US Revokes Sugar Quota for Nicaragua

A message to Ortega and Businesspeople

Sugar cane cutting in one of the Nicaraguan sugar mills. Photo: Taken from IP.

The United States can take away our partial or total access to the market, applying a security clause.

By Ivan Olivares (Confidencial)

HAVANA TIMES – The United States decision to exclude Nicaragua from the sugar quota list for the fiscal year 2023, precisely a day after Daniel Ortega rejected in a public speech the possibility of engaging in a dialogue with that country, shows that “it is a bad idea to fight with your best client,” in the opinion of lawyer and political analyst Eliseo Nunez.

On July 18, a note signed by the General Counsel of the Office of the US Trade Representative, Greta Peisch, was made public. It includes the list of 39 countries from which part of the annual quota of 1.12 million metric tons raw value will be purchased, in which Nicaragua does not appear.

Although this was a technical decision, Nunez asserts that “the political reading is behind everything. By quarreling with your best client, you are left without negotiation capacity. Any technical issue becomes something very complicated to solve, because you do not have an open channel to talk.”

An economist and a consultant with in-depth knowledge of the text of the Free Trade Agreement between the United States, Central America and the Dominican Republic (CAFTA-DR), agrees that the US is sending a message to the country’s political and entrepreneurial class.

“The United States has the power to make any decision applying a national security clause and take away total or partial access from us. For now, I think that they are sending messages warning of this threat, which is a prerogative of the Executive,” said the consultant.

For the economist, “what is relevant is the signal, the message sent, and how (the US administration) found a way to do it as part of CAFTA, despite what it was said that CAFTA was “sealed” and could not be touched. Specialists argue that treaties do not have “perfect locks,” so governments can find “keys” to access convenient positions. CAFTA’s administrative mechanism are imperfect and of little use,” he said.

The impact on the four sugar mills

The US announcement forced an urgent meeting of the National Committee of Sugar Producers, who recalled in a note published at nightfall, that the sector “produces annually a little over 17.7 million quintals of sugar, of which it exports more than 11.5 million.”

This generates revenues of more than 200 million dollars a year; contributes with 4% of the gross domestic product (GDP); and is a source of direct and indirect employment for more than 150,000 people in the rural areas of the country, making the sugar mills and private producers “important generators of welfare in the communities where they operate.”

Additionally, they explain that “this preferential export quota represented about 440,000 quintals and generated an additional benefit of approximately 6.5 million dollars a year,” so that now they will have to export it to other markets that buy it cheaper, which directly affects the four sugar mills in the country and the more than 800 independent producers that contribute almost 50% of the sugar cane processed by these mills.

The economist notes that the options available to the country’s sugar companies to maintain their revenue level, is to raise the price of the product sold in the domestic market, which pays higher prices than those the product is bought in international markets, or sell it in alternative destinations.

“Nicaraguan sugar has already been exported to Korea, Russia and Taiwan, but they do not pay prices as good as the United States,” furthermore, making the change is not easy, because it is necessary to start negotiating contracts. In any case, they will not be able to enter Europe, because sugar is protected, and Europeans prefer to buy from their former colonies in Africa,” he explained.

Additionally, he recalled that “Nicaragua could sue the United States before the WTO, but this process can take three years or more, and has a high cost.” When consulted, one of the participants to the urgent meeting held by the sugar comanies this past Wednesday, admitted that only the government could initiate a lawsuit of this type, because “the one to whom the United States assigns the quota is the government of Nicaragua,” not the producers.

The particulars of the message

Beyond the readjustment of the financial performance of the affected companies and producers, the other element is the political reading that can be given to this announcement of the Office of the US Trade Representative.

The expected loss of revenues, which the CNPA calculated at about 6.5 million dollars “is not a large amount, but it is significant in percentage terms, around 3.25%, which is not negligible,” said Nunez.

Reading it from a political perspective, he said that this was not only a message for businesspeople, because “you cannot expect the private sector to replace the opposition, but it is telling them not to run to come to terms with Ortega at any cost, and not to lend him facilities beyond what they are obliged to do by law,” he argued.

The lawyer said that he is referring to the fact that the banks should not provide assistance to those sanctioned by the United States, to open accounts in national financial institutions, reiterating that it is not expected that big capital “should do something,” because that is up to the opposition.

The economist previously mentioned also thinks that this is a message to big business, but not only for those in the sugar business, but of any other product that Nicaragua exports to the United States, benefiting from preferential treatment.

“This is a blow to sugar exporters, who will see their profits reduced,” and a warning to producers and exporters of other raw materials that also have preferential treatment and think that they are ‘shielded’ because they operate under the protection of CAFTA,” he asserted.

“This shows that CAFTA has many pores, and if the United States wants, it can order a phytosanitary regulation that imposes barriers to stop other products of the agricultural sector, or technical specifications that affect companies operating in the free trade zone system,” he said.

The sugar trade association promised “to continue working and producing to sustain our competitiveness, in spite of the adverse conditions generated by the high prices of fertilizers, fuels and the loss of preferential markets.”

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