exports from the efficient supplier. It is possible that, if the cost difference between the
efficient and inefficient supplier is very close to the tariff rate that they will both now pay, the
former may be able to supply the same level of imports as used to come from the latter
without the price rising sufficiently to reduce demand. In such a case imports would remain
unchanged. But by definition there can be no increase in imports: if the more efficient
supplier had been able to supply at the post-tariff price additional imports beyond those
sourced in the less efficient one, it would already be doing this.
The less efficient suppliers lose from negative DR - a loss that is offset by gains accruing
either wholly to EU producers (if imports fall) or partly to efficient sources of imports (to the
extent that they do not). For consumers there will be either no change or a loss as a result of
negative DR. The former would occur only if the more efficient suppliers are able to replace
the imports lost from the less-efficient suppliers without increasing the price (i.e. by cutting
their prices to the extent of the tariff) and/or if the government uses any increased tariff
revenue in a way that benefits a consumer group. But if imports from the previously preferred
countries are not wholly offset by same-price imports from the more efficient suppliers either
the level of imports will fall or the price of imports will increase (or both) and government
revenue may not increase.
Consequences for ACP countries
With these subtleties in mind we can assess the likely consequences of the sugar regime
changes on the ACP countries, non-ACP sugar producers and EU consumers. Some effects
are already clear but those on African ACP states, in particular, will be influenced strongly by
what happens next.
Among the clearest effects are those on non-ACP producers: the EU’s plans allow for no new
trade creation (above what is implicit in EBA) and no scope for positive DR. Only to the
extent that the changes are essential to allow the EU to comply with its 1994 commitments
under the Agreement on Agriculture (as interpreted by the WTO Appellate Body) will non-
ACP exporters benefit - through reduced competition in third markets. But to argue this is
effectively to say that, without the reforms, the EU would default on its 1994 commitments.
Also clear is the effects on the high-cost ACP which will be analogous to negative DR. By
making the EU a relatively less attractive market the level of imports will tend to be lower
than it otherwise would have been.
For lower-cost non-LDC ACP states much depends on whether volume limits on their
exports are removed and on what happens to the prices they receive. If volume curbs are
reduced or removed (and this gain is not wholly offset by price falls), they would experience
effects analogous to positive DR (although whether the consumer welfare effect is the same
will depend on what happens to prices). If there are any external adjustment costs arising
from this positive DR it will be felt by the LDC ACP states which, alone at present, have a
promise of unlimited market access.
Broadly the effect on imports (and on ACP returns from their exports) depends on three
things:
1. the supply response of the select group of states permitted to export to the EU;
2. the preference regime to which permitted exporters are a party; and
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