Smoke and Mirrors, Reform or Rip-Off: The EU Sugar Reform Proposals and CARICOM Sugar

• Author: Prof. Clive Y. Thomas, University of Guyana
• Pages: 35-64

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Smoke and Mirrors, Reform or Rip-Off

This article has been prepared from current research and material

presented in a weekly series of articles carried by the Sunday Stabroek

News during the period July 4 – October 17, 2004.

Introduction

The transition of the global trading regime to a new rules-based WTO-

led liberal trade order has not been the easy process it once seemed it might

be in the mid 1990s. The uneven global playing field, asymmetric trading

outcomes, a widening gap between rich and poor, increasing country and

regional differentiation, combined with strategic interest-based alliances and

the growing contrast between rhetoric and reality have placed many “spanners

in the works.” Nowhere are these contradictions more glaringly observed

and nowhere do they strike closer to home for us here in the Caribbean than

in the global sugar market. CARICOM is one of the most preference-dependent

regions in the world, and its sugar industry exemplifies this. This however, is

not a simple self-imposed affliction but the product of complex circumstances,

including the subordinate position of the Region in the global division of

labour, its small size, and intrinsic vulnerability. This paper explores aspects

of these themes through an evaluation of the European Union’s recent sugar

reform proposals.

Last July the European Union (EU) announced radical proposals to reform

its sugar regime. If accepted, this would be the first major overhaul of the

regime since its inception four decades ago. It is estimated that present sugar

SMOKE AND MIRRORS,

REFORM OR RIP-OFF:

The EU Sugar Reform Proposals and CARICOM Sugar

Professor Clive Y. Thomas, Director

Institute of Development Studies, University of Guyana

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36 CARICOM: Appropriate Adaptation to a Changing Global Environment

subsidies amount to $2.4 billion annually, but some economists consider this

a low estimate. The EU’s broader US$52 billion annual farm support

programme had, however, earlier been reformed. Although long in the making,

the timing of the announcement has aroused curiosity, as the EU’s current

sugar regime is regulated in place until June 2006. Moreover, Australia,

Brazil and Thailand (ABT) had challenged the regime in the WTO, and a

ruling from the Dispute Settlement Body was imminent. It appears however,

that the timing might have had a lot to do with the Cancun “collapse” of the

WTO Doha Development Round of negotiations and the realization that

these would not be resumed without major efforts to tackle the farm support

programmes of rich countries, as a starting point. With the USA locked in

presidential elections, no such initiative could be expected from that source.

The sugar reform proposals have led to a firestorm of protests in the

region, from governments, sugar companies, the workforce in sugar, and

other stakeholders, because they constitute a clear and present danger to the

1975 Sugar Protocol between the EU and the African-Caribbean-Pacific (ACP)

group of countries. The Heads of Government have deemed them a “betrayal

of the commitments and guarantees in the Sugar Protocol 1975.” They also

claim that its total cost to the region would be $180 million in the first three

years, and thereafter the recurring loss would be $90 million annually.

This paper evaluates the significance of these proposals. The broad

contour of the global sugar market is sketched in Section 1. This is followed

with a brief review of the essential features and trends in the CARICOM

sugar industry (Section 2). The origins of the Sugar Protocol and its main

elements are described in Section 3. Section 4 outlines the recent reform

proposals for the EU sugar regime and takes into account the ABT challenge

to it. Section 5 briefly addresses the EU’s Everything-but-Arms (EBA) Initiative

in the context of the reform proposals. Section 6 highlights key features of

the US sugar market, whose significance is expected to grow if preferential

access to the EU’s declines. Section 7 draws some broad conclusions.

Section 1: Sugar:

World Supply, Demand, and Prices

To evaluate the issues at stake, some central features of the global sugar

market need to be highlighted. The basic supply, demand and price data

show that for the crop year 2002-2003 world output of sugar was 143 million

metric tonnes. About three-quarters of this amount normally comes from

sugar cane (cultivated mainly in tropical climates) and the remainder from

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