ico’s large HFCS market and excess supply of HFCS among US sweetener producers makes Mexico a natural market for US exports.106 To curb the use of HFCS, the Mexican government imposed AD duties in 1998 on US imports of sweetener products. After these measures were successfully contested and removed, Mexico then imposed in January 2002 a 20 per- cent tax on HFCS used in soft drinks.107 As a result, US HFCS producers have struggled to enter the Mexican HFCS market. From 1998 to 2003, US HFCS exports to Mexico declined from 186,000 metric tons ($53.1 million) to 2,000 metric tons ($1 million) (table 5.9).
Sugar Side Letter Controversy
Under the original NAFTA sugar provisions, Mexico’s maximum duty- free access to the US sugar market was supposed to increase from 25,000 metric tons raw value to at least 150,000 metric tons beginning in 2000. After that, the Mexican quota would increase by 10 percent per year. Quantitative restrictions on US imports of Mexican sugar could end by 2009. However, if Mexico became a “net surplus producer” for two con- secutive years, it would gain quota-free access to the US market starting in 2001. These terms provoked a squall in Congress at the time of NAFTA ratification and led former USTR Mickey Kantor to negotiate a NAFTA side letter agreement on sugar. 108
The controversial NAFTA sugar side letter changed key provisions for Mexican sugar exports to the US market. Unlike the original provision, which did not impose caps on Mexican sugar exports to the United States, the revised side letter curtailed Mexico’s duty-free access to the US mar- ket to a maximum of 250,000 metric tons annually. More important, the side letter changed the formula for calculating surplus production, mak- ing it harder for Mexico to qualify as a net surplus producer. The original NAFTA provisions calculate Mexico’s status as a net surplus sugar pro-
105. Before the Mexican government imposed taxes on HFCS exports from the United States, Mexican soft drink producers were using corn syrup as a close substitute for sugar. HFCS is also a leading competitor for the US sweetener market and, even as HFCS prices de- clined, domestic production expanded from 6.8 million tons in 1992 to 9.5 million tons in
See GAO (2000) and Bolling (2002).
Mexico is the world’s second largest market for soft drinks.
Most corn syrup used in Mexico is imported from the United States or made in Mexico
by two subsidiaries of US companies. Since 1994, Arancia has been associated with the US firm Corn Products International. The other Mexican company, Almidones Mexicanos, is af- filiated with Archer Daniels Midland Co. See “Mexico’s New Soft Drink Tax Raises Stakes in Sweetener Fight with US,” Inside US Trade, January 11, 2002.
108. In addition, under the original NAFTA agreement, Mexican sugar exports were also limited to no more than Mexico’s net surplus production of sugar, defined as domestic sugar production less domestic sugar consumption. See Haley and Suarez (2002).