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ducer based on its domestic sugar production minus domestic sugar con- sumption. The two countries disagree, however, on whether the side let- ter indicates that Mexico’s sugar production needs to exceed its domestic consumption of both sugar and HFCS. 109

Even more confusing, there are two versions of the side letter. The US version of the side letter is dated November 3, 1993, and was sent to Con- gress as part of its NAFTA legislative package. Unlike the US version of the side letter, Mexico’s amended side letter, dated November 4, 1993, does not include revised calculations for Mexico to reach net sugar pro- ducer status. In essence, the dispute revolves around two issues: the amount of Mexican sugar access to the US market beginning in fiscal 2001 and the mechanism through which Mexican sugar would have unlimited access to the US market (see table 5.10 for a comparison between sugar provisions under the original NAFTA and revised side letters). 110

Mexico and the United States have never been able to agree on key de- tails of the side letter and whether it limits Mexican sugar imports to 250,000 tons annually. Moreover, Mexico claims it never signed the No- vember 3 side letter that helped ratify NAFTA (table 5.10).111 Instead, the Mexican government argues that its November 4 side letter does not in- clude HFCS consumption in the formula used to define net producer sta- tus. The Mexican version allows Mexico to export its total net surplus pro- duction of sugar duty-free to the United States beginning in October 2000. US sugar and sweetener producers are fighting this interpretation: If the US version of the sugar side letter is abandoned, the NAFTA tier-two tar- iff would allow Mexican sugar exports to enter the United States outside current quota restraints and at a progressively lower tariff. 112

109. Under the original NAFTA sugar side letter, Mexico would gain unlimited access to the US sugar market in 2001 instead of being permitted to ship 250,000 tons annually until gain- ing unlimited market access by 2009. In response, the US sugar industry, led by eight sugar associations, voiced concerns to US congressional members about the potential for Mexican sugar to replace HFCS in the US market. As a result, US negotiators reneged on the original draft NAFTA sugar agreement and submitted to Congress a controversial second side letter that Mexico claims it never signed. We thank Tim Josling and Kim Elliott for this observation and for providing written comments to an earlier draft. See “Sugar Lobby Eschews Legisla- tive Fix, Keeps Up Push for Side Letter,” Inside US Trade, October 22, 1993; and “US-Mexico Talks Fail to Resolve Conflicting Views on Sugar Access,” Inside US Trade, April 24, 1998.

110. See “US, Mexican NAFTA Sugar Side Letters Reveal Two Key Differences,” Inside US Trade, March 20, 1998; Pav Jordan, “Mexico Senator Says NAFTA Sugar Side Letter Invalid,” Reuters, October 11, 2000; and “Text: US-Mexico Draft Side Letter on NAFTA Sugar,” Inside US Trade, November 5, 1993.

111. For details about the two versions of the side letter, see “US, Mexican NAFTA Sugar Side Letters Reveal Two Key Differences,” Inside US Trade, March 20, 1998. See also “US Abandons Side Letter as It Forges Ahead with Sugar Talks,” Inside US Trade, August 16, 2002.

112. As of April 2003, the tier-two tariff for sugar is 7.5 cents per pound and will be reduced by 1.5 cents a pound per year until the sugar tariff is eliminated in 2008. See “Zoellick To Raise Mexico Sugar in Hopes of Resolution This Year,” Inside US Trade, February 28, 2003.



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