385. Memorandum From the Economic Policy Council to President Reagan1
SUBJECT
- Sugar
The Department of Agriculture must announce by December 15, 1987, the amount of sugar that foreign countries may export to the United States. Usually the level at which we set the quota is a routine, but painful, calculation. This year, the Economic Policy Council is presenting you with two possible approaches, one of which covers only raw sugar imports, the other which covers both raw sugar and products that contain sugar.
BACKGROUND
The U.S. sugar program is pernicious. The law requires that the program be administered at “no cost” to the Government, and the only way to do that is to limit sugar imports. Each year, the quota on sugar imports has been reduced, often dramatically. For instance, in 1983, the quota was roughly 3 million tons; in 1987, the quota was 1 million tons.
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- Because U.S. producers are assured 18 cents per pound, while the world sugar price is roughly 6 cents per pound, the program creates an enormous incentive for U.S. beet and cane farmers to produce more sugar.
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- At the same time, the high price of U.S. sugar has caused a steady shift to artificial sweeteners. As the difference between U.S. sugar [Page 935] demand and U.S. sugar production diminishes each year, there is less room for sugar imports.
The losers in the sugar program are:
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- U.S. consumers, who pay roughly $3 billion more annually than would be necessary without the sugar program; and
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- Nations, such as the Caribbean Basin Initiative countries and the Philippines, that are efficient producers but whose exports to the U.S. are reduced each year.
Last year, the Administration forwarded legislation that attempted to mitigate the harmful effects of the sugar program by: (1) immediately reducing the loan rate from 18 cents to 12 cents per pound; but (2) providing a transition payment to sugar producers to help them adjust to the immediate reduction in the loan rate.2 Congressional support for this reform proposal, and others, has been extremely disappointing.
ISSUES
The Economic Policy Council is presenting two issues for your consideration:
- 1.
- A recommendation to offer a new sugar reform proposal, which would not provide a transition payment to U.S. sugar producers and thus help keep the deficit down;
- 2.
- A review of two alternative approaches to setting the 1988 sugar import quota.
New Sugar Reform Proposal
The Economic Policy Council unanimously recommends that you offer a new sugar reform proposal:
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- If domestic prices were 150 percent or greater of the world sugar price, the loan rate would be reduced 1½ cents per pound per year, to no lower than 12 cents per pound.
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- The quota would be set at the level necessary to maintain the no-cost requirement of the sugar program.
Because the reduction in the loan rate would be more gradual, there would not be a need to provide a transition payment to sugar producers. Even though the program would continue to be administered at “no cost”, the reduction in the loan rate would diminish U.S. production and permit more sugar imports.
The 1988 Import Quota
The Economic Policy Council has identified two approaches for establishing the 1988 import quota:
- 1.
- Follow customary practice and cut the quota on a non-discriminatory, across-the-board basis, which would result in a 750,000 ton quota in 1988; or
- 2.
- Place restrictions on imports of a number of sugar-containing products, most of which originate in Canada. This would allow the sugar import quota to remain at the 1987 level, 1 million tons.
Secretary Lyng feels strongly that we should place restrictions on sugar-containing products. He offers several arguments:
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- This action would permit more sugar imports and be more helpful to the CBI countries and the Philippines.
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- The amount of sugar brought into the U.S. in products is growing at a dramatic rate and placing U.S. industries that use 18 cents per pound sugar as a raw material at a competitive disadvantage.
A number of Economic Policy Council members are sympathetic to Secretary Lyng’s concerns, but prefer to follow the customary practice and place more stringent quotas on raw sugar, for the following reasons:
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- Placing restrictions on sugar-containing products extends the sugar program to more products, to the detriment of U.S. consumers.
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- Canada is a major supplier of sugar-containing products. Although we specifically reserved the right to place restrictions on sugar-containing products during the Free Trade Agreement negotiations, some segments of Canada may react badly to such restrictions.
During the discussion, several Council members expressed a desire to explore the possibility of encouraging Canada to import sugar from the CBI countries and the Philippines rather than Cuba. The Council has directed that more work be done in developing this idea.
Despite strong differences about the best ultimate approach to determining the quota, the Council unanimously agreed on an interim approach:
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- Establish a 1988 quota on raw sugar only of 750,000 tons.
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- Re-examine the possibility of placing restrictions on sugar-containing products after consultations with Canada regarding Cuban sugar imports and the signing of the FTA.
DECISION
The Economic Policy Council unanimously recommends that you approve the following interim approach to the 1988 sugar quota:
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- Establish a 1988 quota on raw sugar only of 750,000 tons.
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- Re-examine the possibility of placing restrictions on sugar-containing products after consultations with Canada regarding Cuban sugar imports and the signing of the FTA.3
In addition, the Department of Agriculture will forward a new legislative proposal for reforming the sugar program that does not contain the transitional payments to farmers.
Chairman Pro Tempore
- Source: Reagan Library, Nancy Risque Files, Subject File, OA 19395, Sugar. Confidential.↩
- See Document 372.↩
- Reagan initialed the “Approve” option.↩