The Hindu Business Line : EU move to cut sugar subsidy may help its cause in WTO talks

THE European Union is in the process of bolstering its negotiating stance at the WTO December global trade talks in Hong Kong with the proposed cut in sugar subsidy for the European sugar growers. The European Union has 312,000 sugar beet farmers and the European Union buys sugar from European producers at $745 a tonne — three times the world market price.

For the first time in 40 years, the EU is seen overhauling its sugar subsidy programme and the European sugar production would be driven down by more than a third, to accommodate foreign imports. This may even spell end of small sugar industries of small beet sugar producers such as Ireland and Finland, and 80 of the 320 sugar factories in the European Union countries may close down.

The current reduction of 36 per cent will still leave the European sugar price twice down from triple high price. Obviously, European farmers will have to be compensated for the loss of revenue. The move is primarily staged to improve the Europeans Union's negotiating stance at the December WTO talks in Hong Kong, but the strategy has not impressed third world sugar producers or trade observers.

At best, the EU is seen offering compensation to inefficient European sugar producers. However, the move has some political significance to placate sugar beet farmers' vote, but it remains to be seen how EUnegotiators will placate the developing countries. The EU is trying to offer access to the European agriculture markets in exchange of gaining "easy access" for European manufactured goods and services in the developing markets. The European and North American agriculture subsidies are widely blamed for the collapse of Doha round of global trade talks. Brazil, rated as agricultural superpower, has initiated the move against European agriculture subsidy regime. Brazil is supported by Australia and Thailand.

It is argued that "developing countries have been sacrificed by the European Union to reach a deal at WTO, and other world's poorest countries could become more destitute.

The EUhas an annual budget of $130 million plus and nearly 80 per cent of this budget is spent on providing agriculture subsidies for the European farmers. France has vigorously opposed any moves to reduce subsidies to European farmers because the farmers vote is crucial for political survival of any ruling coalition government in France.

Observers today point out that EU deal will "fall unevenly" on EU's trading partners and may further complicate Doha talks. The sugar producers in former European colonies in the Caribbean and African regions have stated that the proposed cut will hurt them most because it reduces the preferential treatment they received in the past many years. They will voice their anger at the Hong Kong talks in December. The European Union has offered 18 poor sugar-producing countries compensation of $47 million in 2006 and after that a figure has to be worked out. The scale of compensation for European sugar beet producers has to be worked out. To start with, they will be paid 64 per cent of the lost revenue because of the reduced sugar prices.

European authorities are also proposing "broader cuts" in other agriculture subsidies but all this was described as a "baby step" of no major consequence for the EU trading partners from the developing region and hence widely rated as EU's "strategic ploy" at WTO talks in December. The European move, in the EU media is rated as a "modest beginning in the right direction" although the British Agriculture Minister describes this as a "historic day".

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