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The Sticking Point 

As trade negotiators from Peru and the United States meet in Puerto Rico this week, the question looms: Can America continue to protect its sugar farmers without negatively affecting the world market?

TUMAN, PERU -- The sugar mill is the heart of Tuman. Its tall smokestacks are visible for miles, rising above the fields of sugar cane that sway in the ocean breezes. Every one of Tuman's 32,000 residents relies for their livelihood on the three-century-old factory and the fields that supply it.

The importance of the mill and cane is evident everywhere in this rural section of northern Peru. The benches and other structures of the main park have been made from the worn-out machinery from the mill. A single, red gear welded to a metal cane of sugar adorns the top of the central fountain.

The fountain is completely dry.

This region is currently suffering through a brutal drought. In the Department of Lambayeque, where Tuman is located, sugar production fell by 40 percent in the first six months of the year to 20,000 metric tons. "The cane is planted, but they have lost the water resources," says Martin Torres, president of the Committee for Sugar Cane Production for the Department of Lambayeque.

The subsequent loss of production has hit the region hard; workers have fled to look for better pay, business debts have mounted, and the ability to find alternative sources of water has been limited.

"The real problem in Tuman is that there is no money," says Mayor Moises Martinez. "There are many fields around here where we can grow more cane, but there is no money to develop them. We need more markets, and we need to sell our sugar at better prices."

To turn the fortunes of the region around, Martinez and many others are looking north, and that worries officials in the U.S. sugar industry. According to the American Sugar Cane League based in Thibodaux, the onslaught of free trade agreements -- like one the United States is currently negotiating with Peru -- are placing more than 27,000 jobs in the state of Louisiana at risk.

"We sympathize with the agrarian areas in these countries," says league president Jim Simon. "But we need to first look at the rural areas in the United States struggling as well."

Doing Business With Peru

This week, negotiators from Peru and the United States are meeting in Puerto Rico as part of the ongoing efforts to create the U.S.­Andean Free Trade Agreement. Talks, which also include Ecuador and Colombia, began in May and are expected to conclude early next year.

At the end of the third round of trade negotiations in Lima during July, Peruvian officials signaled that agricultural products, particularly sugar, would be key to the current round of discussions. The Peruvian government offered to completely eliminate tariffs on 41 percent of the products imported from the United States -- representing 37 percent of the value of imports being discussed as part of the trade negotiations -- in exchange for an end to restrictions on sugar. "In the case of the sugar, Peru's offer to give immediate access must be understood as a reciprocal offer," said an announcement on the Peruvian Ministry of Agriculture's Web site.

For decades, the United States has resisted changing limitations on imports of sugar in order to protect the domestic market. Since the United States is the world's third largest consumer of sugar after India and China, that means that other sugar-producing countries, like Peru, are kept at bay.

According to the Sugar Alliance, a national advocacy group, those restrictions help ensure the stability of an industry that is responsible for the direct and indirect employment of more than 146,000 Americans in 19 states -- including approximately 61,000 direct full-time jobs.

In Louisiana, the loss of those restrictions on the $619.7 million state industry would be "catastrophic," Jim Simon says. "The industry is very fragile in terms of the changes of supply and demand. We are teetering right now on break-even."

For officials struggling to help Peru's ailing sugar cane industry, that position seems a bit overstated. "I don't agree that our market can really hurt the United States market and its people, but it is clear that this treaty has to be crafted very carefully," says Yehude Simon, the president of the Department of Lambayeque, where Tuman is located.

He has a point. In 2003, the United States imported only 1.1 million metric tons -- approximately 300,000 less than the mandated ceiling. Peru sold a total of 60,000 metric tons of sugar abroad last year. The United States limits sugar sales from Peru at just more than 43,000 metric tons.

But the U.S. sugar industry fears allowing some countries free access to the American market will create a dangerous precedent for other trade agreements still under negotiation.

An Ongoing Battle

For years, the United States has strived to create more open markets worldwide but has had limited success due to disputes about agricultural markets.

Late last year, efforts to create the Free Trade Area of the Americas (FTAA), a free-trade zone that would include all of the 34 countries in the Western Hemisphere, were derailed during talks in Miami. Similarly, the push by the World Trade Organization (WTO) for a worldwide free-trade agreement fell apart last year in meetings at Cancun, Mexico.

In both cases, the collapse of talks was due to the lack of progress for smaller countries that wish to gain access to markets in larger countries, such as the United States. Brazil, a major sugar producer, led the opposition in both situations.

In response to those setbacks, the Bush administration began to push for bilateral treaties -- those arranged directly with individual or small groups of countries -- late last year. This year, the United States has been in negotiations for no less than 10 bilateral agreements involving more than 20 countries worldwide. The issue of sugar has been a constant in almost all of those negotiations.

During a panel meeting at the 21st International Sweetener Symposium in Vail, Colo., August Tantillo, coordinator of the American Manufacturing Trade Action Coalition, described the administration's policy as "playing Russian roulette with the U.S. sugar industry."

In the three free-trade agreements that have been signed this year, the United States' approach varied wildly. A reduction in restrictions was a part of the treaty with Chile as well as an agreement with several Central American counties. But in a treaty with Australia, the limits on sugar were not addressed. The total output of Chile's sugar industry is negligible to the overall world market, but Australia is the No. 3 sugar producer in the world. (The concern over this issue there has imperiled the passage of the treaty by the Australian parliament.)

For the U.S. sugar industry, the Central American Free Trade Agreement (CAFTA) is the greatest current threat to its livelihood. If approved, CAFTA would forge trade relationships between the United States and six Central American countries: Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic. The pact would allow an additional 109,000 tons of sugar into the United States Over the next 15 years, as much as 140,000 metric tons of sugar would be allowed into the domestic market.

The agreement has been designated as "fast track" legislation by the Bush administration, meaning Congress must pass or deny it "in toto" -- with no alterations to any of its individual items. The congressional vote on the treaty is expected to be delayed until after the November elections.

Pros and Cons

The concern of American sugar growers is that they will be unable to compete with foreign producers because of unfair advantages, particularly government subsidies that are not allowed in the United States. In addition, these countries also produce sugar in a system that has low wages, no pension costs, no environmental impact expenses and no insurance requirements.

"The society here requires that we do so much more," says Bob Odom, Louisiana Commissioner of Agriculture. "That gives the other countries much more of an advantage."

Officials with the Tuman factory say that perception of their industry is incorrect. The mill provides income for more than 1,200 former workers who have retired and shoulders insurance costs as well. Although the country has fewer environmental restrictions, demands for more sugar produced through more ecologically friendly methods have forced changes as well, says Eduardo Gozalo, spokesman for the Tuman Agro-Industrial Company.

Wages, although lower than in the United States, are in line with the cost of living in Peru. There are currently 3,000 people permanently employed at the Tuman factory, with as many as 500 more hired on during the peak periods. Factory workers make between $275 and $380 per month.

William Garcia works with a harvesting crew in the fields around Tuman manning a propane-fueled quemador to set the felled cane alight. For each 12-hour day, he receives approximately $4.50.

Although paltry by U.S. standards, that amount, along with income from other members of his family, gives him a decent life in Chiclayo. "It is hard work," he says. "But it is good work. It is reliable work."

It is getting increasingly harder to find workers. A drop in wages and productivity caused by the drought has produced an exodus of labor from the region. The Agrarian Federation of Lambayeque estimates that almost 23,000 farm workers -- as much as 40 percent of the total number in some areas -- have moved to other parts of the country to look for work.

"We have got to show them that there is opportunity and a way to make a living here in Lambayeque," says Yehude Simon.

Fixing the Problem

Officials with the American sugar industry say that the only way to properly address all concerns is for the involved nations to meet, preferably under the auspices of the WTO, to hammer out an agreement that is fair to everyone.

In late July, efforts for global free trade in the WTO were renewed. A grueling round of talks in Geneva produced a new framework for handling the trade of agriculture products. This success has renewed hopes that the FTAA may be resurrected as well.

But the problem of sugar remains. Officials with the U.S. Department of Agriculture have indicated they will designate sugar a sensitive product in the next round of WTO talks. Such a designation would allow the United States to continue to protect the domestic industry with high tariffs.

Experts warn that, if the United States persists in denying the world access to its domestic sugar market, there could be drastic repercussions to other agricultural areas. Since the U.S. market amounts to more than 9 million tons annually, the effect of the current course is to depress world prices by 17 percent, according to a recent study by the Cato Institute.

Many developing countries feel that alteration keenly and have sought ways to respond to it. Negotiators for Thailand are expected to deny the United States access to the beef, pork, dairy and citrus markets in their country in upcoming bilateral trade talks. Similarly, Japan is not expected to drop its tariffs on rice. Australia, the world's No. 2 wheat exporter, has responded by refusing to curtail its monopoly on regional exports. That policy creates problems for U.S. growers -- the world leaders -- to access that market. Much like the U.S. sugar industry, Australian wheat growers insist the matter be referred to the WTO.

According to the Grocery Manufacturers of America (GMA), the real loser in this prolonged struggle is the consumer. According to the GMA, American buyers pay between two and three times more for sugar than consumers anywhere else in the world. In addition, products that include sugar have unnecessarily inflated prices as well. "It is the system that is broken," says GMA spokeswoman Stephanie Childs. "We have created an artificial situation for sugar that the consumer is the one to pay for it in the end."

One Day at a Time

The sun sets in a blaze of gold in northern Peru. The sweltering heat of the day gives way to the cool ocean breeze that sets the cane leaves chattering. The soft wind disperses smoke from the burning fields being harvested, but the pungent smell of cane is everywhere.

In a field about 5 kilometers from Tuman, foreman Miguel Villaleza keeps watch over his 10-man work crew. Their eyes are red from the smoke, and their clothes are covered with sticky, dark residue from the charred cane. Villaleza glances up at the setting sun and tries to decide if there is time enough to fill another truck before darkness falls and ends this long workday. "We'll be back out here tomorrow early," he says. " There is always another day's work to do."

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