trade liberalization

Zero-For-Zero Sugar Reform: Offer Zero, Get Zero

Rep. Ted Yoho (R-FL) and 11 co-sponsors recently introduced House Concurrent Resolution 40. It expresses the perfectly laudable “sense of Congress that all direct and indirect subsidies that benefit the production or export of sugar by all major sugar producing and consuming countries should be eliminated.” Things go downhill from there.

The resolution conveniently lists the trade-distorting sugar policies of Brazil, India, Thailand, the European Union, and Mexico, while neglecting to mention U.S. tariff-rate quotas (TRQs) and domestic price supports. The president is encouraged to “seek elimination of all direct and indirect subsidies benefiting the production or export of sugar” in foreign countries. Once the president has accomplished this objective and submits a report to Congress detailing how other countries have eliminated their trade-distorting measures, then he “should propose to Congress legislation to implement United States sugar policy reforms.” 

In essence this means, “Once other countries have given up all policies that favor their sugar growers, let us know and we’ll think about whether we should change ours.” Not exactly demonstrating robust U.S. leadership on trade, is it? 

The American Sugar Alliance (ASA), which represents domestic sugar growers and processors, is a strong supporter of the policy status quo. It serves their interests reasonably well. Or, at least it accomplishes the transfer of a lot of money from U.S. consumers to U.S. sugar producers. Not surprisingly, ASA likes Rep. Yoho’s approach to “reform.” ASA can express full support for this version of zero-for-zero knowing full well that it will never happen. 

An ASA statement praising the resolution laments that “Sugar producers … are also struggling with U.S. sugar prices that are currently as low as they were in the 1980s.” That statement may be technically correct because in the early 1980s sugar prices peaked much higher than today’s levels. What it doesn’t say, though, is that U.S. sugar prices have been in a long-term uptrend since 2013 and now are in the neighborhood of 30 cents per pound for raw cane sugar – well above the U.S. loan rate (support price) of 18.75 cents. 

The statement goes on to say, “Jack Pettus, ASA’s chairman, said new technology and strong business practices have made U.S. producers among the world’s most efficient. They are ready to compete on a level international playing field that is subsidy free.” If Pettus had stopped before adding the words, “that is subsidy free,” he and I would be in complete agreement. As I wrote two years ago in the paper, “Toward Free Trade in Sugar,” the U.S. industry is among the world’s most efficient. Based on an analysis published in the May 15, 2014, edition (pages 17-33) of the USDA/ERS publication, Sugar and Sweeteners Outlook, U.S. sugar producers could compete effectively even without the current system of import restrictions and domestic price supports. 

The Sugar and Sweeteners Outlook article addresses relative costs of production across the world’s major sugar-producing regions. If that study doesn’t by itself persuade that the U.S. industry no longer needs protection from imports, consider this additional evidence: Canadian farmers grow sugar beets solely on the basis of earnings from the marketplace. The Canadian government provides no import restrictions or other forms of income assistance. If Canada can produce sugar without subsidies, why can’t the United States?

How To Get Back To Multilateral Trade Liberalization: Cut Agriculture Subsidies!

Recent discussions of trade negotiations have focused on the Trans Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP), often referred to as “mega-regional” trade talks.  But most economists and other trade experts agree that trade liberalization would be more beneficial if done on a multilateral basis, at the World Trade Organization (WTO).  There are talks going on at the WTO, referred to as the Doha Round, but they started in 2001 and are widely seen as not likely to achieve much.

What would it take to get WTO liberalization going again?  There are lots of theories on this, but my view is that it’s really pretty simple:  The major trading countries need to propose significant liberalization.  That hasn’t happened yet, and that’s why there has been so little progress.

The Egg on the EU’s Face

The European politicians love to talk about the “huge” benefits of membership in the European Union. It is certainly true that the “single” market between the EU member states has brought tangible benefits, but those have been declining in importance as technological change made access to services and capital cheaper and easier, and trade liberalization progressed world-wide.

TAA Reversal on Grand Bargain

New Paper on the Generalized System of Preferences

I have a new paper out today on the Generalized System of Preferences, the program by which the U.S. government allows certain imports from most developing countries to enter the U.S. market duty-free. The program has benefits: some producers in some poor countries are able to sell more than they otherwise would in the U.S. market, and U.S. consumers benefit to the tune  of hundreds of millions of dollars a year because of the tariff exemptions.

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