Winners and Losers in the World Sugar Market due to Trade Liberalisation in the EU Sugar Sector

The ongoing trade negotiations, unilateral trade concessions and obligations under the World Trade Organization (WTO) are pushing the EU sugar regime to undertake reforms. These reforms will alter the positions of developing countries in the global sugar markets. Gradual changes within the tariff rate quotas in the EU sugar regime would have a very marginal impact on the flow of sugar exports to the EU and world sugar markets as well. The simulation results showed that the scheduled changes in tariff rate quotas and transition period are stalling the impacts of tariff liberalisation granted by the Everything But Arms (EBA) concession. Small concessions will not threaten the EU internal market, but total liberalisation of sugar imports from the least developed countries (LDCs) will be a major threat to the EU sugar regime. Conversely, the EU would gain from the liberalisation scenarios in welfare terms due to cheaper imports of sugar. The current regime limits sugar imports from all developing countries or some efficient producers, if the cost data is a right estimate of the potential supply response from developing countries. The supply responses, which strongly affect the outcomes, are dependent on both the nature of substitution for sugar as well as on the efficiency of sugar production in different countries. The LDCs would be the major winners under the EBA concession supported by the unchanged EU sugar regime, but if the current regime is entirely liberalised, much of the gains are diluted due to the deterioration in the terms of trade and a few efficient sugar producers would be the winners. The multi-region and multi-sector general equilibrium framework (GTAP model) is used for this analysis.The full liberalisation of the EU sugar regime and the abolition of the preferential treatment in the EU sugar regime would change the position of the countries as winners or losers. The assumptions on the production and export possibilities of the sugar producing countries and the homogenous nature of sugar would create more losers than winners. For some of the losers, the loss of sugar exports could seriously damage their fragile economy. Therefore, the abolition or loss of preferential treatment is an important issue and hotly debated around the world.Trade preferences have the potential of helping developing countries to promote self-sustained economic development and can substitute transfers in the form of direct financial assistance from developed countries to poor developing countries. The EU has maintained this development perspective by granting preferential access to the highly protected and subsidised EU sugar market with prices significantly above the world market prices. In the short run, any sudden changes in the EU regime and trade policies may cause severe problems for the poor currently employed in the export-oriented sugar industry of the developing countries. Compensation is needed for these affected people because of the adjustment costs due to the changes in trade policies. In the long run, the sustainable export performance and economic development based on the comparative advantage of the developing countries should be the final objective. Though, the livelihood of the poor must be protected against sudden changes in trade policies in the effort to achieve the Millennium Development Goals.