One lump or two? Sugar negotiations and NAFTA

With NAFTA 2.0 negotiations beginning earlier this week, most media focus has been on what the United States expects in a new NAFTA treaty.  While there is still hope in Mexico that a revised treaty might benefit the country (or at least not unduely damage existing economic ties), Ana de Ita, writing in Thursday’s Jornada, believes the earlier negotiations over sugar quotas suggest the present Mexican administration is unprepared, or disinterested, in any new treaty which will prove beneficial to Mexican industry, or…especially… agriculture.  

(Originally published as “Lecciones del azúcar ante la ‘modernización’ del TLCAN“.  I made a few necessary changes to “Englishize” idiomatic expressions, and some changes in sentence structure and verb tenses.).

The sugar negotiations, that preceeded the renegotiation of the North American Free Trade Agreement (NAFTA) which began [Wednesday], came together in a series of errors by the Mexican government, placing it in a weak position. The long dispute over sugar became a political football for the current administration, something that could be sacrificed to save the total renegotiation and exhibit A in how negotiations between the superpower and the weak and non-consensual government of our country are likely to go. .

The Mexican Secretary of Economy, Ildefonso Guajardo, considered maintaining a balance between fructose and sugar in both the US and Mexican markets, but never included fructose imports in the agreement.

In the early 1990s, during NAFTA negotiations, Mexico was a net importer of sugar, but had a small export quota to the United States of 8 thousand tons. Mexican negotiators — betting that privatizating the sugar refineries would increase production and productivity — asked the United States to increase the export quota to 1.65 million tons, which was not accepted. NAFTA increased Mexico’s duty-free export quota only up to 25,000 tons between 1994 and 2000, and up to 150,000 tons between 2001 and 2007 provided there was a surplus of sugar available. But, in the latter period, the surplus could only be for two years in a row.

With the sugar industray in the United States already facing competition from high fructose corn syrup in the soft drink industry, the original agreement was hotly debated.

Mexico’s 15 percent tariff for sugar imports and 210 percent on fructose imports, were to be phased out in 15 years. The parallel letters on sugar signed as a condition for the Clinton administration to accept NAFTA, specified that for Mexico to claim there was a surplus of sugar, it also had to consider fructose consumption. Thus the condition of surplus was never fulfilled in the period of transition between 1994 and 2007.

In 2008, as scheduled, the two countries liberalized the market for all agricultural products. Fructose imports from the United States increased rapidly to $900 million in 2012. On the other hand, Mexican sugar exports also soared to $175 million in 2013. The US sugar industry responded by requesting the Commission for International Commerce to investigate whether the Mexican sugar industry was using subsidies to their industry to “dump” their product on the United States. Mexico was found guilty by this commission that proved that Mexican sugar is exported with margins of dumping. The subsidies refer to the expropriation and rescue of bankrupt refineries by the Fox Administration, following the return of previously expropriated mills to their former owners. This would have allowed the United States to apply tariffs of about 80 percent. To avoid them, the two countries reached a suspension agreement in 2014. Mexico committed to comply with volume and price caps and with a schedule for exports. As a result, the NAFTA liberalization had no effect on sugar.

The Mexican sugar industry responded by asking the Ministry of Economy to investigate dumping by fructose importers. The Ministry concluded in 2015 that while fructose imports were within the margins of undercutting prices, it would not continue the investigation, as it did not cause damage to sugar production.

Late last year, US sugar corporations, claiming that the suspension agreements did not sufficiently protect them, set a deadline of June 5 to reach a new agreement at the risk of imposing tariffs. On June 6, the dispute concluded with a new agreement.

Wilbur Ross, Secretary of Commerce and head of the US negotiation, said: “We have managed to get the Mexican side to accept almost all the demands made by the US sugar industry to solve the flaws of the current system and ensure fair treatment of the producers and sugar refineries of America.” Meanwhile, Secretary Guajardo, responsible for the Mexican side, tried to sell the new agreement as a success, since it maintains the access to the US market for Mexican sugar, with any additional demand available to be offered on the domestic market. Mexican refiners declared that they definitely sacrificed a lot, while the rating agency Moody’s for Latin America summarized the general sentiment: What we saw is that Mexico accepted the punishment imposed by the United States.