Why US should keep sugar quotas - Essay Example

The US sugar industtry The U.S. sugar industry is one of the largest and most efficient in the world and accounts for an important part of the U.S. economy both rural and urban areas. This industry offers over 146,000 jobs1 and generates close to $10 billion in revenue in the 19 states where sugar beets and sugarcane are grown and processed. The United States is the world's fifth largest sugar producer and fourth largest consumer and net importer. U.S. production is about evenly divided between sugar beets, grown in twelve mostly northern tier states, and sugarcane, in four southern states.

The US sugar industry witnessed a lowering of trade barriers with the creation of the NAFTA (North American Free Trade Agreement). This agreement came to benefit most countries, as they could readily export their sugar to the US where sugar price was higher than in the world market. When sugar from other countries flooded the US market, the availability was higher than the demand and the result was a drastic fall in the prices of sugar.To redress the situation, the government had to intervene to reduce the quotas to be imported from each country.

Taking such a measure was to protect the sugar industry as well as the farmers and producers of sugar. The government also ensured that if sugar falls below a set price per pound, it would by the sugar so that farmers are guaranteed a minimum price.Potential for DumpingWith the NAFTA agreement reached in 19942, there have been a number of analyses to show that if care is not taking, then the US would witness dumping in the sugar market. Particularly worrying about this is issue is Mexico. It has been shown that as trade barriers fell with the creation of the NAFTA, U.S. exports of high-fructose corn syrup would flow into Mexico, and soft-drink makers in Mexico would start using high-fructose corn syrup as a sweetener instead of sugar.

That, in turn, would free up significant quantities of Mexican sugar and compel Mexican sugar producers to sell their surpluses in the United States. This shows the extent to which Mexico is desperate to sell its excess sugar, given that just as early as 1992 Mexico was a net importer of U.S. sugar, running an average annual trade deficit in sugar of $60 million. But today, the situation has reversed. Despite this reversing trend, US sugar consumption is declining, and the administration appears to be bent on giving away more of the US market to foreign sugar producers.

This view is supported by reports that beginning January 2008, free trade in sugar and high fructose corn syrup will exist between the United States and Mexico. Neither would there be any tariffs on imports from either nation, nor will there be a limit to the amount each nation can export to the other. By every indication, therefore, there is a potential for dumping, especially when one considers this scenario too: Mexico imports sugar from other countries like Guatemala at a lower price, uses such sugar to meets its domestic requirements and exports its own sugar to the US at a higher price.

This sugar, which would normally have been consumed internally in Mexico, but now sold at a higher price would be dumped into the US. One of the consequences of this sugar dumped at a high price would be an increase in the price of sugar to consumers in the US. This leaves U.S. industries that use sugar, such as confectioners, less competitive than foreign firms and at a disadvantage on the world market. In the U.S., there are more than ten times as many jobs in sugar-using industries as in the sugar industry itself, but these industries are losing jobs due to the artificially high cost of sugar.

Many confectioners, for example, are moving offshore.