The Cost of a Frozen Tariff: Over-Quota Imports and the U.S. Sugar Market

Under the Uruguay Round Agreement on Agriculture (1994), the over-quota (Tier 2) tariff on U.S. sugar imports was set at 17.62 cents/lb and phased down to 15.36 cents by 2000. By 2025, inflation had eroded approximately 49% of its real value, narrowing the U.S.-world price spread to the point where over-quota entry became commercially viable. Tier 2 volumes surged from roughly 10,000 STRV per year before FY2018 to a record 1,231,000 STRV in FY2024. Total imports remained stable, but their composition shifted from administered Mexican supply to arbitrage-driven supply that caps domestic prices. Using a partial equilibrium model, a stocks-to-use regression, and a stock-adjusted dynamic extension, we estimate that this compositional shift depressed domestic raw sugar prices by 5 - 8 cents/lb during FY2025 - FY2026, implying annual revenue losses of $0.9 to $1.5 billion. Adjusted for raw-to-refined price transmission, the industry-wide loss rises to $1.3 - 1.8 billion.