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CAFTA's Impact on U.S. Raw Cane Sugar Trade

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Case Study #10-4 of the Program: ''Food Policy For Developing Countries: The Role Of Government In The Global Food System''

Abstract

Sugar trade has been at the heart of many international trade agreements. Sugar is one of the largest agricultural industries in the United States and thus is a sensitive commodity. Groups around the world have a vested interest in how the United States handles sugar production and trade. The latest change to the U.S. sugar program was the passage of the Central American Free Trade Agreement (CAFTA). The United States imports raw cane sugar using a tariff-rate quota (TRQ) system. This trade regime sets in place specific tariffs within a set volume of sugar. If an exporting country exceeds the given quota within the allotted TRQ, the country faces a second-tier (and much higher) tariff. Owing to past trade agreements, such as the North American Free Trade Agreement (NAFTA), the Generalized System of Preferences, and the Caribbean Basin Initiative, many countries already have duty-free access, within a set volume, to the U.S. sugar market. The pre-CAFTA TRQ system was criticized for creating artificial trade barriers and excluding lowcost producers from exporting raw cane sugar to the United States. The sugar-exporting countries that participate in the TRQ regime are different from those who participate in the tariff- and quotafree U.S. sugar import programs. These differences may serve to illustrate some of the trade imbalances within the U.S. TRQ system. On August 2, 2005, U.S. President George Bush signed DR-CAFTA,1 comprising Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and the United States. This agreement will affect both sugar exports from these Central American countries and the U.S. sugar program. It is believed that CAFTA will help Central American countries gain access to the U.S. sugar market. CAFTA may also affect the price of raw cane sugar in the United States, marketing allotments to U.S. sugar processors, and U.S. sugar industry jobs. Many U.S. sugar farmers and processors oppose CAFTA, fearing that the removal of trade barriers set in place under the TRQ regime will lead to a loss of U.S. sugar-producing jobs and an influx of low-cost sugar from abroad. Another question is whether or not imports from these Central American countries will affect other sugarproducing developing countries that have preferential access to the U.S. market from other trade agreements. Like most trade agreements, however, CAFTA contains a safeguard clause: The Agreement also includes a mechanism that allows the United States, at its option, to provide some form of alternative compensation to CAFTA country exporters in place of sugar imports. That allows the United States to restrict imports eligible to enter under the CAFTA if the U.S. sugar program is threatened, and instead provide equivalent benefits to the CAFTA countries to make up for the lost access (USTR 2005). Your assignment is to develop a set of polices under CAFTA that will satisfy all stakeholders. Discuss the policy issues with regard to alternative import mechanisms under CAFTA and which stakeholders might support or resist these policies. Justify your recommendations, and assess the consequences for each stakeholder group.

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15 pp.

©Cornell University, Ithaca, New York. All rights reserved. This case study may be reproduced for educational purposes without express permission but must include acknowledgment to Cornell University. No commercial use is permitted without permission.

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Cornell University Division of Nutritional Sciences

Date Issued

2007

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CUL Initiatives in Publishing (CIP)

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Alexandra C. Lewin (2007). Case Study #10-4, ''CAFTA's Impact on U.S. Raw Cane Sugar Trade''. In: Per Pinstrup-Andersen and Fuzhi Cheng (editors), ''Food Policy for Developing Countries: Case Studies.''15 pp.

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