Trade Commission Misses the Syrup

The U.S. International Trade Commission managed to ignore high-fructose corn syrup in a study of the impact of DR-CAFTA. The reason may be that increased exports of HFCS is the windfall for the U.S. However, the improved prospects for HFCS come at a very high price to the cane sugar industry of Central America and the Dominican Republic. Sugar exports to the U.S. will always be subject to quota while imports of HFCS will be free of quota and duty. It is well known that corn syrup can substitute for sugar in many food applications, including juices, bread, and yogurt.
The U.S. ITC is known for high quality studies. The absence of consideration of corn syrup suggests embarrassment of riches at the extraordinary benefits to corn and, perhaps, outside influence. The corn industry lobby does not want to draw attention to the very bright prospects for corn syrup in CAFTA. The sugar industry lobby wants to expose the impact of new sugar quotas but is not concerned with benefits to other industries. It is only ironic then that in a recent article Robert B. Zoellick wrote “CAFTA will promote equality of opportunity in economies long dominated by economic elites and powerful families,” Washington Post, May 24, 2004, A17. The elite U.S. corn and sugar families appear to be quite powerful indeed. (Zoellick is deputy secretary of state and the former U.S. trade representative who negotiated CAFTA.)
The ITC study is “U.S.-Central America-Dominican Republic Free Trade Agreement: Potential Economywide and Selected Sectoral Effects,” Investigation No. TA-2104-13; Publication 3717, August 26, 2004. The purpose of this investigation was to assess the likely impact of the U.S.-Central America-Dominican Republic Free Trade Agreement on the U.S. economy as a whole and on specific industry sectors and the interests of U.S. consumers. This purpose was not accomplished for the sweeteners sector.

Misleading CAFTA Sugar Quota

In DR-CAFTA, the United States would grant the Dominican Republic an unusable sugar quota. In order to use the quota, the D.R. would need to demonstrate that it has a sugar trade surplus excluding exports to the United States. Because the D.R. only exports to the U.S., use of the quota would necessitate incurring a loss in sales to the world market.
This unusable CAFTA quota is just another nail in the Dominican sugar industry’s coffin. The “free trade” agreement would also deal a blow by establishing that sugar exports to the U.S. will always be subject to quota while imports of a sugar substitute, high-fructose corn syrup, will be free of duty and of quantitative restrictions.
These provisions pour salt on the trade wound inflicted by the reintroduction of the U.S. quota in 1983. That primary quota, now formalized in the World Trade Organization, imposes a cost on U.S. consumers of about $1.9 billion a year and robs competitive sugar producers of about a billion dollars a year in lost export trade opportunities. The United States should not treat poor, friendly countries like that, especially in areas where they are competitive.
The Dominican Republic holds the largest share of the sugar WTO quota after earning it fair and square by being the most competitive supplier in the years of free sugar trade. In regards to sugar, CAFTA would become an un-American endeavor. The sugar “quota” misleading provision is found in the DR-CAFTA texts, under Annex 3.3, U.S. Appendix I, Tariff Rates Quotas, Sugar, 3 (d), page 9.

Sugar and Free Zones Counterpoint

In essence, the U.S. wants the Dominican Republic to pay twice for Caribbean Basin Initiative benefits: once with decimated sugar exports and twice with a dismal sugar-corn syrup exchange. In this regard alone, DR-CAFTA is conduct unbecoming U.S. free trade rhetoric and a threat to the wellbeing of thousands of Dominican sugar workers.

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DR-CAFTA would create new sugar quotas that would grow at 2 percent per annum in perpetuity. Sugar imports are already subject to quotas introduced in 1983, the very same year the U.S. created the Caribbean Basin Initiative, which grants preferential treatment to imports from Caribbean countries, including the DR-CAFTA signatories. These two measures have been a net loss to the Dominican Republic. The combined value added in cane farming, sugar manufacturing and free trade zones was 5.1 percent of the economy in 1983 but 3.6 percent in 2003.
During the sugar free trade period, the Dominican Republic was the most competitive supplier of sugar to the U.S. market. In spite the high prices before 1983, the U.S. was importing above four million tons of sugar, and about one sixth was provided by the Dominican Republic alone. The U.S. sugar quotas, conveniently sanctified by the Uruguay Round, are over one million tons of raw sugar and a token quota of refined sugar. Over the past two decades the Dominican Republic has failed to realize some $2 billion in potential sales to the United States due to the shrinkage in its U.S. sugar quota, according to a statement submitted to the U.S. Congress on April 26th (Johnson, Robert, "Statement...", Balch & Bingham LLP, p. 7).

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The CBI allowed the rapid development of free trade zones that house manufacturing firms, which export all production, use duty-free imported inputs, and are exempt from all other taxes. Clothing and textiles account for about 70 percent of the 189,000 free-zone jobs (see Table 30 in 2004 Stat. Report, pdf). While most free zones employees earn minimum wages, the zones job creation carries a cost to the rest of society since zone firms pay no taxes. DR-CAFTA has been promoted as necessary to save those jobs, especially after the end of textile quotas, competition from China, and the upcoming requirement to pay taxes. To comply with the subsidy rules of the World Trade Organization, free zones firms will need to pay taxes after 2007.
The Dominican Republic has been the largest exporter to the U.S. under the CBI, proving to be a very competitive supplier vis-à-vis other CBI countries. The same competitiveness in sugar cannot be expressed with sugar under quota. Ironically, the U.S. wants DR-CAFTA to “level the playing field,” by making more U.S. goods duty-free in the affected countries but not allowing duty-free trade in sugar.