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About-turn from SA on sugar access to Europe

Business Day, South Africa

About-turn from SA on sugar access to Europe

Preferential deal will not harm neighbours, state now believes

By Neels Blom

13 December 2010

The government has thrown its weight behind the South African sugar industry’s demand for preferential access to European markets. If granted, this would put SA on an equal sugar-trade footing with other sugar producing developing economies — the African-Pacific-Caribbean countries and the world’s least developed countries — for the first time since the industry lost its access under apartheid.

Department of Trade and Industry spokesman Charles Mnisi confirmed on Friday that the free-trade agreement between SA and the European Union (EU), in force since 2001 and which excluded sugar, was under review as part of the Economic Partnership Agreement talks between the EU and seven Southern African Development Community (Sadc) states . "Sugar is (on) our request list and we are awaiting a response from the EU," Mr Mnisi said.

The policy shift is a radical departure from the government’s previous position.

Previously it acknowledged the negative effect a South African raw-sugar export quota to the EU would have on the export earnings of sugar-producing neighbours Swaziland, Mozambique, Zimbabwe, Zambia and Mauritius.

The EU’s position was that a preferential quota for SA along with the others would have had to come out of the total volume allocated to African-Caribbean- Pacific and least developed country producers under the EU’s everything-but-arms deals .

Mr Mnisi said it was a principled position of SA’s government that trade access to the EU should not be at the expense of SA’s neighbours, but that "given the size of the EU market and their reform of the sugar market, the limited preferential deal being sought by SA will not be to the detriment of our neighbours".

At an average of about R8bn, the sugar industry contributes less than 0,25% to SA’s gross domestic product, while in Swaziland, at about R570m, sugar contributes 18% to gross domestic product.

However, the conditions that determined SA’s position no longer applied, South African Sugar Association executive director Trix Trikam said.

The EU had revised its offer of preferential access to sugar exporters from least developed and African-Caribbean-Pacific countries — from a quota system to duty-free and quota-free access — after the limited liberalisation of the European sugar industry over the past five years in line with World Trade Organisation rules governing preferential trade. That had resulted in a 39% reduction in the European Commission’s reference price for refined sugar.

That measure was a disincentive to European producers, Mr Trikam said, and production had since fallen by about 6-million tons. With shortages elsewhere in the world, and against a relatively strong spot price, the European market was about 3,5-million tons undersupplied, while its refineries, built for a bigger throughput, had a huge overcapacity.

The association agreed with the government that a change to the regime would not harm SA ’s neighbours, Swaziland in particular, as producers from the least developed and African-Caribbean- Pacific countries were unable to fulfil Europe’s requirements.

The main reason for the appeal to the EU was for SA to harmonise trade with its partners in the Southern African Customs Union (Sacu). "The EU’s policy change meant SA was at a distinct disadvantage in the customs union, which accounted for about 70% of Swaziland’s sugar sales," Mr Trikam said. "The situation now is akin to Sacu applying a separate tariff regime for cars imported from, say, Germany and from France.

"Such a tariff differentiation would be unacceptable. We have put our case to the European Commission repeatedly. But despite our lobbying European parliamentarians, this inequity is not properly understood."

However, Mr Mnisi said trade negotiations were a matter of give and take. Negotiators had to consider SA’s position on other commodities to obtain market access for sugar.

But Suresh Naidoo, the chairman of the sugar-cane farmers body Cane Growers, rejected that notion. "We cannot see why a trade-off with Europe is necessary. It is a matter of fair trade," he said.

Illovo Sugar MD Graham Clark, veteran lobbyist for the South African sugar industry, said that to get the European Commission’s attention, Trade and Industry Minister Rob Davies himself had to make a representation .

Speaking for a company that had interests in six African countries, including Swaziland, Mr Clark said that the industry’s proposed harmonisation of trade in Sacu would benefit all parties involved.

Price volatility on the spot market, for one reason, meant that it was in the interests of Swaziland and other producers in Sacu and Sadc to preserve a market for sugar at a predictable price and volumes.

Mr Clark’s view is in line with that of the government, which is that improved access for SA to the EU market would not be to the detriment of other southern African sugar exporters.

"In fact, the opposite will be true," Mr Mnisi said.

"In terms of the Sacu agreement, Swaziland is able to export substantive quantities of sugar to SA. Furthermore, exports from the region and the rest of African-Caribbean-Pacific to the EU are below the threshold set aside by the EU for these countries. There is therefore a shortfall that can be filled by SA."

Estimated at a conservative spot price of 0,15 a pound, that could be worth more than R300m a year in export earnings for SA, Mr Trikam said.