The Sugar Lobby's Sweet NAFTA Deal

THE BALTIMORE SUN

Washington. -- For more than a century, nothing has tasted sweeter to the nation's sugar producers than government protection of their profits.

Now, once again, the industry has demonstrated why it is one of the most coddled in the country by carving out a special deal for itself in the proposed North American Free Trade Agreement.

How it did so is a case study in political clout.

Industry lobbyists and members of Congress from sugar-producing states pressured the administration into squeezing an agreement out of Mexico to prevent a possible flood of Mexican sugar into the United States.

The deal with Mexico came just hours before President Clinton submitted legislation to Congress to create the world's largest free trade zone among the United States, Mexico and Canada.

"This is typical of how the government does things for the sugar lobby," said James Bovard, author of the 1991 book "The Fair Trade Fraud -- How Congress Pillages the Consumer and Decimates American Competitiveness," which is highly critical of the government sugar program.

But the administration's eagerness to curry favor with the sugar industry and its allies in Congress was easy to understand. Faced with an uphill battle to win House approval of NAFTA, the administration could not afford to lose the support of sugar-state members. Sugar is produced in 59 congressional districts, and is a major element in the economies of as many as 20 of those.

"Clearly, if the sugar problem had not been corrected there is no way . . . NAFTA could be passed by the United States Congress," said Sen. John B. Breaux, the Louisiana Democrat who co-chairs the 36-member Senate Sweetener Caucus. "But with this agreement, I am confident that NAFTA has now turned the corner and is headed for final congressional approval."

Whether it assures passage of the agreement or not, the last-minute Mexican deal demonstrated the continuing influence of a lobby that has operated effectively since the early 1800s, showing its strength over the years through a federal sugar program that has kept U.S. sugar prices at twice or more the world market level.

The supported U.S. wholesale price totals about 21 cents per pound compared with a world price of about 10 cents per pound. A General Accounting Office report earlier this year estimated the program gave sugar producers an annual benefit of $561 million, but added $1.4 billion annually to the costs of consumers. The largest 33 sugar farms -- all in Florida or Hawaii -- received more than $1 million each in benefits in 1991, and one farm received more than $30 million, according to the GAO, which recommended a gradual reduction of the subsidy.

There is no proposal before Congress to dismantle the program, but Thomas A. Hammer, president of the Sweetener Users Association, which opposes the price supports, predicted a bill would be introduced before the omnibus farm bill comes up for reconsideration in September 1995. But any effort to reduce or eliminate the sugar subsidy would be met with vociferous opposition from producers.

For such a small group -- only 14,500 beet and cane growers in 18 states -- the sugar producers have a lot of political leverage. Their clout extends to states like Maryland, where 800 people are employed at the Domino sugar refinery in Baltimore.

"They give lots of money to congressmen. That's about the long and the short of it," said Mr. Bovard. "This [the Mexican deal] is just one more action to try to keep a wedge between the U.S. sugar price and the world price. That's how it's been since 1816."

It was in that year that Congress first imposed tariffs on imported sugar and approved subsidies for the domestic crop after plantation owners complained that growing sugar in the U.S. climate was "warring with nature." Quotas on imported sugar were first imposed in 1934. Twice since then subsidies have been eliminated, but each time the sugar industry succeeded in shaking the money loose again.

The current price support program was devised in 1981 and represented a particularly impressive piece of political maneuvering. The sugar-state lawmakers overcame the Reagan administration's overt hostility to the price support program by striking a deal: They would vote for social spending cuts if the administration dropped its opposition to the sugar program.

Several hours later the budget cuts were approved by two votes in the House, the winning margin provided by three lawmakers from Louisiana. One of those legislators was then-Representative Breaux, now a senator and a leading participant in the effort to squeeze the sugar concessions out of Mexico.

As early as February this year, Mr. Breaux recruited 35 other sugar-state lawmakers to sign a letter to Mr. Clinton expressing their "grave concern" over NAFTA's potential impact on sugar producers. They were worried that Mexico would switch from sugar to corn syrup for domestic use, creating a massive sugar surplus that could be exported to the United States under the agreement.

On the House side, the administration negotiated through Illinois Rep. Dan Rostenkowski, chairman of the Ways and Means Committee; the sugar-state representatives were led by Republican Rep. Tom Lewis. In Mr. Lewis' home state of Florida, sugar ranks second only to tourism in economic importance.

Rep. Benjamin L. Cardin, the Baltimore Democrat whose district includes the Domino plant, also threw his weight behind a NAFTA "sugar fix" at congressional committee hearings and in a meeting with Mr. Clinton.

The sugar industry lobbyists were also busy behind the scenes.

"We were pushing for this for months," said Joe Terrell of the American Sugar Alliance, an industry umbrella group. "One of our people said we have a paper trail 10 miles long and 10 miles wide in what we have written" to members of Congress, the White House and the Trade Representative.

The industry realized it could face a surge of Mexican sugar when Mexico, currently a net importer of sugar, asked for a 1.5 million-ton annual quota for its sugar sales to the United States under NAFTA.

"When we saw that we said, 'Hey, wait a minute. Something is up here.' There is no reason why a country that imports sugar would want 1.5 million tons access [to the U.S. market], which is more than we buy from 41 other countries," said Luther Marwart, executive vice president of the American Sugar Beet Growers Association.

Industry officials recalled that over the past 20 years sugar's share of the U.S. sweetener market has dropped to 48 percent, while cheaper corn syrup now has 52 percent. They fear the same switch will happen in Mexico, producing a surplus of sugar for export here.

Their fears were rejected by the Bush administration's trade negotiators, who said the Mexicans had such a strong taste for sugar they would not switch to corn syrup.

"That was ridiculous," said Mr. Marwart.

John Roney, lobbyist for the Hawaiian Sugar Planters' Association, recalled: "We got nowhere with the Bush administration on this all through last fall. But we were immediately impressed with the reaction of the Clinton administration."

Initially, the Clinton administration tried the get the sugar problem addressed through the side agreement allowing measures to be taken to counter sudden import surges. But that did not work out.

"The Mexicans were hesitant to make these changes because they saw it to their disadvantage," said Mr. Roney.

Although the Clinton administration shared the industry's concerns, the two sides could not agree on a final strategy. Trade Representative Mickey Kantor wanted to be able to promise the Mexicans that the sugar-state lawmakers would support NAFTA in return for a "sugar fix" to the agreement. But the lawmakers wanted to see the deal first.

It developed into what Mr. Lewis' chief of staff Karen Hogan called "a game of chicken" played by the lawmakers and the administration as to whether there should be a commitment or negotiation first.

Mr. Kantor called Mr. Lewis at 10:30 one night to argue the point. He was turned down. He even asked the chief sugar lobbyists in town to try to persuade the lawmakers to pre-commit to the agreement in anticipation of a "sugar fix."

"We told Kantor we didn't think we could get those [kinds] of promises," Mr. Roney said. "Prudence would suggest we would want to see the actual side letter signed and in writing before they could commit themselves."

In the end, Mr. Kantor, unable to elicit pledges of support from the lawmakers but desperately anxious for their votes on NAFTA, decided to seek a side understanding that would respond to their concerns.

He succeeded.

So did the sugar producers -- once more.

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