free quotas granted to ACP and India remain unchanged, and that the EBA agreement does not result
in extra imports, an assumption that we discuss later.
The ending of export subsidies might be obtained by reducing the level of the sugar quota. However,
here, we assume that the domestic price EU adjusts to clear the market. Results are presented in
Table 2, column "Scenario 2". The figures in parentheses indicate the change relative to the baseline.
The changes relative to the situation after the 2005 reform are provided in the right hand side
column of Table 2.
With no possibility of using subsidies to dispose excess supply on the world market, a considerable
decrease in sugar prices is needed to clear the EU market (43% relative to the baseline, i.e. a further
11% decrease after the implementation of the 2005 reform). The required fall in the price of sugar
beets would even be larger because we assumed that wages and some input prices could not decrease
in the processing sector. Even though the domestic price would still be 30% higher than the world
price, all rents would disappear in the EU sector. Such a fall in EU domestic prices would make larger
cuts in tariffs possible. That is, the WTO discipline on export competition (ban on export subsidies)
seems more constraining that the WTO discipline on market access in the sugar sector.
The fall in domestic price required to eliminate export refunds would erode the rent for preferential
imports of sugar under tariff rate quotas. The difference between domestic prices and world prices
would barely be enough to sustain the present imports facing a positive tariff (the Traditional supply
needs and the Special preferential sugar, whose future after 2009 is, anyway, uncertain due to the full
implementation of the EBA). Indeed, the rent associated to the tariff quota would fall to almost zero
for these two categories of imports under scenario 2.
Table 2 shows that the 2005 reform will not be sufficient to reach the objectives of the elimination of
all export refunds, which would require a decrease of some 4 million tons of output, relative to the
baseline. It is likely that, rather than a price decrease as the one assumed under Scenario 2, the level
of quotas will be adjusted. Indeed, according to the draft regulation following the November 2005
Council decision, the Commission will be mandated to “withdraw” a percentage of quota sugar if the
market situation demands it. Note, however, that the WTO negotiations on market access will
interfere. Sugar tariffs will be in the highest band which is likely to face very large cuts (e.g. a 60%
cut under the 2005 EU proposal and 80% under the 2005 US proposal). With such tariff cuts,
competition from imports would force the EU to lower domestic price, in addition to adjusting the
level of production quota. A reduction in domestic price in line with the one found in Scenario 2
could be required, even if the EU chose to fill WTO constraints with a tighter supply control.
Finally, the sector will face constraints which have not been included in the Scenario 2. This is
particularly the case of the preferential imports under the EBA initiative. The EU sugar market will be
entirely open to exports from LDCs in 2009. At this point, it is not totally clear whether quotas or
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