2nd November 2009

Sugar: little market opening likely under draft trade deal, study finds

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MODERN GHANA

The EU and US could avoid steep tariff cuts on sugar, using opt-out clauses in a draft farm trade deal at the World Trade Organisation (WTO), a new study from the International Centre for Trade and Sustainable Development finds.

The study, by Amani Elobeid of the Food and Agricultural Policy Research Institute at Iowa State University, shows how the EU, US and Japan could avoid cuts of 70 percent in their sugar tariffs by using clauses that allow countries to protect “sensitive” farm products.

Gentler tariff cuts for sensitive products would have to be compensated by expanded import quotas: however, in the EU, the new quota would represent no more than 2 million metric tons, representing a 700,000 metric ton increase (to 4 percent of domestic consumption). The US sugar quota might expand by even less, with an increase of below 300,000 metric tons to 1.4 million tons.

Overall, quota expansions “would represent only 3 percent of world trade” Ms. Elobeid notes. Thailand, Malaysia and South Africa have to expand quotas the most, while China, Venezuela and the US would face the smallest expansions.

Even if countries were to implement the standard tariff cuts outlined in the draft accord, total trade in sugar would expand by only 0.7 percent, relative to the author’s baseline scenario, and the world sugar price would increase by an average of 1 percent. “Overall the impact on trade is small” says Elobeid.

However, proposed new ceilings on the most trade-distorting farm subsidies in the WTO’s “amber box” could constrain policies in a few countries, the study finds. The new limits would be 5.9 billion euros for the EU, 55 billion yen for Japan, 1.1 billion USD for the US and 0.8 billion rand for South Africa.

The EU could also be affected by the elimination of export subsidies, a key provision of the draft accord, which was released in December 2008. Elobeid notes that, in order to respect this new commitment, “the EU may be compelled to further reduce domestic sugar prices and production.”

Countries that have traditionally exported to the EU under preferential trading arrangements are likely to be most affected by further liberalisation, the paper notes, with high-cost producers such as Barbados, Fiji, Guyana, Jamaica or Mauritius particularly likely to lose out.

Countries most likely to benefit from further trade opening include Brazil, Australia and Thailand, the study finds.

The study is available online at: http://ictsd.net/i/publications/57666/

Development / Ghana / Africa / Modernghana.com