Features International Sugar Journal

Brazil’s constant recourse to WTO

Well remember sharing a rickshaw with a couple of executives from Sudzucker several years ago in Mumbai while heading back from the conference venue to our hotel. I asked them about their take on Tate & Lyle Sugars taking the European Commission to court in Luxembourg because of mismanagement of the sugar policy which boosted beet sugar producers at the expense of sugar cane refiners via import restrictions and customs duties which adversely impacted its business. They suggested that instead of following the litigious route, the company would have made greater stride if representations were made by behind closed doors. The fact that the refinery is now running at 40% of its 2009 capacity lends some credence to their observation. Over the years, Brazil has been quick to recourse to the World Trade Organization (WTO) to address transgressions by major sugar players flouting the fairly uneven playing field even further to disadvantage theirs. But to what extent has this been thought through?

Last October, Brazil made a formal complaint against China with WTO to challenge Beijing’s heavy duties on sugar imports, which has seen Brazil’s exports to China dwindle from 71% of share to 8% over the past year. In 2001, upon entering the WTO, China had established an import quota of sugar of 1.94 million tonnes with a 15% tariff. On May 22, 2017, to protect its domestic industry, China’s Ministry of Commerce (MOFCOM) announced a three-year-long safeguard measure through tariffs. But was this a smart move by Brazil’s foreign trade chamber CAMEX, probably encouraged the sugar industry group Unica, to challenge China, the second biggest economy in the world? What is immediately apparent is that Brazil may sell itself short in pursuing other expansive trade deals with China in the foreseeable future. In mid-November, Australia lodged a counter-notification with the WTO against India over subsidies to its sugar industry which has helped it expand sugar production and contributed to the current global surplus and price drop, adversely affecting Australia’s sugar industry, being the third major structural exporter. However, in the hope of securing an all-embracing trade deal (i.e. including other sectors) with India, now the sixth biggest economy in the world, Australia softened its stand at the WTO, shelving a second notification which the powerful Australian Sugar Milling Council (ASMC) wanted to bring. Only time will tell the relative impact of Brazil’s decision to take China to WTO. India is already making overtures with China to take its surplus sugar and level the trade imbalance which China currently enjoys.

Perhaps Brazil has been motivated by successfully taking the EU to WTO with Australia and Thailand in tow. The reform of the EU’s sugar regime was as much pushed by the relatively ill-informed NGOs (e.g. Oxfam, Action Aid) pushing for liberalization of the market despite warning from seasoned economists of the blow to many small sugar industries in the ACP countries as a result of the reform. However, there is no loss of irony, the subsequent reform of the regime has resulted in creating a globally competitive sugar industry. Following the abolition of sugar quotas in October 2017, sugar output increased in the EU by over 20%. With the EU sugar exporters competing in the white sugar market, particularly squeezing the Gulf States sugar refiners as well as those in Algeria and Egypt, Brazil has doubtless been hit by exports of its raw sugar to this market.