US revokes sugar quota for Nicaragua

A message to Ortega and businessmen

Cutting sugar cane in one of the Nicaraguan sugar factories. Photo: taken from IP.

The United States can withdraw partial or total access to the market by applying a security clause.

By Ivan Olivares (Confidential)

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

On July 18, a memo signed by General Counsel for 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 gross metric tons will be purchased, in which Nicaragua does not appear.

Although it was a technical decision, Nunez asserts that “the political reading is behind everything. By quarreling with your best client, you find yourself without negotiation skills. Any technical problem becomes something very complicated to solve, because you don’t have an open channel to talk.

An economist and consultant with extensive knowledge of the text of the United States-Central America-Dominican Republic Free Trade Agreement (CAFTA-DR), agrees that the United States is sending a message to the class politics and business of the country.

“The United States has the power to make any decision that applies a national security clause and to withdraw all or part of our access. For now, I think they are sending messages warning of this threat, which is a prerogative of the executive,” the consultant said.

For the economist, “what is relevant is the signal, the message sent, and how (the American administration) found a way to do it within the framework of CAFTA, despite what has been said that CAFTA was “sealed” and could not be touched. Scholars say the treaties do not have “perfect locks,” so governments can find “keys” to access practical positions. Administrative Mechanisms of CAFTA are flawed and of little use,” he said.

The impact on the four sweets

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

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

In addition, they explain that “this preferential export quota represented approximately 440,000 quintals and generated an additional profit of approximately $6.5 million per year”, so now they will have to export it to other markets. who buy it cheaper, which directly affects the country’s four sugar factories and the more than 800 independent producers who contribute nearly 50% of the sugar cane processed by these sugar factories.

The economist notes that the options available to the country’s sugar companies to maintain their level of income are to increase the price of the product sold on the domestic market, which pays higher prices than those at which the product is purchased on international markets. , or for sale in alternative destinations.

“Nicaraguan sugar has already been exported to Korea, Russia and Taiwan, but they don’t pay prices as good as the United States”, moreover, making the switch is not easy, because you have to start negotiate contracts. They won’t be able to enter Europe anyway, because the sugar is protected, and the Europeans prefer to source their supplies from their former colonies in Africa,” he explained.

In addition, he recalled that “Nicaragua could sue the United States in the WTO, but this process can take three years or more, and has a high cost”. Consulted, one of the participants in the emergency meeting held by the sugar companies last Wednesday, admitted that only the government could take such legal action, because “whoever the United States allocates the quota to, it is the government of Nicaragua”. », Not the producers.

The message details

Beyond the readjustment of the financial performance of the companies and producers concerned, the other element is the political reading that can be given to this announcement from the office of the American trade representative.

The expected revenue loss, which the CNPA put at around $6.5 million “is not a large amount, but it is significant in percentage terms, around 3.25%, which is not negligible,” Nunez said.

Reading it from a political point of view, he said it was not just a message for business people, because “the private sector cannot be expected to replace the opposition, but he tells them not to show up to come to an agreement with Ortega at any cost, and not to lend him facilities beyond what they are obliged to do by law”, a- he argued.

The lawyer said he was referring to the fact that banks should not help US-sanctioned individuals open accounts at domestic financial institutions, reiterating that the big capital “do something”, because that belongs to the opposition.

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

“This is a blow for sugar exporters, who will see their profits reduced”, and a warning to producers and exporters of other raw materials who also benefit from preferential treatment and think they are “armored” because they operate under the protection of CAFTA,” he said.

“It shows that CAFTA has many pores, and if the United States wishes, it can order phytosanitary regulations that impose barriers to stop other products from the agricultural sector, or technical specifications that affect companies operating in the free trade area system,” he said. said.

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

Read more about Nicaragua here on Havana Times

Rachel J. Bradford