Seminar Paper for the International Summer School in Seggau Law & Politics module by Soeren Keil on the

topic of

The consequences of EUs sugar policies: Building and destroying other countries sugar industries

written by Mario Rosic, University of Graz mario.rosic@edu.uni-graz.at

Table of Contents
1. Introduction ................................................................................................... 3 2. History of the Common Market Organization of Sugar ................................... 3 3. Goals of the CMO Sugar ................................................................................. 5 3.1 Consequences of the CMO Sugar for the ACP countries ............................ 7 3.2 The role of the EBAs .................................................................................. 8 4. Goals of the CMO Sugar reform in 2006 ......................................................... 9 4.1 Consequences of the CMO Sugar reform of 2006 for the ACP countries . 11 4.2 Future Outlook ........................................................................................ 12 5. Fair Trade succeeding where the EU is failing? .......................................... 14 5.1 Criticism of Fair Trade ............................................................................. 16 5.2 Fair Trade and the EU .............................................................................. 17 6. Conclusion .................................................................................................... 18 7. Literature ..................................................................................................... 20

Mario Rosic, University of Graz

Page 2 of 22

1. Introduction
The purpose of this paper is to analyse how some of EUs trade-based development policies are damaging the ACP countries economies and what the EU has been trying or is trying to do to change this. The Common Market Organization of Sugar is used as an example for a policy which causes economic and social damage to the ACP countries. In order to understand what is happening the EU sugar policy from 1968 to 2008 is analysed with its intended goals towards the EU market and its partly unwanted consequences for the ACP countries. In Chapter 5 Fair Trade is introduced as a new or extended approach to trade and development with a long-term potential to influence developing countries.

The assessment of EU policies is not supposed to be fully comprehensive because this would go beyond the scope of a seminar paper. References are given to literature where the seminar paper is lacking detail.

2. History of the Common Market Organization of Sugar

The information in this chapter concerns the CMO Sugar from 1968 to 2006. An overview over the CMO Sugar after 2006 is to be found in Chapter 4. Sugar was included into the Common Agricultural Policy (CAP) in 1968 with the so-called Common Market Organization (CMO) of sugar. Until 2006 it remained mostly unchanged, being unaffected by the MacSharry reform of the CAP in 1992, the Agenda 2000 CAP reform or by the revision of Agenda 2000 in June 2003 in Luxembourg. The CMO established national production quotas, guaranteed prices1 per ton for sugar beet farmers and sugar producers, export subsidies and protection of the EU sugar market from the world market. Each member country of the EU had allocated a so-called A quota and B quota for sugar. The A quota was the amount of sugar that was needed to cover the demand for sugar inside the EU. The B quota was used as a buffer for years with bad harvests. The countries allocated parts of the quotas to their sugar companies and they allocated smaller parts to the farmers. Sugar which did not fit into the A and B quotas (overproduced sugar) was called C sugar. It is worth noting that farmers who did not meet their allocated sugar beet quota could have had their quota reduced the following year, which meant a loss of income. Thus the farmers had a significant interest in overshooting their production targets every year, no matter what the growing conditions were. In addition, the contracts the
1

From 1993/94 until 2006: 631,9 per ton for refined white sugar, 523,7 per ton for unrefined sugar, 46,72 for A quota sugar beet per ton, 32,42 B quota sugar beet per ton, European Commission, Memo/04/177 (2004) EU sugar sector: Facts and figures p. 1

Mario Rosic, University of Graz

Page 3 of 22

farmers had did not allow them to sell their sugar beet to anybody else but the contractor. This made it impossible for a theoretically self-regulating market to come into existence. 2 Only A and B quota sugar could be sold within the EU, C sugar was to be sold on the world markets. A and B sugar received a subsidy in the form that the farmers received a fixed price per ton. The price per ton was far above the price of what the producers and farmers would receive on the world market up to three times higher. A small amount of C sugar was stored and counted towards A and B sugar in the following year, but the bulk had to be exported out of the EU in the following calendar year, without a subsidy and under threat of significant fines, if it were not exported on time.3 Since sugar demand within the EU also varied yearly, the full quota wasnt always needed. In such cases, A and B quota sugar was exported too, but with the help of export subsidies.4

The EU also maintained a few other sugar quotas/benefits through various contracts with other countries: Since 1975 the ACP countries were allowed to import annually around 1.3 million tonnes of white or raw sugar into the EU for an unlimited amount of time, duty free and at guaranteed prices (same prices as EU farmers/producers). This agreement, also called the Sugar Protocol, was part of the Lome agreement which governed the relations between the EU and the ACP countries from 1975 on. This sugar had to be first imported (and processed if it was raw sugar) and then the same amount of sugar was exported again because the sugar overproduction within the EU (C sugar) was guaranteed to occur every year. This export sugar was subsidised too: The exporter received the difference between the EU sugar price and the world market sugar price. Since 1995 the ACP countries could import the amount of raw sugar into the EU which was needed to keep the EU sugar refineries busy every year. This agreement was called the Special Preferential Sugar agreement (SPS). The amount of sugar imported under this agreement was different every year, according to the needs of the sugar refineries. The price paid for this sugar is 85% of the price of the sugar imported under the Sugar Protocol. The EU maintains several other contracts which influence the imports/exports. However, those are not of relevance for the research goal of this paper.5

2 3

Knapp, Robert (2004) Sugar and the European Union: Implication of WTO Findings, and Reform p. 4 ibid. p. 8 4 Roberts, David (2012) The Interaction between the EUs Domestic Policy for Sugar and its Imports of Sugar from the A CP and Least Developed Countries p . 1 5 A good though partly outdated overview can be found in Nhle, Ulrich (2004) The sugar market and trade agreements of the European Union

Mario Rosic, University of Graz

Page 4 of 22

3. Goals of the CMO Sugar

The CMO Sugar pursued in principle the same goals as the CAP, which shall be quoted from the Treaty of Amsterdam, Title II Agriculture, Article 33. In the following chapter I shall analyse if the CMO Sugar was successful in fulfilling its goals and more importantly in what way (How?) the CMO Sugar tried to achieve the goals outlined in Article 33 of the Treaty of Amsterdam This is needed in order to analyse the problems and international consequences of the CMO Sugar in chapter 3.1. The analysis mainly relies on a study from the Netherlands Economic Institute from 2000.6

According to the Treaty of Amsterdam, Article 33, The objectives of the common agricultural policy shall be: (a) to increase agricultural productivity by promoting technical progress and by ensuring the rational development of agricultural production and the optimum utilisation of the factors of production, in particular labour; The EU was the largest sugar beet producer in the world (data from the year 2000) and changed from a sugar importer at the time the CMO Sugar was established to the second largest exporter in the world (when both raw and white sugar is considered, data from the year 2000). The agricultural productivity has therefore more than just increased. It has made the EU one of the top players in the sugar market in the world. All of this was made possible through the use of highly protectionist measures of the CMO Sugar (huge import tariffs for sugar to eliminate interference from the outside market), the aggressive use of subsidies (be it for production or for exports) and strict rules about the export of C sugar (to make sure that the EU market doesnt drown in its own overproduction).

(b) thus to ensure a fair standard of living for the agricultural community, in particular by increasing the individual earnings of persons engaged in agriculture; The CMO Sugar has not only greatly contributed to the income of beet farmers but also protected and maintained the level of the margins per hectare derived from sugar beet production.7 This however was only made possible through protectionism. The EU sugar (which is mostly sugar from sugar beet) is 1.8 to 2.3 times more expensive in production than sugar from sugar cane, which is the main source of Brazils and Indias sugar, two major world players in sugar exports. Compared to sugar from these countries, the EU sugar is not competitive. Yet the EU sugar beet farmers are alive and well, even in a country like Finland, where the vegetation period is shorter than in any other EU
6

Netherlands Economic Institute, Agricultural Economics and Rural Development Division (2000) Evaluation of the Common Organisation of the Markets in the Sugar Sector 7 ibid p. VI

Mario Rosic, University of Graz

Page 5 of 22

country and where sugar beet yield per hectare is significantly lower compared to the (still uncompetitive) central European countries.8

(c) to stabilise markets; (d) to assure the availability of supplies; The CMO Sugar introduces a price floor in the market, making sure that sugar farmers and producers can rely on getting a certain price for their products. The sugar price within the EU since 1968 was by far more stable than the world market price, though on a much higher level. The quota system of the CMO Sugar has a stabilizing impact on the supply side of sugar within the EU. The preferential trade agreements add to this, enabling a stable influx of sugar from the ACP countries. At the same time there are excellent mechanisms for getting rid of any overproduction: Export subsidies for ACP sugar and not-needed A and B sugar, forced exports of C sugar which include a fine if C sugar isnt exported on time.

(e) to ensure that supplies reach consumers at reasonable prices. Since the guaranteed prices for quota sugar are the same in all EU countries9, one would expect that there are no big differences within retail sugar prices in EU. However, this is not the case. The price gap between the most and least expensive sugar in the 1990s was 40%.10 Since the purchasing power is not equal within the EU, this is not sufficient to say that the prices are unreasonable. However, if we take the Purchasing Power Parities into account we get an even more surprising result: The gap between least and most expensive retail price does not become lower, but higher! Up to 70% between Portugal (highest price) and the Netherlands (lowest price).11 It appears that the CMO Sugar has not been successful in ensuring that supplies reach consumers at reasonable prices.

In conclusion it is safe to say that the CMO Sugar not only increased the agricultural productivity within the EU and gave the sugar producers and sugar beet farmers stable prices. The CMO Sugar was the mechanism that enabled their survival in the first place - even though they are uncompetitive on the world market. The CMO Sugar stabilized both the sugar (beet) price within the EU and the sugar supply and contributed to making the EU the one of the largest sugar exporters for a long time. However, unreasonable prices for retail consumers are not the only price to pay for all of this, as we will see in the next chapter.
8

Antonius-Klemola, Kristiina and Sahramaa, Mia (1998) Report of the state of Finland forming part of the IENICA project p. 9 9 There are only minor differences in some countries which are caused by national aid programmes for the sugar industries. 10 NEI (2004) Evaluation of p. 85 11 ibid.

Mario Rosic, University of Graz

Page 6 of 22

3.1 Consequences of the CMO Sugar for the ACP countries

What exactly happens when the EU exports sugar? The sugar imported from the ACP countries and the not-needed A and B sugar is being exported with an export refund, meaning that the exporter receives the difference between the EU sugar price and the (much lower) world market sugar price. The C sugar is also sold but without export refunds. In both cases, the sugar is being sold at a price below the production price of sugar in the EU. This process is called dumping. The impact of this is threefold: 1. Other (more efficient) sugar producing countries lose the opportunity to export sugar to the EU. There is evidence that points to the fact that some of the Least Developed Countries (LDCs) are being damaged the most by this. Mozambique, Malawi and Zambia are among the lowest cost producers in the world.12 2. Other (more efficient) sugar producing countries lose the opportunity to export their sugar because neighbouring countries are flooded with cheap EU sugar. In 2001 the EU exported 770.000 tonnes of white sugar to Algeria, 150.000 to Nigeria and 120.000 to Mauritania. 13 Those countries are lost markets for developing country exporters. The EU argues that if it wasnt for the EU exports, Brazil and Thailand would be the main benefactors and not the LDCs. However, even if we assume that this were the case, Brazil and Thailand are unlike the EU efficient producers of sugar cane and white sugar and they have legitimate development interests in the sugar industry. On the other side the EU is pumping large amounts of money into an industry which is unfit for competition. Both Brazil and Thailand have large rural populations living in poverty while the EU agricultural sector makes up only a tiny portion of the EUs GDP. 3. No matter how low the world market price of sugar is, the EU export subsidies of ACP sugar always bridge the gap between the world market price and EU market price. And the C sugar has to be sold every year no matter how high or low the world market price is. Thus the EU effectively lowers the world market price and (what is even worse) exacerbates price-lows on the world market. Price-lows, which always destroy the least protected (weakest) sugar producers first. When the European Commission tries to refute this argument by blaming Brazil for the price-low in 1998/1999 it is using an unsound defence because even a 1% increase in supply can cause a price drop of several per cent, as can be seen from the world market price for coffee.14

12

Oxfam Briefing Paper 27 (2002) The great EU sugar scam: How EUs sugar regime is devastating livelihoods in the developing world p. 23 13 ibid. 14 Griffiths, Peter (unknown) Why Fairtrade isnt fair

Mario Rosic, University of Graz

Page 7 of 22

In 2001 the EU imported sugar from just four LDCs and exported twelve times as much white sugar back to the LDCs15, effectively putting pressure on the sugar industries in those countries or preventing them from coming into existence in the first place because competition with cheap C sugar is tough.

3.2 The role of the EBAs

The EU has made steps in order to help the LDCs. Among those steps is the unilateral Everything But Arms (EBA) agreement, which makes it possible for the LDCs to export to the EU everything but arms, bananas, rice and sugar duty free and without quantitative limits. The EBAs are in force since 2001. However, the agreement does not come without a catch, which is the included quota system. The tariff reductions on sugar imports for the LDCs were not to be removed as soon as possible but reduced in steps from 2006 to 2009. Duty free access would only be possible from 2009 on. The amount to be imported was restricted too: Only around 75.000 tons were to be imported in 2001/02, this amount was to increase every year by 15% until in 2009 the quota would be lifted and the access truly unrestricted both in terms of tariffs and amounts. At least, that is what the EU claims.16 More careful research reveals that claim to be false. There is a ceiling on the imports of the LDCs sugar imports under the EBAs. That limit is 1.8 million tonnes which is described as a special safeguard mechanism and it is not time-restricted.17 Also, the quota imported under the EBA was to be subtracted from the Special Preferential Sugar agreement quota until 2009 when the SP and SPS were terminated. Oxfam described this system as a case of robbing the poor to give to the very poor18. And indeed: This agreement made sure that nothing would change for sugar producers and sugar farmers within the EU until 2009. The ACP countries would lose a part of their export quota under the SPS agreement and the LDCs would gain some under the EBA.

15 16

Oxfam Briefing Paper 27 (2002) The great EU p. 24 In February 2001, the Council adopted Regulation (EC) 416/2001, the so -called "EBA Regulation" ("Everything But Arms"), granting duty-free access to imports of all products from LDCs, except arms and ammunitions, without any quantitative restrictions (with the exception of bananas, sugar and rice for a limited period). http://ec.europa.eu/trade/wider-agenda/development/generalised-system-ofpreferences/everything-but-arms/ 17 Agritrade (2010) Sugar: trade issues for ACP countries p. 2 18 Oxfam Briefing Paper 61 (2004) Dumping on the world: How EU sugar policies hurt poor countries p. 32

Mario Rosic, University of Graz

Page 8 of 22

4. Goals of the CMO Sugar reform in 2006

As with the CMO Sugar before 2006 we shall first take a look at the goals of the reform, see how it has been implemented and then asses its impact on other countries. This time with a study from Agrosynergie which was financed by the European Commission.19 According to Agrosynergie the goals of the CMO Sugar 2006 reform were to bring the Community system of sugar production and trading in line with the international requirements, in reducing EU subsidised exports; to stabilise the market in the new international context, via a decrease in the EU domestic price that prevents massive import flows, and to reduce EU production under quota; In September 2002, Brazil and Australia requested consultations at the World Trade Organization to what was then the European Communities. In March 2003, Thailand joined them.20 The reason why these countries requested consultations were similar: They concerned the ECs export subsidies on sugar. Both the direct subsidy of the ACP sugar exports and the indirect subsidy of C sugar were a matter of dispute.21 In 2005 the WTO concluded that the EU was exporting by far too much subsidised sugar because the C sugar was subsidised too through the guaranteed high price on A and B sugar. Thus, in order to be in line with international requirements the EU had to massively reduce its sugar exports. Since it wasnt possible to export as much sugar as in previous times, the EU had to reduce sugar production by 6 million tonnes else there would have been unwanted effects on the sugar market within the EU. In order to make this possible, the guaranteed price for sugar was lowered by 36% and the guaranteed price for sugar beet by 20%.

to ensure future competitiveness of the sugar sector (both at agricultural and industrial levels) via a deep restructuring of the sector; The A and B quotas were merged into one single quota. The new single quota was expected to decrease via a voluntary system with incentives: Sugar producers and sugar beet farmers received financial incentives to reduce their quota and close their least effective sugar refineries or to switch from sugar beet to other crops. This was financed through a fee for quotas held by companies.

to guarantee supply of EU markets for consumers and sugar end-using industries at a reasonable price; Sugar produced over-quota (formerly called C sugar) could either exported with export subsidies (only 1.35 million tons), carried forward for the next year (also a limited amount) or be sold for industrial uses that means, for example, processing the sugar into alcohol, bioethanol, live yeast or
19 20

Agrosynergie (2011) Evaluation of Common Agricultural Policy measures applied to the sugar sector World Trade Organization Dispute DS283 21 ibid.

Mario Rosic, University of Graz

Page 9 of 22

certain chemical/pharmaceutical products. This ensured that sugar-using industries received cheap sugar because the sugar which used to be exported was sold to them. If the overproduced sugar was not handled in one of the described ways, a fee had to be paid of 500/ton. On the topic of the effects of the CMO Sugar 2006 reform on consumer prices there doesnt seem to be much literature. There are claims that the sugar price has fallen22 23, however, these claims are not backed up by scientific research.

to ensure a fair standard of living for the agricultural communities within the sugar sector; The overall Farmers Net Income (FNI) seems to have increased between 2006 and 2008. This was made possible by the Single Payment Scheme which pays farmers for the land they manage or own, not for what and how much they produce. The increase of cereal prices since 2005 has also contributed to the increase in FNI.24

and to avoid potential negative social and environmental impacts of the reform. 41% of the sugar factories have been closed between 2006 and 2008. Since the restructuring of the sugar market within the EU is an ongoing process, many of them would have closed even without the CMO Sugar 2006 reform. Only 22% of the employees of the closed down factories have been laid off though, most of them were redeployed within the companies. The CMO Sugar 2006 has therefore accelerated job losses, but tried to reduce negative social impact by giving the Member States the possibility to ask for a social plan from the sugar companies before they close down the factory. Since Italy is the only country that has done this, the CMO Sugar 2006 reform did not contribute avoiding negative social impacts in a significant way. The reform tried to avoid negative environmental impacts by requiring the full dismantling of the factories from the companies in order for them to receive the highest possible amount of financial support.

In conclusion it can be said that the EUs plan was ambitioned: Sugar dumping was to be reduced from 7 million tonnes in 200125 to 1.35 million tonnes which were negotiated in the Uruguay Round Agreement on Agriculture.26 Overproduced sugar was handled in a new way which wouldnt hurt developing countries economies. The uncompetitive EU sugar industry was forced to become more

22

izz-info.de Was haben die Anpassungen (2006) bei der EU -Zuckermarktordnung fr die Verbraucher gebracht? 23 Zuckerinfo.de Mehr Markt und weniger Marktordnung Auswirkungen auf die Zuckerverwender 24 Sugar Beet production is always rotated with other crops and therefore only makes up a part of the income. 25 Oxfam Briefing Paper 27 (2002) The great EU p. 7 26 More information on the Uruguay round can be found here: http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact5_e.htm

Mario Rosic, University of Graz

Page 10 of 22

effective with financial incentives for both farmers and companies. At the same time the Single Payment Scheme offered farmers more freedom and gave them the opportunity to produce whatever the markets needed and not what the EU asked from them. The EU had learned from its mistakes. Or not?

4.1 Consequences of the CMO Sugar reform of 2006 for the ACP countries
Since the guaranteed price for sugar got reduced by 36% in the course of the CMO Sugar 2006 reform it wasnt only the EU sugar producers who received 36% less money for their sugar but also the ACP countries and the LDCs. While the EU sugar farmers switched to the Single Payment Scheme and were able to even increase their net incomes, the European Commission has firmly rejected the idea of direct payments to ACP sugar producers.27 Assistance for the ACP countries comes in the form of a delay in the cut to the raw sugar price until 2008/09 which is supposed to give those countries more time to adjust.28 In order to make up for the severe cut in the guaranteed prices and the fact that ACP farmers and producers dont have access to the financial support that the farmers/producers within the EU enjoy the EU created a programme that would last from 2006 to 2013 and allocated 1.2 billion EUR to this cause. It was called Accompanying Measures for Sugar Protocol Countries (AMSP). What follows from this is that the EU is now investing 1.2 billion EUR in the sugar industries in several ACP countries which are pretty much like the EU internal sugar market uncompetitive in the world market. Those uncompetitive industries were built and existed in the way they did only because of the high guaranteed prices. 29
30

In addition to this, it seems that the utilisation of the

AMSP money is on a highly unsatisfactory level. While some countries like Mauritius have received nearly 40 million EUR of allocated 75 million EUR (over 50%) between 2006 and 2008, other countries have only received 11%. This led the ACP ministers in 2009 to criticize the AMSP programme for its slow pace of delivery and its strict conditionalities, which are restricting disbursement of timely support to countries whose economies are facing severe consequences arising from the 36% price cuts on sugar31. In other cases like Fiji (one of the most affected countries by the price cuts with a highly uncompetitive sugar industry but at the same time sugar cane related work being the main agricultural activity)32 no money at all has been disbursed because of a military coup detat in 2006. The EU made democratic elections a pre conditionality to start negotiating about AMSP money, and those elections havent taken place as of today.
27

Serrano, Katharina A. (2007) Sweet like sugar: Does the EUs new sugar regime become Fijis bitter reality or welcome opportunity? p. 182 28 ibid. 29 Oxfam Briefing Paper 61 (2004) Dumping p. 39 30 Serrano, Katharina A. (2007) Sweet like p. 183 31 Agritrade (2010) Sugar: trade issues p. 10 32 Serrano, Katharina A. (2007) Sweet like p. 186

Mario Rosic, University of Graz

Page 11 of 22

Fixing a bad development policy seems to be a highly painful task and the only way to avoid causing damage seems to be to not have a bad development policy in the first place. However, those are mistakes which reach long into the past. The reason why all of this is so hard today is the Lome agreement and the Sugar Protocol which were signed nearly 40 years ago. While it is important to be aware of the damage that the EU is causing as a world power, it would be unfair to dismiss EU trade-related development policy because of mistakes that old. Therefore we shall take a look at the trade-related development policy today and in the future.

4.2 Future Outlook

The EU sees the future of development politics in Economic Partnership Agreements which were introduced with the Cotonou Agreement in 2000, a major overhaul of the Lome agreement. The EPAs aim for free trade instead of unilateral trade benefit schemes and are supposed to support a sustainable development the opposite of what was done with the Sugar Protocol/Special Preferential Sugar agreement. The Sugar Protocol formally came to an end in October 2009. Therefore the next step is to analyse what the EPAs hold in store for the ACP and LDC countries. According to Holland and Doidge (2012, 75) among the main goals of the Cotonou Agreement were poverty reduction and sustainable development. These goals were to be achieved following the principle of equality of partners and local ownership and choice of development strategies. The ACP states were to remain in all sovereignty to determine how their economies and societies would develop. Since the globalization had already demonstrated the capacity to marginalize some ACP countries, they had to be included in this process. The only chance for them was to stand on their own feet and become competitive. The EPAs were a key element in this. The ACP countries have formed seven EPA regions (five in Africa, one in the Caribbean and one in the Pacific) and each region is supposed to get its own EPA agreement. The end result shall be a free trade area (FTA) between the EPA regions and the EU. The EPAs were to be reciprocal to abide by the WTO rules. However, since the introduction of the EPAs in 2000 only one single EPA region, the Caribbean, has signed the agreement. All the other regions still use interim EPAs and negotiations are ongoing for what is soon to be a decade.33 The previous goal, to have EPAs with all seven regions signed by 2008 has turned out to be wishful thinking.34 How did this happen? Holland and Doidge (2012: 75) note that both the old Lome mentality (agreements with trade preferences against WTO rules) are making EPAs harder and the fact that China has shown up as a development option who offers trade, aid and investment without political conditionalities.

33 34

Negotiations have started in September 2002 (Holland and Doidge 2012: 83). Holland and Doidge (2012) p. 75

Mario Rosic, University of Graz

Page 12 of 22

Elgstrm (2000: 195) however, is on a different path. He describes the negotiations as a situation of total power asymmetry, where the normative consensus of the EU leaves little room for concessions. While the documents and information about what is going on in the EPA negotiations are few35 a leak dated on the 20th October 2006, published by the Financial Times and picked up and commented by Oxfam offers useful insights. The European Commission itself acknowledges that FTAs between a large market like the EU and small economies are not easily sustainable and often lead to a deficit for the weaker partners36. The EPAs are, as the name says, partnership agreements between two (theoretically) equal partners. Thus they only include trade, not development, which is still handled mostly by the European Development Fund (EDF). The ACP countries economies however are not yet fit for an FTA and so it is not unexpected that they are trying to link development assistance and EPA, acknowledging that both should be mutually reinforcing. 37 The EC on the other side strictly refuses putting development aid into EPAs. 38 Another example (one of many) includes opening the Pacific market for EU services. The pacific countries proposed a number of safeguards during the EPA negotiations to ensure that development comes ahead of the rights of foreign companies. Examples include A clearer definition of public services, to ensure that commitments under the agreement will not require privatisation or undermine public sector delivery of essential services such as healthcare, education, water supply and sanitation and A provision that would help ensure that Pacific governments do not unintentionally enter into commitments they did not intend to make (this recently happened when the USA did not realise it had accidentally opened up internet gambling).39 These safeguards have been rejected during the negotiations with the Pacific countries for an EPA. What the EC also doesnt allow in the EPA with the Pacific region is the countries to use licencing fees in order to fulfil policy objectives like, say, a universal service obligation. This is especially disturbing considering that France, Switzerland, Australia and the USA are using such fees.40 The biggest problem, however, is the concept of reciprocity. In the last years the EU has been aiming at making Free Trade Agreements with many countries, not just the ACP countries. Those FTAs

35

In fact, there is only one single document published by the EU which offers an overview over the status of EPAs: Office for promotion of parliamentary democracy (2011) Economic Partnership A greements EU-ACP: Facts and key Issues. The EPA negotiations themselves are taking place in secrecy. 36 Cited by Holland and Doidge (2012) p. 83 37 Cited by Oxfam Background paper (2006) Slamming the door on development. Analysis of the EUs response to the Pacifics EPA negotiating proposals p. 4 38 ibid. 39 ibid. p. 6 40 ibid. p. 7

Mario Rosic, University of Graz

Page 13 of 22

include reciprocity, meaning that the country that signs can export to the EU without paying tariffs and the EU can also export to the designated country without paying tariffs: Equal treatment for equal partners. What is not being taken into account is that the EU is a much more powerful actor and that the EU is spending large amounts of money to protect its economy (the CAP being the most prominent example) while other countries arent doing that, mostly because they cant afford it. India is such an example: Since 2007 the EU is negotiating with India about a Free Trade Agreement. The FTA would include sugar, dairy products, poultry and other kinds of meat. A study conducted by the Heinrich Bll Stiftung and several NGOs concluded that such an FTA would have severe negative consequences especially for small farmers and that they would be the main losers of such an FTA.41 On could get the impression that the EPAs/FTAs are actually not there to help countries but only for the EU economy to get a foot into the markets of ACP and other countries. And so the question arises why the ACP countries should sign such EPAs? Indeed, the ACP countries are asking the EU for alternatives.42 The situation is in fact so bad that not only the ACP countries are looking for alternatives but even within the EU think tanks like the Economic Centre for Development and Policy Management (ECDPM) question EPAs as an instrument and call for a reassessment of EPAs. In a recently published article they are stating that the EPA negotiations are a big failure, describe EUs approach to the EPAs as inappropriate and talk about the mess that EPA negotiations have created. 43

5. Fair Trade succeeding where the EU is failing?

What is Fair Trade? According to FINE, the main four Fair Trade networks, Fair Trade is a trading partnership, based on dialogue, transparency and respect, that seeks greater equity in international trade. It contributes to sustainable development by offering better trading conditions to, and securing the rights of, marginalized producers and workers especially in the south. Fair Trade organisations, backed by consumers, are engaged actively in supporting producers, awareness raising and in campaigning for changes in the rules and practice of conventional international trade.44

41

Chemnitz, Christine; Paasch, Armin et. al (2011) Right to Food - impact assessment of the EU-India Trade Agreement p. 5 42 ibid. p. 56 43 Maes, Marc (2012) 27 September 2012: 10 years of EPA negotiations. From misconception and mismanagement to failure 44 Boonman, Mark; Huisman, Wendela et. al (2011) Fair Trade facts and figures. A success story for producers and consumers p. 11

Mario Rosic, University of Graz

Page 14 of 22

The intention of all this is to deliberately work with marginalized producers and workers in order to help them move from a position of vulnerability to security and economic self-sufficiency; empower producers and workers as stakeholders in their own organisations; actively play a more substantial role in the global arena when it comes to achieving greater equity in international trade.45 In the year 2010 consumers all over the world spent 4.36 billion EUR on Fair Trade products which is a growth of 27% compared to 2009.46 The Fair Trade system currently works with 1.5 million people in 60 developing countries.47 Fair Trade is big and its growing at an amazing rate. Considering the failure of the EPAs and the fact that some actors in the field of development aid have already begun thinking about the time after the Cotonou agreement expires48 (in 2020) the EU should ask itself whether it could learn anything about development and trade from the Fair Trade approach or maybe even include aspects of Fair Trade in the agreement after Cotonou.

Fair Trade consists of a large amount of various organizations with the abovementioned goals. At the top there is Fair Trade International (FLO) which is responsible for the strategic direction of the movement and which sets Fair Trade standards. The FLO-CERT, a company owned by the FLO, is officially certifying the products of producers and traders, making sure that they comply with the Fair Trade standards and allowing them to use the Fair Trade logo on their products. The 19 Fair Trade labelling initiatives cover 24 countries which give out Fair Trade licences to importers, exporters or businesses in their country if they agree to comply with Fair Trade standards. Those importers, exporters and businesses may also use the Fair Trade logo on their products. Then there are three producer networks which certified producer groups may join for Asia and the Pacific countries, Africa, South America and the Caribbean countries. There is a large amount of marketing organizations that promote Fair Trade in their country.49 And besides all this, there are several other organizations involved into Fair Trade like the World Fair Trade Organization (WFTO) which certifies Fair Trade organizations (not products)
45 46

ibid. Fairtrade International (2011) Challenge and Opportunity. Supplement to Annual Review 2010 -11. 2010 Financials and Global Sales Figures p. 2 47 Fairtrade International Press Release (2012) Business must understand how to better work with smallholder farmer to ensure global food security 48 Laporte, Geert (2012) What future for the ACP and the Cotonou Agreement? 49 http://www.fairtrade.net/what_is_fairtrade.html

Mario Rosic, University of Graz

Page 15 of 22

and, for example, the European Fair Trade Association (EFTA) which sells Fair Trade products through so-called Worldshops in Europe and aims at supporting its member organizations which are Fair Trade importers.

According to the website of the FLO (fairtrade.net) Fair Trade works by offering the farmers stable prices, even when the world market prices fall and on top of this a Fair Trade Premium which is supposed to improve the quality of life of the farmer and the family. The producers are also involved in decisions which affect their future because Fair Trade certified producers jointly own FLO. Farmer groups also must have a democratic structure and transparent administration in order to get a Fair Trade certificate. Fair Trade also encourages environmentally sustainable and organic farming.50 The website of the WFTO lists even more Fair Trade Principles, such as ensuring that no child labour or forced labour is taking place and a commitment to non-discrimination, gender equality, ensuring good working conditions and capacity building for the farmers.51 The Fair Trade Federation (FTF), an association of Canadian and US Fair Trade wholesalers also includes the respect for cultural identity and diversity into their Fair Trade principles. To add to this diversity, many organizations which are involved into Fair Trade (like the Fair Trade Resource Network http://www.fairtradefederation.org) are less about the selling of Fair Trade products but more about helping marginalized farmers and working on alternative trade concepts for the benefit of humanity. This shows that there is much more to Fair Trade than just a brand that one might stumble upon while shopping. Fair Trade is a movement, supported by a huge amount of volunteers who either have their own Fair Trade initiatives or volunteer to work for free at, for example, so-called Worldshops all over Europe. The main goal of Fair Trade is not economic growth but to empower marginalized people and improve their quality of life by paying them more. Fair Trade tries to achieve this by fostering commerce between individuals and businesses in a direct and tangible way instead of working on trade policies between countries or giving out grants as the EU does.

5.1 Criticism of Fair Trade

There is a large amount of scientific criticism concerning Fair Trade. The most famous point of criticism on Fair Trade is the fact that the products are more expensive than non-Fair Trade products but only a tiny fraction of the price premium reaches the farmers. Peter Griffiths criticizes both the Fair Trade concept and the FLO for being intransparent52 and for not recording how much money reaches the farmers or how high the price-premium for Fair Trade-products is. In one case, where a

50 51

http://www.fairtrade.net/benefits_of_fairtrade.html World Fair Trade Organization 10 Principles of Fair Trade 52 http://www.griffithsspeaker.com/Fairtrade/why_fair_trade_isn.htm

Mario Rosic, University of Graz

Page 16 of 22

coffee-seller in Great Britain was selling Fair Trade coffee for approximately 0.15 EUR more than regular coffee he found out that only 2% of that actually went to the third world and it is unclear what proportion of that reached the farmers. He also criticizes the lack of impact studies and highlights severe methodological problems in many studies about Fair Trade.53 He claims that the Fair Trade marketing system offers more opportunities for corruption than normal marketing systems and cites Paola Ghillani, former president of FLO who says that there is a lack of proper control among smaller producers, that is to say a lack of monitoring. 54

5.2 Fair Trade and the EU

In a paper published by the World Fair Trade Organization55 (WFTO) in 2005, before the CMO Sugar was reformed, the WFTO describes how a fair EU sugar regime would look: A Fair EU sugar regime would, instead, 1. Put sustainable development at its heart. It would ensure that workers in sugar production are not being exploited and that sugar cultivation does not destroy the environment, neither within the EU, nor in the importing countries; 2. Ensure that small sugar producers, particularly in poor countries, are not being thrown into poverty; 3. Completely stop dumping EU sugar onto world markets; 4. Guarantee market access for the poorest countries (LDCs). The points raised by the WFTO shall be addressed here: 1. It is hard to overlook that the EU is actually trying to achieve sustainable development not only within the EU but also for the LDCs. However, I would like to bring up the notion that sustainable in EU terms mainly means competitive. If an industry or economy is competitive, it will stay and it has a future. If it is not, it will either disappear or be dependent on financial support. With the CMO Sugar reform the EU has tried to make its sugar industry more competitive and to prepare it for a time where sugar quotas and guaranteed prices will be removed altogether. With the removal of the Sugar Protocol and the introduction of the EPAs and EBAs the EU aimed at giving the ACP countries an incentive to actually become competitive on their own, without financial support (never mind that in the case of EPAs the plan came out wrong and resulted in something different). The EU is in fact aiming for sustainable development, both within the EU and outside the EU. Its just that the EU has a different concept of what is sustainable. 2. This is something that is not at all on the radar of the EU. One of the most recent examples concerning sugar, poverty and the EU is about the fact that in Swaziland the AMSP changed how

53 54

Griffiths, Peter (2011) Ethical objections to Fairtrade p. 20-21 ibid. p.21-22 55 Fair Trade Advocacy Office (2005) Towards a Fair EU sugar regime

Mario Rosic, University of Graz

Page 17 of 22

wealth is socialised within the industry. The EU funds, which went to the farmers, marginalized the workers without land. So far 4.400 jobs in sugar mills have been cut or outsourced because the EU doesnt reflect on the way its grants are affecting industries and poor people.56 57 3. Sugar dumping was radically reduced with the CMO Sugar 2006 reform. Only 1.35 million tonnes may be exported with export subsidies since the WTO ruling against the EU.58 This is very little compared to the over 7 million tonnes before the WTO ruling. 4. Since the introduction of the EBAs the LDCs have excellent market access, but only up to an amount of 1.8 million tonnes per year as described in chapter 3.2. However, there is no guaranteed market access as in buying quotas which were included in the Sugar Protocol and Special Preferential Sugar agreement because this would conflict with EUs definition of what is sustainable.

What we can see is that with the CMO Sugar reform 2006 the EU has made a large step to fulfilling some of the demands of the WFTO. Since the CMO Sugar 2006 reform even more has happened: In October 2011 the European Parliament has adopted a resolution which [] calls on the Commission to encourage governments and contracting authorities to increase the use of sustainable public procurement and Paragraph 19 Underlines the need to strengthen the sustainability dimension of public procurement by allowing it to be integrated at each stage of the procurement process (i.e. ability test, technical specifications, contract performance clauses).59 This resolution was mainly aimed at Fair Trade. Seven months later, in May 2012, the European Court of Justice decided that it is legal to give preference to products of Fair Trade origins and therefore removed any doubt or insecurity.60 This is truly excellent news for the concept of Fair Trade.

6. Conclusion
In the last decade the EU has significantly reduced the damage that is being caused to other economies through sugar dumping. And its not just sugar but also export subsidies in total which have been reduced in the last decade to only a fraction of the number spent on export subsidies in 2003. 61 And there is a serious chance that export subsidies will be abolished with the upcoming CAP 2013 reform.62 Yet there is huge potential for new damages caused by FTAs or EPAs: When an FTA
56 57

African Seer (2012) Swaziland: EU Sugar Aid for Nation Leaves a Bitter Taste Richardson, Ben (2012) EU sugar reform in 2015: Cost competitiveness for whose benefit? 58 Agrosynergie (2011) Evaluation of p. 4 59 World Fair Trade Organization (2011) European Parliament confirmation on public purchasing may increase Fair Trade sales 60 Fairtrade International Press Release (2012) EU ruling opens way for fair trade criteria in public procurement 61 Capreform.eu (2012) End the use of export subsidies in the 2013 CAP review 62 ibid.

Mario Rosic, University of Graz

Page 18 of 22

exists between the EU and another country, the EU doesnt need export subsidies to destroy parts of that countries economy. It only needs the CAP or any other form of internal subsidy to make the fight grossly unfair. There seems to be no hope for a coherent development policy where EU trade policy doesnt negate any possible positive effects of development aid.

Hope is to be found in another area: EPAs are a failure and most of the ACP countries are still resisting them the most likely outcome are simplified EPAs for the majority of the ACP countries. Those simplified EPAs would only cover trade of uncontroversial goods.63 India still hasnt signed an FTA with the EU and the public is resisting and protesting.64 At the same time, the EU is aiming at making not only its own agricultural economy more competitive and less distorted but also forcing ACP countries through reforms like the CMO Sugar reform of 2006 to become more competitive and less dependent on EU money. With the EBA initiative the LDCs have a serious chance to develop competitive industries which can exist without EU support. Even if at the moment the EBAs only serve as a safety net for the LDCs because world sugar price is so high that they export their sugar to the world market rather than to the EU.65

And not to forget Fair Trade: A completely new possibility for consumers to influence the developing countries. It is unclear who in the developing world is profiting the most of this system or how much the developing world is affected at all. But the consumers are ready to pay the premium and thus to contribute. With annual growth rates between 20% and 30% for already several years in a row66 the future looks promising. The EU however is standing outside all of this and not directly interfering, but only supporting through indirect measures and court decisions. The question here is whether the EU could or should do more for the Fair Trade concept or if the EU should try to copy ideas from Fair Trade and include them into its own development or trade policies.

63

Office for promotion of parliamentary democracy (2011) Economic Partnership Agreements EU -ACP: Facts and key Issues p. 59 64 Taz.de (2012) Freier Handel macht arm 65 United States Department of Agriculture, Foreign Agriculture service (2012) EU-27 Annual Sugar Report p.6 66 Fairtrade Labelling Organizations international (2010) Fairtrade Leading the Way. Annual Report 2008 -09 p. 23 and Fairtrade International (2011) Challenge p. 2

Mario Rosic, University of Graz

Page 19 of 22

7. Literature
Unless otherwise stated, all links have been accessed on 31.8.2012 African Seer (2012) Swaziland: EU Sugar Aid for Nation Leaves a Bitter Taste http://www.africanseer.com/business/216864-swaziland-eu-sugar-aid-for-nation-leaves-a-bittertaste.html Agritrade (2010) Sugar: trade issues for ACP countries http://agritrade.cta.int/en/layout/set/print/content/view/full/1570 Agrosynergie (2011) Evaluation of Common Agricultural Policy measures applied to the sugar sector http://ec.europa.eu/agriculture/eval/reports/sugar-2011/ Antonius-Klemola, Kristiina and Sahramaa, Mia (1998) Report of the state of Finland forming part of the IENICA project http://www.ienica.net/reports/finland.pdf Boonman, Mark; Huisman, Wendela et. al (2011) Fair Trade facts and figures. A success story for producers and consumers http://www.european-fair-trade-association.org/efta/Doc/FT-E-2010.pdf Capreform.eu (2012) End the use of export subsidies in the 2013 CAP review http://capreform.eu/end-the-use-of-export-subsidies-in-the-2013-cap-review/ Chemnitz, Christine; Paasch, Armin et. al (2011) Right to Food - impact assessment of the EU-India Trade Agreement http://ecofair-trade.org/sites/ecofair-trade.org/files/downloads/11/12/2011-12-ecofair_rfia.pdf_2.pdf Elgstrm, Ole (2000) Lome and Post-Lome: Asymmetric negotiations and the Impact of Norms In: European Foreign Affairs Review 5(2) p. 175-195 European Commission, Memo/04/177 (2004) EU sugar sector: Facts and figures http://trade.ec.europa.eu/doclib/html/119608.htm Fair Trade Advocacy Office (2005) Towards a Fair EU sugar regime http://www.wfto.com/index.php?option=com_docman&task=doc_download&gid=70&&Itemid=109 Fairtrade International (2011) Challenge and Opportunity. Sup plement to Annual Review 2010-11. 2010 Financials and Global Sales Figures Fairtrade International Press Release (2012) Business must understand how to better work with smallholder farmer to ensure global food security http://www.fairtrade.org.uk/press_office/press_releases_and_statements/may_2012/new_research_fo r_world_fair_trade_on_how_to_best_work_with_small_farmers.aspx Fairtrade International http://www.fairtrade.net Fairtrade International Press Release (2012) EU ruling opens way for fair trade criteria in public procurement http://www.fairtrade.org.uk/press_office/press_releases_and_statements/may_2012/cocoa_farmers_s truggle_while_we_brits_feast_on_easter_eggs.aspx Fairtrade Labelling Organizations international (2010) Fairtrade Leading the Way. Annual Report 2008 -09 http://www.fairtrade.net/fileadmin/user_upload/content/2009/resources/FLO_ANNUAL_REPORT_0809.pdf

Mario Rosic, University of Graz

Page 20 of 22

Griffiths, Peter (2011) Ethical objections to Fairtrade In: Journal of Business Ethics July 2011 http://www.griffithsspeaker.com/Fairtrade/Ethical%20Objections%20to%20Fairtrade%20web.pdf Griffiths, Peter Why Fairtrade isnt fair http://www.griffithsspeaker.com/Fairtrade/why_fair_trade_isn.htm Holland, Martin and Doidge, Mathew (2012) Development policy of the European Union. Palgrave Macmillan, Hampshire izz-info.de Was haben die Anpassungen (2006) bei der EU-Zuckermarktordnung fr die Verbraucher gebracht? http://www.izz-info.de/faq/zur-reform/was-haben-die-anpassungen-2006-bei-der-euzuckermarktordnung.html Knapp, Robert (2004) Sugar and the European Union: Implication of WTO Findings, and Reform http://www.fas.usda.gov/htp/sugar/2004/internet%20article%20on%20wto%20and%20reform%20rev1 .pdf Laporte, Geert (2012) What future for the ACP and the Cotonou Agreement? http://www.ecdpm.org/Web_ECDPM/Web/Content/Download.nsf/0/A80840C540D36BE8C12579D000 311896/$FILE/BN34-What%20future%20for%20the%20ACP-FINAL.pdf Maes, Marc (2012) 27 September 2012: 10 years of EPA negotiations. From misconception and mismanagement to failure In: GREAT Insights (2007) 1 (6) http://www.ecdpm.org/Web_ECDPM/Web/Content/Content.nsf/0/258CCA19A62D9674C1257A5A0073 0D66?Opendocument Netherlands Economic Institute, Agricultural Economics and Rural Development Division (2000) Evaluation of the Common Organisation of the Markets in the Sugar Sector http://ec.europa.eu/agriculture/eval/reports/sugar/index_en.htm Nhle, Ulrich (2004) The sugar market and trade agreements of the European Union www.zuckerinfo.de/inhalte/1.../Noehle_zu_ZMO_2004_10_01.pdf Office for promotion of parliamentary democracy (2011) Economic Partnership Agreements EU -ACP: Facts and key Issues http://www.europarl.europa.eu/pdf/oppd/Page_1/EPAFacts&KeyIssuesFinal-EN.pdf Oxfam Background paper (2006) Slamming the door on development. Analysis of the EUs response to the Pacifics EPA negotiating proposals http://www.oxfam.org/sites/www.oxfam.org/files/Slamming%20the%20Door%20on%20Development.p df Oxfam Briefing Paper 27 (2002) The great EU sugar scam: How EUs sugar regime is devastating livelihoods in the developing world http://www.oxfam.org.nz/sites/default/files/reports/SugarPaper.pdf Oxfam Briefing Paper 61 (2004) Dumping on the world: How EU sugar policies hurt poor countries http://www.oxfam.org/sites/www.oxfam.org/files/bp61_sugar_dumping_0.pdf Richardson, Ben (2012) EU sugar reform in 2015: Cost competitiveness for whose benefit? In: GREAT Insights (2012) 1 (6)

Mario Rosic, University of Graz

Page 21 of 22

http://www.ecdpm.org/Web_ECDPM/Web/Content/Navigation.nsf/index2?readform&http://www.ecd pm.org/Web_ECDPM/Web/Content/Content.nsf/0/ECAAAFAD21A6B538C1257A590079779E?OpenDoc ument Roberts, David (2012) The Interaction between the EUs Domestic Policy for Sugar and its Imports of Sugar from the ACP and Least Developed Countries http://www.fao.org/fileadmin/templates/est/meetings/sugar_fiji_2012/David_Roberts__former_DDG_Agri_EC.pdf Serrano, Katharina A. (2007) Sweet like sugar: Does the EUs new sugar regime become Fijis bitter reality or welcome opportunity? In: Journal of South Pacific Law (2007) 11(2) http://www.paclii.org/journals/fJSPL/vol11no2/pdf/serrano.pdf Taz.de (2012) Freier Handel macht arm http://www.taz.de/!87378/ United States Department of Agriculture, Foreign Agriculture service (2012) EU -27 Annual Sugar Report http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Sugar%20Annual_Brussels%20USEU_EU27_4-27-2012.pdf World Fair Trade Organization 10 Principles of Fair Trade http://www.wfto.com/index.php?option=com_content&task=view&id=1506&Itemid=293 World Fair Trade Organization (2011) European Parliament confirmation on public purchasing may increase Fair Trade sales http://www.wfto.com/index.php?option=com_content&task=view&id=1606&Itemid=314 World Trade Organization Dispute DS283 http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds283_e.htm Zuckerinfo.de Mehr Markt und weniger Marktordnung Auswirkungen auf die Zuckerverwender http://www.zuckerinfo.de/inhalte/1_europa/1_7_7_verwender.htm

Mario Rosic, University of Graz

Page 22 of 22