The U.S. Sugar Program versus Bilateral and Multilateral Trade Liberalization

This paper explores the tensions that exist between maintaining the U.S. sugar program and liberalizing the U.S. sugar market in bilateral, regional, and multilateral agreements such as the North American Free Trade Agreement, the Free Trade Area of the Americas, the United States-Central American Free Trade Agreement, the United States-Australia Free Trade Agreement, and the Doha Development Agenda. The paper focuses on the effects on the U.S. sugar program of moving to a common market with Mexico and of providing additional access to sugar-producing nations under an FTAA, CAFTA, AFTA, and the DDA. The discussion serves to provide a clear example of the predicament in which the United States finds itself between maintaining protection on import sensitive commodities all-the-while negotiating for removal of protection on export oriented commodities. The Global Trade Analysis Project (GTAP) model is employed to assess the effects of trade liberalization on the U.S. economy under varying liberalization scenarios for sugar. The simulation results suggest that free sugar imports from some countries would be beneficial to the U.S. economy as a whole. Under free sugar imports, the prices of sugar crops and refined sugar would decline. If farm prices were insulated from free imports by price supports, the welfare gains to the U.S. economy would increase in some cases. The results suggest, however, that the wider the coverage of free imports, the more difficult it would be to sustain price supports.