The decision by the EU to dump nearly two million tonnes of sugar on the world market (technically 'declassification' of quota sugar) despite a WTO ruling that such sales were illegal could have an impact on the Doha Round trade talks.
A statement by Brazil said (in rather convoluted syntax): 'It is unavoidable to note the negative signal the EC sends to WTO negotiators less than three months before the ministerial conference in Hong Kong by taking this decision on declassification. Hardly any of us could find a more deleterious way to express the gap between words and deeds.' The declassification is up to ten times as big as in previous years and the Brazilians claim that it could push the world price down by six per cent. The problem the Commission faces is that there are already nearly a million tonnes of surplus sugar stored across Europe at the Commission's expense.
The EU claims that since no deadline has yet been set to bring its sugar regime in compliance with the WTO ruling, it can get rid of its surplus in the meantime. An abitrator has been appointed to determine a reasonable length of time for the EU to comply and is due to report by late October. The delay between ruling and implementation means that complainats Brazil, Thailand and Australia are unlikely to be able to obtain legal redress against the EU for its decision to offload surplus sugar.
If the arbitrator does side with the complainants, this will be the first time that a major WTO member has failed to respect its commitments (in terms of export subsidies). Will the WTO be able to effectively discipline one of its most powerful members?
One lump or two? The state of the reform debate
There are signs of an emerging consensus. Member states that are hard hit such as Hungary, Ireland and Italy continue to complain about their fate, but really they are following the traditional EU tactic of getting some side payments in return for their agreement.
As Agra Europe recently commented, the Commission faces the unenviable task of negotiating 'the downsizing of a hugely bloated EU sugar market while somehow keeping on the right side of WTO law and avoiding causing too many bankruptcies among sugar producers and refiners in Europe and around the world ... Having created a monstrous regime which flew in the face of all principles of economic rationality, its creators knew all too well that the monster would bite back if anyone tried to interfere with it.'
The Commission suggested at a recent meeting of the Special Committee on Agriculture that new member states could receive a Separate Sugar Payment (SSP) as compensation for price cuts. The argument made for this payment is that farmers there have no track record of entitlements before accession in 2004. Latvia and Lithuania have been particularly concerned that the compensation for beet growers in the sugar proposal could go to landowners rather than the beet farmers.
Parliament's draft report unhelpful
The rapporteur on the sugar reform dossier in the European Parliament (Jean-Claude Fruteau) has come up with an unhelpful set of proposals in his draft report. They would both undermine the reform and penalise developing countries as well as hitting the EU budget.
The report suggests that the reduction in the reference price for sugar should be 25 per cent over three years not 39 per cent over two years as the Commission has proposed. It is difficult to see how such a scaled down reduction could permit the EU to meet its WTO commitments.
The report also suggests that the Commission should offer 80 per cent compensation for income losses incurred by EU sugar beet growers, a one third increase in the 60 per cent currently on the table. The idea that farmers in the new member states could receive their compensation on a per hectare basis is, however, compatible with the Commission's recent proposal discussed above and one wonders if a version of it might be used in the EU-15.
The report also proposes delaying the full implementation of the Everything But Arms agreement for six years until 2015. Imports of sugar from these developing countries could be controlled through a transitional period. Quotas would remain in place until 2015 but import duties would be gradually decreased. A so-called 'safeguard' clause would limit net exports by EBA countries to the difference between the sugar produced and the consumption level of each country.
The sugar lobby was earlier successful in delaying EBA implementation until 2009. Any further delay would be opposed by Global South groups like Oxfam.