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April 1, 2001 - International Trade News

Canada Willing to Sacrifice Sugar in Asymmetrical Trade Deals; US "Stuffed Molasses" Bill Returns; OECD Gives WTO Agreement Mixed Reviews

Canada is engaged in a series of trade talks that include Costa Rica, four other Central American countries (the "CA-4") as well as the Free Trade Area of the Americas (FTAA). A common feature in most of these negotiations is that the other parties want improved sugar access to Canada without offering symmetrical improvements in access to their highly protected sugar markets.

The recently announced Canada-Costa agreement is a case in point. Costa Rica has a 50% tariff compared to Canada's 8% tariff, and supports its sugar production through high prices that are far above the Canadian and even the supported US price. Yet, Costa Rica is demanding approximately six times more duty free access than it is willing to give Canada during a transition period. Further, it will only grant access for a token amount of Canadian refined cane sugar (which makes up 90% of Canada's sugar production) and even that depends on Costa Rican sales to Canada. In spite of objections from the industry that this is both a bad deal and would set a dangerous precedent for the CA-4 talks (countries whose combined exports are 1.5 times greater than Canada's total production) and the FTAA, the government seems willing to accept these lop-sided terms.

Canada already has one the most open sugar markets in the world and should not feel pressured into making further concessions while other countries continue to intervene in their own markets and transfer those distortions to the Canadian market. Another problem is that bilateral and regional deals do not address the massive distortions in the world market caused by EU export subsidies and US import restrictions. As a result, they only increase Canada's exposure to these distortions leading to the eventual loss of jobs in Canada. Sugar is a multilateral (WTO) issue that can only be successfully dealt with when all the players are engaged.

US "Stuffed Molasses" Bill Returns

On April 6, US Senator John Breaux re-introduced his bill to stop imports of certain sugar syrups, known as stuffed molasses, into the US. The new bill attempts to stop the imports by amending the US tariff schedule to place the product under quota.

Stuffed molasses is a mixture of raw sugar and molasses not covered under the extensive US sugar quota system. USDA estimates that 118,000 tons entered the 10 million ton US sweetener market in 2000. It has been blamed by some for depressing US sugar prices (although the volumes are small relative to the large increase in US domestic sugar production in recent years).

While stuffed molasses ingredients are mixed in Canada and shipped to the US, it is not made from Canadian refined sugar. The concern for Canada is that the broad language contained in the bill could be used in the future to block imports of any sugar containing product the US does not like. There is also concern about the consequences of countries amending their tariff schedules on an ad hoc basis.

OECD Gives WTO Agreement Mixed Reviews

A new report from the OECD, Agricultural Policies in OECD Countries, Monitoring and Evaluation, 2000, says, "The impact on trade in agricultural products of the Uruguay Round Agreement on Agriculture (URAA) has been limited." However, they add that the WTO agriculture negotiations are an excellent opportunity to deepen the process of agricultural trade liberalization.

The OECD says the URAA helped bring agriculture into the multilateral trading system, but the trend in reform came to a halt in 1998, and many distortions remain. Some countries raised tariffs. Others made greater use of export subsidies and other policies to encourage the disposal of domestic supplies in foreign markets, further distorting trade. It notes that while some bilateral agreements were completed, they covered only a limited number of commodities. As well, levels of producer support still vary widely across commodities with rice, milk and sugar having the highest support. Support went up in 1999 with the highest increase in support for sugar (up 10%). Canada has no support for sugar, but nearly all its trading partners do.

"The developments of the past few years underline the importance of new (WTO) negotiations," according to the OECD.

This report and others are available http://www.oecd.org/agriculture.