Setting the record straight on in-quota duties: ESRA open letter to Commissioner Malmström
23 April 2018
Dear Commissioner Malmström,
As the EU’s negotiations towards a Free Trade Agreement (FTA) with Mercosur enter their final stages, the voices of the EU sugar sector have grown louder. The European Sugar Refineries Association (ESRA), representing the EU’s historic cane refining industry, laments that the campaign underway by the EU beet sugar sector to stop the inclusion of raw sugar in these deals often relies on messages that are either misleading or untrue. The open letter recently addressed to your attention from the International Confederation of European Beet Growers (CIBE), the European Association of Sugar Manufacturers (CEFS) and the European Federation of Food, Agriculture and Tourism Trade (EFFAT) on the subject of raw sugar in-quota duties is case in point. ESRA feels compelled to rebuke the distorted picture it paints.
Recent events make it more important than ever to set the record straight. As you are aware, a 30,000tn tariff-rate quota (TRQ) on sugar was agreed in the revision of the EU-Mexico Global Agreement, with a 49 EUR/tonne duty attached. This duty – the first ever attached to a raw sugar TRQ in an EU trade deal – makes it effectively impossible for EU refiners to take advantage of this supposed market opening. Indeed, any duty attached to raw sugar imports makes them uncompetitive for EU refiners. We noted the following sentence in the press release around the agreement in principle: “Exclusion of products has been kept to the strict minimum and refers only to the sugar sector”. We would argue that this decision is unjustified, and feel it is unfair that our sector has been singled out when the consequences for our members are so serious.
The reality is that the import of limited amounts of raw sugar will not have any significant impact on EU sugar prices. In fact, Europe’s cane sugar refiners play an important complementary role in the EU sugar sector which is dominated by producers of sugar from beet, increasing competition in a highly concentrated sector which is at risk of becoming more concentrated now that sugar production quotas have been abolished.
Access to raw sugar through FTAs is the last hope for our industry. It is difficult to exaggerate the importance of including substantial, duty-free tariff-rate quotas (TRQs) for raw sugar for the survival of Europe’s cane sugar refiners. The end of beet quotas has led to a collapse in EU raw sugar imports in recent months, leaving ESRA Members in an extremely precarious position.
The letter from the trio of associations entreats you to maintain the 98 EUR/tonne in-quota duty, arguing it levels the playing field somewhat between the EU and Brazil. This statement is based on the allegation that the Brazilian sugar sector is the beneficiary of massive subsidies, a myth that has been comprehensively debunked by the Brazilian sugarcane industry. CIBE, CEFS, and EFFAT have alleged billions in the past, but this most recent letter avoids the word “subsidies”, instead referring to “a range of government support measures that allow them to sell at below cost prices”. We would point out that their opposition to such a set-up seems hypocritical when they are the direct beneficiaries of such support measures under the Common Agricultural Policy and ten of the 19 EU countries that produce beet sugar award voluntary coupled support to beet farmers.
They go on to explain that the duty acts as a buffer against the erratic movement of the Brazilian Real (BRL) against the Euro. As you will be aware, the origin of the 98 EUR/tonne figure is not to protect against currency fluctuations but the result of enlargements of the EU from 1995 onwards. The tariff rate quotas were designed as a means to compensate other WTO members for the effective loss of market access caused by countries joining the EU. The 98 EUR/tonne figure has no market underpinning and has never been based on any commercial reality. It certainly is not intended as an instrument to protect EU sugar growers from currency fluctuation. As an aside, such a measure would in any case probably contravene WTO law, unless the sugar was being dumped. If a product is being dumped, a duty must be calculated based on market realities of the day. Yet we doubt a variable duty based on currency fluctuations would interest CIBE, CEFS, and EFFAT, revealing the emptiness of the “buffer” justification from an economic and commercial point of view.
Finally, the letter maintains that further duty-free market access would depress EU sugar prices below even their current depressed levels. This is a spurious argument. The low price of EU sugar is a result of massive overproduction (white sugar production in the EU is projected to exceed 21 million tonnes this year, a 23% increase) following the end of quotas in October 2017. The EU has become a surplus market, leading to a collapse in the EU sugar price. It has also aligned the EU price with the world price, as surplus EU sugar must be sold for export.
In short, it is clear that EU overproduction is the cause of the plunging price, not imports of raw cane sugar. There is simply no connection between our minority sector and the sinking EU price. Furthermore, ESRA members sell on the EU market, and have zero commercial interest in an EU price that is even lower than at present. We would highlight that if anything, the existence of our sector in an ever more concentrated EU sugar sector will keep at bay the negative sides of autarky that could come to pass. While we have no impact on how low prices go, our presence in the market can certainly help stop EU prices from rising too high.
And looking forward, the amount of sugar entering the EU from Brazil or anywhere else will always be limited in tonnage. Nobody is talking about unlimited volumes of sugar coming from any future FTA partners.
EU cane refiners have coexisted with our competitors in the beet sector for decades and hope to do so for decades more. Limited quantity duty-free imports do not pose a threat to the EU beet industry, which is now competitive on a global level.
If we do not gain the ability to choose from a broader range of suppliers through zero-duty access to sugar cane in EU FTAs, it is difficult to see how our members can continue to compete on a level playing field with our beet competitors or stay in business at all.
Marie van Raemdonck
ESRA Executive Director