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The U.S. can sweeten its sugar trade by ending subsidies

(Tom Giovanetti) – It’s two years overdue, but the farm bill finally made it through Congress and on Friday was signed into law by President Barack Obama.

Texas farmers and ranchers will be affected by a number of changes, including the elimination of direct payments to farmers and the introduction of mandatory origin-labeling requirements for meat packers. But these minor changes fall far short of weaning American agriculture from its dependence on government protections.

Federal supports for agriculture manipulate prices and insulate producers from competition. They also raise the price of food for consumers and infuriate our agricultural trading partners, causing problems for U.S. trade negotiators as they negotiate agreements such as the Trans-Pacific Partnership and especially at the World Trade Organization.

Many critics point the finger at the government’s treatment of a Texas agricultural product, sugar, as a prime example. And they have a point.

The sugar program is certainly a complicated maze of import quotas and loan programs designed to keep our sugar industry afloat in the face of the trade policies of producers such as Brazil and Mexico, whose governments aggressively subsidize their sugar industries in a transparent and effective campaign to gain global dominance.

It’s hard to defend the sugar program, at least from a free-market and free-trade philosophy. But that leaves open the question: What should we do about sugar?

One option is to simply drop all subsidies for the sugar industry and let American consumers and manufacturers benefit from the lower sugar prices that would likely result (at least at first) from the dumping of subsidized sugar from foreign producers.

But such an answer ignores the hard realities of world trade. Countries do not “dump” products on the U.S. market to endear themselves to U.S. consumers. Rather, countries dump products specifically to put domestic competitors out of business and thus gain market share.

“So, let them dump!” some say. “If someone wants to sell us subsidized sugar, who are we to complain?” But the benefits will last only until domestic producers have been driven out of business. Then prices will go up, most likely even higher than they were before we unilaterally disarmed. That’s what happened in Europe.

The European Union was the second-largest sugar exporter in the world, but after a 2006 reform, foreign producers dumped sugar into the EU, resulting in the closing of 83 sugar mills and the loss of 120,000 jobs in the EU sugar industry. Soon after, with domestic production drastically reduced, sugar prices climbed, EU consumers paid 20 percent more for foods containing sugar and even shortages were reported.

It’s likely that something similar would happen in the coveted U.S. market if the United States dropped all sugar supports. Those who advocate a U.S. unilateral disarmament in sugar markets are viewing only the short-term effects of the policy and ignoring the almost certain long-term results.

U.S. agriculture is the most efficient and productive in the world, incorporating cutting-edge technology and innovation. In anything approaching a reasonably free global sugar market, the U.S. can and should be a vibrant competitor in world sugar markets, even without government supports.

There is a solution to the sugar subsidy problem, but the sugar problem is a global problem, and it requires a global solution, namely: a renewed effort to liberalize trade under the auspices of the World Trade Organization.

U.S. Rep. Ted Yoho, R-Florida, has proposed that the Obama administration should push the WTO to seek an agreement ending all direct and indirect sugar subsidies, and that Congress eliminate sugar subsidies “zero for zero” once such an agreement is in place.

It won’t be easy to get an agreement through the World Trade Organization process, and the United States itself will have to make some politically painful concessions, but such is the nature of trade agreements.

Far better for the U.S. to surrender some agriculture subsidies to achieve greater gains through a WTO process than to drop them and gain no long-term improvements in exchange.

Ultimately, the best solution to sugar (and other agriculture) subsidies is a freer and more sustainable global sugar trade system, and that should be the strategic goal of U.S. sugar policy.

(Mr. Giovanetti is president of the Institute for Policy Innovation, an independent, nonprofit public policy organization based in Lewisville. This column originally appeared in the Houston Chronicle on February 8, 2014)