A SWEET PRODUCT INSPIRES BITTER REACTIONS

A SWEET PRODUCT INSPIRES BITTER REACTIONS

Over the years, the Agriculture Department has regularly announced its annual sugar tariff rate import quota well in advance of the date it takes force - Oct. 1, the start of the new fiscal year. The advance notice, published in the Federal Register, helps the sugar industry plan its marketing decisions.

But not this year. Oct. 1 came and went, with no word as to how much imported sugar would be allowed during the 12 months through next September. U.S. sugar refiners and others began sounding alarms. The delay was creating market uncertainties, and ships carrying foreign sugar could not unload, raising demurrages.Finally, on Nov. 2, the department announced its sugar tariff quota for fiscal 2000.

The apparent reason for the delay: a debate among federal agencies over the size of the quota - a key determinant as to whether the government, in trying to prop up sugar prices, might have to buy the sugar itself.

The Agriculture Department seems to have won the argument. The tariff rate quota it eventually announced was large enough to commit the government to make those purchases, if U.S. sugar prices fall below target levels.

And this fiscal year, such purchases just may have to be made as domestic output soars and prices decline. It would mark the government's first sizable sugar purchases since 1985. They could be in the tens of millions of dollars.

Welcome to the U.S. Sugar Program, one of the most convoluted creations in the Washington wonderland of agricultural policy.

Since 1789 the United States has been imposing tariffs on imported sugar, and by the mid-1930s it introduced import quotas. But never have import curbs hit foreign sugar suppliers so hard as in recent years. Since 1981, when the present sugar program began, imports have plummeted from more than 5 million tons a year to a little over 1 million.

Domestic growers and processors have by and large flourished, but it's come at a cost to others, particularly cane refiners. More than half of all U.S. sugar refineries have closed, thousands losing their jobs. Many Third World suppliers, sorely in need of dollars, earn much less now on their sugar, and U.S. consumers pay well above ''world'' sugar prices.

The U.S. program, various independent analysts agree, imposes significant costs on the U.S. economy. U.S. International Trade Commission economists recently estimated that eliminating the program - both the tariff rate quota and the loan program - would generate a net gain to the country of roughly $1 billion. Close to 3,000 jobs would be lost, but almost that number would be created, they said.

There's a lot of smoke and mirrors, says Nicholas Kominus, president of the U.S. Cane Sugar Refiners Association.

Take the rule that makes sugar farmers eligible for non-recourse Agriculture Department loans if the annual tariff rate quota exceeds 1.5 million tons. The department has just set the fiscal 2000 quota at 1,50l,348 tons.

But will this amount actually be allocated? Probably not; doing so would exert more downward price pressure, making forfeitures on the non-recourse loans all the more likely. The 1,501,348-ton quota is an obvious gift to the domestic industry and a false hope for foreign suppliers.

By the way, notes the U.S. General Accounting Office, the Agriculture Department in recent years has been setting unnecessarily small import quotas in order to raise prices and thereby avoid loan forfeitures. The result: several hundred million dollars a year in extra costs for the nation's sugar users.

And what other program is so inviting for circumvention? One U.S. firm, Heartland By-Products, is getting around the import quota by buying so-called stuffed molasses from Canada - a sugar-molasses mix. It then separates the two ingredients, sells the sugar in the United States and returns the molasses to Canada.

So far, federal authorities are unable to halt this manipulation. Meanwhile, to compensate they are paring the tariff rate quota by about 10 percent, another hit to foreign suppliers, refiners and others.

Which brings us to the quota itself. Parceled out to 40 countries, it is based on trade patterns of two decades ago. Some quota holders, such as the Philippines, actually are net importers of sugar.

Thanks to the program, U.S. raw sugar prices are about triple world market levels. Despite protests from consumers, environmentalists, refiners and food manufacturers, it survives, even though sugar accounts for little more than 1 percent of total U.S. farm receipts.

It's one of Washington's great lobbying stories. In the 1997-98 election cycle, five of the industry's leading trade associations handed out nearly $1.5 billion in political donations.

Still, free traders interested in cheaper sugar should not give up. For one thing, Mexico next year is due to have its import quota boosted from 25,000 to 250,000 tons. And there's the prospect of a new round of global trade talks focusing on agriculture.

Even domestic sugar producers say they back the goal of ''genuine global free trade.'' If ''other countries reduce their supports to our levels, we are prepared to join with them . . . and make further reductions,'' says Jack Roney, the American Sugar Alliance's chief economist.

Australia, for one, has served notice that liberalizing the U.S. sugar program is virtually a sine qua non for a successful new World Trade Organization round. ''How can the United States argue against Canadian dairy tariffs of 300 percent and Japanese rice tariffs of 390 percent, when the tariff equivalent of its own sugar quota has reached upward of 400 percent this year?'' one Australian official asked.

Foreign sugar-supplying countries, participating in the new WTO round, will insist on a more than sugar-coated answer.