Though the Central American Free Trade Agreement (CAFTA) has attracted predictable opponents, these protectionists and Big Labor Democrats are finding some curious allies across the aisle. True, the Democratic Party isn't the exclusive home of protectionists; principled CAFTA opponents are sprinkled throughout the Republican Party.
But as anyone who's followed congressional budgeting can tell you, nothing cuts across party lines quite like pork. The ultimate pork is that which escapes annual scrutiny. For example, direct agricultural aid amounts to about $20 billion annually. Though the sugar industry doesn't receive the direct payments other crops enjoy, CAFTA's tiny slice into sugar's centrally planned, socialist-style protections has become the treaty's political soft spot.
Agreed to by President Bush last year and likely to face a major congressional battle this year, CAFTA would remove tariffs and trade barriers between the United States and Central American countries including the Dominican Republic, El Salvador, Costa Rica, Nicaragua, Honduras, and Guatemala.
Aside from the obvious big labor caveats, CAFTA should be a done deal -- passable by margins similar to NAFTA's 1993 victory -- especially in a Republican Congress. But the sugar industry opposes CAFTA because it would increase the sugar import quota by 109,000 tons in its first year, increasing annually by 3% until its fifteenth year. In English? It's a shocking 1.3% addition to the entire domestic sugar market.
And for that 1.3%, big sugar and its congressional allies would sink increased free trade. My home state congressman Rep. Denny Rehberg (R-Mont.), ranked by the Cato Institute as an "internationalist" voting for free trade 77% of the time over his career, opposes CAFTA for its sugar provisions. Same for the other Montana Republican in Congress, Sen. Conrad Burns, ranked an "internationalist" with 63% free trade support (he voted against NAFTA). Sen. Max Baucus, the lone Democrat and another "internationalist" with 78% free trade support, is Montana's only supporter.
Why the odd bedfellows? Montana has 350 sugar beet farmers planting 53,000 acres. Throw in other sugar beet states and the sugar cane states and witness a small but powerful sugar caucus thwart the administration, regardless of party affiliation. Even the House's conservative bastion, the Republican Study Committee, probably won't take a strong position on CAFTA because of a few vocal opponents, according to a staffer close to House conservatives. Big sugar's payouts to congressional campaigns help explain some politicians' loyalty to the industry. According to OpenSecrets.org, sugar industry political action committees contributed about $2.4 million to federal candidates in the 2004 election cycle.
The sugar caucus may win the CAFTA battle, but at the risk of starting a larger, unwelcome war. Many find its vehement objection to such a small increase particularly brazen. The New York Times editorial board, calling sugar "one of the most coddled farm sectors in the world," declared, "Bring it on." On his CNBC show two weeks ago, Larry Kudlow suggested to Secretary of Agriculture Mike Johanns that the administration "really stick it to" sugar producers and increase the overall market quota, which is within its executive power.
If such arguments gain traction, the sugar industry could find itself looking its generous gift horse -- federal protections -- in the mouth. The sugar program effectively sets the price of sugar at more than twice world market levels (less than 9 cents per pound). By lending to sugar processors at an inflated rate (18 cents per pound for cane sugar and 22.9 cents per pound for beet sugar), the government maintains cane sugar prices above about 20.5 cents per pound and beet sugar above 23 to 26 cents per pound. And if the U.S. market price falls below the target price, producers can forfeit their collateral sugar to the USDA, which then turns around and offers it to producers who reduce production. As Cato's Doug Bandow reported this year, this loan guarantee program cost over $200 million last year.
To ensure high sugar prices, the Department of Agriculture constrains the supply by designating the overall domestic sugar consumption in advance. FY 2005's allotment is about 8.1 million tons. The 2002 Farm Bill set the foreign import ceiling at 1.53 million tons, but the administration only allowed 1.23 million tons for FY 2005, which is the amount determined by the WTO Uruguay Round Agreement. As Kudlow suggested, CAFTA's 109,000 tons increase is nothing compared to the 300,000 tons the administration could add. The Farm Bill also mandated a fixed proportion between the cane sugar and beet sugar production of 54.35 percent to 45.65 percent, respectively.
The sugar program's price controls and loan guarantees amount to an indirect annual subsidy of $2 billion that the sugar industry squeezes from the American consumer. With its strong opposition to CAFTA, sugar and its allies have proved willing to put their interests before all others. And they demand absolute fealty: an amendment to the 2002 Farm Bill in the House that would have lowered the loan rates on cane sugar by 1 cent and beet sugar by 1.2 cents was defeated by majorities of both parties.
Big sugar may be able to maintain its subsidies in the dark. Yet protesting a measly supply increase on the domestic market will likely bring scrutiny the industry can ill afford. So let us have a national discussion about CAFTA, sugar imports, and sugar's sweet deal. Once the public sees that America's sugar policy looks more like a five-year plan than a free market, they will wonder no longer why Conrad Burns and Daniel Ortega are on the same side of a trade fight.
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