Changing the U.S. Sugar Program into a Standard Crop Program: Consequences Under NAFTA and Doha

We analyze the impact of continuing the existing US sugar program, replacing it with a standard program, and implementing the standard program with multilateral trade liberalization. Under NAFTA, duty-free sugar imports from Mexico could undermine the program's ability to operate on a "no-cost" basis to US taxpayers as large public stocks of sugar could accumulate. The replacement of the current sugar program by one similar to other major US crop programs would solve the problem of potential stock accumulation, accommodate further trade liberalization under a new WTO and future bilateral trade agreements, but would induce significant fiscal outlays. Our analysis of recent WTO proposals suggests that a WTO agreement is unlikely to impose significant adjustment pressures on the US sugar market beyond those created by NAFTA. The adoption of a standard program would make it easier for the US to meet its commitments under a new WTO agreement in terms of reductions in trade-distorting amber-box support. Moving to a standard program would increase the costs of the program for taxpayers but would lower costs for sugar users. Given reasonable assumptions about program parameters, the principal program cost would likely be through direct payments rather than through countercyclical or loan-deficiency payments.