The Sugar Mystery

by Russ Roberts on May 9, 2005

in Media, Trade

CAFTA, the Central American Free Trade Agreement, is allegedly not going to pass because of opposition from the sugar industry.  So reports the Wall Street Journal, (sr):

If the Central American Free Trade Agreement goes sour on Capitol Hill, the reason will almost certainly be sugar.

The American sugar industry has become the
standard-bearer of opposition to President Bush’s top trade priority
for 2005. It’s the clearest loser under the agreement, which would open
the tightly regulated U.S. market to new imports from five Central
American countries, plus the Dominican Republic.

On the surface, this seems reasonable.  The US sugar industry is highly protected.  Free trade in sugar would probably destroy the American sugar industry.  No wonder the Journal story quotes Max Baucus, Montana Senator saying:

"Frankly, in my judgment, Cafta faces such a
steep climb here — that unless the administration finds a way to deal
with sugar, I’m not betting very solidly on the passage of Cafta," Mr.
Baucus warned at a recent congressional hearing.

There’s only one problem with this story.  The administration has already found a way to deal with sugar.  They basically took it out of the agreement.  CAFTA already gives incredible special treatment to sugar:

The promised change is modest: In 15 years, the
pact would increase annual imports from Cafta countries by just 153,140
tons, roughly 1% of U.S. production.

So over 15 years, CAFTA allows a minuscule increase in imports.  This "liberalization" makes the agreement untenable?  It’s too much competition for embattled sugar beet farmers?

There are two mysteries here.  The first is why the Wall Street Journal reporter decided to put this key fact in the bottom fifth of the article rather than the top.  I think I can solve that mystery: the fact ruins the whole theme of the article that competition from foreign sugar threatens political support for CAFTA.  This one fact challenges the whole premise of the article.  How can the sugar industry be so much in arms over such a small change?

But that brings us to the second mystery.  Why is the sugar industry so upset?  The Journal story does take a stab at it:

Sugar-industry officials say the
promised imports will upset the balance of the existing price-support
program. That program is designed to prop up the price of sugar by
controlling the amount of sugar put on the market; those amounts are
controlled by import limits and production allotments granted to U.S.
farmers. Cafta critics say even small import increases will curb the
production allotted to U.S. farmers, cutting income.

Rob Portman, the new U.S. trade representative, is
open to helping sugar farmers adjust to Cafta. Under one of the
agreement’s provisions, the federal government would compensate Latin
countries, perhaps through cash payments, for not shipping the sugar to
the U.S. He has suggested the program could be bolstered.

But the sugar industry, at least so far, is rejecting
that idea. Industry officials see the very notion of reduced trade
barriers — even if imports don’t surge — as threatening. And over the
long term, sugar advocates worry Cafta’s passage would be a symbolic
first step to ever-greater imports. Beyond Central America, sugar is on
the table in U.S. bilateral trade talks with Thailand and the Andean
countries.

Maybe.  But these hypothetical risks are hard to understand as the source of the opposition.  True, CAFTA opens the door to changes in sugar payments and higher imports down the road.  But is that the reason the industry is so upset and why politicians from sugar states are so vocal?

I have a different theory.  I think the people who don’t want CAFTA to pass need a poster boy, someone to lean on to justify their opposition to CAFTA.  So they use sugar.  The politicians say they’re worried about the sugar industry but that’s just talk.  The real reasons lie elsewhere.  They have to because sugar can’t explain the depth of their passion against the agreement.  For the Wall Street Journal to leave the impression in the first 4/5ths of the article that the sugar industry is indeed at risk because of CAFTA is to play into the hands of the politicians rather than serving its readers.  The real story is still waiting to be written.

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