Washington — Congress should eliminate the federal sugar program, including trade barriers protecting domestic sugar producers; consider opening the U.S. sugar market to countries in exchange for opening their markets to U.S. exports; and eradicate tariffs and quotas on imports used as ingredients by U.S. manufacturers, according to a paper authored by Bryan Riley, Jay Van Andel senior analyst in trade policy in the Center for Trade and Economics, Institute for Economic Freedom and Opportunity at The Heritage Foundation.
Doing so, he explains, will break the hold a small group of growers over the U.S. economy and political system, noting sugar represents two percent of the total value of all U.S. crops produced, yet 33 percent of the agricultural industry’s campaign donations and 40 percent of its lobbying expenditures. This, he points out, runs counter to the nation’s purported goal of eliminating trade barriers by allowing a small group to demand an exception to trade policy, draining billions of dollars from the economy.
In fact, he says, a loophole in the 1994 North American Free Trade Agreement, which was intended to establish a free-trade zone in North America, has enabled domestic sugar producers to claim Mexican producers are exporting sugar to the U.S. at a price below its fair market value. However, the growers’ anti-dumping petition reports the imported sugar is actually being sold at a price higher than the fair value — the average world price — of sugar. Further, Riley alleges, sugar growers “manipulated the average price of Mexican sugar to create an artificially inflated dumping margin.”
Because the government guarantees a minimum price for sugar, it must impose a quota on inexpensive imports with low tariff rates, Riley explains. Amounts exceeding the quota are penalized with substantially higher tariff rates: 88 percent for raw and 73 percent for refined sugar in 2013. Compared with the average world price for sugar, U.S. consumers pay significant premiums: 43 percent higher for raw and 39 percent more for refined in April 2014 — a pattern that has held true since 2000, he notes.
Riley reports in 2013, U.S. consumers consumed more than 12 million tons of refined sugar at an average price per pound six cents higher than the average world price, paying a total of $1.4 billion more for their sugar use than the world average. Thus, domestic sugar farmers gained more than $310,000 each. He writes: “American sugar producers allege Mexican producers are selling sugar to U.S. consumers at unfair prices, but the opposite is true: U.S. sugar producers are the ones selling sugar at unfair prices to U.S. consumers.” Among consumers affected are manufacturers that use sugar an ingredient. According to a 2006 Commerce Department report, for every sugar-farming job protected by the sugar program’s tariffs, approximately three U.S. confectionery jobs are lost.
In calling for Congressional reform of its trade rules, Riley suggests the success of sugar producers in wielding disproportionate influence over government policy encourages other businesses and industries to do the same. Killing the sugar program and making the market more competitive by eliminating tariffs and quotas on imports used by U.S. manufacturers who use sugar is the surest way to squelch special interests’ power, he concludes.