new trade agreements: implications for u.s. sugar

New Trade Agreements: New Trade Agreements: Implications for U.S. SugarImplications for U.S. Sugar

P. Lynn KennedyP. Lynn KennedyLouisiana State UniversityLouisiana State University

Sugar ProgramSugar Program

Price Support Loan Program Price Support Loan Program

Tariff-Rate Quota (TRQ) Import System Tariff-Rate Quota (TRQ) Import System

Price Support Loan ProgramPrice Support Loan Program

The U.S. sugar program provides for the The U.S. sugar program provides for the USDA to make loans available to USDA to make loans available to processors of domestically grown sugar processors of domestically grown sugar cane at a rate of 18¢/lb, 22.9 ¢/lb in cane at a rate of 18¢/lb, 22.9 ¢/lb in relation to refined sugar.relation to refined sugar.

ERS/USDA – Farm Bill 2002: Analysis of Selected Provisions: Sugar


Marketing Assessment has been repealed.Marketing Assessment has been repealed.

Loan Forfeiture Penalties have been Loan Forfeiture Penalties have been eliminated.eliminated.

ERS/USDA The 2002 Farm Bill


““Loans are taken for a maximum term of 9 Loans are taken for a maximum term of 9 months and must be liquidated along with months and must be liquidated along with interest charges by the end of the fiscal interest charges by the end of the fiscal year in which the loan was made.”year in which the loan was made.”

ERS/USDA Briefing Room – Farm Commodity Policy: Sugar Program Provisions


The loans are Non-recourse.The loans are Non-recourse.



The 2002 Farm Act requires the USDA, “to The 2002 Farm Act requires the USDA, “to the maximum extent possible”, to operate the maximum extent possible”, to operate the U.S. sugar loan program at “no cost to the U.S. sugar loan program at “no cost to the Federal Government”.the Federal Government”.



As another way to guarantee that the As another way to guarantee that the sugar loan program operates at no cost to sugar loan program operates at no cost to the Federal Government, the USDA is the Federal Government, the USDA is required “to establish flexible marketing required “to establish flexible marketing allotments for sugar producers”.allotments for sugar producers”.



““The overall marketing allotment quantity is The overall marketing allotment quantity is divided between refined beet sugar divided between refined beet sugar (54.35%) and raw cane sugar (45.65%).”(54.35%) and raw cane sugar (45.65%).”Hawaii and Puerto Rico share 325,000 Hawaii and Puerto Rico share 325,000 STRV.STRV.Other relevant states quantities are Other relevant states quantities are determined through an evaluation of past determined through an evaluation of past marketings, current ability to market sugar, marketings, current ability to market sugar, and past processing levels.and past processing levels.ERS/USDA – Farm Bill 2002: Analysis of Selected Provisions: Sugar


““The USDA’s authority to operate sugar The USDA’s authority to operate sugar marketing allotments is suspended if the marketing allotments is suspended if the USDA estimates that sugar imports for USDA estimates that sugar imports for domestic human consumption will exceed domestic human consumption will exceed 1.532 million STRV,” effectively reducing 1.532 million STRV,” effectively reducing the overall allotment quantity.the overall allotment quantity.


Tariff-Rate Quota (TRQ) Import SystemTariff-Rate Quota (TRQ) Import System

““A tariff rate quota (TRQ) is a two-tiered A tariff rate quota (TRQ) is a two-tiered tariff for which the tariff rate charged tariff for which the tariff rate charged depends on the volume of imports.”depends on the volume of imports.”““A lower (in-quota) tariff is charged on A lower (in-quota) tariff is charged on imports within the quota volume.”imports within the quota volume.”““A higher (over-quota) tariff is charged on A higher (over-quota) tariff is charged on imports in excess of the quota volume.”imports in excess of the quota volume.”

ERS/USDA


““In the Uruguay round of the GATT, the In the Uruguay round of the GATT, the U.S. agreed to make available for import a U.S. agreed to make available for import a minimum quantity, 1.256 million STRV, of minimum quantity, 1.256 million STRV, of raw and refined sugar each marketing raw and refined sugar each marketing year (October to September)”.year (October to September)”.““Included in this amount is a commitment Included in this amount is a commitment to import at least 24,251 STRV of refined to import at least 24,251 STRV of refined sugar.”sugar.”



““The raw cane sugar TRQ is allocated to The raw cane sugar TRQ is allocated to 40 countries based on a representative 40 countries based on a representative period (1975-81) when trade was relatively period (1975-81) when trade was relatively unrestricted.”unrestricted.”““An additional allocation is made available An additional allocation is made available to Mexico to satisfy NAFTA obligations.”to Mexico to satisfy NAFTA obligations.”


Potential Free Trade Potential Free Trade AgreementsAgreements

US-Mexico (NAFTA)US-Mexico (NAFTA)Central American Free Trade Agreement Central American Free Trade Agreement (CAFTA) (CAFTA) Free Trade Area of the Americas (FTAA)Free Trade Area of the Americas (FTAA)South African Customs Union (SACU)South African Customs Union (SACU)AustraliaAustraliaThailand Thailand

Total Sugar Production1000 MT

Total Exports 1000 MT

Australia 5023 3907

Central America 3831 2309

North America 13747 404

South Africa 2559 1300

South America 33451 16683

Swaziland 628 285

Thailand 6900 5250

2003/2004 Centrifugal Sugar StatisticsSource: FAS/USDA

FY 2005 TRQ Allocation in Metric Tons

Source: www.ustr.gov

Australia Australia 8740287402

Central AmericaCentral America 350635350635

North America North America (Mexico only) (Mexico only)

72587258

South AfricaSouth Africa 2422024220

South AmericaSouth America 292519292519

SwazilandSwaziland 1689416894

ThailandThailand 1474314743

NAFTA and US-Mexico Sugar RelationsNAFTA and US-Mexico Sugar Relations

Original provisions of NAFTA specified:Original provisions of NAFTA specified:– Mexican exports limited to no more than net Mexican exports limited to no more than net

production surplus of sugar, but at least 7,258 production surplus of sugar, but at least 7,258 MTRV duty-freeMTRV duty-free

– Duty-free access limited to 25,000 MTRV in year Duty-free access limited to 25,000 MTRV in year 1-6; 150,000 MTRV in year 7, increasing by 10% 1-6; 150,000 MTRV in year 7, increasing by 10% per yearper year

– Maximums could be exceeded if Mexico Maximums could be exceeded if Mexico achieved, or was projected to achieve, net achieved, or was projected to achieve, net surplus production status for two yearssurplus production status for two years



Side-Letter specified:Side-Letter specified:– Net surplus producer status determined by Net surplus producer status determined by

sugar production and sugar and HFCS sugar production and sugar and HFCS consumptionconsumption

– Duty-free access limited to 25,000 MTRV in Duty-free access limited to 25,000 MTRV in year 1-6; 250,000 MTRV through 2007; year 1-6; 250,000 MTRV through 2007;


NAFTA and US-Mexico Sugar NAFTA and US-Mexico Sugar RelationsRelations

0

50,000

100,000

150,000

200,000

250,000

300,00019

94

1996

1998

2000

2002

2004

2006

OriginalSide-Letter


““The NAFTA specifies a declining high-tier The NAFTA specifies a declining high-tier tariff schedule for raw and refined sugar tariff schedule for raw and refined sugar over the transition period to duty-free over the transition period to duty-free sugar trade in calendar year 2008.”sugar trade in calendar year 2008.”““The economic incentive for Mexico to The economic incentive for Mexico to export high-tier tariff raw sugar exists if a export high-tier tariff raw sugar exists if a price threshold is less than or equal to the price threshold is less than or equal to the U.S. sugar price.”U.S. sugar price.”


Free Trade Area of the AmericasFree Trade Area of the Americas

Proposed at 1994 Summit of the AmericasProposed at 1994 Summit of the AmericasLargest free market in the worldLargest free market in the worldConsists of 800 million consumersConsists of 800 million consumersUnite 34 countries with a $13 trillion Unite 34 countries with a $13 trillion aggregate GDPaggregate GDPLatin American imports of US goods Latin American imports of US goods increased 137% between 1990 and 2000increased 137% between 1990 and 2000

Source: USTR Fact Sheet: Free Trade Area of the Americas

2003 U.S. FTAA Key Area 2003 U.S. FTAA Key Area ProposalsProposals

Consumer and Industrial GoodsConsumer and Industrial GoodsAgricultureAgricultureServicesServicesInvestmentInvestmentGovernment ProcurementGovernment Procurement

Most recent Summit held in November 2003

Source: USTR Fact Sheet: Free Trade Area of the Americas

South American Sugar Trade South American Sugar Trade PotentialPotential

Brazil – World’s #1 sugar producerBrazil – World’s #1 sugar producer– 2003/2004 Expected Raw Sugar Production – 2003/2004 Expected Raw Sugar Production –

340-350 MMT 340-350 MMT– 2002 Raw Sugar Export Value –$ 1.1 billion2002 Raw Sugar Export Value –$ 1.1 billion– Russia is their largest sugar importer.Russia is their largest sugar importer.– On a yearly basis, the U.S. imports between On a yearly basis, the U.S. imports between

100,000 and 200,000 MT.100,000 and 200,000 MT.

ERS/USDA Sugar and Sweeteners Outlook 2003

U.S.-Central American Free Trade U.S.-Central American Free Trade AgreementAgreement

Negotiations concluded December 2003 Negotiations concluded December 2003 between U.S., El Salvador, Guatemala, between U.S., El Salvador, Guatemala, Honduras, Costa Rica and Nicaragua. The Honduras, Costa Rica and Nicaragua. The Dominican Republic* recently became a Dominican Republic* recently became a member.member.Tariff elimination and phase out periods based Tariff elimination and phase out periods based upon industry specifics upon implementationupon industry specifics upon implementationWould allow for the expansion of an already Would allow for the expansion of an already flourishing $1 billion dollar U.S. export marketflourishing $1 billion dollar U.S. export market

Source: FAS/USDA Fact Sheet: U.S. Central America Free Trade Agreement*Dominican Republic information gathered from FAS/USDA, US and Central American Free Trade Agreement

2001 Central and South American Trade 2001 Central and South American Trade Balance for Sugar, Total (Raw Equivalent)Balance for Sugar, Total (Raw Equivalent)

Value in $1,000Value in $1,000

Central AmericaCentral America South AmericaSouth America

20002000 20012001 % % ChangeChange

20002000 20012001 % % ChangeChange

Sugar Sugar ImportsImports

13,56713,567 20,40320,403 50.4%50.4% 182,858182,858 235,640235,640 28.9%28.9%

Sugar Sugar ExportsExports

416,375416,375 488,022488,022 17.2%17.2% 1,603,4731,603,473 2,705,0272,705,027 68.7%68.7%

Trade Trade BalanceBalance

402,808402,808 467,619467,619 16.1%16.1% 1,420,6151,420,615 2,469,3872,469,387 73.8%73.8%

Source: FAOSTAT Database

Central American Sugar Trade Central American Sugar Trade PotentialPotential

CAFTA countries produce 2.4 times the quantity of sugar CAFTA countries produce 2.4 times the quantity of sugar consumed domestically. The agreement could expand consumed domestically. The agreement could expand current export opportunities (FAS/USDA Nicaragua current export opportunities (FAS/USDA Nicaragua Sugar Annual 2003).Sugar Annual 2003).Sugar is a very important export commodity for Central Sugar is a very important export commodity for Central American countries.American countries.CAFTA negotiations have contained issues related to CAFTA negotiations have contained issues related to rules of origin, common tariffs, the net exporter category, rules of origin, common tariffs, the net exporter category, and free access (FAS/USDA Honduras Sugar Annual and free access (FAS/USDA Honduras Sugar Annual 2003).2003).CAFTA countries’ sugar exports total 1.5 million yearly. CAFTA countries’ sugar exports total 1.5 million yearly. Currently under 10% arrives in the U.S. (NDSU Currently under 10% arrives in the U.S. (NDSU Extension Service Won Koo).Extension Service Won Koo).

Current CAFTA Sugar ProvisionsCurrent CAFTA Sugar Provisions

At onset: extra 90,000 tons to U.S.At onset: extra 90,000 tons to U.S.Over 15 years: extra 130,000 tons Over 15 years: extra 130,000 tons Continued increases in U.S. imports of Continued increases in U.S. imports of sugar could eventually begin to affect U.S. sugar could eventually begin to affect U.S. sugar production.sugar production.

Koo, Impacts of U.S.-Central America Free Trade Agreement on U.S. Sugar Industry

US-AustraliaUS-Australia

Negotiations Completed February 2004Negotiations Completed February 2004Ranked 13Ranked 13thth in Receipt of US Exports in Receipt of US Exports 22ndnd FTA between the US and a Developed FTA between the US and a Developed NationNationDuty-Free: US Ag Exports greater than Duty-Free: US Ag Exports greater than $400 million$400 millionSpecial Considerations made to protect Special Considerations made to protect the Dairy and Beefthe Dairy and Beef

USTR – US and Australia Complete Free Trade Agreement (February 8, 2004)

Australian Sugar SituationAustralian Sugar Situation2001/2002 MY2001/2002 MY– Cane Sugar Production totaled 4,610,000 metric tons.Cane Sugar Production totaled 4,610,000 metric tons.– Total Exports totaled 3,447,000 metric tons.Total Exports totaled 3,447,000 metric tons.– Total Imports totaled 5,000 metric tons.Total Imports totaled 5,000 metric tons.““Independent Assessment of the Sugar Industry” Independent Assessment of the Sugar Industry” published in 2002 chronicled the country’s published in 2002 chronicled the country’s contention with difficult growing seasons from contention with difficult growing seasons from 1999-20021999-2002– Problems IncludedProblems Included

Low pricesLow pricesDiseasesDiseasesInclement Weather ConditionsInclement Weather Conditions

ERS/USDA Sugar and Sweeteners Outlook/SS-236/January 31, 2003

Australian Sugar SituationAustralian Sugar SituationRecommendations led to the creation of a A$150 million 4-year Recommendations led to the creation of a A$150 million 4-year assistance programassistance programAssistance Program Consisted ofAssistance Program Consisted of– Collection of A$100 through a 3 cent/lb. levy on domestic sugar Collection of A$100 through a 3 cent/lb. levy on domestic sugar

sales over the course of 5 yrs.sales over the course of 5 yrs.Exports are not included.Exports are not included.939,000 tons of domestic sugar is included.939,000 tons of domestic sugar is included.Imports are not exempt.Imports are not exempt.It does not include “raw sugar used for refined exports.”It does not include “raw sugar used for refined exports.”

– Income supportIncome support– Interest rate subsidies on new loansInterest rate subsidies on new loans– Regional projectsRegional projects– Exit assistance program for interested farmersExit assistance program for interested farmers


US-ThailandUS-Thailand

February 2004 Congress Receives February 2004 Congress Receives Objectives of US-Thailand FTAObjectives of US-Thailand FTATIFA (Trade and Investment Framework TIFA (Trade and Investment Framework Agreement) signed in October 2002Agreement) signed in October 2002Potentially Improve ASEAN Trade Potentially Improve ASEAN Trade RelationsRelationsRanked 16Ranked 16thth in Imports of US Farm in Imports of US Farm ProductsProductsReduce Existing Barriers in the Thai MarketReduce Existing Barriers in the Thai Market

USTR – USTR Notifies Congress of Intent to Initiate FTA Negotiations with Thailand (February 12, 2004)

Thailand Sugar SituationThailand Sugar Situation

2001/2002 MY2001/2002 MY– Cane Sugar Production totaled 6,397,000 metric tons.Cane Sugar Production totaled 6,397,000 metric tons.– Total Exports Totaled 4,290,000 metric tons.Total Exports Totaled 4,290,000 metric tons.– No imports during this market year.No imports during this market year.Three Tier Quota SystemThree Tier Quota System– Quota A – Domestic Consumption Quota A – Domestic Consumption

1.85 million tons white sugar1.85 million tons white sugar– Quota B – Long-Term Export Commitments Quota B – Long-Term Export Commitments

800,000 tons raw sugar800,000 tons raw sugar– Quota C – Export SalesQuota C – Export Sales

Can only be filled after A and BCan only be filled after A and B


US-South African Customs Union US-South African Customs Union (SACU)(SACU)

Continues Efforts Started with the African Continues Efforts Started with the African Growth and Opportunity Act (AGOA)Growth and Opportunity Act (AGOA)Includes Botswana, Lesotho, Namibia, Includes Botswana, Lesotho, Namibia, South Africa, and SwazilandSouth Africa, and SwazilandInitiated in June 2003Initiated in June 2003Increase Foreign Direct Investment Due to Increase Foreign Direct Investment Due to Linkage with Developed NationLinkage with Developed Nation

USTR – Background Information on the US-SACU FTA (June 2, 2003)

SACU Sugar ProvisionsSACU Sugar Provisions

Specifically concerned with Import Access Specifically concerned with Import Access of Sugarof SugarLarge portion is designated to SwazilandLarge portion is designated to SwazilandPlaces a limit on Swaziland sugar SalesPlaces a limit on Swaziland sugar SalesAmount is estimated at 260,000 metric Amount is estimated at 260,000 metric tons.tons.2000 Agreement with the Southern African 2000 Agreement with the Southern African Development Council (SADC)Development Council (SADC)


AdditionalU.S. Sugar

Imports

EstimatedWorld Raw

Sugar Price 1

PercentChange

Estimated U.S. RawSugar Price 2

PercentChange

(MT) ($ / MT) (¢ / lb) (%) ($ / MT) (¢ / lb) (%)0

25,00050,00075,000

100,000150,000200,000300,000400,000500,000750,000

1,000,0001,500,0002,000,0003,000,000

169.72169.77169.81169.86169.90169.98170.06170.25170.42170.59171.03171.46172.33173.23174.77

7.707.707.707.707.717.717.717.727.737.747.767.787.827.867.93

- -0.030.050.080.100.150.200.310.410.510.771.021.542.062.97

505.39501.35497.35493.37489.37481.79474.05458.95444.44430.19396.68365.35309.83261.58185.36

22.9222.7422.5622.3822.2021.8521.5020.8220.1619.5117.9916.5714.0511.87

8.41

- --0.80-1.59-2.38-3.17-4.67-6.20-9.19

-12.06-14.88-21.51-27.71-38.70-48.24-63.32

1 World raw sugar prices estimated at 78.5 % of world refined prices (1998-2002 average).2 U.S. raw sugar prices estimated at 85.0% of U.S wholesale refined prices (1998-2002 average). Source: Sugar and Sweetener Situation and

Outlook Yearbook, USDA, June 2003.

ImplicationsImplications

ProducersProducersConsumersConsumersGovernmentGovernment

new trade agreements: implications for u.s. sugar

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