September 10, 2015 1:10PM

TPP’s Sugar Shuffle and the Problems of Trade Diversion

As delegations finally start tackling the trickiest issues left in the Trans-Pacific Partnership negotiations, we’re getting to see the ugly consequences of trade diversion, which happens when governments liberalize trade from some countries but not all of them.  I wrote last month about Canada and Mexico’s opposition to liberal rules of origin for automobiles in the TPP because it would reduce the advantages they enjoy under NAFTA.  Now a group representing sugar growers in countries outside the TPP is protesting a proposal that would give Australia more access to the U.S. sugar market.

The federal government helps U.S. sugar growers through a complex scheme of subsidies, restrictions, and import quotas that keep the price of sugar high in the United States.  Rather than reform this baldly protectionist system, a move that would benefit almost everyone, the United States is most likely just going to give Australia a larger share of the quota.  The hope is that such an offer will be adequate to satisfy Australia’s demands in the TPP negotiations without upsetting the politically powerful U.S. sugar industry.

But sugar growers from other countries are up in arms over the proposal.  The International Sugar Trade Coalition has written a letter to the U.S. Trade Representative claiming that the TPP proposal would violate existing U.S. and international law.  But why do they care?  The ISTC represents the sugar industries of 17 small countries who support the U.S. sugar program because the import quota guarantees them access to the U.S. market.  You see, the sugar program is supposed to protect U.S. sugar growers, but it also protects inefficient foreign producers who happen to have been granted a share of the quota. 

Fiddling with the quota numbers through the TPP won’t give us freer trade; it will merely shuffle the winners and losers of the current managed trade scheme.  Australia will win because it is at the table and these other countries will lose because they are not.  One thing that's clear is that none of this is going to benefit U.S. consumers.