Reagan Embitters Nicaragua by Cutting Sugar Imports

The U.S. is now using food as an economic weapon in its stepped-up pressure campaign against the government of Nicaragua.

On May 10, the White House, citing its unproven allegation that the Sandinista government gives military aid to Salvadoran guerrillas, announced that it was reducing the quota of Nicaraguan sugar allowed into the U.S.

Journalist Kent Norsworthy reports from Managua that the U.S. Ambassador to Nicaragua Anthony Quainton officially informed the Nicaraguan government of the decision on May 9, and commented later to the press that "we [the U.S.) are not prepared to grant the Nicaraguan government a financial advantage resulting from the sugar quota." Quainton said the new policy was justified because of the Sandinista's alleged refusal to engage in multilateral negotiations with other Central American governments, Nicaragua's ongoing support for the Salvadoran guerrillas, and its use of "hostile rhetoric" against the Reagan Administration.

The prospect of further sanctions was raised several days after the announcement when the Costa Rican press quoted a U.S. Embassy official in San Jose who said that Washington is currently studying a proposal to slash Nicaragua's meat import quota, according to Norsworthy.

The Nicaraguan Foreign Ministry issued a statement condemning the sugar quota cut, and stated that the action violates "the most elemental norms of international law and the principles of international organizations such as the United Nations, the Organization of American States and the Group of 77." Moreover, added the Ministry, the move abrogates "the spirit and the letter of all the international treaties and agreements on trade and economic relations" signed by the U.S. Nicaragua presented an official protest at a meeting of the International Sugar Organization in mid-May.

To protect domestic producers, the U.S. government limits the amount of sugar any country can export to the U.S. and keeps sugar prices in the U.S. at 22 cents per pound, three times higher than the world market price. Each country's quota is based on its historical performance in sugar production. The U.S. is therefore a highly desirable market for sugar exporting countries.

The Reagan Administration's decision to cut Nicaragua's quota of 58,800 tons for fiscal year 1984 to 6,000 tons, a 90 percent reduction, represents a departure from this merit-based system. The amount taken away will be added to the quotas of Nicaragua's neighbors: Honduras, Costa Rica, and El Salvador, with more than half going to Honduras.

The political impact of the quota reduction has been an immediate cause for concern to a number of U.S. policymakers. Representative Berkley Bedell (D-Iowa), who recently visited Nicaragua as part of a congressional delegation organized by the Commission on U.S.-Central American Relations, was disturbed at the news that the Administration intends to give the bulk of Nicaragua's quota to Honduras. He believes that this move will result in further deterioration of already strained relations between the two countries. Rep. Bedell said, "We should not be doing things to increase tensions between countries in that region where tensions are already high."

The U.S. action will have a negative impact on Nicaragua's economy as well as on its foreign relations. Juan Gazol, a representative to the Organization of American States (OAS) and formerly an economic counsellor with the Nicaraguan embassy in Washington, says that the quota reduction means a loss of $15 million in export earnings. According to sources in Managua, the Nicaraguan Ministry of Foreign Trade recently announced that it has already secured new markets (Algeria and Iran among others) for the 52,000 tons left after the reduction. However, -selling at the lower world market price instead of the protected U.S. price will result in lost earnings, says Gazol.

Sugar is Nicaragua's fourth largest export crop after coffee, cotton, and beef, although it accounts for only three percent of Nicaragua's export earnings. But the cutback could present obstacles to plans for economic development. Nicaragua had planned to double its sugar production with the completion of the "Malacatoya" sugar processing plant, a $50 million agro-industrial development project scheduled to begin operation in 1985. Until now, however, a substantial portion of Nicaragua's sugar has been exported to the U.S. The loss of that market combined with the current world sugar glut may make it difficult to increase production.

Nicaragua's private sugar producers will suffer the greatest damage from the decision, an ironic consequence in view of the Reagan administration's expressed support for the Nicaraguan private sector. The executives of Nicaragua Sugar Estates, the country's largest private firm, sent a letter to the U.S. ambassador warning that the quota reduction would push their industry into "a most serious risk of going into bankruptcy." The letter also said that "more than 50 percent of Nicaragua's sugar is produced by the private sector and more than 60 percent of the sugar cane is grown by independent businessmen." The executives requested that the decision be reconsidered.

Nicaragua has accused the U.S. of violating the terms of the General Agreement on Tariffs and Trade (GATT), the major international trade agreement between 89 countries, most of them Western. The 35-year old GATT accords recommend policy guidelines which emphasize principles of free trade and discourage political considerations in trade relations, but they have little absolute enforcement power. In the case of quota systems, GATT provides that importing countries must maintain "equity" among exporting nations. Although many critics believe that the cutback clearly disrupts the equity of the quota system, White House trade officials reverted to a clause in the GATT that permits sharp alterations in the quotas in cases involving "national security.'

At a recent meeting of the Organization of American States (OAS) Special Committee for Consultation and Negotiation (CECON), requested by Nicaragua to officially inform the appropriate body of the U.S. action, Nicaragua denied the U.S. charges that it is subverting its neighbors and requested evidence from the U.S. to substantiate its claims. The U.S. responded by merely repeating its charge that Nicaragua provides arms and training to Salvadoran rebels.

At the meeting, 12 of the 25 states in attendance criticized the U.S. action, calling it a violation of international agreements in addition to the GATT. Representatives from several countries, including Venezuela and Mexico, appealed to Articles 18, 19, and 34 of the OAS Charter which prohibit member states from using coercive economic measures against other states to gain advantages or from pursuing policies which stifle a nation's economic development.

Several officials contend that the unilateral action of the U.S. also violates the OAS resolution which established CECON. The Venezuelan representative said the resolution very clearly stipulates "that consultations must be established `between the United States... and the Latin American countries prior to the adoption by [the U.S.) of measures that might adversely affect imports from Latin America'."

Even the envoy from El Salvador spoke critically of the U.S. and said that his country remains faithful to the Charter of the OAS. "We wish to make it very clear that El Salvador is not celebrating this measure even though it stands to receive a small direct economic benefit."

In response to the criticisms of the 12 countries, the U.S. representative claimed that exporting sugar to the U.S. is a "premium" because of its protected price. He said such exports were a special bonus for other producing countries and were not subject to the OAS Charter like other trade.

The overwhelming international criticism of Reagan Administration's action was predicted by sugar industry representatives and U.S. Department of Agriculture officials. One high-ranking industry spokesman said prior to the decision that varying from an objective standard for quotas would be "opening a big can of worms. ..Unless they've taken complete leave of their senses, they will leave the quota arrangement as it is."

Tony Anderson is a researcher for Public Citizen's Congress Watch.