The value of the Sugar Protocol

Abstract

Before trying to understand the profits countries may reap from preferential trade agreements with the EU, it is straightforward that the common agricultural policy as a whole is treated. In the following, the common agricultural policy is discussed as are its presence and the tools of which it makes use to protect the EU internal market from external influences. First of all, the reasons for the CAP’s existence are discussed. What principles does it adhere to and what does it try to achieve? Then the instruments that it has at its disposal are treated one at a time. Finally, the aspect of welfare and distribution is given appropriate attention as is the last item in this chapter, the phenomenon of dumping. The three principles of the CAP, Community preference, solidarity amongst Member States and the principles of a single market, all show the protectionist nature of the policy. The severe criticism the CAP has had to endure might lead one to question why a protectionist agricultural policy should be in place. As it turns out, the insurance of a fair standard of living is the most important reason. The four other objectives are clearly inferior and even contradictory. The instruments the CAP used work with variable levies, import levies when the world price is lower than the EU internal price and export levies when the EU internal price is lower than the world price. In practice, import levies were the most important instrument, whereas now almost all agricultural sectors are protected by tariffs. The Variable Levies System, or VLS, was the most important instrument as it covers over 90 per cent of EU agricultural output. The VLS was often combined with intra-EU price support, through which EU farmers received a specified price for a certain quantity. With the URAA, there was a tariffication of all nontariff barriers and in most sectors the VLS disappeared, but the level of protectionism does not seem to have altered all that much. Besides these two instruments, the CAP makes use of supply quotas, deficiency payment schemes and direct income payments. The chapter makes clear that, in terms of welfare, farmers gain and consumers lose from the policy. However, even amongst farmers the distribution of welfare is highly unequal. Finally, the economics of dumping are explained. The two necessary conditions of a segmented market and imperfect competition are met in most agricultural sectors. The CAP distorts market structure and the high level of protectionism enables the EU to dump its products on the world market.