In June 2005 the Commission made a revised proposal to cut prices by 39 percent over two
years.5 Following intense discussion the changes finally agreed in November 2005 are
broadly along the same lines but with important differences in detail.6 The EU price cut will
be 36% implemented over the four years 2006/7 - 2009/10 and will result in a raw sugar
reference price for the Sugar Protocol of €335.2 per tonne. The June 2005 proposal calculated
that the compensatory increase in the single farm payment to beet producers would be
equivalent to 60% of the estimated revenue loss. The November 2005 agreement leaves
unchanged the amount of compensation, even though the price cut has been reduced, which
means that it has increased proportionately.
Another innovation is that a safeguard clause has been introduced that could result in curbs
on EBA imports after 2009. An increase in imports from one year to the next of over 25%
will trigger automatically a Commission enquiry.7 The November agreement text makes clear
that an increase from any LDC will trigger the enquiry although in subsequent
correspondence with the LDC Sugar Group the Commissioner for Agriculture has stated that
safeguard measures will not be implemented if total EBA imports do not exceed the forecast
level.8
It appears that the EU is concerned primarily to cover itself in cases where the rise in LDC
exports is due to a rapid increase imports of sugar from the world market up to (or even in
excess of) the level of their domestic demand. However, without information on the likely
output of each unit of the new capacity being planned in some LDCs (in order to make their
exports competitive) it is not possible to know whether genuine increases in domestic supply
could trigger the safeguards.
The WTO dispute
The combination of the EBA TQs and offsetting cuts in SPS have avoided any increase in the
‘surplus’ sugar that the EU has to export, but a ruling from the WTO that the EU’s subsidised
exports of sugar exceeded the levels permitted by its commitments under the Uruguay Round
means that exports now have to be cut radically. The ruling, which was one of the stimuli for
the 2005 sugar reforms, had its origins in a panel set up in July 2003 by the WTO to consider
the complaint brought by Australia, Brazil and Thailand. It reported in October 2004
supporting the core of the challenge and, in January 2005, the EU appealed. The following
April the Appellate Body published its report, finding in favour of the complainants.
The core of the complaint was that the EU was exporting some 4.1 million tonnes of sugar
under subsidy (within the meaning of the Agreement on Agriculture) whilst its commitments
allowed it to export just under 1.3 million tonnes. In other words, it has permitted exports of
1.3 million tonnes and a further 2.8 million tonnes of questionable exports. The EU has long
portrayed 1.3 million tons out of the latter category as somehow ‘offsetting’ imports under
the Sugar Protocol, and included a footnote in its Uruguay Round schedules to this effect. But
in both factual and analytical terms there is no such link. The exports are not exclusively
refined cane sugar, nor are imports from the ACP necessarily the least competitive that come
onto the EU market and, hence, a ‘surplus’ in economic terms. The only sense in which there
CEC 2005b.
EU Council 2005.
EU Council 2005: 9.1. The document does not specify whether the increase will be measured in value or volume terms.
EU Council 2005: 9.1.