EXPLANATORY MEMORANDUM

The present recommendation concerns a decision authorising the Commission to engage on behalf of the Union in the negotiations to partially review the International Sugar Agreement (“ISA”) that the International Sugar Council (“ISC”) decided to launch, under the guidance of the United Nations Conference on Trade and Development (UNCTAD). In accordance with the decision of the ISC of 19 July 2019, those negotiations shall concern the administrative budget and member contributions as well as limited amendments relating to the objectives and work programme of the ISO.

1.CONTEXT OF THE RECOMMENDATION

•Reform of the International Sugar Agreement 1992

The European Union is a party to the ISA.

The ISA aims to ensure enhanced international cooperation in connection with world sugar matters and related issues, provide a forum for intergovernmental consultations on sugar and on ways to improve the world sugar economy, to facilitate trade by collecting and providing information on the world sugar market and other sweeteners and to encourage increased demand for sugar, particularly for non-traditional uses. The ISA entered into force on 1 January 1993 for a period of three years until 31 December 1995. Since then it has been regularly extended for further periods of two years. It was last extended by decision of the ISC in July 2019 and will remain in force until 31 December 2021.

According to Article 8 of the ISA, the ISC is the responsible body for the performance of all functions necessary to carry out the provisions of the ISA. Article 13 of the ISA stipulates that all decisions of the ISC shall be taken in principle by consensus unless stipulated otherwise in the ISA. In the absence of consensus, decisions shall be made by simple majority vote unless the ISA provides for a special vote.

According to Article 25 of the ISA, Members to the ISO hold 2000 votes in total. Each Member to the ISO holds a specified number of votes, which is annually adjusted following predefined criteria in the ISA.

The Agreement, and especially the distribution of votes among Members which also determines a Member's contribution, no longer reflects the realities of the global sugar market. Currently, the Union is the largest contributor to the ISO budget by far. Since 2015, the ISO has been discussing at working group level possibilities to review the mechanism of distributing votes.

In 2017, the Commission received a mandate from the Council, to enter into negotiations with the other parties to the ISA, within the ISC, with a view to modernising the ISA, in particular as regards the discrepancies between the influence number of votes and financial contributions of members of the ISO on the one hand and their relative position in the global sugar market on the other. That mandate remains valid until 31 December 2019. Based on this mandate, the Commission has taken the initiative to engage in negotiations with member countries of the ISO and presented concrete proposals for the amendment of Article 25 of the ISA, which governs the adoption of the administrative budget and contributions of Members.

In its 55th session, on 19 July 2019, the ISC decided to open negotiations before the next Council meeting in November 2019, under UNCTAD guidance. These negotiations will concern a partial review of the ISA – focusing on Chapter I and Chapter VII, specifically in relation to matters of “administrative budget and contributions of Members”, as well as other limited amendments including Chapter IX and Chapter X that Members chose to bring forward. In accordance to the ISC decision, this process must be completed before 31 December 2021. This means that the envisaged modernisation of the Agreement, in addition to the distribution of votes and the financial contribution of members (Chapter VII), should now also involve:

(1)the overall objectives of the ISO (Chapter I), specifically in order to include ethanol,

(2)a broader view on “information and studies” (Chapter IX), essentially to allow for the inclusion of ethanol in such activities,

(3)a broader view on “research and development” (Chapter X).

The overall purpose of the ISO as outlined in Article 1 of the Agreement is not intended to change, even with the potential inclusion of ethanol.

Bringing reform to the ISO to further align it with the practices the Union fosters in other international commodity boards, as well as with developments in the global sugar market since 1992, is clearly in the interest of the Union. At the very least, this reform should lead to transparency concerning the Members' responsibilities in voting as well as their financial contributions. The allocation of votes in the ISO should be measurable according to indicators such as trade, consumption, production and ability to pay. The latter indicator is used in the United Nations to allow for the recognition of the development aspect of sugar. Taking into account this indicator results in allotting a greater part of the financial responsibilities to those Members that have a greater ability to contribute to the ISO budget. The formal inclusion of ethanol in the objectives and work programme of the ISO is in line with the Union’s aim of modernising the ISA and aligns the content of the ISA with what is already existing practice.

•Consistency with existing practice in International Commodity Boards

In international commodity boards such as the International Grains Council (IGC), and the International Olive Council (IOC), the Union has negotiated voting rights allocations and clear annual update mechanisms which reflect the Union's relative importance in the grains as well as the olive and olive oil markets. In the IGC the indicators are trade, consumption, and production. This is in contrast to the current ISO practice, where the Agreement, since 1992, has not allowed for adjustments reflecting the changing positions of Members in the international sugar economy. Furthermore, currently, the allocation of voting rights cannot be calculated in advance by Members, but results instead from an intransparent calculation. The partial review of the ISA should seek to bring ISO practices in line with those existing in the other international commodity boards.

•Consistency with other Union policies