A Review of NAFTA Disputes: Sugar and Agricultural-Based Sweeteners P. Lynn Kennedy and Daniel Petrolia

OUTLINE n Overview of NAFTA as it relates to sugar and HFCS n Discussion of the current environment with respect to various factors related to production and consumption n Various disputes stemming from the Agreement will be outlined. In particular Net Surplus Production Status and issues related to HFCS dumping n Implications of the Agreement and current disputes

THE AGREEMENT n Fifteen year transition period n Role of HFCS n Rules of Origin

THE TRANSITION n Mexico will align its tariff regime with that of the United States by the end of year six of the agreement, implementing a TRQ with rates equal to those of the United States n During years 7-15, the remaining United States and Mexican tariffs on bilateral sugar trade will be reduced to zero n At the end of year 15 of the agreement, free trade in sugar between Mexico and the United States is scheduled to exist

THE TRANSITION n By year seven, Mexico will adopt the United States second-tier tariff as a common border protection to non-NAFTA sugar n Mexico’s maximum access to the United States will increase to 250,000 tons. With respect to Mexico, the United States second-tier tariff (13.6 cents in year 7) will be eliminated by year 15 n In the fifteenth year, sugar trade between the United States and Mexico is unrestricted and duty-free

NET SURPLUS PRODUCER STATUS n Between years one and fifteen, Mexico’s allowable duty-free sugar exports to the United States, and United States duty-free exports to Mexico, will be the greater of: -7,258 metric tons -The quantity currently allocated by the U.S. under the sugar program to “other specified countries and areas” -The quantity allowed under the definition of “net surplus producer.”

EXECUTIVE AGREEMENT and TWO- YEAR UNLIMITED ACCESS CLAUSE n Originally negotiated prior to modifications executed by the Executive Agreement, Mexican access in year seven would have been increased to 150,000 tons, with 10 percent increases annually over the remainder of the 15-year transition n NAFTA would have granted Mexico unlimited access for its exportable surplus sugar in years 7-15 whenever Mexico reached net exporter status during two consecutive years

THE SIDE-LETTER n The Executive Agreement eliminates the two-year unlimited access clause n The 250,000 ton access conceded in year seven is an absolute ceiling n Beginning in year seven, and for the remainder of the transition period for sugar, Mexico will be allowed to ship its net production surplus to the United States duty-free, up to a maximum of 250,000 tons

THE SIDE-LETTER n United States duty-free access to the Mexican market will, in turn, be determined by the United States net production surplus, also with a cap of 250,000 tons n The calculation of net production surplus for both countries will be carried out annually n Consumption of high fructose corn syrup is included with consumption of sugar for both countries

Duty-free Sugar Access Provisions of NAFTA

THE ENVIRONMENT n Increased capacity in the Mexican sugar industry n Expanded U.S. HFCS production capability

NAFTA SUGAR PROVISIONS DISPUTE n Interpretation of the content and validity of the side-letter agreement n Net Surplus Production Status n Under the amended agreement the net surplus is calculated as the sum of sugar and HFCS consumption minus the production of sugar

Mexican Net Surplus Production and Duty-Free Sugar Exportable

Duty-Free Mexican Sugar Exportable to the U.S., Alternate Policy Regimes

HFCS ISSUES n HFCS Import Duties: The Broomcorn Dispute n HFCS Import Duties: U.S. Dumping Allegations

IMPLICATIONS FOR THE FUTURE n One objective of a transition period was to gradually ease the Mexican and U.S. sugar industries into a state of free trade in sugar

IMPLICATIONS FOR THE FUTURE n One objective of a transition period was to gradually ease the Mexican and U.S. sugar industries into a state of free trade in sugar n While this objective is being achieved to some extent, the number of disputes and protests associated with the transition indicate that it is certainly not painless

IMPLICATIONS FOR THE FUTURE n One objective of a transition period was to gradually ease the Mexican and U.S. sugar industries into a state of free trade in sugar n While this objective is being achieved to some extent, the number of disputes and protests associated with the transition indicate that it is certainly not painless n Observers should not be surprised if these and other disputes related to sugar and agricultural-based sweeteners continue well past the transition period