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GTAP Resource #2009

"Effects of EU Sugar Trade Reforms on Poor Households in Africa: A General Equilibrium Analysis"
by Gotor, Elisabetta and Marinos Tsigas

The sugar industry in the European Union (EU) has been supported and protected from imports for several decades and only recently have EU sugar policies become candidates for new policy initiatives or reforms.

An important part of the EU sugar policies is the preferences granted to certain countries. The historical roots of the EU’s preferential trade policy can be traced back to the 1957 Treaty of Rome when signatories committed themselves to keep special trade preferences with colonies and Overseas Countries and Territories (OCT). The circumstances changed in the 1960s when colonies gained independence. The only way to satisfy the interests of both EU and African, Caribbean and Pacific (ACP) agricultural producers was to negotiate ad hoc protocols (incorporated in the Yaoundé and the Lomé Conventions) guarantying preferential access for agreed quantities of imports for products that were also produced in the EU market (such as bananas, rice and sugar), and guaranteed prices for sugar. The Sugar Protocol (SP) is a bilateral agreement between 20 ACP countries and the EU, agreed in 1975 during the Lomé Convention and integrated into the Cotonou Agreement. According to SP, the EU is committed to import 1.3 M t of sugar, duty free, at a guaranteed price; there is similar agreement with India to import 10,000 t.

In June 2000, the EU and the ACP countries signed the Cotonou Agreement to lay a basis for new partnerships and to end their old relationship that was based on the Lomè Conventions. The new relationships are to be based, from 2008, on a number of Economic Partnership Agreements (EPAs) between the EU and ACP countries. Although the SP remains intact in the Cotonou Agreement, it is as yet uncertain what form it will take from 2008 in the context of the EPAs.

Since 2001, the “Everything but Arms” (EBA) initiative has allowed preferential access for an increasing quantity of sugar from LDCs in the EU, and from 2009 all sugar imports from the LDCs will free of duties and quotas.

In November 2005, the EU reached agreement on a reform of the EU sugar policy. The EU reforms were in part a response to WTO Appellate Body findings (WTO, 2005) against the EU concerning a dispute brought by Brazil, Australia and Thailand. In October 2004, a WTO panel found that 2.7 million tonnes of exported EU C sugar was cross-subsidized by the high guaranteed prices paid for A and B quota sugar. Moreover the panel held that 1.6 million tonnes of refined sugar which the EU exported to the world market, corresponding to the amount of raw sugar it imported from India and ACP countries, should be treated as subsidised exports and be subject to reduction commitments. The EU must bring its subsidised exports into conformity with WTO rules by 22 May 2006. Moreover, as a result of the Doha Round, it is likely that the EU will have to cease subsidising exports by 2013, and agree to a substantial reduction in its import tariff.

The EU sugar reforms are expected to have repercussions not only for EU producers but also for producers in countries that have preferential trade relationships with the EU. The EU intervention price will be cut by 36 per cent over four years to ensure a sustainable EU market balance that is consistent with the EU’s international commitments. The minimum guarantee import price for ACP countries signatories of the Sugar protocol will move in line with the EU intervention price.

The aim of this paper is to analyse the effects of the EU sugar reforms on poor households in ACP and least developed countries (LDCs) within a global trade, applied general equilibrium (AGE) model.

Several works have studied the effects of the EU sugar reforms on ACP countries and LDCs, most of them using the GTAP framework, e.g., Frandsen et al. (2001) focused their analysis on the domestic effects of reforming EU sugar policies; Berkum et al. (2005), Chaplin and Matthews (2005), and Kerkelä and Huan-Niemi (2005) analyzed the likely impacts of EU sugar policy reform on the ACP countries and LDCs.

In a recent World Bank book, edited by Hertel and Winters (2005), several applied general equilibrium (AGE) models were used to analyze the implications of trade liberalization for alleviating poverty in developing countries. The authors modified the standard, single representative household approach found in AGE models. Alternative approaches applied in single region AGE models were the multiple-household model and the micro-simulation techniques, where an AGE model generates aggregate changes that are later communicated to a micro-simulation model.

This paper will extend these works to analyze the effects of EU sugar reforms on poor households in ACP countries and LDCs. Our analysis will be based on an appropriately modified version of the GTAP global trade, AGE framework (Hertel, 1997). In particular, we will focus our analysis on Malawi, Tanzania, Zimbabwe, Madagascar, Uganda, Rest of South African Customs Union, and Rest of SADC. In addition to the EU, our data will also include Brazil and the Rest-of-the-world (ROW).

In our work we will combine income-distribution statistics with information contained in the GTAP database (Dimaranan and McDougall, 2006) to identify several household groups by per capita income. The income-distribution statistics have been obtained from World Bank data (World Bank). In addition to per capita income differences, income groups in our model are different from each other because of differences in consumption patterns and income shares from different sources. The GTAP data base contains the relationships to characterize consumption patterns and sources of income. Since we are interested in the effects on poor households, we identify several poor households groups and group all other households in a single income group.

In addition to our analysis of the effects of EU sugar policy reforms on poor households in Africa, we will discuss the following:
• What can we learn from the standard GTAP framework?
• What additional insights we learn from introducing multiple households in GTAP?
• How important is it to get the demand elasticities right?
• How important is it to get the resource ownership patterns right?
• How important is it to consider sluggishness in resource movements?
• How important is it to consider differences in resource employment, by household?

Resource Details (Export Citation) GTAP Keywords
Category: 2006 Conference Paper
Status: Published
By/In: Presented at the 9th Annual Conference on Global Economic Analysis, Addis Ababa, Ethiopia
Date: 2006
Created: Gotor, E. (4/28/2006)
Updated: Dimaranan, B. (6/21/2006)
Visits: 3,563
No keywords have been specified.

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