The purpose of this report is to present and discuss findings of a study of trade liberalization on the World sugar market. The study considers the following scenarios: (a) the effects of trade liberalization from the Uruguay Round (UR), (b) the effects of complete global trade liberalization, (c) the effects of partial trade liberalization, (d) the effects of complete trade liberalization in the industrialized countries, (e) the effects of partial trade liberalization in the industrialized countries, (f) the effects of complete trade liberalization in the major developing countries (Brazil, China, Indonesia, and Republic of Korea), and (g) the effects of partial trade liberalization in the major developing countries. The analysis focused on changes in the world sugar price and on changes in production, consumption, stock changes, and net trade in the 42 countries and/or regions: USA, Canada, European Union, Other Western Europe, Poland, Other Eastern Europe, Former USSR, Japan, Australia, New Zealand, Fiji, Rest of Oceania, China, India, Indonesia, Philippines, Thailand, Malaysia, Pakistan, Vietnam, Korea, Bangladesh, Other Asia, Cuba, Guatemala, Mexico, Argentina, Brazil, Chile, Other Latin America, South Africa, Kenya, Zimbabwe, Algeria, Malawi, Tanzania, Egypt, Mauritius, Rest of Africa, Turkey, Saudi Arabia, and Other Near Eastern countries. In addition to these countries, analysis of trade liberalization on the ACP countries and SIS aggregate was also conducted, including an analysis of the effects on these aggregates from revision of the ACP/EC Protocol. Also, a separate analysis was conducted on the impact of selected trade scenarios on individual ACP countries and developing export and import countries.

A multi-region, non-spatial equilibrium model of the world sugar market was developed in order to project future prices, production, consumption, stock changes, and net trade under various scenarios. Supply, demand, and stock change elasticities were obtained for each country/region either through direct estimation or from prior studies. Projection information on real per capita GDP, population, and tariff changes were derived from published data. Parameters for supply changes were derived from estimated trend coefficients of econometric models of production and from expert opinions of observers of the sugar industry. Income elasticites by country were obtained from FAO and from estimates obtained from econometric analysis of consumption. The projection information was then used to simulate prices, production, consumption, stock changes, and net trade by country/region to 2000 and 2005 under the various scenarios.

The main results of this study may be summarized as follows:

The world sugar price (assuming full implementation of the UR) is projected to increase to $0.123 per pound from the baseline of $0.119 in 1993-95. Compared to the case of no change in tariffs to 2000, the effect of the UR agreement is to raise the real world sugar price 7.0%. Production is expected to decline in the USA, EU, Japan, Australia, China, Indonesia, the Philippines, Mexico, Brazil, and South Africa as a result of the UR agreement. Consumption would rise mainly in the USA and Japan because of reduced domestic prices. Imports would increase in the USA, China, Indonesia, and the former USSR because of the UR agreement. Exports would be lower in the EU, Australia, Mexico, and Brazil as a result of the UR agreement; however, exports are projected to be higher in India and Cuba as a result of the UR agreement because of unchanged tariffs to 2000.

The baseline price is projected to decrease to $0.120 assuming continuation of the UR agreement to 2005. Production and consumption are projected to be higher for most countries. The largest increase in imports is projected to occur in the former USSR because of decreased production. Australia, Cuba, and Brazil are projected to have large increases in exports.

With global trade liberalization, the world price is projected to increase 43.2% to $0.172 from a baseline projected price of $0.120.The gains from freeing up trade would be large. The gains would be especially great in many of the Latin American and Caribbean countries where production and exports would rise as a result of an increase in world price, assuming that transfers to ACP and SIS are not eliminated. The USA, Japan, and India would experience the largest increase in imports.

Under partial global trade liberalization (20% reduction in tariffs across the board), the world price would increase by 6.4% compared to the case of no further trade liberalization to 2005. A very similar pattern of changes in production, consumption, and net trade occurs compared to the complete liberalization scenario. In neither case are changes in stock changes from the baseline large.

Under complete and partial trade liberalization of the developed countries (i.e., USA,. Canada, EU, other Western Europe, Australia, New Zealand, Japan, South Africa, and Israel), the world price rises by 9.8% and 0% ,respectively, compared to the baseline price of $0.120. With minor exceptions, production would fall, consumption would rise, and net trade would decline in the developed countries; in contrast, production would rise, consumption would fall, and net trade would increase in many of the other countries. As in the other cases, the USA and Japan would experience significant increases in imports while the EU, Mexico, and Brazil show large increases in exports.

Complete and partial trade liberalization in selected developing countries (i.e.., Brazil, China, India, Indonesia, and the Republic of Korea) would cause the world sugar price to rise 16.7% and 1.1%, respectively, compared to the baseline price of $0.120. Aside from Korea, production would fall, consumption would rise, and net trade would fall in all of these developing countries. The USA, former USSR, Mexico, and other Latin America countries would gain the most in terms of increased production and net trade.

Many developing export countries would benefit from trade liberalization because of relatively small trade barriers. Imports would decline for most developing import countries with a uniform reduction in tariffs across all countries. Imports would decline (rise) in China, India, and Indonesia if trade were liberalized in only industrialized (major developing) countries.

For the ACP countries, the impact of the UR agreement will be to increase production, lower consumption, and increase exports. Producers receive preferential prices in the EU and USA for large proportions of sugar exported to those countries; however, the impact of the UR agreement will be to increase total revenue from exports slightly (by about 1%) . Similar effects are expected in the case of the SIS aggregate, with a 3.3% increase in expected in export earnings as a result of the UR agreement.

With no change in transfers, ACP producers would gain under complete and partial trade liberalization and under complete and partial trade liberalization in the selected large developing countries. They would lose under continued market reform in developed countries and they would lose with reduction in transfers from the EU and USA with partial trade liberalization. Assuming a 20% decrease in transfers to ACP countries with partial global trade liberalization, export earnings to ACP countries would decline by about 7%. Exports would rise except for trade liberalization only in the developed countries, and partial and complete elimination of preferences under the ACP Protocol and USA TRQ.

Similar trade patterns would be exhibited across individual ACP countries as for the aggregate of all ACP countries. However, the impact on individual countries would be expected to be greater compared to the aggregate of all ACP countries. What is apparent from the various trade simulations is that ACP producers will likely continue to experience price erosion unless their preferences remain intact or trade with the major developing countries (India, China, Indonesia) is liberalized.

As in the case of the ACP countries, the SIS producers gain under both total and partial global trade liberalization as well as total and partial liberalization in the large developing countries (assuming no change in export subsidies). However, the SIS lose with trade liberalization of developed countries. Under partial global trade liberalization with a 20% reduction in transfers from the EU and the USA, export earnings for the SIS would decline by only about 2.1%. The SIS aggregate could lose about 4% of export earnings over the current status quo (continuation of the UR to 2005) with complete trade liberalization and with complete elimination of transfers.

A comparison of export earnings by ACP countries and SIS aggregate under complete trade liberalization indicates that the combined value of transfers from the EU and USA to these countries is worth between 27-31% of the value of their export earnings.

Removal of trade barriers within common trading areas poses a threat to many developing countries, especially ACP countries. Full implementation of NAFTA by 2008 could provide increased access to the USA market by Mexico. If the USA maintains its import restrictions, this would limit access to the USA market by ACP countries. However, under trade liberalization the USA’s imports would be projected to increase sufficiently to meet increased exports from Mexico as well as increased exports from ACP countries.