BRUSSELS, Belgium (AP) – The European Union’s trade chief yesterday urged the bloc’s farm ministers to overhaul their 40-year old sugar subsidy programme and bring it in line with world trade rules, as talks dragged on into their second day.

EU Trade Commissioner Peter Mandelson called on the 25 EU ministers to get a deal this week, warning that failure would severely weaken the bloc’s hand at world trade talks in Hong Kong next month. “I don’t want to leave this loose end trailing before Hong Kong,” he told EU lawmakers at the European Parliament.

The EU has come under increasing pressure from its trade rivals and poor nations to follow through on World Trade Organisation demands to do away with its protected sugar market pricing system, which protected European farmers from international competition.

Reform of the EU’s sugar sector is a highly sensitive issue, and will cause job cuts at refineries and force many farmers to get out of growing sugar beet and sugar cane. There are more than 325,000 sugar beet farmers in the EU.

The overhaul will be the last part of a major revamp of the EU’s Common Agricultural Policy, which was overhauled in 2003.

The reform will also affect thousands of jobs in African and Caribbean nations, who benefit from a special aid-and-trade deal which gives their sugar growers preferred access to the EU market, at inflated prices.

EU sugar prices are more than three times higher than the global market rate and are protected by hefty import tariffs. Brussels also pays out export subsidies to get millions of tons of sugar a year off its market.

The first proposal hinged on a drop of 39 per cent in the price of sugar.

The EU proposals were met with resistance at talks Tuesday.

Diplomats said yesterday’stalks with Poland and Germany, two of the top sugar producers in the EU, led to a long list of demands to change the EU proposal, including more compensation for farmers and more flexibility for industry to keep quotas.

Many member nations are pushing hard for more compensation for farmers and the sugar industry. Several also want a longer phase-in period for price cuts to lessen the pain in the sector, which has had high subsidies for the past 40 years. Hungary insisted it would accept only a 30 percent cut.

The current proposal foresees that the price cuts should be phased in over a four-year period starting 2006.

The original proposal recommended the 39 per cent cut be achieved over two years. It also offers a compensation package of around euro6 billion (US$7 billion), but only 10 per cent of that is guaranteed to go to farmers. The rest would go to refineries and other related businesses.

The EU has also offered sugar producers in Africa and the Caribbean euro34 million (US$40 million) to help cushion the impact of reform. Those countries, many of which are former European colonies, had preferred access to the EU market under separate aid-and-trade pacts with the EU.

However the reform will cut their guaranteed prices as well.

Barbados, Guyana, Jamaica and Trinidad – the Caribbean’s leading sugar producers – say they will lose euro93 million (US$110 million) annually if sugar prices fall by 39 per cent.

They are calling for reductions of no more than 19 per cent, phased in over eight years and backed by more generous compensation.