TRADE: High Sugar Barriers Belie Free-Trade Discourse

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Aug 16 2001 (IPS) - Sugar is among the most protected products in world trade, and the tariffs and quotas imposed on this commodity — running counter to the global trend of market liberalisation — are present even inside free-trade zones.

This protection annuls any advantage enjoyed by the more competitive sugar producers in tropical regions, particularly Brazil, says Luiz Carlos Carvalho, head of the Sugarcane Agro- Industry Union (UNICA), the sector’s business association in the Brazilian state of Sao Paulo.

International sugar trade is limited to a volume of 32 to 35 million tons annually, about a quarter of world consumption, because “it is very difficult to break through the mechanisms used to protect” national sugar production, which in the northern industrialised nations comes from highly-subsidised sugarbeets, commented Carvalho.

Import quotas coexist in numerous countries with government- guaranteed minimum prices for local producers, mostly through subsidies.

Imports above these quotas are hit with tariffs that serve to close off the market, as occurs in the European Union (EU) where import taxes reach 297 percent, in the United States (up to 197 percent), and in Japan, (126 percent), said the UNICA leader.

He pointed out that the tariffs are much steeper than those applied to foreign purchases of wheat or beef, which the United States taxes at six and 31 percent, respectively, and the EU at 156 and 125 percent.

The protectionist measures affecting the sugar market may not always be the toughest, but they are surely the most widespread, says Angelo Bressan, director of the Department of Sugar and Alcohol at Brazil’s Agriculture Ministry.

Even Chile, widely seen as the Latin American model of an open market, decided to boost its maximum tariff on sugar exceeding import quotas from 31 to 98 percent.

The measure requires — as stipulated by international trade rules — that Chile offer compensation to the sugar-producing countries it deals with: Argentina, Brazil and Guatemala.

Brazil considers Chile’s proposed quota of 9,700 tons of sugar annually too low and threatens to file a complaint with the World Trade Organisation (WTO), to be resolved by its dispute settlement system.

In 1999, Brazil exported 53,700 tons of sugar to Chile, a volume it wants to maintain as its baseline for the quota.

“It is almost nothing for a country like Brazil, which exports eight million tons annually,” but restrictions like this between neighbours and associates in Mercosur (Southern Common Market) weaken the bloc in its trade negotiations with the rest of the continent and with the EU, warned Bressan.

Chile is an associate member, as is Bolivia, of Mercosur, whose full members are Brazil, Argentina, Paraguay and Uruguay.

Sugar is the only product still excluded from Mercosur’s free trade regimen because Argentina continues taxing imports from Brazil, while Brazil maintains subsidies for national sugar production – a vicious circle involving the South American bloc’s largest members.

In Argentina, officials are attempting to ward off a deepening of the social crisis that is devastating some of its northern provinces, where the sugar industry would not be unable to compete with Brazil if the Argentinean tariffs were removed and would mean the loss of hundreds of jobs.

In contrast, Chile’s protectionist stance benefits just one company, Industria Azucarera Nacional S.A., which controls 90 percent of the national market and is the only local producer, as well as the leading sugar importer, points out José Alfredo Graça Lima, head of Foreign Integration and Trade at the Brazilian Foreign Ministry.

The agreement that links Chile with Mercosur calls for lifting import taxes on sugar, but involves a timeline set to begin in 2007, and would not reach zero-tariff until 2012, Graça Lima said.

Tariff obstacles, particularly those imposed by the EU and the United States, make sugar the product with “greatest price volatility in international trade,” stressed UNICA chief Carvalho.

The cost of producing sugar in Brazil averages six times less than in industrialised countries, but the barriers to those markets – to be overcome only in the long term – forces the developing countries that do not benefit from preferential trade agreements to seek other routes.

One alternative for this sector in Brazil is alcohol, another by-product of sugarcane.

The world trend towards replacing MTBE (methyl tertiary butyl ether), a highly toxic gasoline additive, opens new opportunities for Brazilian exports.

Brazil has added sugarcane-based alcohol to gasoline for more than 20 years, and there are even some vehicles that run exclusively on this alternative fuel additive.

Countries that represent major market potential, like the United States, will have to phase out MTBE, given the pressure being applied by environmental groups, predicts Carvalho, and “sugarcane alcohol will become the major star within five years.” Brazil is already at an advantage in the industry.

Sugar and alcohol require high productivity and mechanisation, and therefore technological development, observed Bressan, unlike coffee, an agricultural sector that tends to expand in poor countries where there is a great deal of cheap labour, evident in the case of Vietnam.

Brazil is the most competitive nation as far as sugarcane because it has all the optimal conditions: good soil, extensive terrain, a climate that includes a great deal of sunshine, and technology for developing the most productive sugarcane varieties and the most efficient industry, concluded the Agriculture Ministry official.