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AGRICULTURE IN THE URUGUAY ROUND Agricultural trade was first included under the rules of the World Trade Organization (WTO), previously the General Agreement on Tariffs and Trade (GATT), as a result of the Uruguay Round of negotiations. Most of the Uruguay Round’s provisions, including the Agreement on Agriculture, went into effect on January 1, 1995. The Uruguay Round of multilateral trade negotiations was the eighth such negotiating round and was based on a mandate given by trade ministers in the September 1986 Punta del Este Declaration. The Declaration called for, among other things, substantial progressive reductions in agricultural protection and support in order to prevent and correct distortions in world agricultural markets. The Uruguay Round Agreement on Agriculture (AoA) The AoA covers all agricultural products contained in Chapters 1 to 24 of the Harmonized System of tariff description, excluding fish and fishery products, but including some other products, for example, sorbitol, cotton, silk and flax. In addition to primary agricultural products, the AoA also covers export subsidies on incorporated products (for example biscuits), known in the EU as Non-Annex II products. Unlike other commodities such as oilseeds and cereals, sugar was not specified as an area for negotiation during the Uruguay Round. The AoA was mainly concerned with rules and commitments in three key areas: market access, domestic subsidies and export subsidies. 1. Market Access Tariffication Under the AoA, WTO member countries agreed to convert non-tariff barriers for imports into tariffs. Developed countries agreed to cut unweighted average tariffs by 36 percent by the year 2000, and developing countries agreed to unweighted average cuts of 24 percent by 2005. Each member agreed to make its total cut in equal annual installments during the implementation period. Least-developed countries were not required to reduce their agricultural tariffs. In order to facilitate tariffication, the AoA included a "Special Treatment" clause, which sets out conditions (detailed in AoA Annex 5) under which member countries could maintain import restrictions up to the end of the implementation period. Market Access Opportunities The AoA also established so-called "market access
opportunities," under which members committed themselves to
guarantee the same access granted during the base-period of 1986-1988
(current market access opportunities). In addition, members agreed to
establish "minimum access" opportunities for those products
for which imports during the base-period were less than three percent of
domestic consumption. The minimum access quantity was set at three
percent of domestic consumption in the base year period, rising to five
percent by the year 2000 (2004 for developing countries). Commitments
were implemented through the establishment of so-called
"tariff-rate quotas" with the in–quota tariff rate set at a
"low or minimal" rate. Although some of these "in-quota
tariffs" are still quite high, they are lower than the
corresponding "most favored nation" (MFN) rate for the
products concerned. The AoA also provided for the temporary application of an additional duty on top of applied tariffs in cases of import volume surges or import price falls. The additional duty can be activated under a volume-based or price-based trigger, but not both concurrently. Because SSGs do not require an "injury test," they are much easier to invoke than the safeguard mechanism provided through Article XIX of GATT 1994.
2. Domestic Support The AoA established a method for calculating each member’s
total-trade-distorting domestic support that is provided to domestic
producers in a year, as well as the equal reduction installments that
were to be made to that support between 1995 and 2000 (2004 for
developing countries). Members also agreed to reduce this measure, the
Aggregate Measurement of Support or AMS, by 20 percent of its 1986-88
level (13.3 percent for developing countries with no reduction
commitments for least-developed countries during the implementation
period). Although so-called "blue box measures" are considered to be
trade distorting, they were not subject to the AoA reductions or limits.
These measures included payments made directly to producers to get them
to limit production as long as these are based on a fixed area and yield
(or a fixed number of head), or are made on 85 percent or less of the
base level of production. Domestic support policies that have "little or no" impact on trade were excluded from reduction commitments and came to be known as "green box measures." The criterion for exclusion was that the measures should be provided through a publicly funded government program that does not involve transfers from consumers. The green box covered many public service programs, including general services provided by governments. Thus, the green box provided for the continuation, and possible enhancement, of programs such as research, pest and disease control programs, marketing and promotion services, agricultural training activities and advisory services. De Minimis Levels of Support Countries were allowed to exclude from their calculation of the Total
Aggregate Measurement of Support (Total AMS) trade-distorting subsidies
that made up only a small proportion (five and 10 percent for developed
and developing countries respectively) of the value of production of
individual products or, in the case of non-product-specific support, the
value of total agricultural production. Developed-countries agreed to reduce direct export subsidy expenditures by 36 percent over six years (using 1986-90 as the base period). They also agreed to cut the volume of supported exports by 21 percent over six years from the same base period. Developing countries were given 10 years to make their reductions and were allowed reduction levels of 24 and 14 percent respectively. No reductions were applied to least-developed countries.
Under Article 20 of the Marrakech Agreement, WTO members agreed that negotiations for continuing the progressive reductions of agricultural support would begin one year before the end of the implementation period. Thus, although the Seattle Ministerial Conference failed to officially launch a new negotiation round, negotiations on agriculture are schedule to begin in the year 2000 as part of the built-in agenda.
RECENT CAP REFORMS In 1992 the European Council adopted a package of measures, commonly referred to as the MacSharry reforms, with the goal of making the CAP more market-oriented. The idea was to reduce intervention prices and increase compensation payments. Although the reform was successful for some commodities, such as cereals,1 the Council rejected MacSharry’s proposal to reform the milk regime, and sugar was completely excluded from any reform. In 1999, at the Berlin European Council, the EU heads of states agreed on the need to further reform the CAP. This led to a political agreement on Agenda 2000, which included the measures listed below, among others. Sugar, however, escaped the reform entirely:2
EXHIBIT 3 PROFILE OF ITALY The Republic of Italy is a parliamentary democracy. The president of the country is the head of state. He or she appoints the prime minister, subject to parliamentary concurrence. The president can also dissolve Parliament and call for elections if it is clear that no governing majority can be formed. The president is elected for a term of seven years by the members of the Chamber of Deputies, the Senate and representatives of the 20 regions. Carlo Azelio Ciampi was elected president of the Republic in May 1999.
The Cabinet Executive authority is vested in the Cabinet (officially titled the Council of Ministers) and the prime minister (whose official title is president of the Council of Ministers). The ministries form the basic structure of the state’s public administration. The current government, headed by Prime Minister Massimo D’ Alema, has 25 ministers, seven without portfolios. Because Italy’s party system is complex (there are currently 16 parties), it is necessary to provide each party in the governing coalition with adequate representation in the Cabinet. In addition, each party contains within its ranks a number of highly organized factions. These, too, demand representation in the Cabinet. A disgruntled intraparty faction is just as capable as a disaffected party is of withdrawing its support from a coalition cabinet and causing that cabinet to fall. Because the cabinet usually consists of several parties, and because even one-party cabinets are usually torn by factional strife, the cabinet cannot and does not function as a united team. Its members, even when they belong to the same party, regard one another as political rivals, often operating at cross-purposes. In fact, the Prime Minister is becoming more dominant because of his ability to mediate differences among various power centers within and outside the cabinet and thereby give some measure of central direction to the government.
The Parliament The Italian Parliament consists of the Chamber of Deputies (630 members) and the Senate (325 members). The Chamber of Deputies is the most influential body, although the cabinet is equally responsive to both houses. No single political party commands a parliamentary majority and coalition governments are the norm. Much of Parliament’ s work takes place in its standing committees, which means these committees wield a great deal of power—sometimes even enough to pass bills. Italian Cabinets can be forced to resign in a variety of ways by either parliamentary house. The legal procedure prescribed by the constitution stipulates that, if 10 percent of the members of either of the houses of parliament sign a motion of no confidence, and if a majority of those voting in that house supports the motion within three days after it has been presented, the cabinet must resign. In 1993, a new electoral law was adopted, which provided for the election of most deputies and senators from single-member districts with election by plurality.
Lobbying The Italian interest-group system is moving in the direction of fragmented pluralism. Old established interest groups that speak on behalf of business or labor as a whole are weakening and a multiplicity of new groups is gaining strength, each expressing a narrower range of interests and concerns. These new groups are referred to in Italy by the newly coined term "lobbies," and like American lobbies, they are concerned only with serving the short-run interests of their members.
Major Political Parties Center-Right "Freedom Pole" (POLO) Opposition Coalition: (Led by Former Prime Minister Silvio Berlusconi) EXHIBIT 4 EU POLICY-MAKING PROCEDURES FOR AGRICULTURE ISSUES The European Commission is vested with the power of initiative, i.e. the power to make policy proposals. It is the Council of Agriculture Ministers, however, that decides based on a qualified majority vote whether or not to adopt the Commission’s policy proposals. The Council also establishes regulations for any approved policies. The Council entrusts the preparation of its proceedings to the Special Committee on Agriculture (SCA), which is a committee of senior officials.
Committees The Commission consults a large number of experts in drafting and implementing CAP policies. The Commission consults the European Parliament and the Economic and Social Committee (ESC), which is made up of representatives of all the different socio-professional categories, including farmers. It also consults relevant product group advisory committees.3 The Commission uses management committees to establish basic regulation parameters (e.g., export refunds) that are applicable for only a few weeks or months on average. These committees are made up of representatives from the member states and are chaired by representatives of the Commission. The committees prepare opinions on proposals submitted to them by the Commission. Qualified Majority in the Council Voting in the Council is weighted based on each member state’s population size so that larger states get more votes than smaller states.
Source: Politics in Western Europe, 1998.
EXHIBIT 5
EUROPEAN COALITION FOR SUGAR REFORM (ECSR) "Reforming the EU Sugar Regime" _________________________ Sample White Paper Introduction Thirty years ago, the European Community was a net importer of sugar. Now, thanks to Europe’s Common Agricultural Policy (CAP), the European Union is the world’s second largest sugar exporter; only Brazil ships more sugar abroad. The CAP clearly has been a boon to Europe’s sugar industry. Yet the so-called sugar regime also has a severe negative impact on the European economy.
Extension of the current EU sugar regime to EU applicant countries in Central and Eastern Europe will only lead to further and substantial economic losses for the European Union.
How the EU Sugar Regime Works The EU’s sugar regime consists of a price support system, a quota system and a separate system for selling sugar to "third" (non-EU) countries. Under the price support system, intervention boards buy up all the sugar offered to them by EU producers at an annually set price. The minimum price for sugar beets is also set annually, and both prices are higher than the world market price. Anti-competitive behavior on the part of sugar processors pushes the price of sugar still higher. Indeed, the EU produces five million tons more sugar than is required to meet domestic demand. If the EU market were allowed to function properly, this over-production would lead to downward pressure on prices and production. In the EU sugar market, however, the opposite phenomenon occurs. The only possible explanation for this is that sugar processors keep the supply to local markets tight by off-loading sugar on the world market and thereby creating an artificial shortage of sugar within the EU. As a result, EU sugar prices are on average two to three times higher than the government-set price. To date, the EU sugar regime has escaped every reform of Europe’s
Common Agricultural Policy (CAP), and it was left virtually untouched by
the Uruguay Round Agreement on Agricultural. One of the primary reasons
for this is that the regime is self-financing so it does not impact any
EU or individual state budgets. The costs involved in off-loading sugar
surpluses are born by EU sugar beet and refined sugar producers, who pay
a levy for this purpose. Economic Impact of the Sugar Regime on the EU Economy The food and beverage industries affected by the sugar regime represent around 1.5 million jobs. These industries use large quantities of EU agricultural products, which in turn makes them extremely important to European agribusiness; the food and beverage industries expand domestic agricultural production by stimulating demand for raw materials and first stage processing. The added value created by processing also creates additional economic activity, jobs and wealth within the EU. In fact, value-added processed foods account for 15 percent of total EU industrial production. The Committee of Industrial Users of Sugar (CIUS) estimates that only 25 jobs are created for every 10,000 tons of exported sugar, while the equivalent quantity of sugar exported in Non-Annex II products generates up to 500 jobs or 20 times the number of jobs created by the basic product.4 In this sense, exports of processed products are preferable to those of an equivalent quantity of basic sugar, particularly considering that added value increases contributions to the state in the form of taxes. Because the cost of sugar accounts for up to 40 percent of the cost of a product, the substantial differential between European and international sugar prices significantly biases company decision-making and can turn the export of processed products into a loss-making business. In turn, this can lead to losses of market share, and insofar as the long term profitability and viability of enterprises is called into question, it can lead to job losses within the Community. Against this background, it is realistic to expect that value-added food-processing companies will begin considering the possibility of relocating to third countries that can provide more favorable production conditions or have preferential agreements with the EU or with other trade partners. If such a mass migration were to occur, it would displace thousands of workers and result in significant losses of tax revenues at all levels of government. The food-processing industry is a growth sector in many parts of the globe, and it is imperative that the EU take part in this development. The European sugar industry has long claimed that the current system is self-financing and has no effect on the EU budget. Though this is true in purely budgetary terms, the higher sugar prices associated with the regime mean that European consumers pay an annual "sugar bill" of seven billion Euros to protect, primarily, the interests of sugar producers. Reform of the sugar regime is also important because of the environmental damage it causes. By guaranteeing high returns for farmers, the regime stimulates production, which in turn stimulates the demand for fertilizers. Excessive use of fertilizers pollutes the environment, increases disease and pest resistance, and increases human and animal morbidity and mortality. Finally, the sugar regime hampers EU credibility in the WTO. No other trade barrier constrains the Commission’s leverage to negotiate robust trade agreements more than the EU sugar regime.
Enlargement and the EU Sugar Regime A report published in December 1997 by the UK-based economic consulting firm NERA (National Economic Research Associates) argues that the EU’s planned enlargement to the East makes rapid reform of the sugar regime imperative because the prospect of extending the current regime to the applicant countries of Central and Eastern Europe (CEECs) is hindering those countries’ efforts to liberalize their sugar sectors.5 The problem is particularly acute in Poland and Hungary, which are both major sugar producers.6 During the early reform years, states the report, these countries began dismantling their state-run sugar monopolies. Since they began making moves toward joining the EU, however, they have been reversing their liberalization policies. The NERA report finds that the CEEC’s combination of low average incomes and huge unsatisfied demand for goods and services makes their economies particularly unsuited to the price fixing provisions of the EU sugar regime. The regime would aggravate overproduction problems, and the inevitable price increases that accompany the sugar regime would seriously delay the development and structural adjustment of the CEEC sugar sector. Moreover, the report estimates that bringing the applicant countries into the EU sugar regime will cost Europe three million Euros. The essential message of the NERA report is that waiting to reform the sugar regime will only complicate and increase the price of market liberalization in the applicant countries.
The Arguments Against Reforming the EU Sugar Regime are Unconvincing Sugar producers advance several implausible arguments in favor of maintaining the regime in its current form: Argument #1: The world price of sugar is not a true price, but instead, reflects a "dumped" price. In fact, since most countries have already reformed their agricultural policies and lowered trade barriers, the world price of sugar has become more representative of sugar’s actual value. Australia, Thailand and Brazil have expanded their sugar production by 59, 26, and 66 percent respectively over the past five years because their producers were making profits at current world prices. The world price is actually a solid reflection of the value at which efficient producers in these and other countries can profitably produce and export sugar. Argument #2: Reforming the sugar regime will force most, if not all, producers out of business and cause a loss of jobs and investment for the Community. In reality, the regime enables a handful of large producers to reap windfall benefits, and it diminishes the EU’s ability to obtain market-opening commitments in trade negotiations concerning other products. Moreover, employment in the EU sugar refining sector (52,000 full-time jobs) pales in comparison with the more than 1.5 million workers affected by the sugar regime via their employment in the EU food and drink industry. Argument #3: Beet growers need the sugar regime’s price supports to remain profitable. In fact, it is generally accepted that sugar beet is one of the most profitable crops to grow in the EU, second only to potatoes.7 If sugar beet subsidies were reduced, many growers would simply switch to other crops that they can grow more efficiently. This is especially true since sugar beets are commonly grown in mixed farming enterprises. Argument #4: That EU sugar regime costs European taxpayers nothing because sugar producers finance it through their exports to third countries. In fact, European consumers bear the burden of the regime by paying an extra seven billion Euros annually for their sugar. Argument #5: The EU needs to protect its sugar industry because most other countries have protectionist sugar programs that put EU producers at a disadvantage in world markets. As previously mentioned, several countries have already reformed their sugar policies and lowered trade barriers. Of the major trading nations, only the United States and Japan have sugar prices comparable to EU prices. While it is true that most countries do have policies that intervene in their sugar markets, these policies often are aimed at protecting or subsidizing consumers rather than just supporting producers. The EU sugar regime is focused only on ensuring high returns for sugar producers at the expenses of consumers. The EU sugar lobby is particularly critical of the U.S. sugar program, which does heavily distort trade and is the only U.S. agriculture protection program that was not reformed by the FAIR Act of 1996 (Farm Bill). Yet several organizations in the United States representing business, consumers, environmentalists, think-tanks, and other interests are strongly lobbying the U.S. government with the goal of reforming the U.S. sugar program. The U.S. Coalition for Sugar Reform was organized in 1997 and has since successfully pushed for the introduction of two bipartisan bills in the U.S. Congress. If approved, these bipartisan bills would phase out the U.S. sugar program over a three to four year period. If the EU’s true goal is to force the United States to reform its sugar subsidy program, the EU’s best strategy is to reform its own sugar regime first.
Recommendations It is time for the European Commission and the Farm Ministers of the EU to recognize the inequities and inefficiencies of the sugar regime and introduce a reform of it. With negotiations for revising the regime set to start next January, the European Coalition for Sugar Reform asks for a gradual reduction of support prices together with actions to eliminate the anti-competitive nature of the current regime. Such reform serves the interests of consumers, the environment and the whole EU economy. EXHIBIT 6
SAMPLE TESTIMONY BEFORE THE EU COMMISSION Association of Sweets Industries of the EU (ASI) Before the Economic and Social Committee Date Presented by Pierre X
Mr. Chairman and members of the committee, thank you very much for allowing me the opportunity to testify before your panel today. My name is Pierre X and I am the President of ASI. Negotiations concerning potential revisions of the sugar regime are set to begin in January. On behalf of my association, and of the European Coalition for Sugar Reform, I strongly urge the Commission to introduce a reform package that will allow EU sugar prices to drop closer to world market prices. The health of our industry depends on it. In 1999, the EU’s chocolate, biscuit and confectionery industries exported value-added products worth a total of 3.14 billion Euros to countries not belonging to the EU. This represents more than ten percent of the production volume of the ASI sector and ten percent of the total value of EU agri-food exports. Thus, both our industry sub-sector and the entire agri-food industry is strongly interested in and reliant on foreign markets for achieving revenue and profitability goals. Thanks to the Common Agriculture Policy for sugar, however, EU sugar prices are threatening our export competitiveness. Because of the CAP, we pay two to three times the world price for sugar. And sugar is one of our primary inputs; it accounts for as much as 40 percent of the cost of our products. The EU must reform its sugar regime in order to ensure that processed food exports do not become a loss-making business. Food processors do benefit from some government assistance in the form of export refunds. However these subsidies do not fully cover the difference between EU and world sugar prices, and even if they did, they are subject to Uruguay Round reduction commitments in the near future. Indeed, confectionery products are subject to cuts on export refunds for Non-Annex II products. The maximum budgetary outlay for such refunds for processed foods from 2000/01 onwards is restricted to 415 M Euros, yet the needs of the industry are estimated at 550-600 M Euros annually. Non-Annex II products are generally branded products, which require continuity of supply and which incur heavy investment costs to become establish in a market. They cannot be taken off markets on a temporary basis, as is sometimes the case for basic commodity products. Incomplete compensation can cause the cancellation of contracts and permanent market loss as third country competitors take up the slack in the market. Given that export refunds already do not fully cover the cost
difference between EU and world sugar prices and given that the refunds
are expected to be further reduced and potentially eliminated in the
Millennium Round, EU authorities must recognize the urgent need to
introduce a reform of the present sugar regime. Failure to do so will
severely curtail the ability of ASI businesses to compete in world
markets. Impact of the Sugar Regime on the EU Economy ASI alone represents 1,900 companies, over 290,000 employees, and an annual turnover of 39 billion Euros. ASI and all the other food and beverage industries affected by the sugar regime together employ around 1.5 million people in the EU. These are far greater numbers than employment in just sugar beet farming and processing. Indeed, the Committee of Industrial Users of Sugar (CIUS) estimates that only 25 jobs are created for every 10,000 tons of exported sugar, while the equivalent quantity of sugar exported in Non-Annex II products generates up to 500 jobs or 20 times the number of jobs created by the basic product. Considering jobs alone, exports of processed products are highly preferable to equivalent exports of basic sugar. Value-added processed foods are also important to European agribusiness because they expand domestic agricultural production by stimulating demand for raw materials and first stage processing. And value-added processing increases contributions to the state in the form of taxes. Currently, food-processing industries account for 15 percent of total EU industrial production. Given these considerations, it is clear that supporting the food-processing industries is in the EU’s economic interests. However, because the cost of sugar accounts for up to 40 percent of the cost of a product, and because European food-processors pay up to three times more for sugar than their foreign competitors, exports of processed products are at risk of becoming a loss-making business. In fact, it is realistic to expect that, because of the European price of sugar, value-added food-processing companies will begin considering the possibility of relocating to third countries that can provide better sugar prices, more favorable production conditions, or preferential agreements with the EU and/or other trade partners. If a mass migration of companies were to occur, it would displace thousands of workers and result in significant losses of tax revenues at all levels of government. The food-processing industry is a growth sector in many parts of the globe, and it is imperative that the EU take part in this development. The European sugar industry has long claimed that the current sugar program is self-financing and has no effect on the EU budget. Though this is true in purely budgetary terms, the higher sugar prices associated with the regime mean that European consumers pay an annual "sugar bill" of seven billion Euros to protect, primarily, the interests of sugar producers. Reform of the sugar regime is also important because of the environmental damage it causes. By guaranteeing high returns to farmers, the regime stimulates production, which in turn stimulates the demand for fertilizers and pesticides. Excessive use of fertilizers and pesticides pollutes the environment, increases disease and pest resistance, and increases human and animal morbidity and mortality. Finally, the sugar regime hampers EU credibility in the WTO. No other
trade barrier constrains the Commission’s leverage to negotiate robust
trade agreements more than the EU sugar regime Recommendations Mr. Chairman, for the previously discussed reasons, the European Commission and the Agriculture Council must now recognize the inequities and inefficiencies that result from the sugar regime. In view of the upcoming negotiations concerning reform of the EU sugar regime, ASI asks the Council to reduce price supports by a percentage of the past (and future) export subsidies reductions. That way, both subsidies to the food processing industry and the need for subsidies can decline together. It is important to note that, as the Commission has recently recognized, a cut in quotas will be unavoidable next year if the EU is to comply with the GATT limits on export subsidies. Price cuts will remove the need for cuts in quotas. ASI also proposes that if domestic food processors cannot find enough in-quota sugar sold at the target price (because sugar manufacturers create an artificial shortage), they should be allowed to buy out-of-quota sugar. This will decrease incentives for the anti-competitive behavior in the sugar industry. Concluding Remarks Mr. Chairman, the main excuse the United States uses for not reforming its own sugar program is that the EU subsidizes its own sugar industry. By pro-actively reforming our own sugar regime, we would place the Americans under tremendous pressure to reform their own program. Huge potential gains are at stake. If the EU desires ambitious results from the Millennium Round, sugar must be subject to reform and trade liberalization just like other trade-distorting programs. The EU can no longer allow the interests of a few to outweigh the interests of the EU economy as a whole, and those of consumers. Thank you very much for your attention, I will be happy to answer any questions that you may have. EXHIBIT 7
SAMPLE LETTER TO MEMBER STATES’ MINISTERS OF AGRICULTURE & TRADE
Dear Sir: As we are writing this letter today, trade negotiators from the World Trade Organization’s member countries are gathering in Geneva for discussions that will help shape the future of international trade. Momentous issues will be debated. Among the EU’s major goals for these discussions is further reform in agricultural trade. The EU hopes to be able to further open world markets to European food and processed-food products, and toward this end, it is crucial that we insist on the incorporation of all products and trade distorting policies in the negotiations. We must not permit our trading partners to exclude sensitive products from the talks. Currently, however, European leverage in the negotiations is severely limited by the EU sugar regime. Failure to reform the regime next year will result in lost opportunities to increase export sales and jobs. The enclosed white paper prepared by the (Member State) Coalition for Sugar Reform, discusses the importance of reforming the EU’s sugar subsidy program and describes both the regime’s current costs to our society and the opportunities for reform. A complete list of our coalition members is attached. Notwithstanding these groups’ different views on many issues, we are united in our belief that the EU sugar regime is in need of reform and must not stand in the way of the well being of the whole EU economy. We believe that you share these concerns and hope you will support reform efforts.
Sincerely, EXHIBIT 8 SAMPLE OP-ED PIECE FOR AN ITALIAN NEWSPAPER " A Sweet Deal"
How sweet is the deal for Eridania Béghin-Say? The multinational sugar-manufacturing corporation is worth 10 billion Euros, yet most Europeans have never heard of it because its name does not appear on consumer products. Still, we buy a lot from Eridania. Its sugar is an ingredient in many products that Italians eat every day. It would be difficult to eat without giving money to Eridania Béghin-Say. Part of what the corporation earns is earned simply because it is good at what it does: purchasing sugar beet from farmers, processing it, and distributing it to consumers. Good for them. However, Eridania Béghin-Say tops the welfare list because of a special deal, the so-called EU sugar regime. Thanks to a complicated system of price supports and production controls established in Brussels, Eridania Béghin-Say and the other European sugar corporations are guaranteed high profits. The price supports are financed by sugar producers, so no taxpayer funds go to support the system. But what the sugar corporations don’t want you to know is that the system also causes sugar prices to rise—generally two to three times the world price. European consumers and food manufacturers are not allowed to pay the world price. Here, if say Bauli or Gazzoni want to buy sugar for their biscuits, they have to pay the EU’s high price for the ingredient, which represents 20 to 40 percent of the cost of the biscuit. So, while Eridania Béghin-Say makes a killing, these companies are obliged to relocate in "third" countries in order to be able to compete internationally. The result: Italy loses jobs and investment. Not surprisingly, this also means that Italian consumers pay billions more to buy sugar and products that have sugar in them. EXHIBIT 9 SAMPLE DEAR COLLEAGUE LETTER Dear Sir, As you probably are aware, European food processors have joined forces with consumer groups, environmental groups and other interests to create the European Coalition for Sugar Reform (ECSR). As the name implies, the coalition’s objective is to bring about reform and change to the EU sugar regime. There are high stakes involved. First, the sugar regime hurts European consumers, who pay up to three times more for their sugar than the world market price. Consumers pay an annual "sugar bill" of seven billion Euros. Second, it places the EU’s fast-growing food processing industry (which uses sugar as an input) at an increasingly disadvantaged position in the world market. This industry represents around 1.5 million EU jobs, and insofar as the long term profitability and viability of food-processors is called into question, these jobs as well as investment may be lost in the Community. The need for reform is becoming more urgent in light of recent reports that the five "first wave" Central and Eastern European applicants for EU membership are reversing their initial policy of sugar sector liberalization in anticipation of full extension of the EU sugar regime to their countries. It is important to reform the regime for the trouble it causes to the environment. The high prices guaranteed to farmers stimulate production, which in turn stimulates the demand for fertilizers. Excessive use of fertilizers and pesticides causes pollution of the environment, induces increased disease and pest resistance, and increases human and animal morbidity and mortality. Finally, the sugar regime hampers EU credibility at the WTO. As trading nations initiate the Millennium Round of trade negotiations this year, there is the potential for the EU to open significant new markets for the EU in the food sector. But no other trade barrier constraints the Community leverage to negotiate robust trade agreements more than the EU sugar regime. Next January’s negotiations concerning revision of the sugar regime represents an historic opportunity for the EU to bring about change. The coalition needs the Parliament to support its efforts and to influence the Commission and the Agriculture Council to introduce a reform, which will be in the interests of consumers, environmentalists and the European economy as a whole. Please join us in support of the efforts of the ECSR. Best regards, EXHIBIT 10 SAMPLE LETTER TO POTENTIAL ENVIRONMENTAL GROUP MEMBER Dear NGO President: We are writing to seek your support for reform of the EU sugar regime. The regime has severe consequence for Europe and the world. First, it harms European consumers, which pay up to three times more for their sugar than world market prices. Consumers pay an annual "sugar bill" of seven billion Euros. Second, it hurts European employment by placing the fast-growing food processing industry (which uses sugar as an input) at a competitive disadvantage in the world market. Third, the extension of the sugar regime in its current form to the applicant countries of Central and Eastern Europe would lead to tremendous economic and social losses for the EU. The sugar regime also has a negative impact on the environment. Because the regime guarantees sugar beet farmers a high price for their crop, it stimulates production, which in turn stimulates fertilizer and pesticide use. As you are well aware, fertilizers and pesticides pollute the environment, induce increased disease and pest resistance, and increase human and animal morbidity and mortality. We are aware of the importance of sugar beet vis-à-vis monoculture. However, given that profit margins are currently very high, we believe that there is room to decrease sugar beet subsidies without making the crop unprofitable. The U.S. government sugar program has encouraged the conversion of over 500,000 acres of Everglades wetlands to sugar cane production. Further, phosphorus-laden agriculture run-off is devastating the remaining natural Everglades. The United States uses the EU sugar regime as an excuse for not reforming its own sugar program. A reform of the EU sugar regime would place tremendous pressure on the United States to reform its own sugar program. We believe that endorsement of this effort, and a commitment to its provisions by environmental groups, will send a strong message that Europe is no longer willing to tolerate this unfair regime just to protect the interests of a few. But efforts by all members of society will be crucial to achieve change. To achieve such a critical mass, we have established the European
Coalition for Sugar Reform (ECSR). We believe you share our concerns and
goals and hope you will join our effort. Sincerely, __________________________ Footnotes 2 The reform package also includes beef, which is outside the scope of this project.3 The Commission has established advisory committees for each product or product group that falls under a common market organization. There are twenty advisory committees, four specialized sections and four joint groups that meet regularly. Half of these committees’ members are representatives of producers and their cooperatives. The other half are representatives of industry, trade, consumers and workers. The committees give an opinion on specific measures put before them by the Commission when it is drafting policies.4 Committee of Industrial Users of Sugar, "Sugar Export Refunds for Non-Annex II Products," 1998.5 NERA, "The Economic Costs of Extending the EU Sugar Regime to Central and Eastern European Countries," 1997.6 After the collapse of Communism, producer and consumer subsidies to the sugar industry in Hungary ceased, and in 1991, for the first time, no minimum sugar prices or production quotas were set. See OECD (1994), Review of Agricultural Policies in Hungary.7 Committee of Industrial Users of Sugar, "The value to the farmer of growing sugar relative to alternative crops," 1998.
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