Financial Times
August 6, 2004 Friday
London Edition 2

Editorial; Pg. 16

LENGTH: 478 words

HEADLINE: Sweet justice for EU sugar: The WTO has put a time-bomb under an indefensible policy

This week's condemnation of European Union sugar subsidies by a World Trade Organisation disputes panel strikes a blow for justice and good sense. The grossly distortive and wasteful EU sugar regime is an affront to free trade principles. As well as speeding its demise, the WTO decision should add to the impetus imparted to the Doha trade round by last weekend's deal on a negotiating framework.

The judgment's resonance is all the greater because it follows a WTO ruling against US cotton subsidies, which are economically and morally as indefensible as the EU's sugar policy. Both sustain high-cost producers - in the EU's case, even sugar farmers in Finland - by dumping their output on world markets at cut-rate prices, to the detriment of competitors elsewhere. For the US and EU to institutionalise in agriculture a practice that they indignantly condemn when used in other kinds of trade is rank hypocrisy.

The sugar ruling has yet to be confirmed, and both decisions are subject to appeal - a process likely to drag on for more than a year. But precedent suggests they will ultimately be upheld. That prospect should encourage other countries to hold the US and EU even more firmly to their commitments last weekend to eliminate or reduce their farm subsidies. Unless the two big trade powers swiftly take a knife to such spending, resistance to their demands in the Doha negotiations will grow - and their promises to make the talks a "development" round will be shown up as so much hot air.

But it would be wrong to conclude that all developing nations will gain from the dismantling of farm subsidies. Overall, the biggest beneficiaries will be the economies of the rich countries that use them most. And while efficient exporters in some developing countries, such as Argentina and Brazil, will be winners, so will producers in the US, Australia and other wealthy nations. However, as Arvind Panagariya of Columbia University argued in a Financial Times article on Tuesday, many poorer ones stand to lose.

Among the most vulnerable are those with preferential access to rich markets, such as the African, Caribbean and Pacific states that export bananas and sugar to the EU on favourable terms. Unsurprisingly, these countries oppose a reduction in trade barriers that would threaten their privileged position and expose them to competition.

Yet it is a delusion to think such special trade arrangements can survive much longer. The sugar ruling is only one of many forces conspiring to undermine them. Trade preferences have in any case often had undesirable consequences, preserving inefficient production and penalising economic diversification.

Weak economies need generous and carefully targeted international assistance to help them adjust to freer trade. How the US and EU respond will test the strength of their commitments to promoting global development.