Abstract:
The world sugar market does not perform in a perfect competitive
setting. This research has applied a new framework to analyze the
impacts of liberalization in international trade in sugar. The current
round of GATT negotiation has placed agricultural trade reform on top of
the list. Trade in sugar will undoubtedly be affected by the outcome of
the negotiation due to the substantial protection practiced by several
governments.
International trade in sugar is characterized by two separate
types of market: special arrangement market and free market. The law of
one price does not hold in world trade in sugar. A spatial equilibrium
model cannot explain the rigidity in trade flows. Thus this research
proposes to use the Export Side International Trade (ESIT) model to
determine equilibrium prices and trade flows. The ESIT model maintains
the rigidity of trade flows consistent with an Armington type model but
does not require importing country prices data.
The equilibrium in this model is determined by solving the excess
supply and export demand functions in each exporting country.
The protection or trade distortion policies in this research are
captured by the concept of producer subsidy equivalent (PSE) and
consumer subsidy equivalent (CSE). Applying the ESIT model to data on
prices, trade flows, and removals of PSE and CSE at 1986 levels reveals
that developing countries, not including Cuba, would expand their sugar
economies by half a million metric tons a year. The gain in foreign
exchange earnings for these countries would be in the magnitude of $170
million annually. The developed countries' sugar economies would
contract by three million metric tons a year.
The study identifies two developing countries from ASEAN, the
Philippines and Thailand, as the major gainers both in terms of
increases in export volume and exchange earnings.
In conclusion, the study provides timely and valuable insights for
formulating more informed planning in trade negotiations. The findings
concerning contraction in the sugar sectors of the developed countries
suggest reallocating of their resources to other areas to achieve
economic efficiency. The liberalization in sugar trade could help the
developing countries meet their foreign debt obligations. Expansion in
employment and income redistribution to rural areas would result in
these countries as well.
