Not sweet enough

By announcing the first cut in European sugar subsidies in nearly four decades, the European Union may think it has earned some brownie points in its negotiations in the World Trade Organisation (WTO), but its move is unlikely to evoke favourable reactions from all quarters. Agriculture ministers from all but three of the 25 EU member countries have agreed to slash the guaranteed sugar price by 36 per cent over the next four years. This may be a big cut for inefficient European beet sugar producers, who have thrived on mammoth subsidies, but outside Europe it is unlikely to be deemed sufficient to clear the way for log-jammed trade talks. Nor will it be viewed as an unmixed blessing for sugar producers outside Europe, including some of the least developed nations who have historical sugar ties with Europe.

There are several reasons for this pessimism. For one, it does not reflect an attitudinal change in the EU's stance on the trade talks as it was forced to change its sugar policy after a WTO ruling against the old sugar regime, on a complaint from Australia, Brazil and Thailand. Besides, this is a diluted version of the originally mooted reform that envisaged a 39 per cent cut to be effected in two years. Moreover, the compensation proposed to be doled out to the sugar producers affected by this subsidy cut is discriminatory. It offers larger piles of cash to European sugar producers to get out of the business while manufacturers in the African, Caribbean and Pacific states, who have long-term accords for the supply of subsidised sugar to Europe, get much lower amounts.

This apart, the EU sugar regime would retain several forms of trade-distorting protection. These go by epithets like intervention, minimum price for sugar beet, sugar production quotas, declassification mechanism, carry-over mechanism and border protection in the form of a combination of import duties and special safeguard tariffs. Unless these protections are knocked out, a proper opening up of the EU's sugar market for outsiders, including India, will not happen. In any case, most sugar imports into the EU would continue to be from African producers who get tariff and duty-free access to the EU's sugar market even after 2009, under a separate aid-and-trade deal. Under these circumstances, the EU offer for limited sugar reform cannot be expected to have much of an impact on the Hong Kong ministerial meet next month. Besides, it is unclear whether this move would get a matching response from the US in terms of subsidy cuts. The odds are against such a response from the US, which now seems focused more on the post-Hong Kong scenario rather than on striking a deal next month. From the Indian standpoint, as also that of many other potentially sugar-exporting countries, therefore, the EU needs to totally dismantle its sugar regime and rationalise import tariffs to facilitate free global trade in this important agro-based commodity.