The reform provides a considerable degree of freedom for lowering EU tariff protection. Indeed,
without the reform, we estimate that the minimal protection necessary to prevent sugar (outside tariff
quotas) from flowing into the EU in 2010 is 412 euros per ton of white sugar. The non-preferential
tariff is presently 339 euros per ton for raw sugar and 419 euros per ton of white sugar. After the
reform, the gap between the domestic and world price for EU sugar would fall to 143 euro per ton of
white sugar. That is, the EU community preference can be maintained with a significant decrease in
MFN tariff. Clearly, the reform would be a major step towards compatibility with a WTO agreement
under the Doha Round.
Our simulations for Scenario 1 suggest that the sugar reform will result in minor changes outside the
sugar sector. In the EU15, 360 000 hectares will be reallocated to other enterprises, mainly grains, and
in particular soft wheat. This will result in a limited decrease in the cost of feedstuffs with a small
impact on livestock producers. The reform should also result in a limited increase in the production of
vegetables. The reform should lead to 680 million euros of estimated welfare gains. However, this
results from conflicting effects, since the loss for sugar beet producers is significant (1.7 billion euros).
Given the estimated compensation paid to producers, their net losses should amount to some 550
million euros. The fall in production of refined sugar results in a decrease of some 1.2 billion euros in
value added for the processing sector. The fall in employment is limited in the farm sector because of
the reallocation of resources to other sectors (we find a decrease of 3000 jobs in the EU15 farm
sector), but is larger in the processing sector (5500 jobs). EU taxpayers save roughly some
900 million euros of export subsidies.
Overall, the reform provides some degrees of freedom to the EU in terms of WTO commitments,
including market access, domestic support and export competition. The reform brings export
subsidies down to a level which is consistent with the conclusions of the 2005 WTO ruling.
Nevertheless, this sugar reform alone hardly addresses longer terms constraints, unless trade
liberalization in other countries, and in particular the US, results in a large increase in the world price,
which seems unlikely (Bouët et al, 2005).
The elimination of export refunds. Following the WTO dispute and the panel requested by Brazil,
Australia and Thailand, the 2005 ruling of the Appellate Body implies that EU subsidized exports have
to be reduced (Both the re-exportation of ACP/India preferential imports and the sale of C sugar on the
world market were found to be in violation of the maximum subsidized export commitments).
However, the EU CMO faces other constraints in the longer run. Indeed, all subsidized exports must
be eliminated by 2013, following the Ministerial meeting of the WTO in December 2005.
Scenario 2 includes the elimination of all subsidized exports, including the C sugar relative to the
baseline (i.e. assuming that the 2005 sugar reform has not taken place). We also assume that the duty
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