Publish in Perspectives - Wednesday, May 24, 2017
At the core of the latest US-Mexico sugar dispute is a history of protection for sugar producers on both sides of the border and the United States’ global sugar quota system, experts say. (Photo: CDC)
Will Mexico and the U.S. strike a deal over sugar?
BY LATIN AMERICA ADVISOR
The Mexican and U.S. governments agreed this month to extend a deadline for talks on Mexican sugar exports into the United States until June 5. The U.S. sugar industry has long argued that cheap sugar from Mexico is hurting their business. Mexico’s economy ministry, however, has blamed the impasse on “excessive demands” from U.S. sugar producers and refiners. What is at the root of the countries’ dispute over sugar? How likely are the two sides to reach a deal by June 5, and what will happen if they do not? What does the dispute foreshadow about other trade negotiations between the two countries, such as the expected talks over the North American Free Trade Agreement, or NAFTA?
Andrew Rudman, managing director at ManattJones Global Strategies: This is the latest chapter in the long-running sweetener dispute between the United States and Mexico. At its core is a history of protection for sugar producers on both sides of the border and the United States’ global sugar quota system, which creates tensions with all sugar-producing countries including Mexico despite the signing of a side letter on the margins of the original NAFTA negotiation. Regardless of which side is ‘right,’ with respect to the causes for the failure of the suspension agreement, a failure to resolve the dispute will lead to the imposition of punitive duties on Mexican sugar by the Commerce Department and likely retaliation by Mexico on imports of U.S. - produced high-fructose corn syrup. Commercial and individual consumers in both markets will pay the cost. But what the dispute signals about the expected NAFTA renegotiation is perhaps more significant. The sweetener dispute is but one example of the complementarity of the U.S. and Mexican economies. When negotiations to update the 20+ year old NAFTA commence, negotiators from all three countries should be mindful of these economic linkages and of the pressure points and sensitivities of their own economies. A negotiation necessarily requires give and take and an understanding of the other partner(s)’ objectives and red lines. If governments do not achieve amicable and mutually beneficial outcomes, the current sweetener dispute (and the analogous softwood lumber dispute with Canada) will become the norm, and the attributes that make North America the world’s most competitive region will be lost.
Tapen Sinha, professor of risk management at the Instituto Tecnológico Autónomo de México and professor at the University of Nottingham Business School: NAFTA is at a crossroads. It has become a political football since Mr. Trump assumed the presidency. Agricultural policies have always been thorny under NAFTA. In particular, the sugar business is a minefield. We have already seen part of that movie with the problems of corn syrup a few years ago. In that, Mexico won—but only in theory. It had a clear case. The current issue is much more convoluted. With NAFTA itself in play, sugar is just the tip of the iceberg. With the current chaos in Washington, with so many vacant positions in various departments, it is hard to see how this will get resolved by June 5. A one-page memo of bullet points will not resolve the dispute; it will drag on. However, unless Trump regime actually does something different, the status quo will prevail. In other words, we will see business as usual. In a year’s time, it is entirely possible that Mexico will get a more left-wing president who would also declare war on NAFTA. If that happens, it is hard to see anybody winning from the outcome.
Wolfram F. Schaffler Gonzalez, director of the Texas Center for Border Economic and Enterprise Development at Texas A&M International University: The demand and consumption of sugar and fructose-rich products in Mexico and the United States is of such a complexity and volume that it will necessarily require an amicable agreement as the final outcome of the renegotiation process. If this cannot be achieved before June 5, it could very well spill over into NAFTA, making the renegotiating more difficult. Both countries argue that the other subsidizes their respective industries; the United States since 1789 by providing loans, trade support and protection; and Mexico since 2011 by reducing the price of raw sugar to less than 20 cents per pound, or 40 percent below market prices. Meanwhile, Mexican high-demand buyers of U.S. fructose (mainly soft drink and candy producers) expect a reduction of up to 10 percent of local production prices if the Mexican government resorts to retaliate to unfair new U.S. policies with a high tariff for fructose imports. If this happens, it will hurt U.S. exports to Mexico of 1.3 million tons of corn fructose a year, which for logistical reasons would be very difficult to export to other countries. Producers, buyers and both governments have their own arguments, but the reality is that if current patterns of consumption of sugary foods and drinks continue, an agreement will have to be made. According to a study published by The Lancet in 2014, the United States has the second-highest prevalence of obesity, and Mexico is in sixth place. One of the reasons for those dangerous statistics is precisely the elevated consumption of sugary products of this nature, something that is not expected to change in the near future.