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US-Canada Agreement on Sugar

NAFTA allows Mexico and Canada to maintain their tariffs on sugar. However, before NAFTA, the United States and Canada had negotiated their own bilateral agreement on sugar. The CUSFTA barred the United States from imposing trade restrictions on Canadian food exports contain- ing 10 percent or less sugar.113 This changed when the United States cre- ated a quota for refined sugar imports under the WTO, which significantly reduced Canada’s access to the US sugar market.114 In 1997, a bilateral un- derstanding was reached. The United States would allow Canada an extra quota for refined sugar access on the condition that Canada would not challenge US reexport programs under the NAFTA dispute settlement mechanisms. 115

Sugar Disputes under NAFTA

After Mexico imposed AD duties on HFCS imports in 1998, US firms ini- tiated two claims against Mexico, invoking NAFTA dispute settlement Chapters 11 and 19.116 The United States initiated its first sugar dispute against Mexico under NAFTA Chapter 19 in 1998.117 According to the US

113. According to CUSFTA Article 707, the United States “shall not introduce or maintain any quantitative import restriction or import fee on any good originating in Canada con- taining 10 percent or less sugar by dry weight for purposes of restricting the sugar content of such good.”

114. In 1994, the United States imposed a global TRQ of 22,000 tons of refined sugar under the WTO.

115. The 1997 bilateral understanding allowed Canada to export up to 10,300 tons of refined sugar and a maximum of 59,250 tons of sugar-containing products. Canada could also com- pete for the unallocated portion of the global sugar TRQ of about 7,500 tons of refined sugar. See AAFC (2001).

116. Partly in response to US tariffs on Mexican broom corn brooms, Mexico increased HFCS import duties in December 1996. After the United States complied with the NAFTA Chapter 20 determination on the Broom Corn Brooms case, Mexico reduced the 12.5 percent ad valorem rate on US HFCS imports to the NAFTA-specified rate of 6 percent in 1998. How- ever, the US-Mexico HFCS dispute did not come to an end. Soon afterward, in May 1998, the United States initiated a Chapter 19 HFCS dispute against Mexico, which was settled in June 2002, and brought two separate cases under the WTO. In October 2001, the WTO Appellate Body upheld the panel determination that Mexico had not complied with requirements of the WTO Antidumping Agreement to justify imposing AD duties on HFCS. In 2000, Mexico initiated bilateral discussions with the United States over US sugar TRQs. The United States also initiated cases under NAFTA Chapter 11—one filed by US Corn Products International in January 2002 and another by Archer Daniels Midland Co. and A. E. Staley Manufacturing Co. in October 2003. See WTO (2001).

117. Mexico’s administrative agency, SECOFI, imposed different AD duties on exports of HFCS grades 42 and 55. Specifically, SECOFI applied temporary AD duties on specific US HFCS exporters, ranging from $63.75 to $175.50 per metric ton. US exporters directly tar-

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NAFTA REVISITED: ACHIEVEMENTS AND CHALLENGES

Institute for International Economics | www.iie.com

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