Policy Analysis Department - Thursday, 10 March 2005
Parliament of Fiji Library, Research, Information & Advisory Service FACT SHEET Sugar Protocol Prepared by: Malakai Tadulala Research Officer Science, Technology & Environment Vol. 2 No. 1 (April 1998) Purpose: The main purpose of this Fact Sheet is to provide some background information on the famous Sugar Protocol agreement. The Sugar Protocol is a long agreement between Fiji and other countries that safeguards and guarantees preferential sugar prices for Fijis sugar exports to these countries. Background: Only 15 sugar producing countries including Fiji are signatories to the Sugar Protocol. This Protocol is not the same as the Lome IV Convention that provides the legal framework for trade and economic cooperation between the European Union countries and countries of the African Caribbean and Pacific (ACP) regions. Fiji is also a signatory to the Lome IV. In 1975, the nine Member States of the European Community (the Federal Republic of Germany, Belgium, Denmark, France, Ireland, Italy, Luxembourg, the Netherlands and the United Kingdom) and the 46 countries of the Africa-Caribbean-Pacific area signed the first Lome Convention in Lome, the capital of Togo. The objectives and founding principles of this convention define and clearly illustrate the desire for co-operation and effective partnership that motivated the signatories. The European Economic Community (EEC) and its Member States, of the one part, and the ACP States of the other part had agreed under the Lome Convention to promote and expedite the economic, cultural and social development of the ACP States and to consolidate and diversify their relations in a spirit of mutual solidarity. Under the Convention, the EEC-ACP cooperation was to be based on the fundamental principles of equality between partners, respect for their sovereignty, mutual interest and interdependence; the right of each State to determine its own political, social, cultural and economic policy options; and security of their relations based on the acquis of their system of co-operation. The Sugar Protocol however, was formalized and brought into effect to replace the Commonwealth Sugar Agreement (CSA) of 1950. The CSA was a preferential agreement between the United Kingdom and Commonwealth countries wherein the UK guaranteed to purchase specified quantities of sugar for a negotiated price, which in the period between 1951 and 1973 exceeded the world market price by an average of 165 per cent. The CSA was seen to be incompatible with the foreign trade regulations of the then European Community (EC). Therefore, when the UK was negotiating its term of accession it sought, in conjunction with pressure from the ACP states and Tate and Lyle, to have a new Community wide preferential agreement for sugar be agreed upon by sugar producing countries. The Sugar Protocol agreed between the EC and the ACP countries came into force in 1975 under the auspices of Protocol 3 of the Lome Convention. While it has an unlimited duration, signatories may denounce the Sugar Protocol if two years notification is given; a prospect that is unlikely to be affected given the deep historical foundations upon which the Protocol is founded. Key Features of the Protocol Under Article 1 of the Sugar Protocol, the EC agreed to import at guaranteed prices, specific quantities of cane sugar, raw or white, which originate in the ACP States and which these countries undertake to deliver to the EC. Beside, under Article 5 of the protocol, the price paid for such sugar is negotiated annually and is agreed to be equal to the price range obtained within the Community. Thus, subject to certain provisions, it is possible to state that as a consequence of the Protocol the European Union applies its internal sugar regime to ACP sugar exporters. Arising out of the Common Agricultural Policy (CAP), the European Union (EU) sugar regime determines production quotas, producer price guarantees and export subsidies. Article 3 of the Sugar Protocol stipulated the quotas, amount of sugar the EC agreed to import from specific ACP countries. Finally, under Article 7 of the Protocol, any failure to deliver the agree quantities of sugar results in a loss of quota equivalent to the shortfall. Any shortfall is then re-allocated among remaining ACP producers under an agreed formula. The total preferential quota set for all the signatories was quantified in 1975 as being equivalent to 1,304,700 metric tons of white sugar. The total preferential quota has not been changed as a consequence of sugar production exceeding consumption within the European Union. It has however periodically reallocated between the Signatories to the Protocol. The Sugar Protocol as it stands, commits Fiji to deliver specific quantities of sugar to the European Union at prices which are guaranteed are based upon the price of sugar set annually under CAP of the European Union. In 1975 Fiji was allocated 163,600 metric tones of sugar, equivalent to 12.5 per cent of the total preferential quota. Currently, Fiji has a preferential quota of 165,348 metric tons, equivalent to 12.7 per cent of the total preferential quota. For the period of 1990-92 Fijis quota allocation amounted to an average of 42 per cent of the countrys total sugar production and 46.6 per cent of the countrys total sugar exports. Under the Sugar Protocol, Fiji receives a price for its sugar, which averaged between 2.5 and 3 times the world markets price for these exports. Over the years, the widening of EC membership to Portugal has resulted in supplementary preferential access for ACP sugar to the European market from 1995 under the Special Preferential Sugars (SPS) agreement, designed to fulfill the EU refiners deficit. Under the SPS the EU determines an additional annual preferential import quota based upon raw beet production in Portugal, production levels in the French Overseas Departments and refiners needs. The increased quota is first allocated amongst four countries that traditionally exported to Portugal: Cote dIvoire, Malawi, Swaziland and Zimbabwe. The balance is then shared on a pro-rata basis amongst the signatories of the Sugar Protocol. The SPS price has been fixed for a 6-year period and is subject to renegotiation prior to its expiry. It is set at between 83 and 85 percent of the price ACP countries receive under the Sugar Protocol. Deducted from the price is a refiners margin and a special reduced tariff which together amount to 8.1 percent of the price. This deduction is designed to assist the EU in complying with its international obligations under the URA to lower its levels of subsidy. The SPS is thus consistent with the EUs WTO obligations. In the first year of its operation supplementary preferential access to the EU market under the SPS agreement amounted to 334,100 metric tons. Under the pro-rata stipulations of the SPS agreement Fiji exported 48,045 tonnes in the agreements first year of operation. For Fiji, the SPS provides a further incentive to direct sales towards preferential markets. In addition to the preferential prices Fiji receives under the Sugar Protocol and SPS, Fiji also has a small amount of quota access to the United States under the Generalised System of Preferences (GSP). This sugar is sold at preferential averaging between 1.5 and 2 times the world market price. However, US sugar imports have been declining over time and Fiji only receives 0.9 per cent of the US quota. Thus, as long ago as 1988, Fijis quota was only 9,000 metric tons. Fijis remaining production is sold on the world market at the prevailing price, although the country has entered into long-term delivery agreement with Malaysia, Japan and Singapore. Implications: The major implication of this Sugar Protocol is that it has guaranteed Fiji, a preferential price of about 2 to 3 times more than the world price for its sugar exports. In 1996, a total of 167,705 tonnes of sugar was exported to the United Kingdom under this Protocol at a price of $888.68 per tonne, generating revenue of around $149 million. This sugar income was about 31 percent lower than that received in 1995. In 1995, Fiji received about $216 million from its 246,532 tonnes of sugar exported to the UK/EEC under this Protocol. Similarly, in 1996, Fiji received about $13 million for the export of 19,930 tonnes of its sugar to the USA under the General Preferential System (GPS), which attracted a price of $635.79 per tonne. However, on the world market, Fiji received a total of $81 million for the export of 222,237 tonnes of sugar at a price of $364.10. In total, the Fiji sugar industry received a total of $243 million in 1996 for the export of 409,872 tonnes of its sugar attracting an average price of $591.95 per tonne. It is therefore evident from the above export figures that the Fiji sugar industry cannot survive for long without the UK/EEC Sugar Protocol. (Sugar Export figures are derived from data supplied by the Fiji Sugar Marketing) |