Features International Sugar Journal

‘America first’, Australia sighs, Mexico waits

The US President Donald Trump signed an executive order cancelling the country’s involvement in the Trans-Pacific Partnership (TPP) trade deal soon after taking office. The pact between US, Japan and 10 other Pacific Rim countries (Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam) was signed on February 2016, but was awaiting ratification by parliaments in member countries. The TPP block covers 40% of the global economy. The pact aimed to deepen economic ties between these nations, removing most, but not all tariffs and setting new rules for digital trade and the treatment of state-owned enterprises to boost growth. Supporters of globalization argue, that it has benefited world economy, lifting a billion people out of poverty in the developing world and helping to raise living standards in rich economies. But this view was challenged by Trump, who saw free trade agreements fostered by “elites” as the cause of job losses in the industrial heartlands or the rust belt. The “populist” stance, which some argue tipped the election in Trump’s favour, was well informed. NAFTA (North American Free Trade Agreement), the three country accord that entered into force in 1994 promised creation of hundreds of thousands of US jobs – but the opposite has occurred.

Whether this development presages expansion of the US sugar industry, time only will tell. Since NAFTA commenced in 2008, both beet and cane acreage has increased from 1.091 mln acres to 1.163 million and 0.868 mln to 0.903 million acres in 2016/171, respectively. Acreage for sugar crops peaked in 1999/2000 to 2.521 million acres. US sugar policy mandates that 85% be supplied by domestic producers and the remaining imported via bi- and multi-lateral trade agreements. According to recent FO Licht data, 2016/17 sugar output in US is forecast at 8.448 million tonnes, against consumption at 11.027 million and imports at 2.7 million tonnes. Mexico’s sugar exports to US have increased significantly since joining NAFTA (though in the recent past, it has had to curb this following suspension agreement, after it was charged with dumping sugar). However, imports of HFCS to Mexico from USA has increased from 344,251 metric tonnes in 2008 to 924,272 tonnes in 2016/17.

Trump has said that NAFTA is “the worst trade deal ever signed”. It is questionable whether this is the case when it comes to sugar and HFCS.

The question is how far his administration will go in renegotiating the trade deal. Various observers have noted getting rid of the “controversial investor-state dispute settlements (ISDS) that have become an integral part of NAFTA, TPP, and other proposed trade deals2 should be centre-stage in renegotiating NAFTA. ISDS “allow private companies to sue national governments for damages or “lost profits” if their plans for moving to Mexico don’t go as planned due to regulation, government seizures, are any restriction on moneymaking. This radically reduces the risk typically associated with a company moving to a foreign nation. When companies know they can sue for any money lost on a large foreign investment, they have little reason to hesitate in their decision to take business out of America, where profits aren’t federally insured.” As the noble laureate, left-leaning economist Joseph Stiglitz observes, that while powerful, corporate interests enjoy a safety net, “those harmed by the actions of the foreign firms…do not have comparable protections of appealing to an international tribunal and receiving compensation.” With Trump’s “cabinet, the richest in US history [littered with billionaires], likely won’t welcome the idea of anything that strips corporations of their international influence.”2

As for Australia and its sugar industry in particular, it had hoped that once the TPP was ratified, an additional 65,000 tonnes allocation for sugar into the US on top of the 87,402 tonnes allotted to Australia under the tariff rate quota, was perhaps stepping stone to more later. The dismay in the industry by Trump scrapping the TPP was palpable. But the poetic justice is that Australia recently entered into a bilateral agreement with Indonesia whereby sugar tariff is reduced from 8% to 5%, similar to enjoyed by Thailand. The 8% tariff resulted in sugar exports to Indonesia slump to 300,000 tonnes a year from 1.25 million tonnes before Indonesia cut the tariff for Thailand in 2015 to 5% as part of the ASEAN Economic Trading zone pact.

As Mexico waits, and Australia sighs, it is apparent that “politics provides an alternative to market mechanisms3 to address national priorities.

References

1 https://www.ers.usda.gov/data-products/sugar-and-sweeteners-yearbook-tables/

2 Patrick Carr (2017) Trump and NAFTA: Populism or Corporatism? http://globalcomment.com/trump-and-nafta-populism-or-corporatism/

3 Harold James (2001) The end of globalization: Lessons from the great depression. Harvard University Press, pp 272