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To Consumers, The Sugar Program is Anything But Sweet
Subject Free trade
Topic International Trade
Key Words Trade Barriers, Imports, Price Supports
News Story

The Clinton Administration made free trade one of its top concerns and it appears that President Bush will also give free trade a high priority. Free trade means the elimination of barriers to trade such as tariffs, quotas and voluntary export restraints. But the pursuit of free trade apparently does not apply to the sugar industry. Current policies relating to the sugar industry are anything but free-trade oriented. Trade barriers erected in 1981, and still in effect, limit imports of sugar and provide for loans to growers. The General Accounting Office estimates that the sugar program costs consumers about $1.9 billion per year in higher prices.

Protected from external competition and aided by new technology, favorable weather and U.S. price supports, domestic sugar production reached a record 8.5 million tons in 1999. The bumper crop caused prices to decline to 18 cents a pound, the lowest level in 20 years. The Agriculture Department was forced to purchase 132,00 tons of sugar at a cost of $54 million. Both sugar growers and refiners were hurt by the price decline. The industry fears the loss of cane-refining capacity and a steady increase in imports. The loss of the cane-refining industry will hurt U.S. food producers and the inflow of imports will eliminate domestic growers.

In order to remedy this situation, producers and refiners argue for additional protection from imports and a revamping of the sugar program. The North American Free Trade Agreement (NAFTA) allows Mexico greater and greater access to American markets. By 2008, Mexico will have unlimited access to U.S. markets. Domestic producers argue that Mexican sugar is subsidized and it would be unfair to allow increased imports.

Proponents of free trade want the current sugar program phased out or significantly weakened. If U.S. sugar producers and refiners are not competitive, they argue, they should be eliminated. The sugar program is hurting consumers because it results in higher food costs, and government subsidies mean higher costs of government. .

(Updated June 1, 2001)

Questions
1. What are the three most common forms of trade barriers?
2. Illustrate using a demand and supply diagram how a tariff placed on imported sugar affects the domestic price of sugar.
3. Who would benefit from the elimination of trade restrictions on sugar? Who benefits from the current level of protection?
Source David Barboza, "Sugar Rules Defy Free-Trade Logic," The New York Times, May 6, 2001.

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