Chapter 8. Sugar Could Sweeten U.S. Australia Trans-Pacific...

Chapter 8 HEADLINE: Sugar Could Sweeten U.S. Australia Trans-Pacific Trade Talks

This article discusses the reasons for a sugar quota in the United States, which has been in place since before World War II. Under current negotiations for the Trans-Pacific Partnership, Australia has asked the United States to reconsider this quota and allow more exports from Australia.

Australia’s sugar growers and investors could end up with a sweeter deal under the upcoming Trans-Pacific Partnership negotiations as the U.S. faces growing calls to put its long-standing sugar import restrictions on the table. The U.S. has been leading the wide-ranging regional talks, which aim to eliminate barriers to trade between the world’s largest economy and some of the fastest-growing markets. In all, the 11 countries in the talks—which include Australia—account for one-third of U.S. trade. … [The] U.S. may finally be forced to reconsider the limits on sugar imports it has had in place since before the start of the Second World War.

To be sure, sugar is a sticky subject in the U.S. That’s not only because it’s already the world’s largest importer of sugar, buying from more than 40 countries, the largest market for sweeteners or because, with annual production in excess of 8 million short tons, it’s also one of the world’s largest producers. It’s because the sugar industry—which employs around 142,000 people and generates nearly $20 billion a year, according to lobby group the American Sugar Alliance—is extremely politically vocal and represents important votes in key swing states. For this reason the industry has been able to keep trade barriers intact that, for decades, kept domestic prices at roughly double the world price until about 5 years ago.

…[A]s the world’s third-largest sugar exporter, Australia stands to reap significant benefits if the U.S. relaxes its regulations. Tom Earley, vice president for Agralytica Consulting, estimates there’s an annual shortfall of more than 1 million metric tons in the U.S. that isn’t met by fixed quotas and so would be up for grabs under any changes. “Australian negotiators are saying everything should be on the table and that makes sense to me,” he said. “At the end of the day everything is on the table.” … A spokesman for Australia’s Department of Agriculture, Fisheries and Forestry said the U.S. remains a “valued market for the Australian sugar industry, despite volumes being constrained.” The government “continues to press for increased sugar access to the U.S., although this remains a difficult issue for both countries,” he added.

Source: Excerpted from Caroline Henshaw, The Wall Street Journal, October 18, 2012. Reprinted with permission of The Wall Street Journal, Copyright © 2012 Dow Jones & Company, Inc. All Rights Reserved Worldwide.

Question 1

Question

If the US were to eliminate its sugar quotas, what would you expect to happen to domestic sugar production?

Question 2

Question

The Headline mentions that the U.S. sugar quotas kept domestic prices of sugar at approximately twice the world price. This inflated price reduces consumer surplus, so why would the U.S. leave the quota in place for so long?