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May 27, 2016

Needed: Global Sugar Trade Liberalization, not Just a "Shakeup"

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Last week the Wall Street Journal featured an article “Sugar Industry Girds for Shakeup.” The article updates changes in EU sugar policy, while briefly mentioning a case brought against Thailand by Brazil, which the Journal describes as “a loud voice for liberalization.” 

[Hmmm. Brazil may be calling for liberalization, but that doesn’t stop Brazil from pursuing its own aggressive sugar subsidies and protectionist measures.]

The article explains how the EU is dropping both production quotas and minimum payments for sugar beet farmers in 2017. You would think from the first part of the article that the EU has suddenly gone all libertarian and free trade on sugar, but then later in the article you find out that this is just about sugar beets, and the EU will retain its restrictions on sugar CANE imports. This is going to hammer EU sugar refiners of cane sugar, who will find that their raw material is crowded out both by those same import quotas and also lower prices on sugar from beets.

It also turns out that the EU is essentially just replacing one subsidy with another, and sending $665 million a year in checks to its farmers. In other words, still subsidizing production.

Now, it’s generally a good thing that things are changing in the global market since, as the WSJ piece says, sugar is “one of the commodity world’s most protected markets.” Almost everyone involved in global sugar markets attempts to protect and aid their domestic producers.

The article describes several World Trade Organization (WTO) cases being brought by various parties against various other parties for sugar dumping, sugar subsidies and other policies. In fact, the EU reforms that comprise the bulk of the article were themselves mandated because of an unfavorable WTO ruling against EU policy in 2005.

What we need is for the WTO to put together a global trade agreement on sugar.  A successful new agreement on sugar would reduce trade distorting sugar programs, lower import tariffs and increase import quotas to create meaningful market access improvements for refined sugar and sugar-containing products. 

Such an agreement would certainly have to include the major sugar producers, which are (in order) Brazil, India, the EU, Thailand, China, the US, and Mexico. Among those countries the US is among the more benign sugar protectors, but both US producers and consumers would benefit from a freer global sugar market. As we have said before, U. S. agriculture is the most efficient and productive in the world, incorporating cutting edge technology and innovation. In anything approaching a reasonably free global sugar market, the United States can compete and succeed.

Rep. Ted Yoho has put forward a “zero for zero” proposal that endorses the removal of all direct and indirect sugar subsidies, and US sugar producers have endorsed the proposal. In other words, US producers are confident enough to give up the US sugar program and even with their higher US taxes, labor and regulatory costs compete with global producers, so long as those producers also agree to give up subsidies.  But it would take a WTO agreement to make it happen, which is why we need a US administration to make reinvigorating the WTO process a trade policy priority. 

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