To listen to the
sugar lobby, you would think that sugar imports were at the heart
of every recent trade agreement. It seems whenever the United
States considers trading more freely with another region or
country, the sugar industry hijacks the debate. Because trade
agreements negotiated under the President's Trade Promotion
Authority must be approved or disapproved by Congress without
amendments to the text of the agreement, the sugar industry can
derail a proposal if it can generate enough concern that the
agreement is unfair to sugar producers. If successful, the sugar
industry and its lobbyists win a little; almost everyone else in
America-including most households, farmers, and manufacturers-loses
Putting It In Perspective
the proposed free trade agreement with Costa Rica, the Dominican
Republic, El Salvador, Guatemala, Honduras, and Nicaragua
(DR-CAFTA) is so "fatally flawed" that it will flood our already
oversupplied market with cheap sugar do not hold up to scrutiny.
Sugar is not a major issue in the agreement-certainly not to the
extent that it would send 61,000 U.S. sugar farmers and workers to
the unemployment line, as the sugar industry charges. Nor is there
validity to the "'Domino' Sugar Theory" that DR-CAFTA is the first
of many trade pacts designed to whittle away domestic sugar's grip
on the U.S. market.
allows is for qualifying Central American countries to export an
additional 107,000 tons of sugar to the U.S. in the first year of
the agreement. This represents about 1.2 percent of annual U.S.
sugar consumption-equal to about a teaspoon and a half of sugar per
American per week and little more than one day's average domestic
sugar production. Even after 15 years of DR-CAFTA, new sugar
imports would amount to no more than 1.7 percent of domestic
By the numbers,
DR-CAFTA would not allow the countries of Central America to dump
sugar on our shores. Moreover, if imports under DR-CAFTA were ever
to threaten the stability of the sugar program, safeguards in the
agreement would allow the U.S. to turn off the trickle of imports.
But that is unlikely to be necessary: contrary to the sugar
industry's claims, the U.S. sugar market is not oversupplied. The
latest forecast from the U.S. Department of Agriculture (USDA)
projects that America will need to import at least 600,000 tons of
sugar to meet domestic demand in 2006.
Studies from the
United States International Trade Commission, the American Farm
Bureau Federation, the Office of the United States Trade
Representative, and the USDA Foreign Agricultural Service have all
concluded that DR-CAFTA will not impact the domestic sugar industry
in any significant way. The artificially high prices that U.S.
consumers and producers pay for sugar today will not plunge, and
the sugar industry will continue to enjoy its protection from
having to compete on the global market. Contrary to Big Sugar's
squeals and fears, DR-CAFTA does not portend the demise of the
industry or a significant drop in its employment.
The Real Flaw
The sugar industry
enjoys an unusual level of protection that has survived every
ratified U.S. bilateral and multilateral trade agreement-with the
exception of the North American Free Trade Agreement (NAFTA). Even
the recent free trade agreement with Australia left in place
complete protection for the U.S. sugar industry at the expense of
U.S. firms' access to Australia's wheat and services markets.
Market data show that the sugar industry is not a "victim" of
trade. Rather, U.S. consumers and firms are victims of the sugar
industry's shrewd and successful lobbying campaign.
households and companies pay two to three times the world price for
sugar. This leaves U.S. industries that use sugar, such as
confectioners, less competitive than foreign firms and at a
disadvantage on the world market. In the U.S., there are more than
ten times as many jobs in sugar-using industries as in the sugar
industry itself, but these industries are losing jobs due to the
artificially high cost of sugar. Many confectioners, for example,
are moving offshore.
The "fatal flaw"
in DR-CAFTA, then, is that it does not go far enough to open the
U.S. sugar market to the rigor of international competition. The
remaining jobs in sugar-using industries will remain vulnerable as
long as the price of sugar remains artificially high under the
sugar program. According to the World Bank, even with DR-CAFTA, the
sugar industry will continue to cost the American public at least
$1.3 billion annually in high prices and direct program support.
Political unwillingness to apply the rules and principles of free
trade across all sectors of the American economy in a fair manner
will continue to cost Americans jobs, and at the supermarket.
U.S.-Australia Free Trade Agreement was proposed, the sugar
industry sang its siren song for unadulterated trade protection and
prevailed. The industry is making the same doomsday predictions
about DR-CAFTA. But is protecting 1.2 percent of an industry that
contributes less than 1 percent to total U.S. farm earnings worth
dashing increased opportunities for so many other farmers and
businesses across the U.S. economy? Are the gains to almost 297
million Americans worth the overblown fears of the 61,000 people
employed by the sugar industry?
In the interest of
protecting the welfare of the common good, Congress should look
beyond Big Sugar to the millions of Americans who would benefit
from DR-CAFTA. And if the Administration and Congress want to focus
on a real problem, why not consider the issue of sugar itself and
eliminate the wasteful price supports, loans, and quotas?
Markheim is a Senior Policy Analyst in the Center for
International Trade and Economics at The Heritage