ADVISORY CONSULTATION ON ACP SUGAR POLICY AND TRADE

13-14 September 1999 (M'babane, Swaziland)

POLICY SCENARIOS FOR FUTURE NEGOTIATIONS

40. The Consultation considered the implications of various trade policy scenarios on the world sugar market and developing and ACP countries. The various scenarios were estimated using a detailed economic model of the world sugar economy (supply/demand relationships for 42 countries/regions). The scenarios included the impact of:

  • URA to 2000,

  • continuation of the URA to 2005 (without any other policy changes),

  • global trade liberalization (uniform elimination of tariffs across countries) with EC preferences and USA quota remaining in effect,

  • partial trade liberalization (20 percent uniform reduction in tariffs across countries) with EC preferences and USA quota remaining in effect,

  • complete trade liberalization in developed (industrialized) countries only,

  • partial trade liberalization in developed countries only,

  • complete trade liberalization in major developing countries (Brazil, China, Indonesia, and Republic of Korea) only, and

  • effects on ACP and developing countries of complete and partial elimination of EC preferences and United States Tariff Rate Quota (TRQ).

41. The impact of the URA was expected to raise the world sugar price by 7 percent compared to no change in tariffs (equivalent to saying that the world sugar price would be 7 percent lower without URA). With the continuation of the URA to 2005 (no changes in current policies), the price was projected to decline by 3 percent in real terms from 2000. With complete global trade liberalization (uniform elimination of tariffs across countries), the world sugar price would increase by 43.2 percent compared to the baseline of continuation of the URA through 2005. The reason the world price would rise was because consumption would increase in many countries because of lower internal prices, hence stimulating world import demand. The USA, Japan, and India would exhibit the largest increases in imports as a result of global trade liberalization because of relatively high consumer response to price changes in those countries. With the world sugar price around US cents 6.5 per pound, this means complete trade liberalization could raise the world price to a little over US cents 9 per pound from its present level. This would not, however, necessarily prevent the long-term secular decline in sugar prices, but would rather represent a once and for all increase in the world price as a result of eliminating trade distortions.

42. With partial global trade liberalization, prices would increase 6.2 percent compared to the baseline for 2005. With complete trade liberalization in industrialized countries, price would increase 9.8 percent in developed countries and 16.7 percent in developing countries. However, partial trade liberalization prices would remain relatively unchanged. As in the case of complete global trade liberalization, the price changes would be once and for all and would not necessarily affect the secular decline in sugar price witnessed in the past several decades.

43. ACP countries as a group could gain from trade liberalization only if there were complete or partial global trade liberalization across all countries, and under complete or partial trade liberalization in major developing countries (in all cases with preferences and TRQ remaining in effect). The reason this would occur was because, under either global unilateral trade liberalization or unilateral trade liberalization in the major developing countries, the EC internal price would not be eroded because of relatively higher protection rates in other countries, a reduction of which would have had dramatic effects on the world price. ACP countries would suffer price erosion under all other scenarios. Export earnings would fall by 7 percent and 18 percent, respectively, with partial and complete elimination of EC preferences and the United States TRQ. The greatest price decline would occur if trade were completely liberalized in the developed countries only, about 29 percent, but not in developing countries.

44. How individual ACP countries would be affected by trade liberalization would depend upon their reliance on preferential and TRQ arrangements as well as on their initial levels of protection. Countries with more dependence on the EC and USA markets and with higher levels of protection would be more likely to lose under all the scenarios. Those countries whose levels of protection were below that of the average of all ACP countries would experience gains and losses similar to that of the ACP countries in the aggregate. Clearly those countries that were more dependent on EC and USA markets would be more vulnerable to trade liberalization where there was price erosion in the EC and USA markets.

45. Removal of trade barriers within common trading areas (e.g., NAFTA, MERCOSUR, APEC, and ASEAN) could adversely affect exports of ACP countries. Full implementation of NAFTA by 2008 could limit access to the United States market by ACP countries. If Mexico expanded its exports to the United States and the United States retained its current TRQ system, then Mexico could displace some ACP suppliers.

46. The four main conclusions of the study were as follows:

  • ACP sugar exporting countries would likely continue to experience price erosion, even if preferences and the TRQ were maintained.

  • Trade liberalization would have to be substantial and across all countries with preferences maintained in order for the ACP countries to benefit.

  • Regional free trade areas, especially NAFTA, posed a threat to the competitive position of ACP countries and could lead to further price erosion.

  • ACP countries could benefit from further trade liberalization in the major developing countries (especially China and India), but they would lose if only industrialized countries (especially the EC and USA) liberalized trade.