The ASA believes that a much better and sounder course of action would be for FTAA countries to join together in the WTO negotiations and aggressively attack and eliminate, on a global basis, those government policies, in particular, export subsidies, that have so grossly distorted world trade in sugar. Arrangements to liberalize sugar trade within the FTAA should be deferred until solid results are achieved in the WTO that will restore health to the world sugar market and create a viable basis for further improvements in market access.

These points as well as ASA’s ideas for pursuing negotiations on sugar within the WTO framework are briefly outlined in this submission. The ASA believes this submission will be of particular interest to the Committee of Government Representatives on the Participation of Civil Society, the Negotiating Group on Agriculture, the Negotiating Group on Market Access and the Consultative Group on Smaller Economies.

WORLD DUMP MARKET

World trade in sugar has always been riddled with unfair trading practices. More than 120 countries produce sugar and the governments of all these countries intervene in their sugar markets in some way -- through export subsidies and other forms of export incentives, excessive domestic supports and high levels of import protection, control of imports and/or exports by State Trading Enterprises (STE’s), and other distortive policies and practices. One of the most egregious examples is the EU where producers receive price supports 40% higher than U.S. producers and the huge surpluses generated are dumped on the world market through an elaborate system of export subsidies.

These distortions have caused a disconnect between the cost of producing sugar and the prices on the world sugar market, more aptly called a “dump market.” For the period of 1984/85 through 1998/99, the world market dump price for sugar averaged just 9.5 cents per pound raw value, little more than half the world average cost of production of over 16 cents for that time period (see Chart 1). The price situation has further deteriorated since then while production costs are almost certainly higher due to inflation in input costs. In 1999, world dump market prices dropped to a 14-year low of 4 cents a pound; though they recovered somewhat in 2000, they have more recently ranged from 7-9 cents a pound.

No sugar producers in the world can cover their costs of production for any sustained period at such low prices. All countries exporting sugar at the world price that have prevailed over the past two decades are, by definition, dumping -- selling their sugar at prices below their cost of production.

BENEFITS TO FTAA COUNTRIES OF U.S. SUGAR IMPORT POLICIES

Of the 41 countries which share in the U.S. sugar import TRQ, 22 are FTAA countries. These countries account for 65 percent of U.S. sugar imports; if Mexico were to supply its full NAFTA-allowed 276,000 short tons, the FTAA-country share rises to 80 percent. As a result of various preferences schemes operated by the U.S. nearly all this sugar enters duty-free.

The prices received for these exports to the U.S. have normally averaged more than double the world dump price. These exports are particularly important to many of the smaller countries of the FTAA, such as Barbados, Belize, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Honduras, Jamaica, Nicaragua, Panama, St. Kitts and Nevis, and Trinidad and Tobago.

SUGAR NEED NOT BE DEALT WITH IN CURRENT FTAA NEGOTIATIONS

WTO rules require only that free trade agreements cover “substantially all” trade between participants. This has been widely interpreted to allow effective omission of certain products. Sugar, in particular, has been overwhelmingly excluded from bilateral and regional free trade agreements. In fact, sugar trade between the U.S. and Canada is essentially excluded from the NAFTA and instead governed by WTO market access arrangements. The Food and Agriculture Organization of the United Nations has noted that sugar had been substantially excluded from virtually all the 124 regional agreements it reviewed.

ADVERSE EFFECTS OF FTAA SUGAR NEGOTIATIONS

As in the rest of world, distortive governmental policies and practices in the sugar sector are prevalent in FTAA countries. They include: various forms of subsidization, STE’s, price band or variable levy systems, absorption requirements, and high tariff levels. The subsidization policies of Brazil, by virtue of which sugarcane production has increased fivefold since 1975 and sugar exports tripled in the latter half of the 1990’s, are a matter of particular concern.

Even if the many distortive sugar policies and practices of FTAA countries were eliminated --a dubious proposition given the limited scope of FTAA negotiations, the egregious practices of the EU and other sugar producing countries outside the region would be untouched by such negotiations. As FTAA countries opened their markets, their domestic prices and the prices they pay for imports from other FTAA would inevitably be pushed toward the world dump price for sugar. This would have drastic consequences for the great majority of sugar and sweetener producers throughout the region. In the U.S., this situation would be worsened by the substantial import commitments already made in the WTO to non-FTAA countries.

It should not be expected that these producers would accept their demise without a fight. Opening of markets under these conditions, with the policies that have grossly distorted the world sugar market essentially left in place, would likely trigger a flood of AD, CVD, and similar protective actions, increasing the uncertainty facing FTAA producers and exporters.

Negotiating away national sugar policies in the FTAA would amount to unilateral disarmament in the Geneva context, reducing if not eliminating the negotiating leverage of countries within the region. Faced with the disruption caused by opening of their sugar markets within the FTAA, most FTAA countries would have little flexibility to negotiate WTO commitments. Those few countries that believed they would gain from FTAA liberalization would have a vested interest in thwarting successful WTO negotiations on sugar. The prospects for achieving comprehensive WTO commitments that would effectively deal with the problems plaguing the world sugar market would dissipate.

FTAA COUNTRIES SHOULD WORK TOGETHER IN THE WTO

The ASA urges FTAA countries to join together in the WTO negotiations and aggressively attack and eliminate, on a world-wide basis, those government policies that have so grossly distorted world trade in sugar. Arrangements to liberalize sugar trade within the FTAA should be deferred until solid results are achieved in the WTO that will eliminate such policies-above all, export subsidies-and restore health to the world sugar market. Given the widespread and complex barriers affecting the world sugar market, the ASA believes that sector-specific negotiations, within the framework of WTO agricultural negotiations, are the only feasible way of accomplishing these goals.

A sector-specific approach would involve the following elements:

The ASA believes that only through such comprehensive, global sector-specific negotiations can the causes of the gross distortions and pervasive dumping that have characterized the world sugar market be rooted out and a viable basis for liberalization of market access be established.