Foreign Relations of the United States, 1981–1988, Volume XXXVIII, International Economic Development; International Debt; Foreign Assistance

299. Memorandum From the Chairman Pro Tempore of the Cabinet Council on Food and Agriculture (Block) to President Reagan¹

Washington, September 21, 1983

SUBJECT

• Sugar

ISSUES

○ How should the increase in the 1984 global sugar import quota be allocated among supplying countries?

○ Should the current duty on imported sugar be reduced to the statutory minimum of 0.625 cent per pound?

A decision on the first issue is needed as soon as possible so that individual country quota shares can be allocated in advance of the new sugar quota year which begins on September 26. There is no decision deadline for the second issue.

BACKGROUND

On August 23, the members of the Cabinet Council on Food and Agriculture agreed to the following aspects of the 1984 sugar price support program:²

○ The FY 1984 sugar market stabilization price (MSP) will be established initially at a level of 21.17 cents per pound with the understanding that the MSP will be reviewed on a quarterly basis as provided in a new presidential proclamation to be issued forthwith.

○ The FY 1984 MSP will be defended by an import quota until the world sugar price rises to a level that permits the MSP to be defended by import fees and duties.

○ A standing interagency working group will be established to reexamine the Administration’s policies regarding the domestic sugar price support program and the border protection mechanisms employed to defend the program and to conduct the quarterly review of the MSP as provided for by the forthcoming presidential proclamation.

Consideration of the remaining issues pertaining to the size of the 1984 global sugar import quota, the allocation of the quota, and the level of the duty on imported sugar was delayed until publication of the September crop production report on September 12.

On September 14, the members of the Cabinet Council on Food and Agriculture agreed that the size of the 1984 global sugar import quota should be 2.95 million short tons, 150,000 tons larger than the 1983 quota. No consensus was reached on the quota allocation and duty issues, however.³

A domestic price support program for sugar was approved by Congress and signed into law in late 1981. A sugar import quota was implemented in May 1982 when it was determined that import fees and duties alone could not maintain the domestic price for sugar at a level high enough to avoid Federal Government purchases of sugar. USDA allocated the quota among supplying countries according to their share of the U.S. market during a representative period of time.

Last spring a decision was made to reduce the Nicaraguan share of the 1984 global sugar import quota to 6,000 tons. The remainder of the Nicaraguan quota (estimated to be about 50,000 tons) will be reallocated to Honduras, Costa Rica, and El Salvador.⁴ Nicaragua has challenged the U.S. action in the GATT, and a dispute settlement panel has been established to hear the complaint. USTR anticipates that the panel will rule in Nicaragua’s favor. In conjunction with the decision to reduce and reallocate the Nicaraguan quota, NSC noted the advisability of allocating part of any future increase in the global quota to the other three friendly Central American countries, Panama, Guatemala, and Belize.

Earlier this month, the Administration announced a redistribution of a 1983 sugar import quota shortfall of 50,000 tons. The shortfall was redistributed in a manner consistent with U.S. GATT obligations, that is on a nonpreferential basis according to the representative period formula used to allocate the annual global quota.⁵

DISCUSSION

Quota Allocation

Some parties recommend that the 150,000 ton increase in the 1984 global sugar import quota be allocated as follows: 50,000 tons would be allocated on a preferential basis to Panama, Guatemala, and Belize; the remaining 100,000 tons would be allocated in a nondiscriminatory fashion to the remaining supplying countries, excluding Nicaragua. These parties state that this allocation scheme would provide Panama, Guatemala, and Belize with much-needed foreign exchange and domestic economic benefits while maintaining a large nondiscriminatory element which would benefit other supplying countries, except Nicaragua.

Others recommend a nondiscriminatory allocation of the full quota increase. Proponents of this position claim that any preferential allocation scheme violates U.S. GATT obligations, subjects the U.S. to successful challenges by a host of GATT members, e.g. Australia and the Philippines, undercuts the Administration’s advocacy of trade liberalization, and offends our traditional allies in support of free trade. They also assert that a preferential allocation would exacerbate the credit problems experienced by countries like Brazil and would upset the Philippines and Thailand, countries that you will be visiting in the near future.⁶

Duty Reduction

With respect to the duty issue, some parties advocate reducing the sugar import duty from the current level of 2.8125 cents per pound to the bound minimum rate of 0.625 cent per pound. With the enactment of the Administration’s Caribbean Basin Initiative (CBI), 68 percent of U.S. sugar imports in FY 1984 will enter duty-free under the Generalized System of Preferences (GSP) program. These parties state that reducing the duty would take into account the concerns of the remaining non-GSP sugar exporters (Brazil, Thailand, Australia, South Africa) and would constitute a beneficial gesture in advance of your trip to Thailand and the Philippines. These parties claim that the duty reduction would be a trade liberalizing feature that would mitigate to some degree the negative impact of a preferential allocation of the quota increase. They also believe that the duty reduction would provide some relief to debt-ridden countries like Brazil. Finally, they point out that the current duty is unnecessary to defend the domestic sugar price support program as long as an effective quota system is in place.

Others oppose reducing the duty emphasizing that such action amounts to back door foreign aid for the countries that are currently paying the higher duty. Proponents of this position point out that the duty reduction would result in a revenue loss of as much as $50 million, something that cannot be treated lightly during a period of record budget deficits. Proponents of this position also assert that the duty reduction would lessen the effect of the special treatment accorded to targeted countries under the CBI and GSP and would send the signal that the U.S. was not committed to moving to a border protection mechanism of import fees and duties to defend the domestic sugar price support program.

OPTIONS

1. How should the 150,000 ton increase in the 1984 global sugar import quota be allocated among supplying countries?

a) Allocate 50,000 tons on a preferential basis to Panama, Guatemala, and Belize; and allocate the remaining 100,000 tons on a nonpreferential basis to all other supplying countries, excluding Nicaragua.

Advantages:

○ Would provide Panama, Guatemala, and Belize with much needed foreign exchange and domestic economic benefits.

○ Would complement the earlier reallocation of the Nicaraguan quota to Honduras, Costa Rica, and El Salvador.

○ Would accommodate U.S. policy in Central America without unduly jeopardizing the interests of all remaining supplying countries except Nicaragua.

b) Allocate the full 150,000 tons on a nonpreferential basis to all supplying countries, excluding Nicaragua.

Advantages:

○ Would reinforce the Administration’s advocacy of trade liberalization.

○ Would avoid exacerbating the credit problems experienced by countries such as Brazil.

○ Would avoid upsetting the Philippines and Thailand in advance of your trip to these countries.

2. Should the current duty on imported sugar be reduced to the statutory minimum of 0.625 cent per pound?

a) Reduce the sugar import duty to 0.625 cent per pound.

Advantages:

○ Would take into account the concerns of remaining non-GSP sugar exporters.

○ Would constitute a beneficial gesture in advance of your trip to Thailand and the Philippines.

○ Would constitute a trade liberalizing action that would lessen the negative impact of a preferential allocation of the quota increase.

○ Would provide some relief to debt-ridden countries like Brazil.

b) Do not reduce the sugar import duty.

Advantages:

○ Would avoid providing back door foreign aid to countries currently paying the higher duty.

○ Would prevent a revenue loss of as much as $50 million dollars.

○ Would retain the effect of the special treatment accorded to targeted countries under the CBI and GSP.

○ Would signal that the U.S. is committed to moving away from quotas and toward a border protection mechanism of import fees and duties to defend the domestic sugar price support program.

DECISION

Issue 1: How should the 150,000 ton increase in the 1984 global sugar import quota be allocated among supplying countries?

________ Option A: Allocate 50,000 tons on a preferential basis to Panama, Guatemala, and Belize; and allocate the remaining 100,000 tons on a nonpreferential basis to all other supplying countries, excluding Nicaragua.

Supported by: NSC, State, and Defense; OMB defers to State.

________ Option B: Allocate the full 150,000 tons on a nonpreferential basis to all supplying countries, excluding Nicaragua.⁷

Supported by: USTR, Agriculture, Treasury, and Commerce.

Issue 2: Should the current duty on imported sugar be reduced to the statutory minimum of 0.625 cent per pound?

________ Option A: Reduce the sugar import duty to 0.625 cent per pound.

Supported by: NSC, State, CEA, and Defense.

________ Option B: Do not reduce the sugar import duty.⁸

Supported by: USTR, Agriculture, Treasury, Commerce, and OMB.

1. Source: Reagan Library, Douglas McMinn Files, Subject Files, Sugar Quotas. No classification marking. A stamped notation at the top of the memorandum reads: “Received SS 1983 Sep 21 PM 7:53.” Another stamped notation reads: “CM 177.”
2. A copy of the minutes of the August 23 CCFA meeting are in the Reagan Library, Ralph C. Bledsoe Files, Office of Policy Development, Cabinet Councils, Other Cabinet Councils, Cabinet Council on Food and Agriculture.
3. A copy of the minutes of the September 14 CCFA meeting are in the Reagan Library, Ralph C. Bledsoe Files Office of Policy Development, Cabinet Councils, Other Cabinet Councils, Cabinet Council on Food and Agriculture.
4. In a May 4 memorandum to Clark, McMinn and Sapia-Bosch provided the recommendations of the Department of State’s Sugar Task Force on how best to implement Reagan’s February decision to reduce and reallocate Nicaragua’s FY 1984 sugar quota. The first recommendation was to reduce the quota to 6,000 short tons. The second recommendation was to reallocate Nicaragua’s quota to Honduras, Costa Rica, and El Salvador. McFarlane initialed approval of the Task Force recommendations. (Reagan Library, Douglas McMinn Files, Subject Files, Sugar Quotas)
5. In an August 26 memorandum to Clark, McMinn recommended that the NSC inform USTR orally that the FY 1983 sugar shortfall be reallocated in a nondiscriminatory fashion. Clark approved the recommendation on August 31. (Reagan Library, Norman Bailey Files, International Economics File, Trade Policy (07/09/1983–10/21/1983); NLR–25–8–12–4–4)
6. Reagan visited Tokyo November 9–12 and Seoul November 12–14, but not Thailand or the Philippines.
7. Reagan initialed and placed a checkmark by Option B.
8. Reagan initialed and placed a checkmark by Option B.