a review of nafta disputes: sugar and agricultural-based sweeteners p. lynn kennedy and daniel...
TRANSCRIPT
A Review of NAFTA Disputes:Sugar and Agricultural-Based
Sweeteners
P. Lynn Kennedy
and
Daniel Petrolia
OUTLINE
Overview of NAFTA as it relates to sugar and HFCS
Discussion of the current environment with respect to various factors related to production and consumption
Various disputes stemming from the Agreement will be outlined. In particular Net Surplus Production Status and issues related to HFCS dumping
Implications of the Agreement and current disputes
THE AGREEMENT
Fifteen year transition period
Role of HFCS
Rules of Origin
THE TRANSITION
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
During years 7-15, the remaining United States and Mexican tariffs on bilateral sugar trade will be reduced to zero
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
By year seven, Mexico will adopt the United States second-tier tariff as a common border protection to non-NAFTA sugar
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
In the fifteenth year, sugar trade between the United States and Mexico is unrestricted and duty-free
NET SURPLUS PRODUCER STATUS
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
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
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
The Executive Agreement eliminates the two-year unlimited access clause
The 250,000 ton access conceded in year seven is an absolute ceiling
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
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
The calculation of net production surplus for both countries will be carried out annually
Consumption of high fructose corn syrup is included with consumption of sugar for both countries
Duty-free Sugar Access Provisions of NAFTA
NAFTA SUGAR PROVISIONS WITH SIDE LETTER
Mexican Access to U.S.Market
Provisions
Years 1-6 (1994-1999)
Mexico not surplusproducer
Greater of 7,258 MT or“other country” share ofimport quota.
Mexico surplus producer 25,000 MT
Years 7-14 (2000-2007)
Mexico not surplusproducer
Greater of 7,258 MT or“other country” share ofimport quota
Mexico surplus producer 250,000 MT
Duty-free Sugar Access Provisions of NAFTA
NAFTA SUGAR PROVISIONS WITHOUT SIDE LETTER
Mexican Access toU.S. Market
Provisions
Years 1-6 (1994-1999)
Mexico not surplusproducer
Greater of 7,258 MT or“other country” shareof import quota.
Mexico surplusproducer
25,000 MT
Years 7-14 (2000-2007)
Mexico not surplusproducer
Greater of 7,258 MT or“other country” shareof import quota
Mexico surplusproducer
Initially 150,000 MT,increasing 10% peryear
THE ENVIRONMENT
Increased capacity in the Mexican sugar industry
Expanded U.S. HFCS production capability
NAFTA SUGAR PROVISIONS DISPUTE
Interpretation of the content and validity of the side-letter agreement
Net Surplus Production Status
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
0
200
400
600
800
1000 T
housand M
etr
ic T
ons
1998/99 1999/00Year
Net Surplus Excluding HFCS Consumption
Net Surplus Including HFCS Consumption
Duty-Free Access with Side-Letter
Duty-Free Access without Side-Letter
Duty-Free Mexican Sugar Exportable to the U.S., Alternate Policy Regimes
0
50,000
100,000
150,000
200,000
250,000
300,000 M
etr
ic T
on
s,
Ra
w V
alu
e
1994 1996 1998 2000 2002 2004 2006
with side letter without side letter
HFCS ISSUES
HFCS Import Duties: The Broomcorn Dispute
HFCS Import Duties: U.S. Dumping Allegations
IMPLICATIONS FOR THE FUTURE
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
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
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
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
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
Observers should not be surprised if these and other disputes related to sugar and agricultural-based sweeteners continue well past the transition period