EU-U.S. Policies Spell End To Sugar Industry

Callousness Redefined: How EU and U.S. Economic Policies Spell a Bitter End for the Caribbean's Sugar Industry

• The frustration of Caribbean nations over the European Commission’s (EC) preliminary decision last year to cut the preferential price it pays for the region’s sugar was hardened by yesterday’s elaboration of the proposal.

• The European Union’s (EU) decision, prompted by the World Trade Organization’s (WTO) recent rulings, will severely weaken the Caribbean sugar industry, which is certain to contribute to a series of social disasters including the already dramatically rising level of crime in the region.

• Encouraging Caribbean countries to join the Free Trade Area of the Americas (FTAA) without ensuring that their economies are based on prosperous domestic sectors, will be detrimental to these countries’ economic and political stability.

• The EU and the U.S. should review their economic policies toward the Caribbean Community (CARICOM) with more consideration being allocated to the immediate economic requirements of the Caribbean nations.

Yesterday, the European Union’s (EU) agriculture commissioner, Mariann Fischer Boel, revealed the specific provisions of the plan originally proposed last July to cut the preferential price the EU pays for sugar imported from African, Caribbean and Pacific (ACP) countries under the 1975 ACP-EU Sugar Protocol. The changes, which are scheduled for immediate debate by EU ministers and slated to take effect in July 2006, mandate a 39 percent price reduction for ACP sugar by 2008. According to Boel’s announcement in the UK’s Financial Times, the cuts are needed to “make Europe’s sugar industry fit to handle future competition,” regardless of the fact that preferential prices are “an economic lifeline” for ACP countries. Despite EU development commissioner Luis Michel’s announcement of an aid package for ACP countries valued at 40 million euros, the cuts will drastically affect the economies of many Caribbean islands, some of which depend on sugar exports for a major percentage of their GDP. In fact, according to a report by Oxfam, the minimum aid required to keep ACP economies afloat during the changes is 500 million euros.

Anger and frustration have been brewing in many Caribbean countries since the preliminary announcement last summer, with Jamaica’s foreign trade minister Keith Knight recently telling Reuters, “What we very much want to avoid is a repeat of past mistakes in the banana, rum and cocoa sectors where EU financial support programs have been of little or no effect.” The sugar issue is a perfect example of how the trend toward globalization is seriously damaging many vulnerable Caribbean economies. According to a May 19 speech by Edwin Carrington, Secretary General of the Caribbean Community (CARICOM) to the Board of Governors of the Caribbean Development Bank, “the liberalization and globalization processes threaten the preferential market access for almost all our traditional commodity exports.” As Caribbean nations consider joining the Free Trade Area of the Americas (FTAA), disputes over preferential treatment of Caribbean products are a clear warning signal that immediate integration of Caribbean economies into hemispheric-based free trade arrangements could jeopardize their well being.

A Sweet Staple
Caribbean nations have been heavily dependent on sugar exports since colonial times, and the commodity remains the backbone of many regional economies. An August 17, 2004 article featured in the Caribbean and Central America Report revealed that annual revenue from sugar exports totaled $121 million for Guyana alone, $70 million for Jamaica and $34 million for Belize. In an interview with COHA, the Second Secretary of the Embassy of Guyana, Forbes July, stated that sugar is the country’s chief export and that the sugar industry is Guyana’s largest employer. In addition, according to a Caribbean Media Corporation interview of Guyana’s foreign trade minister Clement Rohee, sugar accounts for 17 percent of Guyana’s GDP. Sugarcane is the top agricultural export for both Jamaica and Belize.

Washington’s role in the evolution of the Caribbean sugar industry has historically been to discourage area exports to the U.S. The 1983 Caribbean Basin Initiative (CBI), which instituted a program of U.S. tariff relief on many Caribbean products that remains in force today, resulted in increased U.S.-Caribbean trade mainly as a result of the virtual elimination of U.S. imposts on products from the region. Meanwhile, tariffs averaging 20 percent were maintained on U.S. imports to the islands. Today such tariffs have fallen to approximately ten percent, according to WTO figures. Sugar was both excluded from duty-free treatment and restricted by quotas as Washington attempted to maintain its longstanding protection of domestic sugarcane and beet farmers. As a result, Caribbean sugar exports to the U.S. declined by 75 percent from 1981 to 1987, according to the Library of Congress. This trend was intensified by a decrease in the U.S.’s sugar quota prior to 1986. In fact, Caribbean exports as a whole declined by 24 percent from 1983 to 1985. However, the CBI mechanisms have contributed to a limited diversification of Caribbean exports, achieving some progress in attaining their primary goal of increasing stability among the CARICOM countries. At the same time, these initiatives originally were in large part aimed at counteracting the political influence of Castro’s Cuba through strengthening the region’s economic ties to Washington.

The 1997 U.S.-Caribbean Summit in Barbados facilitated trade dialogue and produced the Bridgetown Declaration of Principles, which asserted that there is an “inextricable link between trade, economic development, security and prosperity in our societies.” Economic prosperity is essential to maintaining even minimal levels of law and order in Caribbean countries, as financial hardship is a main contributing factor to an increase in crimes like drug trafficking and gun running. It is crucial that the U.S. should manifest its concern for the support of sugar as an all-important staple crop for many Caribbean economies in order to preserve stability in the region.

Recent Misfortunes
Disputes over the phasing out of EU trade preferences favoring CARICOM nations have demonstrated the extreme vulnerability of the Caribbean’s sugar industry in recent years. Ever since the EU’s 2004 decision to reduce the price it traditionally paid for Caribbean sugar, countries like Jamaica, Belize, Trinidad & Tobago, Guyana and St. Kitts & Nevis have been demanding a reconsideration of this action. Regional leaders asserted in the aforementioned Caribbean and Central America Report article that planned price reductions will result in the destruction of hundreds of jobs as well as cause annual losses of $90 million for Caribbean exporters, starting in 2008. For example, July told COHA that the EU changes specifically will have a significant negative impact on the Guyanese economy, and that there will be a considerable “drop in employment figures.” Considering the sugar industry’s transcending importance to many Caribbean countries, “There are certain special products that have to be given special treatment,” as articulated by Jamaica’s Knight in an interview with the Inter-Press Service.

CARICOM sugar exporters faced another setback last August when the World Trade Organization (WTO) ruled that the EU’s preferential trade arrangements with ACP countries including many former European colonies, violated WTO export subsidy reduction schemes. The WTO ruling followed requests by Australia, Brazil and Thailand to investigate the EU’s trading policies on the grounds that its practice of importing ACP sugar at guaranteed high prices and then dumping the commodity on the world market harmed sugar industries in other countries. The EU appealed the decision in January 2005, but the WTO backed its initial ruling in late April. The price cuts announced yesterday are a clear response to this decision.

Though some argue that preferential trade arrangements harm developing countries, either because certain nations are excluded from the agreements or because their economies become dependent on such treatment and often fail to diversify, it is essential to tread carefully when dismantling existing preferential quotas. Richard Bernal, director of regional negotiations for CARICOM, told the Caribbean and Central America Report that preferential trade agreements clearly benefit some developing countries while harming others. As a result, Knight described the situation as “delicate” and “difficult.”

Out of the Frying Pan into the Fire
Presently, many CARICOM countries suffer from varied economic challenges, as well as a marked increase in crime. According to the New York CaribNews, “high debt burden, unacceptable levels of unemployment, anemic economic growth and poverty rates that are among the worst in the Western Hemisphere” are just some of the issues that will have to be faced by a majority of Caribbean governments. This includes Jamaica, Guyana, the Bahamas and Trinidad & Tobago, three of which are also major sugar exporters. The article further asserts that all of these problems are compounded by increasing incidences of murder, robbery and drug trafficking that make the already struggling nations even less attractive to foreign investment. Many countries simply do not have the resources to effectively fight crime and would be immeasurably worse off if their sugar industries were weakened or collapsed.

A Regional Solution?
Many Caribbean governments believe that the integration of the economies of the 14 CARICOM nations is essential before any of the countries begin to negotiate the FTAA. At the 2005 meeting of the Caribbean Development Bank, the coordinators of the Caribbean Single Market and Economy (CSME) presented their project as a “secure platform for the Caribbean’s entrance into the FTAA.” Although the CSME was originally expected to be fully integrated by the end of this year, it is doubtful that it will be able to meet such an optimistic schedule; only Jamaica, Barbados and Trinidad & Tobago have officially committed to the venture.

As reported by the Caribbean Media Corporation (CMC), the CSME aims to create a trading bloc that will enhance the region’s competitiveness in the world market through an intra-regional free movement of goods, services, capital and people. In the same article the CMC quoted Desiree Field-Ridley, head of the CSME Unit, as saying, “The CSME is intended to put us in a stronger position in terms of competitiveness because you can use skills not only from our own country but from across the region, capital, resources etc.” Guyana’s July told COHA that, while the CSME will require the country to amend some of its trade and labor laws, it will ultimately enable other Caribbean nations to take advantage of Guyana’s low labor costs and relatively large forestry, gold and diamond sectors. In addition, July noted, a single economy should contribute to his country’s developing service industries.

While the CSME cannot completely make up for the loss of preferential trade agreements, it can allow Caribbean countries to pool their resources and build a stronger economic base. Instead of one nation exporting sugar, there will be a collection of countries. In addition, the CSME will provide the Caribbean region with greater bargaining power in FTAA negotiations, as it will represent numerous countries’ interests. Furthermore, an integrated economy most likely will make it easier for Caribbean countries to hold on to their regional and international markets.

NAFTA’s Lessons
The CSME can help Caribbean countries avoid the negative effects of free trade on vulnerable economies, which were demonstrated by the 1994 implementation of the North American Free Trade Agreement (NAFTA). According to Jeff Faux, founder of the Economic Policy Institute, NAFTA has done more harm than good for countries like Mexico. In an article in The Nation, Faux wrote that “NAFTA has worsened the distribution of income and wealth” in Mexico, and that industrial wages for Mexican workers are lower now than in 1994. Caribbean nations that join the FTAA without initially fusing their fragile economies could face a similarly dismal fate.

The Caribbean Horizon
The domestic economic and social problems of Caribbean nations are cutting away at their economic outreach to the rest of the world. The EU and the U.S. must review their policies toward the Caribbean with the goal of enhancing the economic well-being of all regions. This means that the economies of CARICOM nations must be made as strong as possible in order to ensure that they will be able to compete in the hemispheric marketplace. To begin, this should be done by encouraging these countries to investigate the utility of the CSME and maybe to implement subsidies on their sugar exports similar to those included in the ACP-EU Sugar Protocol. These subsidies could be gradually phased out as the FTAA or its equivalent free trade agreements take effect with the EU or MERCOSUR. In any event, these nations should not be thrown headlong into the turbulent sea of free trade without first being provided with life preservers that could save their economic lives. Ensuring the minimum prosperity of Caribbean nations should in turn enhance investment opportunities in the region for international investors and also discourage crime, promote stability and put in place somewhat more contented societies.

This analysis was prepared by COHA Research Associate Sara Evans.

June 23, 2005

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