Heitor Moura 2001 Sugar Regulation In France

Translation (by the Author) of Regulação açucareira na França – Uma longa história de proteção

SUGAR REGULATION IN FRANCE – A long history of protection by HEITOR PINTO DE MOURA FILHO

Originally published in Portuguese in September 2001 as

ESTUDOS INFOSUCRO Nº 2 GRUPO DE ESTUDOS SUCROALCOOLEIROS NUCA – IE – UNIVERSIDADE FEDERAL DO RIO DE JANEIRO

SUMMARY The European Union distinguishes itself in the world sugar market as the sole large exporter which also imports significantly. This position is a consequence of the strong protection offered to agricultural and industrial sugar sectors as well as to European ex-colonies, through agreements with the ACP countries. th Such incentives and protection have their origin in the XVII century, having undergone many changes following historical events, as well as competition between agriculture and industry, between colonial and metropolitan interests and between consumers and producers. France pioneered such protection to its sugar industry, and has been since then at the center of international competition in the sector. This th paper follows the main events of the French system of subsidies and protection until the end of the XIX century, as a backdrop to the discussion of present-day protectionism in the European Union.

Sugar regulation in France – A long history of protection

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The interventionist tradition in the sugar industry of France dates from the XVIIth century. Through a summary report since the beginnings of regulation until the end of the XIXth century, we emphasize the longevity of the obstacles which both European reformist movements and foreign commercial interests kept away from this important market face today.

THE IMPACT OF THE EUROPEAN SYSTEM The Common Organization of the Sugar Market of the European Union is structured on specific legislation within the Common agricultural Policy, establishing various regulatory instruments: production quotas, minimum prices, guaranteed prices, customs tariffs on imports and bounties on exports, all accompanied by detailed operational regulation. Such instrument essentially seek to defend the interests of agricultural producers, sugar industries and refiners in the countries of the European Union, as well as in the countries of the ACP (Africa-Caribbean-Pacific) community1, which, together with India, benefit from exports to the EU at European price. This legislation distributes among the community government, the governments of members states and national industry associations the responsibility to balance supply and demand of raw materials and final products, as well as the resolution of conflicts within the industry2. The impact of the European system can be evaluated from the EU’s share in the world sugar market (columns A in Table 1), where it appears as the only large export area (with circa 21% of world exports) also importing (11% of the total volume of imports).

Table 1

SHARE OF THE EUROPEAN UNION IN THE SUGAR SUGAR MARKET SHARE % EUROPE / WORLD (A)

Consumption Production Imports Exports

SHARE RELATIVE TO EUROPEAN CONSUMPTION (B)

Harvest

Harvest *

Harvest

Harvest *

1999/00

2000/01

1999/00

2000/01

11,2 14,2 11,8 20,6

11,0 14,2 11,4 21,2

100,0 133,1 32,6 59,5

100,0 126,3 31,5 60,4

Source: F.O.Licht GmbH. World Sugar Balance, 22.3.2001 (for tons in equivalent raw sugar value). * Estimate on 22.3.2001.

It is interesting to see that the EU could maintain total autonomy in relation to the world sugar market, hypothetically not requiring imports, without losing its status as an exporter, as shown in columns B. We describe below how a large portion of the instruments employed today to obtain this remarkable performance carry a long tradition. The conflicting interests which the system seeks to balance also date from over three centuries. 1

These countries are: Mauritius (with 37,9% of total quota), Fiji (12,8%), Guyana (12,3%), Jamaica (9,2%), Swaziland (9,1%), Barbados (3,95), Trinidad and Tobago (3,4%), Belize (3,1%), Zimbabwe (2,3%), Malawi (1,6%), St,Christopher-Nevis (1,2%), Madagascar, Zaire, Ivoy Coast and Tanzania (all with 0,8%) and also Kenya, Suriname, Uganda and Zambia, without quotas. 2 The main legislation in place is the Regulation of the Council of the European Community nº 1260/2001, of 19.06.2001, which structures the Organization of the Common Sugar Market until the 2005/06 harvest (http://europa.eu.int/eur-lex/pt/lif/dat/2001/pt_301R1260.html).

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COLONIAL BEGINNINGS With a double intention – of tax-collecting and of fiscal justice – Colbert, minister of Louis XIV, sought in 1664 a form of substituting for a direct tax – from which were exempt nobles and the clergy – an indirect taxes, which would be paid according to the each one’s expenditure. Cane sugar, at the time a luxury product, destined exclusively to the rich and, thus, still excluded from any tax, was rapidly imposed. Here began the collection of an import tax on sugar, both raw and refined. At the same time, there began a preference between origins, with sugar originated from French colonies being taxed at 4 livres per quintal (about 58,8 kilos), while that from other origins would pay 15 livres3. Less than one year after that, pressure from French refiners led to a first change in import tariffs. Brazilian semi-refined sugars (cassonade) would continue to pay 15 livres, but raw sugar from French colonies, though still receiving preferential treatment, would have its tariff increased, becoming taxed at 7 livres. The purely fiscal instrument had just acquired, besides its tax-collecting function, also a political motivation, of protecting the refining industry: refined sugars from any origin would have to pay 22 livres. The Pandora’s box open by France’s government would continue to create problems for their successors. Since the beginning of the colonial sugar expansion in the Americas, in the XVIth century, a decree prohibited reexportation from France of raw sugars brought from the New World. Through these monopoly rights – consequent to this prohibition of reexports of raw sugar from France and of refining activities in the colonies – metropolitan refiners became the dominant interests in the industry. The perspective of an inevitable decadence under this monopoly led to a well-succeeded reaction by colonial sugar producers, which finally obtained a royal authorization to refine in the colonies. Legislators did not foresee a new claim, from the merchant marine, suddenly deprived of its cargoes of raw sugar, now processed in the colonies themselves. The government acted, forbidding the construction of new refineries in the colonies, and taxing the importation of refined sugar. In consequence of renewed claims, the sale of raw sugar was authorized, and, in compensation to refiners for the loss of their old priviledge, the protection of the industry was established by the state, through a bounty or premium on exports. This bounty reimbursed the refiner/exporter of his expenses with the import tax paid on raw sugar. Colonial refiners did not lag behind metropolitan refiners long, also winning the concession of drawbacks on raw sugar duties for product refined at any port of the realm. This bounty remained unchanged for almost one hundred years until 1783; it then disappeared and returned after the revolutionary period, adapted to the conditions of the new times. It persists today, as an instrument to balance domestic supply and demand without loss to European producers, who are authorized to export at international (low) prices the sugar they produce or purchase from ACP countries at European (high) prices4. Rapidly assimilated by all economic actors, the system of custom duties and bounties on sugar was used by the government and by other industries to their own advantage, as occurred, among other cases, with the 1720 incentive for the introduction of slaves to the colonies, benefiting from a guarantee of 50% reduction on the duties due on the sugar subsequently purchased with the revenue of these slave cargoes. The extention of these regulations increased systematically, with distinctions among various types of sugars and tariffs being differentiated according to the origin of the product, the flag of the transporting vessel and whether the product was held in bonded storage or not. By 1820, it was possible to count 24 categories of sugar for the payment of customs duties, varying from 37,50 to 125 francs.

3

Most of the information used here came from two articles by Alfred RENOUARD: “Sucres” and “Primes et drawback” in SAY, Léon & CHAILLEY, Joseph, Nouveau Dictionnaire d’Économie Politique. Paris, Guillaumin et Cie.,Eds. 1894, vol.2, pp.934-944 e pp.574-578. 4 These bounties exist grosso modo for situations in which the international price is lower than the European price, as there is no loss to EU exporters in other circunstances.

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The complexity of the protection system generated loopholes, well employed by sharp traders, as the drawback, when combined with the export bounties, permited customs frauds in which the exported sugar came nominally from the most profitable origins. The possibilities of “bureaucratic” gains were also used through half-hidden priviledges, such as the fixation of price for the calculation of export bounties at 30% above actual market value.

ENTER BEET SUGAR AND INTERNATIONAL COMPETITION The production of sugar from beet roots, known since the end of the XVIIIth century, was incentivated during the napoleonic period as a national alternative of supply in the face of the continental naval blockade by the British, but it only became commercially feasible from the second decade of the XIXth century. Benefiting from a large advantage because of its tax exemption, beet sugar production grew considerably, substituting less profitable cereals, winning markets and provoking the reaction of colonial sugar traders and refiners, besides worried in the government with the fall of its customs revenues. From 1837 on, both the plants producing beet sugar and their sugar production began to be taxed. A fiscal bureaucracy is created, and detailed rules are published to establish taxable quantities. The aim of balancing taxation of colonial and domestic sugars – so that there would be no competitive advantages due to taxes – is now pursued by governments, impelled by pressure from the interested parties, coming now from one side, then from the other. An apparent equilibrium of interests is obtained. The abolition of slavery in the colonies in 1848 generated new demands from colonial groups. External tariffs are reduced, but the government does not lose the opportunity of compensating loss in tax revenues through the substitution of a classification based on technically evaluated sacarose content for the old criterium of sugar types based on color. It also established the taxation of refineries according to the quantity of pure sugar in their final products, as defined by legal parameters. The following decade is marked by new reductions in external tariffs, while domestic factories and refineries suffer considerable increase in inspection. On the other hand, in many years when industrial results do not reach the standards fixed in regulations, government is forced to reduce the parameters used in the calculation of the refining tax, so as to diminish the distortions between taxation and the sugar content of final products. The evolution of colonial events would bring the next upheavals to these markets. Established on the exclusivity of trade with the metropolis, the French colonial pact carried many exceptions since the beginning of the century: products which the colonies were authorized to export without the intermediation of metropolitan actors or to import directly from foreign countries or to be shipped on foreign-flag vessels. In 1860, sugar remained as the main merchandise still submitted to the colonial system. The liberal reform of 1860 brings an unprecedented opening for the sugar industry, through the permission to import sugar from foreign origins, if shipped on French-flag vessels, against the payment of a small 3-francs-per-100-kilo duty. Only nine months after that, in January 1861, even this low tariff is eliminated, putting colonial sugar on an equal footing with foreign sugar in the metropolitan market. The reexport of raw sugar is allowed for the first time. Overseas possessions now benefited from none of the old advantages offered by the colonial pact. Only taxes due the metropolis remained. Government then transforms into law what was already a fact: in July of the same year the colonies obtain freedom of trade and flag, becoming able to buy from and to sell to whomever they wished5. Though there is a regular growth in consumption in France, sugar imports increase considerably, leading to a drastic fall in prices. As a consequence, exports of excess refined product increase rapidly, which, because of the subsidies, seriously threathen the balance of public finances. In one year, bounties paid increase by 50%. 5

HARBULOT, Maurice, “Système Colonial” in SAY, Léon & CHAILLEY, Joseph, op.cit., Vol.2, pp.964-7.

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As of 1863, the French government is pressed, together with England, Belgium and the Netherlands, into standardizing the classification of sugar refining efficiencies for fiscal use, in what became the first multilateral agreement on sugar. The International Convention of 1864 determines, for ten years, four categories of raw sugar and its industrial parameters (the quantity of refined sugar obtained per unit of raw sugar)6. Besides the technical question, some common rules on import duties of refined products and on export bounties are also agreed upon. Within this more liberal regime, French industry benefits in the following years of a growth of 20% in its production. From 1868 on, there occurred various atempts to bring the national tax systems into line, as established in the international agreement, with France being the first to vote its law, after a new sugar convention in 1875. This law was never implemented as the Dutch parliament rejected the convention, which created strong reactions in each country, now decided to protect their own industry. With the dismantling of old colonial exclusive systems and the creation of national beet sugar industries, the consuming market in Europe faced various supply options, foreign and domestic. During the following years, the competition among exporters of each country increased, making obvious the economic effects of each fiscal system. Taxation in the Austro-Hungarian empire and in Germany, by gross weight of inputed beet-roots, without consideration for their sacarose content or for their industrial efficiency, incentivated manufacturers to grow beets with with greater sugar content and to devise more efficient industrial processes. They soon obtained large productions, leading in 1883 to an enormous excess and a fall in prices by one third. The consequent crisis generated new discussions in France, which sought, through frequent modifications to its regulations, to approximate its tax system to those of its competitors. The import of colonial sugar became practically impossible. One of the main losers from this reduction in the sales of colonial sugars and in the cargoes for its merchant fleet was Britain, which in 1887 proposed a conference to supress bounties, in an attempt to organize the market in its own benefit. With the presence of delegates from France, Belgium, the Netherlands, Denmark, Sweden, Russia, Germany, Austria, Spain and Italy, much discussion was held, though a partial ageement only surfaced two years later, with abstention by France and Austro-hungarian reserves. The British government, however, was unable to obtain parliamentary approval for this agreement due to pressure from its industrial consumers, who feared increases in prices.

THE PROTECTIONIST TRADITION In three centuries, sugar had become a staple for all social classes, and its production was no longer restricted to tropical zones, having gained Europe through beet culture. By the end of the XIXth century, the protectionist system, composed of import duties, taxes on beets employed in sugar production and on all produced and refined sugars, as well as bounties and drawbacks on exports. was consolidated in France and in almost all other European countries. At the time, sugar represented a source of net fiscal revenues, with taxes on sugars, during the 1880s in France, appearing as the largest among nine consumption products, corresponding to 30% of total tax revenues from this group of commodities7. The situation today has become inverted, with the industry transformed into a net beneficiary of public funds. The conflicts of interests in the industry at this moment already formed a picture similar to today’s: competition between domestic beet sugar and colonial cane sugar manufacturers; conflicting interests between growers, manufacturers and refiners; and competition in foreign markets between the national product and products from other origins.

6

Sugars are classified into four categories which produce, respectively, 87, 85, 81 and 76 kilos of refined sugar for each 100 kilos of raw. These parameters will be rapidly confirmed in experiments carried out in Köln, in Germany, a non-participant in the agreement. 7 Sugar (30%), wines (23%), coffe (18%), transportation (16%), petroleum (6%), ciders, beers, tea and waxes (7%), as quoted in STOURM, René, “Impôt” in SAY, Léon & CHAILLEY, Joseph, op.cit., Vol.2, pp.1-42.

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Since Colbert’s initiative, the succession of regulations, claims and counter-claims oscillated according to the economic and political winds. Notwithstanding the difficulties to regulate by decree economic relations among agricultural producers, industrial producers, refiners, colonial and metropolitan interests, the protection of the industry complemented the metropolitan-colonial economy, allowing the development of a French sugar agro-industry, both at home and in the colonies. The growing sugar consumption in all countries, following the general expansion of revenues during the industrial revolution, together with the possibility of supply from various origins, imposed new contours to the international sugar market, now larger and more unstable. Peaks and troughs in world production and the consequent fluctuation in prices bring an additional element of risk to the domestic industry, reinforcing governmental protectionist tendencies. Until the Brussels Convention of 1902, which was successful in reducing some subsidies and tariffs, and remained in force until World War I, the attempts at international agreement as well as the frustrated signed agreements of the second half of the XIXth century had not led to lasting multilateral initiatives, restricting themselves to influence national regulations in two directions: technical, the first, of convergence in measurement and fiscal classification standards of products, and political-economic, the second, of spreading protection to domestic markets and national producers. One century afterwards, having survived world price crisis, devastating wars, the independence of their colonies, ideological waves and the regional integration process, the core of the ancient French protection system for its sugar industry is to be found in the Organization of the Common Sugar Market of the European Union, revigorated, expanded and politically updated in legal-ideological trappings fit for new times. Rio de Janeiro, September 2001

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