Commentary

Big Sugar Gets Its Way, Again

By Aaron Lukas
February 18, 2004

In August 1940, after the Battle of Britain, Winston Churchill famously remarked, “Never in the field of human conflict was so much owed by so many to so few.” In the considerably lower stakes field of trade policy, a variation of that phrase aptly captures the perverse standing of the U.S. sugar industry: “Never have so few taken so much from so many.”

Washington uses preferential loan agreements and trade barriers to keep the price Americans pay for sugar artificially high. Currently, U.S. buyers must pay three-and-a-half times the world market price for sugar. It’s a reality that stands in stark contrast to the Bush administration’s avowed goal of igniting “a new era of global economic growth through a world trading system that is dramatically more open and more free.” Most recently, the yawning chasm between rhetoric and policy has been highlighted in negotiations for a free-trade agreement (FTA) between the United States and its ally Australia.

U.S.-Australian FTA negotiations made significant progress over the course of 2003. For the past few weeks, however, the talks threatened to fall apart, in part over sugar. The United States’ position was that increased market access for sugar is not an option, while Australia insisted that its exclusion would be a deal breaker.

Mark Vaile, the Australian trade minister, and Robert Zoellick, the U.S. trade representative, met regularly in Washington during this period in a dogged effort to save the agreement. In the end, they succeeded — sort of. On Sunday, negotiators announced that Australia had capitulated and accepted a deal that excludes sugar. The United States, in turn, had softened demands that Australia open up in a number of protected sectors. This fight to “keep sugar off the table” was a disappointing departure from the prior U.S. commitment to negotiate high-quality FTAs that open markets for all products across all sectors.

Of course, even without sugar, the United States and Australia will both gain from this FTA. Yet sugar’s absence is disappointing on three counts. First, it stands out as a symbol of a perceived American hypocrisy on trade. The unwillingness of the administration to even attempt to dismantle self-defeating protectionism in a relatively insignificant sector of the economy calls into question its larger commitment to open markets. Second, in order to get a pass on sugar, U.S. negotiators were forced to overlook Australian protectionism on wheat, broadcasting and audio-visual services, and other areas. Third, the exclusion of sugar from free-trade disciplines sets a terrible precedent that encourages other import-competing producers to demand similar favors.

It’s senseless to sacrifice the benefits of truly free trade for a program that milks consumers and taxpayers, harms sugar-using companies, shortchanges poverty-stricken developing countries, and is a drain on the U.S. economy.

According to the U.S. International Trade Commission, there are some 61,000 full-time-equivalent sugar production jobs in the United States. That figure includes all farm jobs involved in the growing and harvesting of sugarcane and sugar beets. This contrasts with approximately 724,000 people counted by the Commerce Department as working in sugar-using industries. In other words, more than 10 times as many Americans face possible job cuts and slower growth because of the U.S. sugar program than are helped by it. The program is devastating the U.S. candy industry, for example.

Workers in export sectors are victims of “big sugar,” too. As negotiations teetered on the brink of disaster last week, William Lane of the Caterpillar Corporation noted that “We are very concerned that an agreement that is going to help U.S. manufacturers at this critical time … could be hijacked by a few protectionist interests that are, quite frankly, unwilling to compete on a fair basis.” The U.S. unwillingness to accept sugar also makes future FTA negotiations with Thailand, Colombia, Peru, and other proposed sugar-producing partners far less likely to succeed.

Most worrisome is the fact that the sugar program has become an impediment to the war on terror. The Bush administration has rightly recognized that fighting dangerous extremists requires the promotion of freedom, democracy, and prosperity around the world. Indeed, as the president urged even before 9/11, “We must reject a protectionism that blocks the path of prosperity for developing countries. We must reject policies that would condemn them to permanent poverty.”

Sugar is a key export for many fragile democracies, including those in our own hemisphere. Many reform-minded leaders have staked their political futures on the promise of free trade with the United States. They are greatly weakened by an administration that expects trading partners to accept politically difficult concessions and wrenching economic dislocation while clinging stubbornly to a closed sugar market.

The U.S. sugar program has always been wasteful and unfair, taxing American consumers and sugar-using businesses to protect a few well-connected growers. Now the program threatens to add the U.S. trade agenda to its list of victims. If this is allowed to happen, a merely foolish program will have become a dangerously reckless program. The U.S.-Australia FTA negotiations offered an excellent opportunity to begin dismantling sugar protectionism. It’s unfortunate that the president didn’t seize it.

Aaron Lukas is an analyst with the Cato Institute’s Center for Trade Policy Studies.