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sweetener orders and estimated the tax cost $220 million in losses for the domestic Mexican fructose industry in 2002.

Recent US-Mexican sweetener negotiations suggest a possible break- through. The January 2004 US draft proposal suggests that Mexico forego its right under NAFTA to unlimited access to the US sugar market after 2008. In return, Mexican overquota sugar exports would face either the high MFN tariff or lower tier-two NAFTA agreed tariff rate.122 The fact that a proposed deal has been floated suggests that Mexico is willing to agree to reduced access to the US sugar market, though the market access numbers are far from agreed. 123

Sugar Recommendations

The sprawling web of sugar claims and litigation reflects the difficulty of liberalizing trade in an agricultural commodity that has been protected and subsidized for decades. The fundamental problem is that neither the United States nor Mexico subscribes to free-market principles when it comes to sugar. Both countries seek to maintain sugar prices well above world levels—not to discourage consumption but rather to augment the revenues of cane, beet, and HFCS producers.

Given this objective, sugar side letters, tariffs, taxes, penalty duties, and litigation all essentially revolve around the division of economic rent cre- ated by the overarching regime of protection and subsidies. The original NAFTA text seemed to promise that Mexican and US sugar producers could eventually compete—free of border barriers—under a common umbrella of protection against the world sugar market. After the deal was sealed, both countries had second thoughts, centered on the intrusion of HFCS into the domain of cane and beet sugar. These doubts were com- pounded by ingenious and differentiated means of subsidization by the

122. The US sugar industry wants to prevent Mexican sugar exports from exceeding the 268,000-ton level. Higher Mexican shipments could push total US imports above the 1.523 million ton threshold and jeopardize the operation of the current US sugar program. The concern is that if US sugar imports exceed 1.523 million short tons, the US secretary of agri- culture must lift marketing allotments that limit the quantity that domestic producers can sell in the United States. One potential result is that the high price of US sugar would sharply decline, which is something that US sugar producers want to avoid. See “US, Mexico Sweet- ener Talks Advance on Most Critical Hurdle,” Inside US Trade, February 6, 2003. Under the draft US-Mexico sweetener agreement, Mexico sugar exports could reach 114,000 tons in 2004 and increase to 268,000 tons in the next two years. See “US, Mexico Sweetener Talks Ad- vance on Most Critical Hurdle,” Inside US Trade, February 2004.

123. Mexico and the United States also disagree on how to change reexport programs to pre- vent the circumvention of trade limits through sugar-containing products. See “US, Mexican Sweetener Industries Set for Fresh HFCS Talks Next Week,” Inside US Trade, May 21, 2004.



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