Conclusion
EU sugar policy (through the CAP and trade preferences) has resulted in substantial forex
transfers to a select group of developing countries. Some, such as Mauritius, have used this
transfer very prudently to help support diversification, first, into another product attracting
trade policy rents (clothing) and then into services. Others, such as most Caribbean states,
have allowed production costs to escalate so that the sector fails to make a surplus, let alone
invests in diversification. For those DCI focus countries with significant sugar potential -
Mozambique, Tanzania, and Zambia - the effects have been mixed. As a result of domestic
economic policy mistakes, Tanzania failed to reap the gains that it could have obtained as an
original signatory of the Sugar Protocol. As ‘late arrivals’ Mozambique and Zambia fear that
the gains are being reduced just as they become eligible to receive them on a significant scale
- as does Tanzania now that its domestic problems have been overcome.
How is one to view their concerns? In cases where preferences are eroded by multilateral
liberalisation the losses of previously-preferred but less competitive producers must be set
against the broader gains of more competitive suppliers and consumers. The gains are
expected usually to exceed the losses so that the most appropriate response is to provide
adjustment support for those countries no longer able to export (and, perhaps, to phase in the
change over a period sufficiently long that borderline producers can restructure). But as the
sugar case demonstrates, liberalisation is not the only cause or preference erosion.
The net effect of the EU sugar regime changes agreed in November 2005 is likely to be, in
the view of most parties (including the European Commission), a fall in imports from the
levels that they would otherwise have reached. Only a small number of developing countries
are expected to experience an increase in their earnings from exports to the EU. Hence, there
are few external ‘gains’ to set off against the external ‘losses’. For no ACP state is the impact
of the change forecast to be worse than full liberalisation, and for those that remain able to
export to the EU it will be better. But the main welfare gains expected to arise from
liberalisation will not occur.
Given the starting point (of a highly distorted domestic and import regime) it is not obvious
what else the EU could do that would have a superior impact for the ACP suppliers other than
the imposition of smaller quotas on European production (which was one of the options
discussed in the Commission’s 2004 report). Clearly, domestic production has to be cut in
order to reduce subsidised exports. The method adopted to achieve this spreads the cuts
between EU and non-EU producers. But whereas the former are being compensated for over
60% of their loss, the latter have been promised a small increase in aid to be paid not to
producers but to governments. The burden of adjustment, net of these payments, will be
greatest therefore on developing country suppliers.
It is assumed that the longer term goal is genuine liberalisation, with tariffs being cut to a
level that imports can determine the actual price levels in Europe. One way to use the current
dirigiste system to prepare for such a market-driven future is to provide support to those ACP
states that are potentially competitive at future prices to scale-up their production. The three
sugar producing DCI focus countries would certainly fall into this category. Support (either
through price supplements or by investment subsidies) over the period during which MFN
tariffs are gradually reduced would help them to prepare for the day on which they will have
to compete directly with Brazil.
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