Sugar TRQ System Criticized in GAO Report
Not only does the byzantine system of tariff rate quotas and the suspension agreement with Mexican sugar exporters hike the cost of sugar, a new government report says that the methods of allocating and re-allocating TRQs result in consistent shortfalls in imports so that supply doesn't meet domestic demand, and shortages for food manufacturers, particularly late in the year.
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The Government Accountability Office, which was asked to analyze the sugar TRQ system by House Ways and Means Trade Subcommittee ranking member Earl Blumenauer, D-Ore., and New Democrat Chair Annie Kuster, D-N.H., recommended that USDA evaluate alternative methods of allocating raw sugar TRQs, and that the Office of the U.S. Trade Representative consider other allocation methods that would meet World Trade Organization obligations. GAO recommended that after this work, USTR could change its quota allocation method, or decide that the current system is best. Both USTR and USDA agreed with GAO's recommendations.
"Determining and using the most effective available method to allocate tariff-rate quotas may help ensure that adequate supplies of sugar are available in the U.S. market, and ease potential supply chain issues. Increasing sugar imports in this manner could also lower prices and the costs of the program to the U.S. economy and consumers," the report, published Oct. 31, said.
GAO said sugar has "by far the highest trade protection of any U.S. good, agricultural or non-agricultural," and that import prices of raw sugar are 28% higher than they would be without the sugar program. Domestic sugar beet and sugar cane growers receive higher profits due to the protection, somewhere between $1.4 billion and $2.7 billion annually, studies estimate; consumers pay $2.5 billion to $3.5 billion more for sugar, studies estimate, suggesting a net drag on the economy of about $1 billion a year. The costs of the support for sugar growers disproportionately affect low-income households, the analysis said.
The sugar program has to be reauthorized by Oct. 1, 2024.
Before each fiscal year, the USDA sets a TRQ amount for raw sugar, and that quantity is allocated among 40 countries, based on their market share of sugar exports to the U.S. between 1975 and 1981, before the quotas were established. However, seven of the 40 countries on the list haven't exported sugar to the U.S. in the last 15 years, and generally, they don't warn USTR that they don't intend to. So their distributions have to be reallocated during the year. Another 13 countries fill less than 75% of their quotas.
If reallocations are done before March, Mexico's limit is adjusted downward so there is no net increase. After April 1, USDA may increase the overall TRQ pool, though it still does so trying to maintain a certain domestic price.
Even with overall TRQ increases and with reallocations, imports are always lower than the TRQ ceiling; on average, 13% below the 1.1 million metric tons. In 10 of the last 17 years, USDA increased the overall TRQ limit, believing there would be higher demand than combined domestic production, TRQs and Mexican export supply. About 46% of sugar imports are under the TRQ; Brazil and the Dominican Republic are the top two suppliers, representing more than a third of TRQ supply.
"In 5 of the 11 years for which reallocations occurred between 2010 and 2022, the reallocations were announced in June or later. According to some tariff-rate quota-holding countries, this timing -- three-quarters of the way through the quota year -- occurs after they have already shipped their base allocation. Furthermore, these countries stated the timing makes it difficult to impossible to arrange the additional shipment on short notice," the report said.
Very little refined sugar is allowed under the TRQ, "and according to industry representatives there is not always available capacity at refineries to quickly process raw sugar into refined sugar for use by food manufacturers," the report said. That can lead to food manufacturers substituting high-fructose corn syrup for some of the sugar in the recipes.
USTR told GAO that the TRQ allocation process could be changed to a first-come, first-served approach, a new historical base period could be established, or the country-specific allocations could be changed if all 40 countries agreed to it.
"However, each of these methods present challenges and, according to USTR, any change to the current U.S. administration methodology for the raw sugar WTO tariff-rate quota may be subject to challenge by other WTO members," the report said.