The European Union (EU) is the third largest sugar producer and the second largest consumer in the world. EU sugar policy was first established in 1968 and regulates all aspects of the industry, ranging from production quotas and guaranteed prices, to exports subsidies and import restrictions.
After a WTO panel found EU sugar policy not compliant with international trade rules, the EU undertook an extensive reform in 2006 that substantially reshaped its sugar market. In the few years that followed, the EU changed from being the world’s second largest sugar exporter to a net sugar importer.
Import tariffs and quotas
Most EU sugar imports are controlled by Tariff-Rate Quotas (TRQs), which set the amount of sugar that can enter the region from abroad at a reduced or zero duty. The EU applies prohibitive Most-Favored Nation (MFN) tariffs to additional sugar imports. These high import duties – €339 per ton on raw cane sugar for refining and €419 per ton on white sugar – prevent imports beyond the TRQ limits from most competitive, sugar-producing countries such as Brazil, Thailand and Australia.
Today 334,054 tons of Brazilian sugar can be imported at a preferential rate of €98 per ton and an erga omnes TRQ (meaning a quota open for any country to meet) of 253,977 tons is also available at the same duty rate. In addition, a temporary duty-free quota of 400,000 tons annually is open for industrial sugar imports.
Recently, the European market has faced a significant supply shortage due in part to expensive world sugar prices and reduced imports from the bloc's traditional African, Caribbean and Pacific (ACP) suppliers. This scarcity forced the European Commission to implement new mechanisms to alleviate tensions in the EU market and to secure additional sugar supply. For instance:
- For the 2010/2011 marketing season, the European Commission had to establish a duty-free 500,000 tons import quota, on an erga omnes (open to all) basis.
- The Commission also authorized additional imports with reduced tariffs through a tender system, from July to September 2011.This system has been extended in 2012.
The EU grants duty-free, quota-free access for sugar imported from the world's Least Developed Countries (LDC) and ACP countries that were members of the former Sugar Protocol and are signatories of Economic Partnership agreements. However, transitional safeguards are in place to prevent a surge of imports from these countries through 2015.
2006 Sugar Reform
The European sugar reform was mainly motivated by the negative ruling of a WTO panel in a case brought by Australia, Thailand and Brazil against the EU, but the market access granted to LDCs and EU enlargement also played a role. As the EU increased its membership, the government had to offer additional import opportunities as compensation for new member states adopting the EU sugar policy and its protectionist measures. Key features of the 2006 EU sugar reform include:
- Interventionist prices. The EU reduced the intervention price for white sugar from €631.9 per ton to €404.4 – a 36% cut over four years. Producers were compensated for about two-thirds of the price cut through a payment delinked from sugar production.
- Production quotas. While the EU maintained its production quota system, EU member states were encouraged to abandon part of their production quotas to reduce EU sugar production by approximately 6 million tons and avoid large surpluses.
- Export controls. All export volumes – subsidized or not – are subject to a limited export quota, defined every year by the European Commission, that is usually equivalent to the quantity included in the EU WTO schedule of commitment for export subsidies. Today, export refunds are marginal.
Following this reform, EU sugar exports dropped from 7.5 million tons in 2005/06 to just 815,000 tons in 2010/2011, and the EU became a net sugar importer.
A draft proposal by the European Commission to reform the EU sugar regime after 2015 is currently examined by the European Parliament and the Council.