Order Code IB95117
CRS Issue Brief for Congress
Received through the CRS Web
Sugar Policy Issues
Updated August 29, 2003
Remy Jurenas
Resources, Science, and Industry Division
Congressional Research Service ˜ The Library of Congress

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CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Brief History of the Sugar Program
Main Features of U.S. Sugar Policy
Price Support
Loan Rates
Effective Support Levels
Import Quotas
Sugar Market and Program Developments
Sugar Program in the 2002 Farm Bill
New Sugar Program’s Provisions
Program Implementation
Background and Debate on New Program
House Debate
Senate Amendments
Sugar Trade Issues
Sweetener Disputes with Mexico
Mexico’s Tax and Trade Policies on Corn Syrup Imports from the United States
Mexico’s Access to the U.S. Sugar Market
Status of Negotiations
Circumvention of Sugar Import Quotas
Sugar in Trade Agreement Negotiations

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Sugar Policy Issues
SUMMARY
The sugar program is designed to protect
imports of sugar and sugar-containing prod-
incomes of growers of sugarcane and sugar
ucts to ensure their entry does not circumvent
beets, and of firms that process each crop into
the import quota and undermine the sugar
sugar. To accomplish this, the U.S. Depart-
program. In their last report to Congress,
ment of Agriculture (USDA) supports domes-
USDA reported sweetened cocoa powder from
tic sugar prices by making available loans at
Mexico had entered to circumvent the import
minimum price levels to processors, restrict-
quota, and listed steps taken to stop it.
ing imports , and limiting the amount of sugar
that processors can sell domestically — in-
Sugar producers and users continue to
tended to meet U.S. import commitments
scrutinize USDA decisions on the new pro-
under two trade agreements.
gram’s authorities. The level at which USDA
sets the national sugar allotment quantity has
Debate in 2001-02 on future U.S. sugar
dominated the discussion, because of its
policy occurred against the backdrop of a
impact on sugar prices. Some producers have
sugar oversupply situation, which resulted in
expressed concern when this level is set
historically low prices and processors’ subse-
“high” (FY2004). Users complained when the
quent forfeiture of sugar pledged as collateral
allotment was set low (early FY2003).
for price support loans to USDA. Sugar crop
growers and processors stressed the industry’s
Efforts by U.S.-Mexican negotiators to
importance in providing jobs and income in
resolve two longstanding sweetener trade
rural areas. Sugar users, some cane refiners,
disputes — the level of access for Mexican
and their allies argued U.S. sugar policy costs
sugar in the U.S. market, and for sales of U.S.
consumers and results in lost jobs at food
high fructose corn syrup (HFCS) to Mexico —
firms in urban areas. The sugar production
have stalled. Though both sides apparently
sector called for resolving trade disputes,
reached agreement in late 2002 on some
retaining current loan rate levels, and relying
points, differences remain on the length of any
on domestic marketing controls to control
prospective agreement, how to handle over-
supplies. Program opponents advocated
quota Mexican sugar exports, and the status of
various approaches to reduce the level of price
Mexico’s tax on HFCS-sweetened soft drinks.
support, and/or phase out the program. Three
amendments offered by opponents were re-
The U.S. sugar production sector argues
jected during floor debate.
liberalizing trade in sugar should be addressed
in multilateral WTO negotiations, but ex-
The sugar program enacted as part of the
cluded from hemispheric and bilateral free
2002 farm bill increases the effective support
trade agreements (FTAs). Its fear is market
level by 5-6%, gives USDA tools to operate
access provided by FTA candidates, also
the program at no cost, and reactivates “mar-
major sugar exporters, would undermine the
keting allotments” to limit the amount of
sugar program and threaten the sector’s
domestically produced sugar processors can
viability. Sugar users advocate including
sell in the U.S. market.
sugar in all trade negotiations, eyeing the
prospect of lower-priced sugar they have not
A provision in the Trade Act of 2002
been able to secure through congressional
requires USDA and U.S. Customs to monitor
initiatives.
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
The U.S. Department of Agriculture (USDA) on August 13, 2003, announced (1) the
overall allotment quantity and resulting allocations for 2003 crop beet sugar and raw cane
sugar (under the sugar marketing allotment provisions authorized by the 2002 farm bill), and
(2) the tariff-rate quotas for raw, refined, and specialty sugar imports. At a public hearing
held August 27, a spokesman for some sugar cane growers and processors expressed concern
that USDA had set the allotment quantity too high, with potential adverse consequences for
the domestic sugar production sector and the effectiveness of U.S. sugar policy.
BACKGROUND AND ANALYSIS
Brief History of the Sugar Program
Governments of every sugar producing nation intervene to protect their domestic
industry from fluctuating world market prices. Such intervention is necessary, it is argued,
because both sugar cane and sugar beets must be processed soon after harvest using costly
processing machinery. When farmers significantly reduce production because of low prices,
a cane or beet processing plant typically shuts down, usually never to reopen. This close link
between production and capital intensive processing makes price stability important to
industry survival.
The United States has a long history of protection and support for its sugar industry.
The Sugar Acts of 1934, 1937, and 1948 required the U.S. Department of Agriculture
(USDA) to estimate domestic consumption and to divide this market for sugar by assigning
quotas to U.S. growers and foreign countries, authorized payments to growers when needed
as an incentive to limit production, and levied excise taxes on sugar processed and refined
in the United States. This type of sugar program expired in 1974. Following a 7-year period
of markets relatively open to foreign sugar imports, mandatory price support only in 1977
and 1978, and discretionary support in 1979, Congress included mandatory price support for
sugar in the Agriculture and Food Act of 1981 and the Food Security Act of 1985.
Subsequently, 1990 farm program, 1993 budget reconciliation, and 1996 farm program laws
extended sugar program authority through the 2002 crop year. Even with price protection
available to producers, the United States historically has not produced enough sugar to satisfy
domestic demand and thus continues to be a net sugar importer.
Prior to the early 1980s, domestic sugar growers supplied roughly 55% of the U.S. sugar
market. This share grew over the last 15 years, reflecting the price protection provided by
a sugar program. In FY2002, domestic production filled 89% of U.S. sugar demand for food
and beverage use. As high-fructose corn syrup (HFCS) displaced sugar in the United States
during the early 1980s, and domestic sugar production increased in the late 1980s, foreign
suppliers absorbed the entire adjustment and saw their share of the U.S. market decline. The
import share of the U.S. sugar market last year was 11%.
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U.S. sugar policy maintains domestic sugar prices considerably above the world market
price, and is structured primarily to protect the domestic sugar producing sector (sugar beet
and sugarcane producers, and the processors of their crops) and to ensure a sufficient supply.
As a result of the price differential, U.S. consumers and food product manufacturers pay
more for sugar and manufactured food products where sugar is an ingredient than they would
if imports entered without any restriction.
The sugar program differs from most of the other commodity programs in that USDA
makes no direct payments to growers and processors. Structured this way, taxpayers do not
directly support the program through government expenditures. This fact is highlighted as
a positive feature by the sugar production sector and its supporters. The program’s support
level and import protection, though, keep the U.S. sugar price above the price of sugar traded
internationally, and constitute an indirect subsidy to the production sector by way of higher
costs paid by U.S. sugar users and consumers. Program opponents frequently refer to this
subsidy component to argue for changes to U.S. sugar policy.
Main Features of U.S. Sugar Policy
To support U.S. sugar prices, the USDA extends short-term loans to processors at
statutorily-set price levels and limits imports of foreign sugar. The sugar program, though,
differs from the grains, rice, and cotton programs in that USDA makes no income transfers
or payments to beet and cane growers. In practice, overall U.S. sugar policy operates to
indirectly support the incomes of domestic growers and sugar processors by limiting the
amount of foreign sugar allowed to enter the domestic market. This is accomplished by
using an import quota — a mechanism that is not an integral part of the sugar program’s
statutory authority as laid out in commodity legislation, but which operates as an integral part
to ensure that market prices stay above effective support levels. Accordingly, USDA’s
decisions on the size of the import quota, and under the 2002-authorized program (see “Sugar
Program in the 2002 Farm Bill” for details), on how it will administer sugar marketing
allotments and other authorities, affects market prices. USDA administers these policy
instruments to ensure that growers and processors realize the benefits of price support the
law provides, whether or not loans are actually taken out.

Price Support
USDA extends price support loans to processors of sugarcane and sugar beets rather
than directly to the farmers who harvest these crops. Growers receive USDA-set minimum
payment levels (a requirement changed slightly by the 2002 farm bill) for deliveries made
to processors who actually take out such loans during the marketing year — a legal
requirement. With those processors that do not take out loans, growers negotiate contracts
that detail delivery prices and other terms. USDA loans at times are attractive to sugar
processors as a source of short-term credit at below-prime interest rates.

Loan Rates. The 2002 farm bill freezes loan rates — 18¢ per pound for raw cane
sugar and 22.9¢ per lb. for refined beet sugar — at levels first set in 1995 for another 6 years
(through the 2007 crop year). The loan support for beet sugar is set higher than for raw
sugar, largely reflecting its availability after processing as a product ready for immediate
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industrial food and beverage use or for human consumption (unlike raw cane sugar). By
contrast, raw cane sugar must go through a second stage of processing at a cane refinery to
be converted into white refined sugar that is equivalent to refined beet sugar in terms of end
use. Any beet or cane processor that meets statutory requirements can take out a non-
recourse loan at these rates (adjusted by region and other factors). The loan’s “non-recourse”
feature means a processor can exercise the legal right to hand over sugar it initially offered
USDA as collateral to fully repay the loan, if the market price is below the support level
when the loan comes due.
Effective Support Levels. The above loan rates, though, do not serve as the price
floor for each type of sugar. In practice, under the 2002 farm bill, USDA’s aim is to support
the raw cane sugar price (depending upon the region) at not less than 20.1¢ to 21.2¢ per lb.
(i.e., the price support level in a region plus an amount that covers a processor’s cost of
shipping raw cane sugar to a cane refinery plus the interest paid on any price support loan
taken out plus location discounts ). Similarly, USDA seeks to support the refined beet sugar
price at not less than 23.0¢ to 25.9¢ per lb. (i.e., the regional loan rate plus specified
marketing costs plus the interest paid on a price support loan), depending on the region.
USDA has available various authorities to ensure that market prices do not fall below these
“loan forfeiture,” or higher “effective” price support, levels. These include (1) limiting the
amount of foreign raw sugar imports allowed into the United States for human consumption,
(2) limiting the amount of domestically-produced sugar permitted to be sold under the new
marketing allotment mechanism, and (3) offering sugar in its inventory to processors (and
growers) who agree to reduce production. A loan forfeiture (turning over sugar pledged as
loan collateral to USDA) occurs if a processor concludes, also weighing other factors, that
the domestic market price at the end of the loan term is lower than the “effective” sugar price
support level. These support levels essentially provide a processor with a price guarantee.
Import Quotas
USDA restricts the quantity of foreign sugar allowed to enter the United States for
refining and sale for domestic food and beverage consumption. By controlling the amount
of sugar allowed to enter, USDA seeks to ensure that market prices do not fall below
effective price support levels and that it does not acquire sugar due to any loan forfeitures.
Tariff-rate quotas (TRQs) are used as the policy instrument to restrict sugar imports to
the extent needed to meet U.S. sugar program objectives. In practice, the U.S. market access
commitment made under World Trade Organization (WTO) rules means that a minimum of
1.256 million ST of foreign sugar must be allowed to enter the domestic market each year.
Although the WTO commitment sets a minimum import level, policymakers may allow
additional amounts of sugar to enter if needed to meet domestic demand. In addition, the
United States committed to allow sugar to enter from Mexico under North American Free
Trade Agreement (NAFTA) provisions. The complex terms are detailed in a schedule and
a separate side letter, which lay out rules and a formula for calculating how much Mexico
can sell to the U.S. market. Under the WTO and NAFTA agreements, foreign sugar enters
under two TRQs — one for raw cane, another for a small quantity of refined (including
specialty) sugar.
The Office of the U.S. Trade Representative (USTR) is responsible for allocating these
TRQs among 41 eligible countries, including Mexico and Canada. The amount entering
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under each quota (the “in-quota” portion) is subject to a zero or low duty. Sugar that enters
in amounts above the WTO quota is subject to a prohibitive tariff, which serves to protect
the U.S. sugar-producing sector from the entry of additional foreign sugar. The tariff on
above-quota sugar entering from Mexico under NAFTA continues to decline, and is viewed
as a growing threat by the domestic production sector. In addition, other TRQs limit the
import of three categories of sugar-containing products (SCPs — products containing more
than 10% sugar, other articles containing more than 65% sugar, and blended syrups). Quota
and tariff provisions differ depending on whether these imports enter from Mexico, from
Canada, or from any other country.
USDA on August 13, 2003, set the FY2004 tariff-rate quotas for sugar imports (raw and
refined) at 1.274 million short tons (ST), raw value. This amount is slightly higher than the
U.S. commitment made under WTO rules, and also slightly above the TRQs’ total quantity
announced for FY2003. At present, it does not appear likely that USTR will announce a
sugar quota under the terms of NAFTA’s sugar side letter (see “Sugar Trade Issues —
Sweetener Disputes with Mexico”).
Sugar Market and Program Developments
Those with a direct financial stake in the debate on U.S. sugar policy include sugarcane
and sugar beet farmers, processors (raw sugar mills and beet sugar refineries), cane sugar
refineries, industrial sugar users (including food and beverage product manufacturers),
foreign countries that export sugar to the U.S. market, corn producers and manufacturers of
high-fructose corn syrup (HFCS), and the federal government.
Congressional debate over sugar policy leading up to the 2002 farm bill changes took
place against the backdrop of structural changes in the industry, historically low domestic
sugar prices caused by oversupply, and the inability of policymakers working within the
1996-enacted U.S. sugar program framework to reconcile the two objectives of protecting
the price of domestic sugar (under the sugar program) and also meeting trade agreement
obligations that allow more foreign sugar to enter the U.S. market (under the import quota).
In marketing year 1999/2000, record domestic sugar production from the 1999 crops,
combined with imports of sugar permitted under trade agreements or entering not subject to
any limitation, contributed to a substantial oversupply. Since the U.S. government could not
further reduce imports to accommodate higher domestic sugar output without breaking its
market access commitment to other countries made under WTO rules, USDA intervened to
bolster market prices that had fallen below effective price support levels. Government sugar
purchases, and USDA’s decision to pay growers sugar “in-kind” to plow under some of their
to-be-harvested crop in order to reduce output, though, did not raise prices enough to enable
processors to pay back all of their price support loans when they came due. Some processors
exercised their right to “forfeit” 10% of FY2000 sugar output (1.1 million ST), and USDA
recorded significant program outlays ($465 million in FY2000).
During 2000/2001, USDA reduced about one-third of its inventory under the first sugar
payment-in-kind (PIK) program. Lower raw cane sugar output helped prices to recover
above loan forfeiture levels. Refined beet prices, though, did not rise above their forfeiture
levels until late in September 2001, largely due to a reduced production outlook, and
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USDA’s policy to continue disposing of its sugar inventory in order to reduce storage costs
and bolster market prices. It announced sales would occur whenever specified market price
levels thresholds were reached, and that it would offer another PIK program.
In 2001/2002, USDA further reduced its inventory by completing a second sugar PIK
program, conducting several sales of refined beet sugar (generating $130 million in receipts),
and facilitating the exchange of some of its acquired raw cane sugar for what some foreign
countries would have shipped to the U.S. market under their respective allocations of the
U.S. sugar TRQ. These initiatives, weather-related concerns about the beet crop outlook in
the Red River Valley area, and knowing that marketing allotments would limit sugar sales
after October 1, 2002, contributed to a firming in raw cane and refined beet sugar prices.
With year-ending prices near or above loan forfeiture levels, processors did not forfeit on any
loans taken out earlier.
In the current 2002/2003 marketing year, sugar prices initially strengthened
considerably, reflecting the introduction of statutory marketing allotments that limited sales
of domestic sugar. Prices continue to remain well above loan forfeiture levels (see “New
Sugar Program’s Provisions”), even though USDA has twice increased the overall allotment
quantity (now 12.5% above the initially announced level) to effectively allow all of 2002
crop processed sugar to be marketed without the allotment restriction, and has also sold the
sugar remaining in its inventory (generating $117 million in receipts).
Sugar Program in the 2002 Farm Bill
The new sugar program (authorized by Sections 1401-1403 of P.L. 107-171) slightly
increases effective price support levels for raw cane sugar and refined beet sugar, and
reactivates a mechanism (called “marketing allotments”) to limit the amount of domestically
produced sugar that can be sold when imports are projected to be below a specified level.
Other provisions require USDA to operate the program again at no-cost to the federal
government, modify some features of the 1996-2001 program, explicitly authorize a
payment-in-kind program for sugar, and prescribe in great detail how USDA must administer
marketing allotments. Certain provisions are intended to meet the sugar production sector’s
objective that the program operate at no cost to the government.
During floor debate in each chamber, program opponents failed in efforts to reduce the
level of price support, and/or to phase out the current program. The Bush Administration did
not present any proposals with respect to the sugar program, but earlier questioned the
practice of compensating growers for not harvesting a portion of their crop. Conferees easily
resolved the few differences between the House and Senate sugar program provisions. The
most important was an agreement to repeal the 1996-enacted approximate one-cent penalty
imposed on a processor that decides to forfeit any price support loan taken out (i.e., hand
over sugar to the government as payment).
New Sugar Program’s Provisions. The new program is designed to maintain a
balance between supply and demand in the U.S. sugar market, ensure that sugar producers
and processors receive enhanced price support and other program benefits that offset some
of the revenue lost to reduced sales under the new allotment mechanism, and remove most
of the federal government’s budgetary exposure. The program reflects the sugar production
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sector’s willingness to accept reduced sales in return for gaining price protection for the
quantity of sugar that the marketing allotment mechanism allows processors to sell. The
sector’s objective, expecting little growth in domestic sugar demand and accepting U.S. trade
commitments that allow other countries access for a minimum quantity of their sugar, is to
maintain the status quo for as long as possible, until U.S. market demand for sugar increases
and/or trade negotiations conclude in a way that favors their interests.
Major provisions (with some discussion on a few) —
! reauthorize the sugar program for 6 years (i.e., 2002 to 2007 crop years).
! increase the effective price support level by 5-6% (to a range of 20¢-22¢
per pound for raw cane sugar, and 24¢-27¢ per lb. for refined beet sugar).
Though the loan rates continue at the 1996-enacted levels (18¢ per lb. for
raw cane sugar, and 22.9¢ per lb. for refined beet sugar), the repeal of the
loan forfeiture penalty effectively raises by about one cent the minimum
price levels USDA uses to administer the no-cost objective.
! make non-recourse loans available to processors of sugarcane and sugar
beets at the specified loan rates. The loan program is expanded to allow
loans to be made also for in-process sugars and syrups at 80% of the raw
cane or refined beet loan rate.
! repealed the loan forfeiture penalty effective May 13, 2002.
! repealed the sugar marketing assessment retroactively to October 1, 2001.
This will save the sugar production sector about $40 million annually.
! require USDA to operate the sugar program at no cost to the federal
government using two tools — marketing allotments and sugar payment-
in-kind (see below for explanations). USDA is directed to use both tools
to ensure no loan forfeitures occur. In other words, administrative decisions
must be made so that domestic sugar prices do not fall below effective price
support levels that would make it more attractive for processors to hand over
to USDA sugar pledged as collateral for a price support loan.
! require marketing allotments when imports are below 1.531 million
short tons (ST). By limiting the amount of domestically-produced sugar
that raw cane mills and beet refiners can sell, this mechanism ensures that
the United States meets its annual market access commitments for sugar
imports under the WTO agreement (1,255,747 ST) and under NAFTA’s
sugar side letter in effect through FY2007 (up to a maximum 275,578 ST).
Provisions detail the formula that USDA must follow to calculate the
amount of domestic sugar that can be sold (i.e., the “overall allotment
quantity,” or OAQ), specify the factors to apply in making this
determination, and split the allotment between the beet and cane sectors at
54.35% and 45.65%, respectively. Additional rules specify how the raw
cane allotment is to be distributed among sugarcane producing states, and
then among the mills in each state. Separate rules stipulate how the beet
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sugar allotment is to be allocated among processing companies (many of
which operate across state lines). Once the detailed calculations are made,
each firm will be able to sell only as much sugar as stated in its allotment
notification received from USDA.
(USDA’s May 2003 upward adjustment in the 2002/03 marketing year’s OAQ
to almost 8.7 million ST effectively allows all projected beet sugar and raw
cane sugar production to be sold. In other words, the restrictive effect of
allotments no longer applies for the balance of FY2003. USDA’s OAQ
announcement for FY2004, though, will limit some sales — much more for
raw cane sugar than for refined beet sugar (Table 1).)
Table 1. Comparison of Marketing Allotments to
Projected Sugar Production, 2003/2004
Estimated
Reduction as
Statutory
Announced
Projected
Reduction
Share of
Share
Allotments
Production
in Sales
Production
percent
1,000 short tons, raw value
percent
Refined Beet
54.35
4,647
4,659
12
0.3
Raw Cane
45.65
3,903
4,226
323
7.6
Total
100.00 8,550
8,885
335

3.8
Note: Allotments reflect USDA’s August 13, 2003 announcement. Projected sugar production reflects
USDA’s August 2003 supply estimate. Sugar sales reductions by sector are derived as the difference between
production and allotments, and could change during the year as USDA revises production estimates and
recalculates the factors used to derive the OAQ.
! explicitly authorize a sugar payment-in-kind (PIK) mechanism that
allows sugar processors (acting in concert with producers of cane and beets)
to submit bids to obtain sugar in USDA’s inventory in exchange for
reducing production. This provision supplements 1985 farm bill authority
that USDA tapped to implement the 2000 and 2001 sugar PIK programs.
! authorize a new storage loan facility program to provide financing to
processors for constructing or upgrading facilities to store and handle raw
cane and refined beet sugar. This will give qualifying processors access to
below-commercial rate financing to install additional facilities for holding
sugar that cannot be sold when marketing restrictions mandated by
allotments are in effect.
! reduce the interest rate USDA charges on price support loans extended
to sugar processors by 100 basis points (1%). This provision is unique to
the new sugar program; loans made available to producers of eligible crops
will continue to carry an interest rate equal to what USDA’s Commodity
Credit Corporation (CCC) pays the U.S. Treasury for its funds plus 100
basis points.
(Final regulations reflect USDA’s decision to apply the same interest rate on
sugar non-recourse loans as it applies to loans extended to other commodities
(2.0% for loans made in July 2003). The sugar production sector views this
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as contrary to the enacted provision; USDA’s stance is the farm bill did not
establish a specific sugar loan interest rate. S.Res. 127 expresses the sense of
the Senate that USDA should reduce the interest rate by 1% to conform to the
2002 farm bill provision.)
Program Implementation. To implement the new sugar program for the 2002 and
subsequent year sugar crops, USDA issued revised regulations (published in the August 26,
2002 Federal Register) to reflect farm bill changes. Administrative announcements on the
FY2003 program provided details on: the breakdown of 2002/03 marketing allotments
between cane and beet (issued August 27, 2002), regional loan rates (September 27), the
allocations of these allotments among five cane producing states, all cane processors, and all
beet refiners (October 1), revisions to company-specific beet sugar allocations to reflect
recent mergers (November 18), the increase in the overall allotment quantity (OAQ) to
reflect lower domestic sugar output in FY2003 and the lack of an agreement with Mexico on
the level of access for its sugar in the U.S. market (January 10, 2003), the sales of the balance
of the sugar inventory held by USDA (January 10), revisions to allocations of the OAQ
among five cane producing states, all cane processors, and all beet refiners (January 15),
reassignments of unused cane sugar allocations from processors in Hawaii and Puerto Rico
to processors in Florida, Louisiana, and Texas (March 13), the distribution of Talisman’s
sugar marketing allocation among the Florida sugarcane processors (March 21), another
increase in the OAQ to allow “blocked” sugar stocks to be marketed as prices remained well
above loan forfeiture levels (May 13), further revisions to allotments of the increased OAQ
among the five cane states and cane processors (May 19), and additional reassignments of
unused cane sugar allocations from processors in Louisiana to those in Florida and Texas,
and of unused beet sugar allocations to other beet refiners (May 19). USDA’s second
increase in the 2002/03 marketing year’s OAQ (in May) to almost 8.7 million ST effectively
allows all FY2003 beet sugar and raw cane sugar production to be sold. For the FY2004
program, USDA on August 13, 2003, announced the OAQ and breakdown of 2003/04
marketing allotments between cane and beet sugar.
Also, USDA on June 5, 2003 determined that the Arizona Sugar Factory can receive up
to a 50,000 ton raw cane sugar allotment in FY2004, subject to meeting specified conditions.
USDA on July 17 affirmed earlier decisions to deny requests from the Pacific Northwest
Sugar Company for an increase in its beet sugar marketing allocation and from Cargill for
a beet sugar marketing allocation.1
USDA’s determinations and subsequent adjustments of the OAQ have been the most
significant decisions made in program implementation. At a public hearing held September
4, 2002 on the initial OAQ announcement for FY2003, the sugar production sector
commented favorably on USDA’s decision to set the allotment quantity at the then-
announced level. Sugar users (primarily food manufacturing firms) disagreed, stating USDA
set the allotments much lower than called for, when viewed against historical ending stock
indicators. Users were pleased with USDA’s January 10, 2003 decision to increase the
allotment quantity, viewing it as more in line with the way the sugar program has been
administered in the past. At a meeting held on March 12, industrial sugar users and one cane
refiner asked USDA to increase the OAQ by up to 300,000 short tons to offset the amount
the beet sector does not have to sell this season due to lower production. Sugar growers and
1 [http://www.fsa.usda.gov/ao/epas/dsa/hot_topics.htm] (as accessed August 26, 2003)
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processors opposed such action, recommending that USDA act cautiously so as not to flood
the market. At the August 27, 2003, hearing held to receive comments on USDA’s initial
OAQ announcement for FY2004, a spokesman for the Florida, Texas and Hawaii sugar cane
sectors stated that USDA had set the allotment quantity too high, and argued that it “will
provide overly generous benefits to sugar users at the expense of farmers.” He further
expressed concerns about the effects this action will have on the domestic sugar price, the
profitability of producers and processors, and the effectiveness of U.S. sugar policy.
Background and Debate on New Program. The 2002 farm bill’s sugar
provisions reflect the recommendations offered by the American Sugar Alliance (ASA) —
representing sugar farmers and processors — in testimony presented to the House and Senate
Agriculture Committees in the spring and early summer of 2001. The ASA further
commended the subsequent committee and floor actions taken that reinstated a U.S. sugar
policy that “will ensure stable prices for farmers and consumers and operate at no cost to
taxpayers.” It views the “domestic inventory management tool” included in the farm bill as
“restoring balance to the U.S. sugar market” when there is a surplus. Its spokesmen have
acknowledged that the industry “is reluctant to face the prospect of limited marketings in
some years,” but that trade commitments under the WTO and NAFTA agreements require
the United States to import as much as 1.5 million ST of sugar each year (about 15% of
consumption), “whether we need that sugar or not.” They added that growers and processors
under marketing allotments will have the flexibility to plant as much crops and produce as
much sugar, respectively, as they wish, but noted that processors who increase sugar output
faster than the growth in U.S. demand “may have to postpone the sale of some sugar, and
store that sugar at their expense until the market requires it.”
House Debate. The nearly identical sugar programs reported by the House and
Senate Agriculture Committees were challenged by program opponents during floor debate.
In the House, Representatives Dan Miller and George Miller offered an amendment on
October 4, 2001, to replace the Committee’s proposed sugar program with an approach they
argued would result in a sugar policy more oriented to market forces. They had earlier
expressed disappointment that the Agriculture Committee “decided to ignore the failure of
the U.S. sugar program,” noting that the measure approved contains “no meaningful reform”
and turns “the clock back on consumers, workers, taxpayers and the environment.” Their
amendment proposed to retain the current program’s non-recourse loan feature, reduce the
current level of sugar price support by almost 6%, increase financial penalties on processors
that hand over sugar to the CCC rather than repay any non-recourse loans taken out, and
designate $300 million from the amendment’s savings for conservation and stewardship
programs (with a priority for efforts in the Everglades). Price support would be reduced by
1¢ per pound for raw cane sugar, and 1.2¢ per pound for refined beet sugar (to 17¢ / lb. and
21.6¢ / lb., respectively). Penalties that processors would pay to the CCC would double if
they forfeit on their price support loans (increasing to 2¢ / lb. for raw cane sugar, and 2.14¢
for refined beet sugar). The House rejected this amendment on a 177 to 239 vote.
The Coalition for Sugar Reform (an association of food manufacturers, consumer and
taxpayer advocacy groups, environmental organizations, and publicly-traded cane refiners)
favored this amendment offered during House debate. The Coalition has long claimed that
the current sugar program “is an economic disaster for producers, consumers, workers in
urban centers who are losing their jobs and the food manufacturing industry” and should be
reformed. Its spokesmen have testified “reform” would do this by: (1) securing adequate
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supplies for consumers, industrial users, and cane refiners, (2) accommodating present and
future U.S. international trade obligations by providing market access for imports, (3)
removing “the current economic incentives for overproduction,” and (4) allowing sugar to
trade at market prices “below support levels when market forces dictate.”
Senate Amendments. Two amendments offered during floor debate proposed more
sweeping changes to the sugar program. Both mandated recourse (i.e., removing processors’
access to price protection) rather than non-recourse loans and the program’s phase out by mid
decade. Senator Lugar’s amendment, offered on December 12, 2001, would have completely
phased out the sugar and other commodity programs after the 2005 crops. Until then, USDA
could only make recourse loans to sugar processors. The level of price support would have
been “progressively and uniformly” lowered starting with the 2003 crops in order to reach
zero in 2006. Price support would have been replaced with vouchers of up to $30,000 made
available annually through 2006 to any sugar producer who signed a “risk management
contract,” and undertook specified risk management activities such as buying whole farm
revenue insurance and/or contributing to a whole farm stabilization account. This voucher
system would have applied to all (and not just sugar crop) producers. His proposal was
defeated on a 70-30 vote. Senator Gregg’s amendment (offered December 12) similarly
proposed a recourse loan program to be phased out by 2006, but differed in requiring that the
budget savings be used to increase benefits for the food stamp program’s shelter expense
deduction. His proposal was tabled 71-29 during floor debate. Similar proposals were
introduced as identical bills (H.R. 2081 and S. 1652) earlier in the session.
Sugar Trade Issues
The United States must import sugar to cover the balance of its domestic needs that the
domestic sugar production sector cannot supply — currently about 12%. Accordingly,
provisions found in trade agreements approved by the United States that apply to both
imports and exports of sugar, sugar-containing products, and other sweeteners such as corn
syrup affect the economic interests of the U.S. sugar production sector, domestic cane
refiners, U.S. corn producers, U.S. corn sweetener manufacturers, U.S. sugar users, and sugar
exporting countries.
Trade in sweeteners affects the domestic sugar supply situation, and in turn, the level
of U.S. sugar market prices. Sugar imported under market access commitments made by the
United States in the NAFTA and WTO trade agreements, together with some sugar products
that were not subject to import restrictions until recently, have added, or could under certain
conditions, contribute to a U.S. sugar surplus and pressure prices downward. At present,
efforts to resolve U.S.-Mexican sweetener disputes are the most important sugar trade issue.
The success or failure of continuing negotiations will be a key factor affecting USDA’s
implementation of the new sugar program’s provisions. Economic interests with the most
at stake are the: (1) the U.S. sugar production sector, concerned about the amount of sugar
allowed to enter the domestic market under Mexico’s access under NAFTA’s terms; (2) U.S.
manufacturers of high-fructose corn syrup (HFCS), seeking to take advantage of a market
opportunity opened under NAFTA to sell to the large Mexican market; and (3) the financially
ailing Mexican sugar sector, pressing to expand sales to the U.S. market, in large part until
recently because of concern that its domestic sugar sales would increasingly be displaced by
the Mexican soft drink industry’s import of cheaper HFCS from U.S. corn sweetener firms.
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The importance of this matter is reflected in the fact that sweetener issues have been
frequently discussed at meetings held by both countries’ presidents since the late 1990s.
Though substantive negotiations between the U.S. and Mexican governments resumed in
2002, prospects that an agreement will soon be reached have faded.
A provision in the trade promotion authority and adjustment assistance measure
(Section 5203 of P.L. 107-210) addresses in part the domestic sugar industry’s concern that
some sugar-containing products are entering the U.S. market in a deliberate effort to
circumvent the U.S. sugar import quota system. Separately, the sugar production sector
advocates that the Bush Administration address further liberalization in sugar trade in the
comprehensive multilateral WTO negotiations rather than in hemispheric and bilateral free
trade negotiations involving major sugar exporting countries. Sugar users, though, argue that
sugar should not be excluded from any prospective regional or bilateral trade agreement.
Sweetener Disputes with Mexico
Mexico’s Tax and Trade Policies on Corn Syrup Imports from the United
States. Legislation passed by the Mexican Congress on January 1, 2002, to impose a 20%
tax on soft drinks containing corn syrup but not sugar temporarily eliminated the market for
U.S. corn and HFCS (processed from corn) in Mexico and jeopardized the viability of two
U.S. companies that manufacture HFCS there. The U.S. corn and HFCS sectors viewed this
as a step back in negotiating a resolution to a long-standing HFCS dispute and have since
pressed Bush Administration officials to persuade Mexican authorities to remove this tax.
Observers view the soft drinks tax as an effort by the Mexican sugar industry to capture back
their home market and apply pressure on the United States to negotiate a comprehensive
solution on all sweetener disputes sooner rather than later. Though Mexican President Fox
in late March 2002 suspended the application of this tax through the end of September, the
Mexican Congress on April 2, 2002, voted to challenge his decision in the country’s
Supreme Court. Reflecting this uncertainty, U.S. exports to Mexico of corn for processing
into sweeteners and also of HFCS fell noticeably, and continue to remain at low levels.
The imposition of this tax is related to earlier WTO and NAFTA panel rulings that
found Mexico’s 1998 decision to impose anti-dumping duties on imports of U.S.-produced
HFCS to prevent further damage to its domestic sugar sector was inconsistent with its trade
commitments. To comply with them, Mexico on April 22, 2002, established a new tariff rate
quota for HFCS imports from the United States. Imports above the 148,000 metric tons
(MT) quota will be subject to a 210% duty. Observers note that this quota equals the amount
of Mexican sugar the U.S. government allowed to enter in FY2002 under NAFTA (see
below) and WTO provisions. In subsequent action, Mexico completely lifted its high anti-
dumping duties on imports of U.S. HFCS in mid May 2002. Mexico’s Supreme Court on
July 12, 2002, ruled in favor of Congress’ challenge and reinstated the 20% tax on soft drinks
manufactured with HFCS. Mexico’s Finance Ministry, in submitting its 2003 budget to
Congress on November 5, proposed only to slightly alter the tax rather than eliminate it
altogether as sought by the United States. In mid-December, the Mexican Congress decided
to retain this tax in approving the 2003 budget, clouding prospects for a sweetener deal. In
light of these developments, one U.S. firm exporting HFCS to Mexico, and also operating
HFCS manufacturing plants there (Corn Products International), announced on January 28,
2003, its intent to seek $250 million in compensation from Mexico under NAFTA’s
investment provisions. The company stated that the Mexican government has violated
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“obligations with respect to foreign investors under the NAFTA, including those regarding
non-discriminatory treatment and expropriation.” It specified the compensation amount
represents lost profits for past and future years ($35 to $40 million in lost annual income) and
other costs related to its operations in Mexico.
Mexico’s Access to the U.S. Sugar Market. Starting October 1, 2000, Mexico
under NAFTA became eligible to ship much more sugar duty free to the U.S. market than
the 25,000 MT allowed to enter in earlier years. Until summer 2002, U.S. and Mexican
negotiators disagreed, however, over just how much sugar Mexico actually could export to
the United States. Their disagreement centered on which version of the NAFTA agreement
governed this issue. U.S. negotiators based their position on the sugar side letter (dated
November 3, 1993) to the NAFTA agreement agreed to in last minute talks between U.S.
Trade Representative and his Mexican counterpart. The side letter was included along with
other NAFTA documents that President Clinton submitted to Congress together with the
implementing legislation. Mexican negotiators instead based their position on the sugar
provisions found in the August 1992 NAFTA agreement and signed by each country’s
president in December 1992.
The side letter effectively placed a lower cap on duty-free imports of Mexican sugar into
the U.S. market than the ceiling would have been under the original NAFTA agreement. The
side letter accomplished this by: (1) redefining the original formula for “net production
surplus” — the amount of sugar that one country could ship to the other duty free — to also
add consumption of HFCS, and (2) raising, but keeping level, the maximum amount that
could enter duty free during the FY2001-FY2007 period. Using FY2002 to illustrate,
Mexico under the side letter’s terms can export its “net surplus” but not more than 250,000
MT of sugar duty free. USDA announced on September 18, 2001, that Mexico under the
side letter’s formula can sell 137,788 MT of sugar to the United States in FY2002. Under
the original NAFTA agreement, Mexico (if determined to be a net surplus producer under
the original agreement’s formula for two consecutive years) would have been able to ship its
entire projected net sugar surplus. If this formula were used, Mexican officials argued that
550,000 MT would have been eligible for entry. Reflecting the lack of agreement in efforts
to resolve these differences and Mexico’s inability to show a sugar “surplus,” the U.S.
Government did not announce a NAFTA sugar quota in FY2003 and FY2004.
The U.S. sugar production sector has been concerned that a decision not to abide by the
side letter would result in a flood of additional Mexican sugar into an already well-supplied
U.S. market. U.S. cane refiners have held firm to their position that Mexican shipments be
in the form of raw rather than refined cane sugar, so as not to undercut U.S. refining capacity.
U.S. manufacturers of HFCS have signaled they want their concern about access to the
Mexican market addressed. Looking forward, the U.S. sugar industry is most apprehensive
about the impact of other NAFTA provisions scheduled to take effect. These include
substantial over-quota sugar imports from Mexico projected to occur starting in FY2004
(e.g., likely to be price competitive in the U.S. market should world sugar prices fall to
historically low levels), and unlimited duty-free imports beginning in FY2008.
Status of Negotiations. Statements made by U.S. and Mexican negotiators suggest
they have laid aside the issue of whether or not NAFTA’s sugar side letter applies, in favor
of pursuing negotiations to arrive at a comprehensive sweetener agreement acceptable to both
sides and their respective domestic interests. On July 15, 2002, USTR presented a proposal
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to the Mexican Government that effectively would double the level of FY2002 access for
Mexican sugar to the U.S. market if Mexico reciprocates to allow imports of an equal
amount of U.S-produced HFCS. The U.S. proposal contained a number of other features to
address other issues of concern to both the U.S. corn refiner and sugar sectors. The Mexican
government responded in late August, and again in late September, with its counterproposals.
The status of key negotiating positions to date reportedly is as follows. On duty-free access
to the U.S. market for its sugar, Mexico proposes a 300,000 MT quota (compared to the
initial U.S. offer of 275,000 MT). Both sides have agreed that Mexico would receive
additional access equal to 25% of any growth in the U.S. sugar market over the agreement
period. On U.S. HFCS exports to Mexico, each side proposes a duty-free quota equal to the
U.S. sugar quota level. However, the U.S. is seeking some additional allowance to offset the
loss of 2002 HFCS exports to Mexico. Reacting to the U.S. proviso (intended to protect U.S.
cane refiners) that Mexican sugar shipments be split 80% raw / 20% refined, Mexico
proposes to condition HFCS imports to a 50/50 split between its soft drink and bakeries
industries. U.S. corn refiners oppose this, viewing such a split as restricting market access
since almost all HFCS export sales are to the soft drink sector. Mexico would repeal its 20%
tax on HFCS-sweetened soft drinks as part of a deal.
Differences, though, remain on two key issues — the duration of an agreement, and
treatment of over-quota sugar imports from Mexico. First, the United States reportedly is
seeking a “permanent agreement” to allow for some restraint on sugar imports after 2008,
a position sought by the U.S. sugar sector. Mexico wants an “interim” agreement that would
expire no later than 2008 to reflect NAFTA’s original timetable for complete liberalization
in sugar trade. Second, U.S. negotiators want Mexico to commit to ship not more than its
quota amount (e.g., not take advantage of NAFTA’s declining tariffs on over-quota imports
to ship additional amounts). Mexico has signaled it may accept this, depending on how the
U.S. side proposes to implement such a commitment. The United States also has reportedly
proposed a peace clause against taking any anti-dumping action against over-quota sugar
imports, in exchange for Mexico giving up its NAFTA rights after 2008.
Adding pressure to the negotiations were: (1) calls by Mexican farmers and legislators
that its government hold off complying with NAFTA provisions that eliminate quotas and
tariffs on U.S. imports of potatoes, pork, poultry, among other products, effective January
1, 2003, and (2) the prospect that if the United States applied the side letter’s provisions in
FY2003, Mexican access to the U.S. sugar market would be much smaller than FY2002's
148,000 MT. With the Mexican Congress’ deciding to retain the tax on HFCS-sweetened
soft drinks in the Government’s 2003 budget and then adjourning, the prospect that an
overall deal can soon be reached faded. However, top Mexican Government leaders,
including President Fox, have stated they will not bend to pressure to renegotiate NAFTA’s
agricultural provisions but pledge to protect the country’s farmers. With signs also that the
Mexican sugar sector can live with the status quo (not having a surplus to export), combined
with U.S. corn producers’ and corn refiners’ concerns about the growing economic fallout
of no agreement, U.S. lawmakers on December 16, 2002, called on the Bush Administration
to work toward an immediate conclusion to the negotiations. On March 14, 2003, 31 House
Members wrote to Mexico’s ambassador to Washington, calling for immediate action to
reach agreement on the outstanding issues that remain and that benefits all affected parties
on both sides. Their letter noted the consequences of no deal “will undoubtedly jeopardize
a very large and growing agricultural trade relationship under the NAFTA.” Senator
Grassley on August 11 announced plans to hold a Finance Committee hearing this fall on
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Mexico’s soft drink tax and other Mexican trade barriers to U.S. farm products. At the same
meeting with Iowa farmers, U.S. Trade Representative Zoellick raised the possibility that the
United States may initiate a WTO dispute resolution case on Mexico’s tax on soft drinks
sweetened with HFCS as a way to leverage a resolution to both sweetener disputes.
Circumvention of Sugar Import Quotas
The sugar production and cane refining sectors in the 107th Congress pursued a
legislative remedy to prevent U.S. firms from taking advantage of tariff “loopholes” to
import sugar outside of (to “circumvent”) the existing sugar and sugar-containing product
(SCP) TRQs. This initiative was one of the three “pillars” the production sector had sought
to achieve a sugar policy that accomplished their objective of achieving a supply-demand
balance that protects their interests. Sugar producers, processors, and refiners, citing the
“stuffed molasses” case as a prime example, argued that imports of some sugar mixtures and
products undermined the domestic sugar industry by adding to the sugar surplus.
During Senate Finance Committee markup of trade adjustment assistance legislation (S.
1209) on December 4, 2001, Members approved an amendment offered by Senator Breaux
to authorize USDA to identify imports that are circumventing the TRQs on sugars, syrups,
or sugar-containing products, and to require the President to include such-identified products
in proclaiming revisions to these quota provisions. This provision was included in the trade
promotion authority and adjustment assistance legislative package (Section 1002 of H.R.
3009) the Senate passed on May 23, 2002. There was no comparable provision in the trade
bill package agreed to by the House. House and Senate conferees subsequently reached
agreement on July 26 on a compromise to the Senate provision. The conference report
clarified that certain products containing molasses were to be made subject to a specific sugar
TRQ, but pared back the scope of the Senate language to also include U.S. Customs in
monitoring such imports and to retain flexibility for the executive branch and Congress on
how any identified circumvention is to be handled (Section 5203 of P.L. 107-210). The
compromise language, depending on how implemented, initially may serve to stop the flow
of easily identifiable “stuffed molasses”-like products. Most observers, though, do not view
it as sweeping in scope compared to the language initially introduced.
The conference-adopted language requires U.S. Customs and USDA to submit a report
to Congress every 6 months to report their findings on whether there are any indications that
imports are causing any circumvention of the sugar and SCP TRQs. In their first report to
Congress dated February 5, 2003, they found no evidence to suspect any significant level of
fraudulent imports in FY2002, nor any cause to suspect legal imports were impeding
USDA’s ability to manage the program. In the second report (August 2003), USDA
identified that imports of sweetened cocoa powder entering from Mexico were circumventing
the U.S. sugar TRQ. Its analysis described how Mexican manufacturers of high sugar
content products were using low-priced sugar accessed under the U.S. and Mexican sugar
re-export programs, to export sweetened cocoa powder to the U.S. market. USDA listed the
three steps taken since March 2003 to address this issue, and had no recommendations for
congressional action.
As background, a coalition of food groups opposed the initial Senate-passed provision,
arguing that it represented “a direct attempt to close the borders to lawfully imported sugar
containing products.” It pointed out that the amendment was so broadly written that food
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products that contain sugar, such as gelatin or ice tea mix, could be placed under a TRQ,
despite its stated intent to target only those products that “circumvent” TRQs. The coalition
claimed the wording failed to define “circumvention,” gave USDA “no effective guidance”
on how to identify products for reclassification in a TRQ, allowed for no review by the
President or the courts of USDA determinations, and undermined the Department of
Treasury’s role in administering tariff laws by creating an exception for sugar-containing
products. This coalition stated the amendment could violate U.S. trade agreements and invite
foreign retaliation. Sixty House members laid out these same arguments in a late June letter
to House trade bill conferees, and asked that they reject the Senate amendment in conference.
The sugar industry argued the Senate provision would enhance the function that TRQs
perform in U.S. sugar policy by establishing a process to protect the industry from the impact
of products containing sugar being imported into the United States in forms that have no
commercial use. Inside U.S. Trade reported that one industry source stated the language
“does not cover any finished products or any products with any commercial use in the form
in which it is imported.” The food group coalition, though, countered that the wording
would require USDA to identify imports of manufactured food products found in four
chapters of the Harmonized Tariff Schedule as circumventing the sugar and related product
TRQs. The sugar industry claimed the provision would protect the market access of those
countries with a share of the U.S. sugar TRQ by ensuring that their sales of sugar do not
decline as a result of sugar-containing products entering intentionally to circumvent the TRQ.
Sugar in Trade Agreement Negotiations
Whether, and on what terms, to liberalize trade in sugar and sugar-containing products
in prospective trade agreements could prove to be a contentious issue for U.S. negotiators.
Exporting countries have signaled they want these agreements to provide increased access
for their sugar to the higher-priced U.S. market. The U.S. sugar production sector is
concerned that any additional entry of sugar and products under bilateral and regional trade
agreements would undermine its market share, threaten the viability of the domestic sugar
program, and result in significant loan forfeitures. U.S. manufacturers which use sugar in
food products and beverages favor opening up the domestic market to additional imports,
foreseeing that the resulting lower sugar prices would benefit them and consumers.
Sugar trade is expected to be more of an issue in negotiating the hemispheric Free Trade
Area of the Americas (FTAA) and bilateral free trade agreements with five Central American
countries, four southern African countries, Australia, and the Dominican Republic, than in
multilateral efforts to reach an agreement on the pace and terms of liberalizing agricultural
trade under the WTO framework. With Brazil, Guatemala, South Africa, and Australia
viewed as major low-cost sugar producing and exporting countries, free trade agreements
(FTAs) that the United States might enter into with them conceivably could allow for
additional sales of sugar to the U.S. market than now permitted under their allocated shares
of the U.S. sugar TRQ. Brazil’s negotiators frequently mention that increased market access
for its sugar in the U.S. market is one of their key priorities in the FTAA. Since the inherent
objective of any free trade agreement is to eliminate all border protection on all imports
(including agricultural commodities) within some specified time period, the scenario of
removing current U.S. quota provisions and tariffs on imports of sugar and sugar containing
products from countries that are signatories to these agreements would in time result in
additional U.S. sugar imports and undermine the operation of the domestic sugar program.
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This scenario assumes the U.S. domestic price remains significantly higher than the
world sugar price, with this difference (or price premium) serving as the incentive for
exporters to sell to the U.S. market rather than to the rest of the world. By contrast, any
multilateral agreement that emerges from the WTO’s Doha Development Round will reduce
to some extent those trade-distorting policies used by countries to support their sugar and
other commodity sectors. The degree to which such reductions might occur will only
become apparent when negotiators settle upon the parameters and process that each country
will need to follow to develop specific reductions in trade distorting policies (including those
in sugar sectors) to arrive at a broad multilateral agreement by late 2004. The inability of
WTO members to agree on these “modalities” heading into the Cancun Ministerial Summit
in September 2003, clouds the prospect for an agreement in the agreed upon time frame,
according to some observers. Any text and accompanying schedules, though, that may
emerge are not expected to require the complete phasing out of such policies in all countries’
sugar sectors, and thus would affect the U.S. sugar sector likely only at the margin.
The American Sugar Alliance (ASA) representing sugar crop farmers and processors
argues that the Bush Administration’s efforts should be to “reform the world sugar market
through comprehensive, sector-specific WTO negotiations” and not through regional or
bilateral trade agreements. ASA supports the goal of global free trade (including for sugar)
through the WTO, which it views as the best venue for addressing “the complex array of
government policies that distort the world sugar market” on a multilateral and comprehensive
basis. Spokesmen frequently mention subsidies that various countries use to “encourage the
dumping of sugar at a fraction of what it costs to produce it.” To support its position, ASA
released in January 2003 a commissioned report it says documents the non-transparent and
indirect subsidies that major sugar producing and exporting countries use to assist their sugar
sectors. For this reason, ASA opposes negotiating sugar trade provisions in regional
agreements because it claims the most damaging government policies (citing Brazil’s
sugarcane-ethanol subsidies, the Mexican government’s ownership of sugar mills, and the
European Union’s (EU) sugar export subsidy regime) will not be addressed by the FTAA
negotiations. It also fears that sizable sugar exports from Central American countries would
injure U.S. sugar producers and not benefit consumers in the form of lower prices.
The Sweetener Users Association (SUA) (comprised of industrial users of sugar and
other caloric sweeteners and the trade associations which represent them) and the Coalition
for Sugar Reform (CSR) (trade associations for food and beverage manufacturers, some cane
refiners, taxpayer advocacy organizations, environmental groups and consumer organizations
that advocate reform of U.S. sugar policies) support the Bush Administration’s proposal
tabled at the WTO to further liberalize agricultural trade as well as its negotiating objectives
in the FTAA and bilateral FTAs. The proposal to the WTO, submitted in July 2002, calls
for countries to eliminate export subsidies, reduce tariffs on any agricultural product to not
more than 25%, and expand the in-quota amount of current tariff-rate quotas (TRQs) by 20%.
SUA expects that under this proposal “world sweetener markets will operate more efficiently
and fairly,” as EU’s export subsidies are phased out and U.S. sugar import quotas become
more market oriented. Both groups argue that liberalizing trade in sugar would benefit the
U.S. economy through lower prices, encourage product innovation and stimulate demand,
keep food manufacturing jobs in the United States rather than see them move overseas, help
maintain a viable cane refining industry with its well-paid union jobs, and stimulate
competition and thus thwart excessive industry concentration.
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