Sugar Program:

Changing the Method for Setting Import Quotas Could Reduce Cost to Users

RCED-99-209: Published: Jul 26, 1999. Publicly Released: Jul 30, 1999.

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Pursuant to a congressional request, GAO provided information on the Department of Agriculture's (USDA) Sugar Program, focusing on: (1) USDA's procedures for setting the tariff-rate quota for imported raw sugar; and (2) the U.S. Trade Representative's (USTR) procedures for allocating the quota among sugar-producing countries.

GAO noted that: (1) USDA uses the tariff-rate quota for raw sugar to restrict low-cost imports and maintain domestic prices at sufficiently high levels to prevent processors from forfeiting on their sugar loans; (2) USDA sets the tariff-rate quota at the beginning of the fiscal year and may adjust its size three times during the year; (3) in setting and adjusting the quota level, USDA compares year-end projections of the sugar stocks held by U.S. producers with projections of domestic sugar use (an indicator known as the stocks-to-use ratio); (4) generally speaking, a low stocks-to-use ratio is associated with a lower tariff-rate quota, tighter supplies, and higher prices; a high stocks-to-use ratio is associated with a higher tariff-rate quota, larger supplies, and lower prices; (5) the relatively low stocks-to-use ratios used by USDA have resulted in low tariff-rate quotas and tight domestic supplies of sugar; (6) in recent years, domestic sugar prices were over 2 cents more per pound than was needed to avoid sugar loan forfeitures; (7) GAO estimates that domestic sugar users incur a cost of $200 million annually for each penny in excess of the estimated price needed to avoid forfeitures; (8) once the initial size of the tariff-rate quota for imported raw sugar is set, USTR allocates shares of it among the 40 countries designated as sugar exporters under the tariff-rate quota on the basis of their exports to the United States between 1975 and 1981; (9) quota allocations for individual countries have not been revised for 17 years, despite dramatic changes in global market conditions, including changes in many countries' ability to produce and export sugar; (10) the United States imported, on average, about 3 percent less sugar than the quota allowed from 1996 through 1998 because some countries did not fill their allocations; (11) because the shortfalls in the tariff-rate quota reduced total U.S. sugar supplies by less than 1 percent, they had a minimal effect on the domestic price of sugar; (12) however, domestic sugar refiners expressed concern that these shortfalls have limited their ability to obtain sugar; (13) GAO identified several options that could be used to fill the tariff-rate quota more completely and better reflect the world cane sugar market; and (14) any changes to the allocation method would have to be consistent with U.S. trade agreements, according to USTR officials.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: USDA disagreed with the recommendation and the supporting analysis. USDA stated that sugar prices are already consistent with the estimated minimum prices needed to avoid loan forfeitures and, therefore, there is no need to change the tariff-rate quota. USDA has kept the size of the tariff-rate quota at the minimum needed to comply with its GATT commitment.

    Recommendation: To make the sugar program less costly to domestic sugar users, the Secretary of Agriculture should gradually increase the size of the tariff-rate quota so that the resulting domestic sugar prices are more consistent with the estimated minimum prices for avoiding sugar loan forfeitures.

    Agency Affected: Department of Agriculture

  2. Status: Closed - Not Implemented

    Comments: USTR expressed some reservations about whether the recommendation would be practical or beneficial to the various stakeholders. It also stated that while the recommendation is theoretically possible, it would require consideration as to whether implementation could be done in a manner that is consistent with commercial and other requirements without introducing unreasonable levels of commercial uncertainty. It also noted that many factors have contributed to the decline in sugar refiners since 1981. The statement of action has not been received. As of July 2003, USTR had not changed its process for allocating the tariff-rate quota.

    Recommendation: To better ensure that the tariff-rate quota is completely filled and better reflects world market conditions for raw sugar, the USTR should consider changing the process for allocating the tariff-rate quota in a way that is consistent with U.S. trade agreements while ensuring that any administrative changes are not unduly burdensome. Changes could include such actions as providing a means of reallocating unfilled quota or selecting an entirely new basis for allocating quota shares.

    Agency Affected: Executive Office of the President: Office of the U.S. Trade Representative

 

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