An Import Quota in Practice: U.S. Sugar
The U.S. sugar problem is similar in its origins to the European agricultural problem:
A domestic price guarantee by the federal government has led to U.S. prices above
world market levels. Unlike the European Union, however, the domestic supply in the
United States does not exceed domestic demand. Thus the United States has been
able to keep domestic prices at the target level with an import quota on sugar.
A special feature of the import quota is that the rights to sell sugar in the United
States are allocated to foreign governments, which then allocate these rights to their
own residents. As a result, rents generated by the sugar quota accrue to foreigners. The
quotas restrict the imports of both raw sugar (almost exclusively, sugar cane) as well as
refined sugar. We now describe the most recent forecast for the effects of the import
restrictions on raw sugar cane (the effects on the sugar refining industry are more complicated, as raw sugar is a key input of production for that industry).3
Figure 9-13 shows those forecasted effects for 2013. The quota would restrict imports to approximately 3 million tons; as a result, the price of raw sugar in the United
States would be 35 percent above the price in the outside world. The figure is drawn
with the assumption that the United States is “small” in the world market for raw sugar;
that is, removing the quota would not have a significant effect on the world price.
According to this estimate, free trade would increase sugar imports by 66 percent.
The welfare effects of the import quota are indicated by the areas a, b, c, and d.
Consumers lose the surplus , with a total value of $884 million. Part of
this consumer loss represents a transfer to U.S. sugar producers, who gain the producer
surplus a equal to $272 million. Part of the loss represents the production distortion b
($68 million) and the consumption distortion d ($91 million). The rents to the foreign
governments that receive import rights are summarized by area c, equal to $453 million.
The net loss to the United States is equal to the distortions plus the quota
rents (c), a total of $612 million per year. Notice that much of this net loss comes from
the fact that foreigners get the import rights.