US, Australia Sugar Fight Resumes, but No Expectation for Reform in TPP

Australian Trade and Investment Minister Andrew Robb, when announcing the round in recent days, said agriculture will be a focus of the talks, and Australia will keep pressing for market access expansion to benefit Australia's exports (see 14100219). U.S. negotiators shot down an Australian attempt to liberalize the U.S. sugar market in bilateral free trade agreement negotiations that wrapped up in 2004. The issue remains a fundamental priority for the Australians, but the U.S. appears intent on keeping its strict tariff-rate quota (TRQ) in place, said National Foreign Trade Council President Bill Reinsch, along with the other analysts and USTR officials. “Whether [USTR negotiators] will be able to sustain that position, I don’t know,” said Reinsch. “Sugar is not one of the issues that has been at the crux of the ongoing disputes in TPP. It’s mostly been on the back burner.”

All countries have sensitive issues, said the Office of the USTR, while declining to speak directly to sugar negotiations on latitude in U.S. policy. “Our economy is widely seen as one of the most open economies in the world. Our average applied tariff is about 1.5 [percent],” said a senior USTR official via email. “There isn’t any comparison between the openness of our economy and some others; it’s a false comparison.” U.S. sugar producers also hit back at Australian attempts to expand its access to the U.S. market beyond the 2004 U.S.-Australia FTA. “U.S. sugar producers do not believe that the US-Australia trade deal, which was result of careful negotiation and consideration by both nations, should be reopened under the TPP,” said Phillip Hayes, spokesman for the American Sugar Alliance.

The U.S. Department of Agriculture and the Office of the USTR give Australia one of the largest allocations in the U.S. raw sugar TRQ. Australia is able to fill more than 87,000 of the 1,117,195 metric tons raw value (MRTV) allocated in the system for the 2015 fiscal year (see 14090405). The country is also hoping to expand its access under the refined and specialty sugar TRQ (here), which totals 127,000 MTRV. But that TRQ is a first-come, first-served system that uses staggered tranches to control market availability. Increased Australian market access could take shape through a raised allocation in the TRQ or some way to provide unfettered Australian access to the U.S. market, akin to Mexican access awarded through the North American Free Trade Agreement (NAFTA), said the analysts.

The chances of the U.S. giving Australia access unrestricted by the TRQ, which would qualify as a big improvement for Australia, is unlikely, if not impossible, the analysts said. “Other economies know when you negotiate with the U.S. there is not going to be much movement on sugar market access, as well as some arcane rules of origin with apparel and textiles,” said Scott Miller, a senior trade analyst at the Center for Strategic and International Studies, noting that the U.S. has imposed sugar barriers since nearly the inception of the country. “It’s a very tough issue, and whether there is room for movement, I have no evidence to suggest or speculate that will happen.” USTR is insisting on yarn forward rules of origin for textiles and apparel, with some exceptions, in a final TPP agreement (see 14081105). The chances that sugar disagreement will be a “show-stopper” is very low, Miller added.

The U.S.-Australia FTA exempted sugar from tariff reduction and elimination, despite pressure from Australia for increased access. At this point, the Australians may be urging unfettered access through TPP as a negotiating tactic with the hopes that the U.S. will be willing to make a less substantial concession, said Reinsch. “Is [unfettered access] a realistic goal? Not necessarily. They may trim their demands, but not now. Why settle for part of the pie, if you could still have the whole pie,” he said. “The sugar debate is not going to disappear. The Australians won’t let it disappear so the US will have to confront it at some point.”

The U.S. and Australia seem allied in their TPP negotiating positions, particularly in nudging more market access concessions from Japan, but Australia could theoretically hold a deal up at some point over sugar, at which point the U.S. may be forced to relax its barriers, said Reinsch. The U.S. said it won’t negotiate increased market access with FTA countries through TPP negotiations as a way to limit discussion of sugar liberalization, said Reinsch. Considering the bilateral FTA is in place, it’s unclear, however, when Australia would get another chance to urge sugar liberalization if TPP is concluded without addressing it.

Free trade proponents are also rallying behind the Australian demands, saying the “ambitious” TPP agenda should include U.S. removal of tariff and non-tariff barriers on its sensitive products. “It’s very hard to say that TPP is a high-quality agreement and other countries have to put all sensitive issues on the table if the U.S. doesn’t do the same,” said Jeffrey Schott, senior analyst at the Peterson Institute for International Economics. Still, “these are not the most important issues under negotiation" and "there’s lots of Australian interest in the agreement beyond marginal increases in sugar market access," he said. "That’s not going to get you rich.”

Australian exports under the first-come, first-served TRQ for refined sugar are too risky due to the country’s geographic distance from the U.S., Australian sugar producers have said in the past (here). The disadvantage basically prevents the country's participation in the TRQ, the producers say, adding that an exemption similar to the non-TRQ restricted access provided to Canada and Mexico further access could be extended to Australia. Under NAFTA, Mexico is allowed to export sugar to the U.S. without duties or quotas, though the U.S. domestic sugar industry complains that Mexico is abusing that unfettered access to dump into the U.S. market (see 14043014) and the Commerce Department preliminarily decided to require antidumping duties for the product (see 14082919).

The sugar issue is not likely a necessity for Australia, considering it’s poised to reap huge industry benefits from a TPP agreement regardless of improvements in sugar access, said Schott. The U.S. and Japan prefer all TPP market access is negotiated bilaterally, although some TPP participants prefer there to be uniform market access arrangements, said the analysts. At this point there's no guarantee that U.S. negotiations with Japan over market access will benefit the other countries in the agreement. But Japanese concessions to the U.S. are likely to increase the resolve of other countries to get similar access, and Japan fears concessions to the U.S. will bleed over to arrangements with other countries, those interviewed said. The U.S. and Japan have battled for months over Japanese tariffs on rice, beef and pork, wheat, dairy and sugar imports in TPP (see 14091028).

American sugar importers and foreign sugar producers often chide the U.S. sugar support system as antiquated and harmfully protectionist. But the current support system, which includes the TRQs, price manipulation mechanisms and domestic market controls, and its former iterations have been in place for more than 200 years. “The U.S. is a supply managed program, and alike many countries around the globe, its sugar industry is too brittle to allow for certain flexibilities,” said Miller. Too much liberalization at once may lead the industry “to fall down," he said. "That’s why the supply management programs are so trade distorting.” -- Brian Dabbs