The U.S. sugar industry opposes the inclusion of sugar in the proposed Central America Free Trade Agreement (CAFTA) because it would lead to sugar imports greatly in excess of U.S. needs, make the no-cost U.S. sugar policy inoperable, and ultimately lead to the destruction of the U.S. sugar industry.

One Million Tons of Excess Imports. The proposed CAFTA would more than double CAFTA countries’ duty-free access to the U.S. sugar market over 15 years. But the CAFTA cannot be looked upon in isolation. The U.S. is currently negotiating free trade agreements (FTAs) with 23 other sugar-exporting countries. A doubling of current duty-free access for all these countries implies an increase in imports of about 1 million tons per year – a near doubling of U.S. sugar imports.

Policy, Price Effects. Increased imports of only a few hundred thousand tons would cancel the marketing allotment system that Congress requires USDA to use to operate U.S. sugar policy at no cost to taxpayers; cause forfeitures of sugar loans to the government at significant taxpayer cost; allow existing surplus sugar onto the market; and destroy the U.S. sugar policy and price. Studies by Louisiana State University and North Dakota State University conclude that excess imports of 1 million tons would drive the U.S. price down by 30-40 percent, and few American sugar producers would survive. At risk are 146,000 sugar-producing and related jobs, nationwide, and nearly $10 billion in annual economic activity.

Destructive Precedent. CAFTA would be far from the only additional import concession the U.S. is negotiating. In the coming months alone, the U.S. government is attempting to reach agreement with Mexico for additional imports under the NAFTA, with the Dominican Republic, whose current share of the U.S. import quota is almost 50 percent greater than the share of all five CAFTA countries combined, and with Australia, whose annual sugar exports are double those of the CAFTA. In addition, the U.S. seeks in 2004 to conclude negotiations with the South Africa Customs Union, which exports as much sugar as the CAFTA countries do; to begin negotiation with Thailand, which exports as much sugar as Australia; and to complete the Free Trade Area of the Americas, with countries whose combined sugar exports are double total U.S. sugar consumption. Even if none of these countries or regions receive any greater access than the access proposed in the CAFTA, the U.S. market would still be swamped by 1 million additional tons of sugar, equal to 12-15 percent of U.S. sugar production.

U.S. Market Already Oversupplied. The U.S. sugar market does not need this sugar. To accommodate current WTO-required imports of 1.256 million tons, and allow no-cost operation of U.S. sugar policy, the government currently requires American sugar producers to isolate from the market, and store at their own expense, nearly 700,000 tons of sugar. Additional imports from the proposed CAFTA and subsequent FTA countries would either oversupply the U.S. market and collapse the price, or force American producers to cut back on their production so significantly that whole states or regions would be forced to exit the sugar business. Every additional ton of sugar that we are forced to import is another ton American sugar producers must either store, or forfeit to the government, or reduce their own production to accommodate.

Broken Promise. The proposed CAFTA would break U.S. Trade Representative’s promise to the Congress not to negotiate changes in domestic support programs in FTAs. The U.S. sugar support program, alone among domestic support programs, would be undermined by import concessions in the proposed CAFTA, which would make continued no-cost operation of U.S. sugar policy impossible and force sugar policy changes the Congress had not intended.

U.S. Sugar Industry January 15, 2004