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.