The world sugar regime
Stabroek News
May 21, 2004
Whenever the new trade round namely the Doha Development Agenda (DDA) is completed, the existing 'Sugar Regimes' will undergo radical transformation. The recent challenge by Brazil, Australia and Thailand to the European Union's indirect subsidies for "C Quota" sugar and the WTO waiver on the re-export subsidies payable on 1.6 million tons of sugar under various preferential arrangements are presently being heard before a WTO panel.
The conflict between Mexico and the US over the interpretation of the NAFTA language, the pressure on the Japanese Government by manufacturers whose industries are rendered uncompetitive due to rigid protectionist policies which resulted in an artificially high price for sugar and last but not least a new trade round, are only a few of the topical issues that I strongly believe will transform the landscape for sugar. Even more important for Guyana is the commencement of negotiations on a new Free Trade Agreement between Caricom and the EU known as the Economic Partnership Agreement (EPA) which will ensure WTO compatibility. This is further testimony that the new sugar protocol between EU/ACP will be different from that enjoyed under Lome.
Today, sugar remains the most distorted market in the world with high levels of protection in the markets of rich and poor countries alike with the EU, USA and Japan being the lead culprits. Historically, cane sugar has always been threatened by the new contenders (beet and corn syrup or artificial sweeteners) but has been able to hold its own and survive comfortably. As Guyana's sugar begins to face trade liberalisation, the same question is being asked - can it survive?
The current EU sugar regime dates back to 1968 when a common pricing system for all farmers in the EU was established to protect farmers from competition. Its policy on sugar has never been changed. The trading relationship between the EU and ACP guarantees the latter a permanent quota at a reasonably remunerative price. With the UK's accession to the EU in 1945 the Sugar Protocol came into effect for an indefinite duration and cannot be changed unilaterally (Aide Memoire on ACP Sugar). The EU/ACP agreement allows for the export of just less than 1.3 million tons of sugar to the EU market at preferential prices. Guyana's share is 167,000 tons while an additional 30,000 tons is exported under the Special Preferential Sugar (SPS) agreement since 1995.
The US sugar policy began with the enactment of the Sugar Act (1934) when sugar for the first time was included as a basic agricultural commodity under the Agricultural Adjustment Programme. This was a policy response to declining sugar prices in the USA following a surge in both domestic sugar production and imports as a result of a decline in consumption during the Great Depression (USDA, 1935). The Sugar Act was intended to protect US beet producers from falling prices. The US Sugar policy has gone through several modifications since then. The most notable challenge to the US sugar producers came from the High-Fructose Corn Syrup (HFCS) popularly known as an 'artificial sweetener' produced by the enzymatic conversion of dextrose found in corn into fructose. The corn syrup became more prominent in the sweetener market in the US and later in Japan and presently account for nearly 50 and 40 per cent of these countries' sugar market respectively. Japan is another complicated market case, the third largest importer of sugar after Russia and Indonesia. The government regularly intervenes in the domestic market by guaranteeing a minimum price for both beet sugar ($149 per ton) and cane sugar ($174 per ton), while establishing control on imported raw sugar, by imposing prohibitive duties on refined sugar imports, as well as maintaining high tariffs on imported products containing sugar and sugar substitutes (Mitchell 2004). This high level of protection ensures the sugar price is kept high, estimated at US89 cents per pound. The Japanese government also regulates the production of corn syrup to limit its competition with beet sugar.
Distorted sugar policies are also practised by developing countries. China, like the EU, is both an exporter and importer of sugar. Over 90% of China's sugar is produced from sugar cane. The Chinese Government's sugar policy is aimed at self-sufficiency. The current sugar policies in India date back to 1939 and sought to limit speculation, hoarding and famine (World Bank 1996). A duty of 60% was slapped on imported sugar in an effort to protect local sugar producers in India. Russia presently imports 5.2 million tons of sugar and is by far the largest importer since the collapse of the Soviet Union in 1991 which saw the devastation of its highly subsidised sugar industry.
One can hardly conclude that the liberalization of the sugar market will be simple or be driven by free market rhetoric in a complicated, sensitive political environment. Both the EU and the US domestic sugar policies ran into difficulties as they tried to fulfil their rhetoric of free trade and in the same breath satisfy political constituencies. The North American Free Trade Agreement (NAFTA) provided for a 15-year adjustment period in sugar after which there will be free trade in sugar by 2009 between the USA and Mexico. However, the US later backtracked and changed the terms of this agreement which in effect limits the amount of duty-free sugar Mexico could export to the US.
On the other hand, the EU has committed itself to allowing 48 least developed countries (LDCs) duty-free access to its sugar market by 2009 to offset against the ACP-SPS under which Guyana exports an additional 30,000 tons. While this quota is taken away from a state company in Guyana where it benefits the economy, it would be granted to private sugar companies that have large expatriate interests and begs the question of how the people of LDC countries would benefit from such an arrangement. The EU sugar market and regime is further complicated by the EU enlargement process and the addition of ten new European members on May 1, 2004, some of whom, like Poland, are large sugar producers.