ACP sugar trade

Sugar trade between African Caribbean and Pacific countries (ACP) and the European Union is regulated by two trade agreements:

• The ACP/EU Sugar Protocol and
• The Agreement on Special Preferential Sugar (SPS).

   

ACP/EU Sugar Protocol

The fundamental principles enshrined in the Sugar Protocol are the following:

• Agreed Quantities
• Guaranteed Prices
• Indefinite duration

Agreed Quantities

The Sugar Protocol is an agreement between governments whereby the EU Member States guarantee to buy and import agreed quantities of sugar which the ACP Signatory States undertake to sell.

The Sugar Protocol states that,

'the [European] Community undertakes for an indefinite period to purchase and import, at guaranteed prices, specific quantities of cane sugar, raw or white, which originate in the ACP states and which these States undertake to deliver to it'

- Article 1 of the ACP/EU Sugar Protocol

'Subject to Article 7, these quantities may not be reduced without the consent of the individual states concerned'

- Article 3(2) of the ACP/EU Sugar Protocol

The EU regulation on the common organization of the markets in the sugar sector (No. 2038/1999) ensures that the Protocol quantities are irreducible even in cases where the Community has to reduce A&B production quotas on account of its Uruguay Round commitments.

Further, Article 1 of ACP/EU Sugar Protocol is reflected in the ACP/EU Partnership Agreement ("Cotonou Agreement") which states that:

'In accordance with Article 25 of the ACP-EEC Convention of Lomé signed on 28 February 1975 and with Protocol 3 annexed thereto, the Community has undertaken for an indefinite period … to purchase and import, at guaranteed prices, specific quantities of cane sugar, raw or white, which originates in the ACP States producing and exporting cane sugar and which those States have undertaken to deliver to it.'

- Article 13 of Annex V: Trade Regime Applicable During the Preparatory Period

This underlines the indefinite nature of the Protocol, since economic or other difficulties in the EU which might lead to a modification of the arrangements under the Convention, cannot lead to, nor cannot be invoked to justify, any modification of the indefinite nature of the commitments under the Sugar Protocol.

Guaranteed prices

Guaranteed prices for ACP white or raw sugar apply to bulk sugar cost insurance and freight paid (CIF) to European ports delivered under the Sugar Protocol.

ACP guaranteed prices are negotiated annually between the EU and the ACP states signatory to the Sugar Protocol, 'within the price range obtaining in the Community, taking into account all relevant economic factors'. - Article 5(4) of the ACP/EU Sugar Protocol

In practice, the ACP states receive the same price as Community sugar producers. This is because Community has always linked the guaranteed price for ACP raw cane sugar to the intervention price for EU produced raw sugar, and the guaranteed price of white sugar to the derived intervention price in the UK. The level of the guaranteed price is that at which, 'the Community undertakes to purchase, within the agreed quantities, preferential sugar which cannot be marketed in the Community at a price equivalent to or in excess of the guaranteed price.' - Article 5(3) of the ACP/EU Sugar Protocol

Without a Guaranteed Price taking into account all relevant economic factors, the Sugar Protocol would become "an empty shell".

Indefinite duration of the Sugar Protocol

The term "indefinite duration" was not included in Article 1 of the Sugar Protocol by accident; it was included in the Protocol to give a precise legal guarantee to ACP sugar supplying states, reflecting the guarantees which had preceded the Protocol in the Commonwealth Sugar Agreement, and the obligations of the European Community in the Treaties. The provisions of the Sugar Protocol, the Lomé Convention(s) and the new Cotonou Agreement, to which the the Sugar Protocol has been attached for institutional convenience, were carefully drafted so as to reflect this commitment and the independence of the Sugar Protocol and the mechanism for its continued implementation should the Cotonou Agreement cease to exist.

The legal aspects of the Sugar Protocol were contained in the various clauses of the Protocol itself and in Article 213 of the IVth Lomé Convention and, as discussed above, in the Cotonou Agreement.

• Article 1(1) of the Protocol states that the Community's undertaking to purchase, and the ACP undertaking to sell, specific quantities of sugar at guaranteed prices is for an indefinite period.

• Article 10 of the Sugar Protocol stipulates that it may be denounced by the Community with respect to each ACP State subject to two years' notice. However, in a Declaration annexed to the Protocol the Community formally declares that Article 10 is for juridical security and does not represent for the Community any qualification or limitation of the principle enunciated in Article 1(1), viz. the undertaking to purchase sugar for an indefinite period.

• All the guarantees contained in the Sugar Protocol are also enshrined in the IVth Lomé Convention which, in its Article 213, reiterates the commitments undertaken in terms of the Protocol, notably the indefinite duration of the Protocol, the non-applicability of the safeguard clause under Article 177 of the Convention, and the fact that should the Convention be terminated, measures must be taken to secure the continued application of the Sugar Protocol.

• As the Lomé Convention to which the Sugar Protocol is attached was originally concluded for five years, it was provided in Article 8(2) of the Protocol that, should the Convention cease to be operative, the sugar supplying states and the Community would adopt appropriate institutional provisions to ensure the continued application of the provisions of the Sugar Protocol.

• Article 1(2) of the Sugar Protocol states that the implementation of the Protocol is carried out within the framework of the management of the common organization of the sugar market (the EU sugar régime) which, however, shall in no way prejudice the commitment of the Community under Article 1(1), that is to purchase sugar for an indefinite period. Indeed, it flows from this stipulation that any modification of the EU sugar régime cannot affect the continued application of the provisions of the Sugar Protocol.

All the above provisions, both under the Sugar Protocol and reinforced under the Lomé Convention, constitute very clear, precise and juridical guarantees that the application of the Protocol is for an indefinite period.

Special Preferential Sugar (SPS)

At the time of the accession of Portugal and Spain to the EU in 1986, the ACP formulated a request to supply the raw sugar deficit of the Portuguese sugar refineries, and in August 1992, the Commission's services drafted a proposal for a regulation on supplies to the Portuguese sugar refineries in what became known as the 'non-paper'.

The non-paper first brought to light the idea of maximum supply needs (MSNs), for the Community's refineries. It also introduced the idea of a 'hierarchy of preference': from domestic (DOM and EU beet raws) suppliers, to ACP under the Protocol, third country suppliers, for example Cuba and Brazil, and finally additional ACP quantities.

The non-paper also envisaged that third country suppliers to Portugal, if required to meet the deficit, would receive no preference. New EU legislation on raw cane sugar for refining was enacted as part of the 1995 reform of the sugar régime and it:

• provided the legal basis for the Community to negotiate with the ACP sugar supplying states, India and other states, on conditions for importing SPS notably the minimum purchase price to be paid by refiners;
• established the MSNs of the refining industries in Finland, France, Portugal and the United Kingdom, the penalty for exceeding the MSNs and the formula for reducing MSNs if the Uruguay Round Agreement constraints dictate;
• provided for the establishment of the shortfall quantity to be covered by additional supplies, SPS, by means of a Community forecast supply balance for raw sugar ("bilan");
• prolonged the adjustment aid mechanism until 2000/01; the adjustment aid is paid to refiners from Community funds on sugar imported from the DOMs and under the Sugar Protocol, but it is paid to refiners by ACP and other suppliers on SPS sugar and MFN sugar.

The SPS agreement with ACP states was reached on 1 June 1995, and, like the ACP/EU Sugar Protocol, it is a government-to-government agreement, but unlike the Protocol, it is of a fixed duration and the ACP states are jointly and severally liable to supply the quantities of sugar covered by the SPS agreement. The SPS agreement is for an initial period of six years, matching the duration of the new sugar régime and the refiners rights to refine raw sugar.

'During the period 1 July 1995 to 30 June 2001:

• the European Community undertakes to open annually a special tariff quota for the import of raw cane sugar for refining which originates in ACP states, on the basis of the needs determined by the Commission in accordance with paragraph 3 ("bilan"), and
• 'the ACP states undertake to supply the said quantities under conditions fixed by this agreement and by the measures taken by the Commission for the application of this agreement within the framework of the management of the common organization of the markets in the sugar sector.' - Paragraph 1 of the SPS Agreement.

At the 55th session of the ACP Council of Ministers, a formula was established to allocate amongst the ACP States signatory to the Protocol all quantities of SPS allocated to the ACP.

The conditions of the SPS agreement include a minimum delivered price to be paid by EU refiners, equivalent to approximately 85% of the ACP guaranteed price for raw sugar. The minimum delivered price is calculated by deducting 8.1 euros per 100kg from the ACP guaranteed price for raw sugar fixed under the ACP/EU Sugar Protocol. The quantities of SPS for each marketing year (July/June) are determined by means of the bilan which is provisionally agreed in May and finalized the following February.

The SPS deduction of 8.1 euros/100kg is made up of a special reduced duty and the adjustment aid. The adjustment aid was introduced in 1987 further to EU price changes in the early 1980's when raw sugar and white sugar prices did not move in parallel and when ACP raw cane sugar was removed from the storage costs equalization scheme. It is therefore a technical adjustment designed to ensure equal treatment for beet and cane sugar in the EU market. Until the SPS agreement of 1995, the adjustment aid was paid exclusively from Community funds (FEOGA), however, the adjustment aid is now paid for by the ACP to EU refineries.