet factories, specialized sugar trades, and intervention agencies receive a refund for the cost of storing all sugar carried forward or for sugar that has been reclassified due to GATT constraints. The storage rate was set at .45 ECU/100 kg of sugar per month, a decrease from .48 ECU/100 kg in 1994/95. Plans to discontinue the storage subsidy were rejected in the final compromise. However, the Commission can readjust downward the maximum quantities of B or C sugar carried forward.
National aids will be phased out in northern Italy over a 5-year period, with aid declining at a more gradual rate in southern Italy than in northern or central Italy. Likewise, in Spain, national adjustment aid will be gradually phased out.
The current preferential import system will be maintained under the new regime. The EU will continue to import 1.3 million tons of raw sugar annually from the African Caribbean and Pacific (ACP) countries under Protocol 8 of the Lome Convention, an important source of income for these countries. Import quotas for countries with perceived deficits for their refineries were fixed for the next 6 marketing years. Finland's quota was increased to 60,000 tons from 40,000; France's quota was set at 297,000 tons; the U.K.'s at 1.13 million tons; and Portugal's at 292,000 tons. Portugal's request for a quota increase was rejected. The Commission and the ACP countries have yet to negotiate the level of preference and the minimum purchase price for refiners. Sweden can proportion some of its quota to the island of Gotland.
Under the GATT agreement, the EU agreed to reduce the quantity of subsidized exports by 21 percent--340,000 tons raw value--from the base period (1986 to 1990), to cut the expenditure on them by an average of 36 percent by the year 2000/01, and to maintain its current level of imports. Due to the hard-to-understand methodology used by the EU to arrive at the ceiling of 1.277 million tons, the EU is taking the position that any additional Lome sugar allowed into the EU will add directly to the ceiling of permitted subsidized exports. For example, if in 2000/01 an additional 340,000 tons of Lome sugar is imported, the permitted level of subsidized exports would rise back to the base level of 1.616 million tons. Also, the enlargement of the EU to include Finland, a sugar- deficit country, will likely reduce the EU sugar surplus, and thus help the EU meet its GATT commitments by absorbing some surplus domestic production. Faced with a cut in subsidized sugar exports, total EU sugar exports are unlikely to drop as subsidized exports will likely be converted to unsubsidized exports.
The EU will continue to meet its current access commitments by sugar imported from the ACP countries under the Lome Convention. Imports represent approximately 10 percent of domestic consumption. ACP imports enter the EU duty free and receive the EU price. Tariffication of the variable levy is not expected to increase import opportunities for other countries due to the high level of the duty, despite widely reported fears by the EU sugar industry.