Report Highlights:
The European Commission found that Estonia should be fined EUR 46 million for 91,464 tons of excess sugar stocks at the time of EU Accession. Estonia contends that the fine is excessive as much of the sugar stockpiling was by consumers and not private firms. The Government of Estonia has brought the case to the European Court of Justice.
The Dispute
Record quantities of sugar made their way into Estonia on the verge of its accession to the European Union - something which the EU took notice of.In January 2004, the European Commission adopted a regulation for the 10 new acceding countries which mandated that excess sugar stocks remaining after accession in May 2005 would be subject to fines.
Estonian sugar imports in 2002 reached only about 65,000 tons.However, in April 2004 alone, the month prior to EU accession, Estonia saw sugar imports of about 47,000 tons.As a result of the surge in sugar imports just prior to accession, Estonia and the EU are currently involved in a dispute at the European Court of Justice.
EU accession rules require New Member States (NMS) to comply with its common policies, amongst these being the EU’s sugar regime.The NMS were only allowed carryover stocks of sugar that did not exceed “the quantity which could be regarded as constituting a normal carryover.”In April 2005, the Commission extended the deadline for compliance with the excess sugar stock regulation.By November 30, 2005, the new EU members were mandated to: a) destroy the excess sugar stocks; or b) convert them into animal fodder or ethanol or export them as C quota sugar; or c) otherwise face a fine.
The fine was designed to prevent speculative purchases of sugar by business interests planning to purchase and stockpile subsidized EU sugar exports prior to accession and then selling the sugar post-accession at a significant profit margin.
In June 2005, the European Commission ruled that Estonia acceded with excess sugar stocks of 91,464 tons and levied a fine of EUR 46 million (approximately US$ 56 million).
The fine represents about two percent of Estonia’s GDP.
The Government of Estonia is making the claim at the European Court of Justice that about two-thirds of the excess sugar was purchased by consumers, not private industry, to be used for home production of canned goods such as jams and jellies.Thus, the fine should be reduced.This assertion is backed by research from the Estonian Economics Research Institute suggesting that Estonian consumers, indeed, took part in panic buying of sugar prior to accession for household storage.They also cite anecdotal evidence that when emergency service workers arrived at flooded homes in the seaside town of Parnu they found flooded basements full of sugar.
The EU, however, is not accepting Estonia’s contentions that the fine should be waived or reduced because sugar was hoarded by households.