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Sugar Sours CAFTA Hearing

Senators See Threat To U.S. Producers

By Paul Blustein
Washington Post Staff Writer
Thursday, April 14, 2005; Page E01

Opening salvos were fired yesterday in the congressional battle over a proposed free-trade agreement with Central American nations -- and it soon became clear that proponents face a tough fight in getting the trade deal approved.

The Central American Free Trade Agreement, or CAFTA, drew objections from members of the Senate Finance Committee at the first hearing on the accord. The pact, which would largely eliminate barriers to trade between the United States and five Central American nations and the Dominican Republic, is one of President Bush's top legislative priorities this year and is shaping up as a crucial test of the United States' willingness to strike new trade agreements.

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The criticism came not only from Democrats, who have grown increasingly hostile toward free trade in recent years, but from Republicans, especially those worried about the agreement's impact on U.S. sugar producers, a politically potent industry that has long enjoyed extensive protection from foreign competition.

The Bush administration's spokesman at the hearing, Acting U.S. Trade Representative Peter Allgeier, was repeatedly thrown on the defensive on the sugar issue. In a presentation otherwise devoted to extolling the virtues of open markets, he stressed that CAFTA would allow only a small amount of additional sugar imports. He offered assurances that the White House stood ready to keep the industry safe, if necessary, by invoking an unusual provision in CAFTA that would allow Washington to block new Central American sugar imports by paying compensation to those countries.

But he encountered skepticism from lawmakers such as Sen. Craig Thomas (R-Wyo.), who represents a state with many sugar-beet farmers. Thomas voiced concerns that CAFTA would set a precedent for other free-trade deals that the administration is negotiating, eventually leading to the flooding of the U.S. sugar market by other nations. "What are you going to do with Brazil?" he demanded.

The panel's largely negative response was an ill omen for CAFTA, because congressional experts believe the Senate is much more receptive to the agreement than the House, where supporters admit that they do not yet have the votes for passage. Administration officials have predicted for months that the accord will eventually squeak through once the White House and business community start actively lobbying Capitol Hill, and backers at yesterday's hearing noted that several pro-trade members of the committee were absent. Still, the session showed that "we still have our work to do," said John Castellani, president of the Business Roundtable, who testified in favor of the deal.

CAFTA's economic impact on the giant U.S. economy would be marginal. Although supporters at the hearing touted the potential increase in U.S. exports of machinery, computer chips, grain and meat that would result from eliminating Central American barriers to U.S. goods, the $3 billion in additional exports they estimate for the first year of the pact is about 0.25 percent of the $1.15 trillion in goods and services U.S. firms shipped abroad last year.

But the battle is still viewed by both sides in the trade debate as do-or-die. Free-trade boosters fear that if a pact with such small nations goes down to defeat, the administration will stand little chance of forging the much more ambitious accords it envisages for a Western Hemisphere-wide free-trade zone and a global agreement to lower trade barriers among member nations of the World Trade Organization. Critics of open trade, by the same token, reckon that they won't be able to block those pacts if they can't stop a deal linking the United States with countries that have poor reputations for protecting workers' rights and the environment.

CAFTA proponents at the hearing hammered away at a familiar selling point -- that the accord will simply allow U.S. firms greater access to foreign markets, since most products made in Central American countries and the Dominican Republic already enjoy duty-free access to the U.S. market under various preferential arrangements.

"CAFTA takes one-way trade and makes it a two-way street," said committee Chairman Charles E. Grassley (R-Iowa), the only panel member to speak enthusiastically about the agreement.

They also repeatedly raised the specter of China's export juggernaut, warning that Chinese manufacturers are threatening to overwhelm their Central American and Dominican competitors. Unless CAFTA gives America's neighbors permanent, zero-tariff access to the U.S. market for their clothing exports, apparel companies with operations in Central America "may well move production to China," Allgeier warned, adding that since Central American clothing makers tend to buy yarn and fabric from the United States, that would cost U.S. jobs as well.

But some GOP panel members said they fear that CAFTA would give Chinese firms a Central American platform for shipping goods to the United States illegally.

The sugar issue consumed much of the hearing. The industry has been protected for decades by quotas that limit sugar imports and keep U.S. sugar prices at more than twice world levels. It enjoys significant clout partly because large cane-growing companies in the South shower campaign contributions on politicians of both parties, but also because beet farmers are widely dispersed and well organized. The industry says 372,000 jobs in 19 states depend on sugar production, though its critics put the number at closer to 50,000.

Even staunch backers of previous trade agreements, such as Sen. Ron Wyden (D-Ore.), asserted that his support for CAFTA is not secure because of the threat to sugar-beet farmers in his state. Sens. Michael D. Crapo (R-Idaho), Max Baucus (D-Mont.) and Kent Conrad (D-N.D.) also complained vehemently about the problem, with Baucus, a generally pro-trade lawmaker, admonishing Allgeier, "Without presidential leadership, this agreement is going to face a very steep uphill battle."

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