International sugar industry praises WTO decision

Food & Drink Weekly, August 16, 2004

Sugar industry officials in Brazil, Thailand and Australia are celebrating the reported WTO decision that the EU's domestic and export sugar subsidies violate international trading roles. News wire services report that as a result of the ruling, the EU would have to change its sugar program in ways that could result in European sugar production falling by 3 million tonnes and EU sugar exports dropping from 4 million tonnes annually to approximately 1.3 million tonnes. Some are predicting that prices received by EU sugar producers could fall from the current subsidized levels of around 28 cents a pound to the world market price, which currently is between 8 and 9 cents per pound.

Clodoaldo Hugueney, an undersecretary in Brazil's Foreign Ministry, said the EU sugar regime was responsible for Brazilian growers losing $400 million a year in sugar exports. "We hope that the Europeans will follow the recommendations of the WTO because we prefer this path to one of retaliations," said Hugueney. "Some countries practice policies that distort world trade. For this we view with great satisfaction the result of this panel." The ruling was released privately to the parties in the dispute and will be released in final form next month, at which time the EU will have the fight to appeal the finding.

Even before this week's WTO ruling, the European Commission (EC) had proposed reforming its sugar policy. Under the proposed reform, the EU would cut back sugar exports and export refunds substantially, abolish intervention prices, reduce EU production and the internal sugar price and grant a de-coupled payment to sugar beet farmers. The plan is for the new program to go into effect next July.

Currently the EU sugar regime, which has not been reformed in more than 30 years, costs more than $1.85 billion to subsidize sugar farmers, whose average annual production is around 17.5 million tonnes, significantly more than the EU consumes. With expansion from 15 to 25 member nations, EU annual sugar production will jump to the range of 19-to-20 million tonnes. The EU-15 has more than 230,000 sugar beet farms whose farmers receive price support at a rate three times higher than world market prices, according to the EU.

The private global development organization Oxfam International claims that the WTO ruled that Europe exports up to four times its permitted amount of subsidized sugar each year, and that European dumping depresses world prices, leading to foreign exchange losses in 2002 of $494 million for Brazil, $151 million for Thailand, and $60 million each for South Africa and India.

According to Oxfam, the EU exports up to 5 million tonnes of sugar each year "despite committing as part of the Uruguay round of trade talks to reduce its subsidized exports to just over 1 million." The organization also claims the WTO found that EU exports of around 2.7 million tonnes of non-quota sugar contravene WTO roles. "The EU claims that there are no subsidies attached to these exports, but the panel found that they are in fact cross-subsidized by the high guaranteed prices paid for quota sugar," says Oxfam.

The EU also subsidizes the re-export of 1.6 million tonnes of sugar, says Oxfam, the equivalent of imports from the African, Caribbean and Pacific (ACP) countries and India. "These subsidized exports further exceed amount permitted under WTO rules," says the organization.