Benefits of the United States Import Protection of Sugar for the United States and Also For Exporters in the Developing World

Benefits of the United States Import Protection of Sugar for the United States and Also For Exporters in the Developing World

Introduction

This paper analyses from a U.S. perspective examining the costs to both the U.S. and other countries from U.S. protectionism. It then moves to a more global policy perspective. The United States, another region that absorbs sugar exports originating in Mauritius for an inflated price, is under internal and external pressure to change its current sugar policy. The internal pressure to dissolve its preferential agreement can be seen through a study by the General Accounting Office in June 2000. It signifies the problems with the current sugar program in the United States is that there are net economic losses from transfers to foreign producers given the artificially high price for raw sugar imports of which Mauritius is a recipient (tariff-rate quota). The net gain to the U.S. economy if the sugar program (TRQ program) was eliminated is found to be $930 million dollars. Thus, the U.S. may decrease its tariff-rate quota to zero and hence Mauritius will lose its inflated price of sugar flowing to the U.S., to capture the calculated net gain to the U.S. economy.

Sugar's Importance in the Economy

A pivotal commodity for the Mauritian economy is sugar. Sugar's importance in the economy can be shown through its earnings through preferential trade agreements. Next, it can also be shown through its share of gross domestic product, total export revenue earnings and total land cultivated. Thus, one can conclude that sugar continues to be an important commodity in the Mauritian economy. The overall relevance of sugar can be supported through its continued inflated export earnings for raw sugar via preferential trade agreements. The sugar sector is engaged in preferential trade agreements, or rather preferential pricing agreements (quotas at a specified price), with both the European Union and the United States. In addition to the Sugar Protocol causing Mauritius to receive prices for its sugar exports well above the world price, the Special Preferential Sugar (SPS) Agreement is an additional agreement between ACP countries and the EU. It was finalized June 1995. The price for sugar covered under this agreement is calculated by subtracting 8.1 Euros (€) per 100 kilograms from the ACP guaranteed price for raw sugar in the Sugar Protocol. This too would equate to the sugar sector gleaning a price higher than the world price. It is dependent on the overall difference in Sugar Protocol's pricing versus the world price. On average, the sugar exports flowing to the EU are 89.5% of the total sugar exports from 1974-2003.

As a result of such a trade agreement, by the 2003/2004 fiscal year (FY 2003/04), 94.8% of total sugar exports flowed into the EU. In particular, the Mauritian government receives preferential pricing of sugar through the Tariff-Rate Quota (TRQ) established with the United ...