Order Code IB95117
CRS Issue Brief for Congress
Received through the CRS Web
Sugar Policy Issues
Updated January 2, 2004
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 Program in the 2002 Farm Bill
Current Sugar Program’s Provisions
Program Implementation
Background and Debate on New Program
House Debate
Senate Amendments
Sugar Trade Issues
Sugar in Trade Agreement Negotiations
Sugar in CAFTA Talks
Sweetener Disputes with Mexico
Mexico’s Access to the U.S. Sugar Market
Mexico’s Tax and Trade Policies on Corn Syrup Imports from the United States
Status of Negotiations
Circumvention of Sugar Import Quotas

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Sugar Policy Issues
SUMMARY
The sugar program is designed to protect
A Trade Act of 2002 provision requires
incomes of growers of sugarcane and sugar
USDA and U.S. Customs to monitor imports
beets, and of firms that process each crop into
of sugar and sugar-containing products to
sugar. To accomplish this, the U.S. Depart-
ensure that their entry does not circumvent the
ment of Agriculture (USDA) supports domes-
import quota and undermine the sugar pro-
tic sugar prices by making available loans at
gram. In their last report to Congress, USDA
minimum price levels to processors, restrict-
reported that sweetened cocoa powder from
ing imports, and limiting the amount of sugar
Mexico had entered to circumvent the import
that processors can sell domestically — in-
quota, and listed steps taken to stop it.
tended to meet U.S. import commitments
under two trade agreements.
Efforts to resolve two longstanding
sweetener trade disputes with Mexico — the
Debate in 2001-2002 on future U.S.
level of access for Mexican sugar in the U.S.
sugar policy occurred against the backdrop of
market, and for sales of U.S. high fructose
a sugar oversupply situation, which resulted in
corn syrup (HFCS) to Mexico — recently
historically low prices and processors’ subse-
shifted to the private sector after substantive
quent forfeiture of sugar pledged as collateral
government-to-government talks stalled in late
for price support loans to USDA. Sugar crop
2002. U.S. and Mexican sweetener industry
growers and processors stressed the industry’s
representatives in late October 2003 reached
importance in providing jobs and income in
agreement on “broad principles” to settle
rural areas. Sugar users, some cane refiners,
these disputes, but have not yet agreed upon
and their allies argued that U.S. sugar policy
details to present to each government.
costs consumers and results in lost jobs at
food firms in urban areas. The sugar produc-
The U.S. sugar production sector argues
tion sector called for resolving trade disputes,
that liberalizing trade in sugar should be
retaining current loan rate levels, and relying
addressed in multilateral WTO negotiations,
on domestic marketing controls to control
but excluded from hemispheric and bilateral
supplies. Opponents advocated three ap-
free trade agreements (FTAs). Its concern is
proaches to reduce the level of price support
that additional market access provided to FTA
and/or phase out the program. Their amend-
candidates, which are major sugar exporters
ments were rejected during floor debate.
with lower labor and environmental rules,
would undermine the U.S. sugar program and
The sugar program enacted as part of the
threaten the sector’s viability. Sugar users
2002 farm bill increases the effective support
advocate including sugar in all trade negotia-
level by 5%-6%, gives USDA tools to operate
tions, eyeing the prospect of lower-priced
the program at no cost, and reactivates “mar-
sugar they have not been able to secure
keting allotments” to limit the amount of
through congressional initiatives. U.S. negoti-
domestically produced sugar that processors
ators did include sugar in the Central Ameri-
can sell in the U.S. market. Sugar producers
can Free Trade Agreement (CAFTA) con-
and users continue to scrutinize USDA deci-
cluded on December 17, 2003. For this and
sions on the level at which USDA sets the
related reasons, the U.S. sugar industry has
national sugar allotment quantity, because of
stated it will oppose the agreement when
its impact on sugar prices.
submitted to Congress for approval.
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
Trade negotiators on December 17, 2003, announced they had concluded negotiations
on the Central American Free Trade Agreement (CAFTA). CAFTA, which the Bush
Administration will submit to Congress for approval by early summer 2004, provides
additional and increasing access for sugar shipped from four Central American countries to
the U.S. market, but retains the current high protective tariff on above-quota sugar shipments
indefinitely. The U.S. sugar industry the next day expressed its concerns about CAFTA’s
impact on domestic sugar crop producers and processors and about the precedent this sets
for including sugar in other free trade agreements (FTAs) the Administration is now
negotiating. Its spokespersons announced the sector would oppose its approval.
The lower chamber of the Mexican Congress on December 22, 2003, approved a tax
measure that retains the tax imposed since early 2002 on soft drinks sweetened with high
fructose corn syrup (HFCS). This provision reportedly remains in the 2004 budget and tax
package the Congress approved on December 31. One impact of this tax has been a
significant decline in U.S. HFCS sales to Mexico, and its production from U.S. corn imports.
As a result, its continued existence is one issue (among others) blocking resolution of
U.S.-Mexican sweetener trade disputes.
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.
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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 U.S. sugar food use in FY2003 was 12%.
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
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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 six
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
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
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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
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 Program in the 2002 Farm Bill
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).
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
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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).
Current 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
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 six 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
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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
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 has set the FY2004 OAQ at 8.25 million ST, 8% of, and 719,000 ST
below, projected output. Both the beet and raw cane sectors will absorb the
impact under the allotments announced, being required to hold off from
selling sugar determined to be in excess. See Table 1.)
Table 1. Comparison of FY2004 Marketing Allotments to
Projected Sugar Production, 2003/2004
Estimated
Reduction as
Statutory
Modified
Projected
Reduction
Share of
Share
Allotments a
Production
in Sales
Production
percent
1,000 short tons, raw value
percent
Refined Beet
54.35
4,484
4,798
314
6.5
Raw Cane
45.65
3,766
4,171
405
9.7
Total
100.00
8,250 b
8,969
719
8.0
Note: Allotments reflect USDA’s August 13 and September 30, 2003, announcements. Projected sugar
production reflects USDA’s December 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.
a Excludes reserve of 300,000 ST, per September 30 announcement.
b Represents overall allotment quantity currently in effect.
! 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.
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! 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.
(Program 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 (2.375% for loans taken out in December 2003). The sugar
production sector views this 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. USDA’s determinations and subsequent
adjustments of the overall allotment quantity (OAQ) have been the most significant decisions
made in implementing the program . 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 processors opposed such action,
recommending that USDA act cautiously so as not to flood the market. At an 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. USDA appears to have taken this view and also
changing market conditions into account in announcing it would hold 300,000 ST of the
FY2004 OAQ in reserve, a move that has bolstered domestic sugar prices.
For the FY2004 program, USDA on August 13, 2003, announced the overall allotment
quantity (OAQ) and breakdown of 2003/2004 marketing allotments between cane and beet
sugar. Subsequent administrative announcements provided details on allocating only 96.5%
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of the August-announced OAQ to reflect changes in market conditions (higher beginning
stocks and lower total use) and distributing the revised allotments among five cane producing
states, all cane processors, and all beet refiners (September 30) and on regional loan rates
(September 30).
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
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)
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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.
Sugar Trade Issues
The United States must import sugar to cover the balance of its domestic food 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, or under prospective free trade
agreements (FTAs), 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. Of the outstanding trade issues, attention is
currently focused on the political and economic implications of including sugar in CAFTA.
Efforts also continue to resolve the longstanding U.S.-Mexican sweetener dispute. 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. Since the most
recent round of U.S. and Mexican government talks on these disputes stalled in late 2002,
pressure has built in the U.S. Congress for some resolution. Currently, the U.S. and Mexican
private sweetener sectors are reported to be working on details of an agreement to settle
these. Separately, 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.
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Sugar in Trade Agreement Negotiations
Whether, and on what terms, to liberalize trade in sugar and sugar-containing products
in prospective trade agreements will be a contentious issue facing 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 opposes
any additional entry of sugar and products under bilateral and regional trade agreements,
concerned that such a scenario 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, anticipating 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 (FTAs) with five Central
American countries, four southern African countries, Australia, the Dominican Republic, and
the Andean countries 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, Australia and Colombia viewed as major low-cost sugar producing and exporting
countries, trade agreements 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 could
in time result in additional U.S. sugar imports and undermine the operation of the domestic
sugar program.
This scenario assumes the U.S. raw sugar domestic price (about 21¢/lb. in November
2003) remains significantly higher than the world raw sugar price (almost 7¢/lb. in the same
month), 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
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, though, 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
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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 sugar export subsidy regime) will not be addressed by bilateral or regional
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) (composed of industrial users of sugar and
other caloric sweeteners and the trade associations that 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.
Sugar in CAFTA Talks. Most observers viewed sugar as the most sensitive U.S.
agricultural commodity in the CAFTA negotiations. Until the talks ended on December 17,
2003, U.S. negotiators repeatedly stated that CAFTA will cover all agricultural products,
including sugar, and that their objective was to arrive at a trade agreement which reduces
tariffs to zero (and by implication, eliminates quotas) within agreed-upon transition periods
for all traded goods. Domestic sugar producers, processors, and most cane refiners, though,
continued to advocate that sugar be excluded from CAFTA, arguing that to include it “would
destroy the U.S. sugar industry.” They pointed out that if sugar were included, the Central
American countries would have the incentive to sell their entire exportable sugar surplus of
2 million metric tons (MT) to the U.S. market. This, in turn, they claimed, would depress
domestic sugar prices, make it impossible to operate the U.S. sugar program on a no-cost
basis as mandated by the 2002 farm bill, increase government costs as processors forfeit on
their price support loans, and “drive efficient American producers out of business.” The
domestic sugar production sector, instead, maintained that tariffs on sugar imports and other
trade-distorting policies should be negotiated in the WTO. Further, the sugar industry
feared that including sugar in CAFTA would set a precedent for including sugar in the other
FTAs the United States is negotiating, or plans to, with several sugar exporting countries.
It pointed out total sugar export availability of these actual and potential FTA candidates is
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27 million MT, compared with U.S. sugar output of 8 million MT. Supporting the industry’s
stance, some members of Congress from sugar-producing states and districts signaled they
will oppose CAFTA if it includes sugar or includes provisions that harm the U.S. sugar
sector.
Currently, CAFTA-candidates El Salvador, Guatemala, Honduras, and Nicaragua(Costa
Rica may join later) are allowed to sell to the U.S. market under a quota each year a
minimum of 111,000 MT of sugar. This amount represents a 9.9% share of the entire U.S.
raw sugar TRQ (1.12 million MT), and enters on a duty-free basis. Under CAFTA, these
four countries reportedly secured access to the U.S. market for an additional 85,000 MT of
sugar, a 77% increase over their current quota level. Their entire quota in year 1 of the
agreement would equal 196,000 MT. This quota would increase by 2,200 MT annually in
perpetuity. By year 15, these countries would be able to sell duty-free 226,000 MT of sugar.
The over-quota tariff would stay at the current high level (about 73%) indefinitely, and not
decline.
A USTR negotiator a week before agreement stated that under the U.S. offer, sugar
imported from these countries over the first three years of CAFTA would represent “less than
half of 1%” of U.S. sugar consumption and that the import increase would not interfere with
the functioning of the current sugar program. Secretary of Agriculture Veneman further
assured producers of import sensitive products such as sugar that CAFTA’s provisions will
provide additional protection during the transition period. A spokeswoman for the U.S.
sugar industry on December 18, 2003, though, asserted that the additional sugar imports
proposed under CAFTA and “those contemplated in additional bilateral trade agreements
will destroy” the sector and “overwhelm an abundantly supplied market.” With such an
outlook, she announced that the sugar sector “will have no choice but to oppose CAFTA.”
While acknowledging that the Administration understood the consequences of reducing the
over-quota tariff, the spokesperson pointed out that under the current sugar program,
additional imports would act to displace domestic sugar output. She also claimed that
comparable increases in market access for under FTA candidate countries, many of whom
are sugar exporters, “would result in a near doubling of U.S. imports.”
Sweetener Disputes with Mexico
Economic interests with the most at stake in these disputes 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.
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
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November 3, 1993) to the NAFTA agreement agreed to in last minute talks between the 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 was eligible to 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 could 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 net sugar surplus (projected by Mexican officials to be 550,000 MT).
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 (e.g., likely to be price competitive in the
U.S. market when world sugar prices range between 5-6 cents/lb.), and unlimited duty-free
imports beginning in FY2008.
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.
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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. In mid-December 2002, the Mexican Congress decided to retain
this tax in approving the 2003 budget. President Fox again in November 2003 proposed to
eliminate this tax in the 2004 budget. The tax and budget bill the Mexican Congress
approved on December 31, 2003 retains this tax for another year, further clouding prospects
for a sweetener deal.
In light of these developments, three U.S. firms exporting HFCS to Mexico, and also
operating HFCS manufacturing plants there (Corn Products International and Archer-Daniels
Midland), announced on January 28, 2003, and October 14, 2003, respectively, their intent
to seek $250 million and more than $100 million, respectively, in compensation from
Mexico under NAFTA’s investment provisions.
Status of Negotiations. U.S. and Mexican negotiators appear to 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 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 2002, with its counter proposals. The status of
key negotiating positions as of late 2002 reportedly was 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, remained on two key issues — the duration of an agreement, and
treatment of over-quota sugar imports from Mexico. First, the United States reportedly
sought a “permanent agreement” to allow for some restraint on sugar imports after 2008, a
position sought by the U.S. sugar sector. Mexico wanted an “interim” agreement that would
expire no later than 2008 to reflect NAFTA’s original timetable for complete liberalization
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in sugar trade. Second, U.S. negotiators wanted 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 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 in late 2002 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, the prospect for reaching an overall
deal 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, some U.S.
lawmakers beginning in December 2002 began to call on both the Bush Administration and
the Mexican government to work towards a resolution of both disputes. Senator Grassley
held a Finance Committee hearing on September 23, 2003, on Mexico’s soft drink tax and
other Mexican trade barriers to U.S. farm products, stating that he would consider
introducing legislation to authorize punitive retaliatory tariffs on specific imports of Mexican
agriculture products if the soft drinks tax is not lifted soon. The increased attention focused
on this issue may have contributed to a decision by Mexican President Fox in mid-September
to introduce a bill in the Mexican Congress to repeal the soft drinks tax. Some of his
opponents, though, signaled they would accept this step only if accompanied by concrete
measures that open up access for Mexican sugar in the U.S. market. Related to this, Senator
Grassley on November 25, 2003, introduced a “tequila tariffs” bill, intended to increase
pressure on Mexico to repeal this tax. S. 1952 would impose retaliatory tariffs on tequila and
other farm products imported from Mexico equal to the amount U.S. HFCS refiners have lost
on sales to Mexico, unless this tax is eliminated. With the Mexican Congress adjourning on
December 31 after retaining the tax for 2004, pressure may again build for the
Administration to take a firmer stance on the issue of HFCS access to the Mexican market.
With announcement of a U.S.-Mexican private sector deal on “principles” of a
resolution in late October 2003, observers will now watch to see how they are translated into
an agreement that both governments could accept. The American Sugar Alliance, Corn
Refiners Association, National Corn Growers again met the Mexican Sugar Chamber in mid
December 2003 to continue working on resolving reported differences in the details of a
prospective agreement. Discussions will reportedly continue on January 20, 2004.
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
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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.
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