U.S. Mexican Sugar Producers See Chaos as NAFTA Rule Kicks In

WASHINGTON — Fourteen years after approval of the North American Free Trade Agreement, a behind-the-scenes struggle is being waged over one of its last provisions, which starting this month allows the unrestricted trade of sugar between the United States and Mexico.

On one side of the battle are the sugar industries of the United States and Mexico. They say that unless the NAFTA provision is modified to sharply limit the sugar trade, there's a prospect of "market chaos" leading to a crash of sugar prices in both countries.

On the other side are the U.S. corn industry and major sugar users. They say the limits proposed by the sugar industry would violate the principles of free trade, spark trade restrictions on commodities such as corn and beans, and keep American consumers paying higher prices than necessary for soft drinks, candy and other confections.

Jack Roney, director of economics and policy analysis for the American Sugar Alliance, said implementing NAFTA as written could cause "a downward price spiral" for sugar in both countries.

Under the scenario envisioned by the sugar industry, both the United States and Mexico would try to dump the excess sugar produced in each country across the border at reduced prices.

That could result in both countries erecting new barriers restricting the trade of both sugar and corn syrup, which often replaces sugar in manufacturing.

Roney said the unrestricted influx of Mexican sugar also could force the U.S. government to purchase excess U.S. sugar for ethanol production at lower-than-retail prices. In addition, he said it could cause American sugar producers to default on their government-backed loans, thus forfeiting their crops to Uncle Sam.

Juan Cortina Gallardo, president of the Mexican Sugar Chamber, the trade association for the country's sugar and alcohol industries, said there is growing concern in Mexico that the NAFTA agreement as currently structured will hurt the Mexican sugar industry.

"From the Mexican point of view, it is very important that these recommendations are implemented by both governments, otherwise ... the North American sugar market would fall into chaos," Gallardo said, referring to a set of recommendations the sugar industries of both countries agreed to in January.

Gallardo noted that sugar is a major component of the Mexican social and political structure, with an estimated 2.5 million jobs dependent on the industry.

Although Roney said he is "optimistic" the recommendations will be adopted, the industry faces huge procedural and political hurdles.

Right now the conflict centers on the behind-the-scenes House-Senate negotiations over a new five-year farm bill.

The sugar industry hopes to insert provisions in the bill that would allow a new sugar trade agreement to be implemented.

Opponents argue that those provisions were not included in the farm bills that passed either the House or the Senate and should not be included in the final conference bill.

"This is net new language they are trying to tuck into the farm bill in the dead of night," said Audrae Erickson, president of the Corn Refiners Association.

"That upsets our guys who have been waiting 14 years for duty-free sugar," said Christy Moran, spokeswoman for the Sweeteners Users Association.

Bill Reinsch, president of the National Foreign Trade Council, said the sugar proposal "doesn't just affect the sugar growing and using industry but will also harm other commodities. Once you strike a deal with one commodity, others will follow. This will have a detrimental impact on trade in general with Mexico."

The farm bill already faces a threatened veto from President Bush for provisions unrelated to sugar, and opponents of the sugar proposals warn that any changes that affect NAFTA would give Bush even greater reason to reject the bill.

"We have been very consistently opposed to renegotiating or changing the agreement with NAFTA," said Keith Williams, the Agriculture Department's press secretary. "That's just the bottom line on it. Changing that agreement is not in the cards."

Roney noted that Ed Shafer, who was confirmed as agriculture secretary last week, told a Senate panel recently that he would consider the sugar proposal.

Regardless of whether the farm bill is modified to include the sugar proposals, Roney said the industry would continue trying to get a new sugar trade policy adopted by the U.S. and Mexican governments.

Under the deal proposed by the sugar industry, the amount of Mexican sugar that could be exported to the United States would be limited in the first two years to 70 percent of the increased amount of high-fructose corn syrup consumed in Mexico above what is now estimated to being consumed. After those two years, the limit would be 60 percent.

The proposal would eliminate two other provisions in NAFTA. One allows Mexico to import low-cost sugar as a substitute for Mexican sugar, which could then be sold to the United States at a higher price. The other would eliminate "reimport" restrictions on processed sugar items such as powdered iced tea that are now made in Mexico and cannot be exported to the United States.

Roney noted that trade agreements such as the Central America Free Trade Agreement negotiated after NAFTA prohibit such practices.

Opposition is stiff from the corn and sweetener users industries.

Erickson, of the Corn Refiners Association, said that would result in a glut of sugar in the Mexican market that would force Mexico to restrict the importation of corn syrup, which is often used in place of sugar, particularly in soft drinks.

She called the trade formula proposed by the sugar industry "complex, vague, arbitrary and impossible to enforce and could invite retaliation against our sector," high-fructose corn syrup.

The corn industry battled with Mexico for more than a decade over trade restrictions imposed on high-fructose corn syrup. Those restrictions were ultimately ruled illegal by the World Trade Organization, but Erickson said people in the industry "do not want to return to that state of affairs."

Erickson said the sugar industry proposal "violates NAFTA and WTO (World Trade Organization) agreements. It sets up managed trade when, in fact, we should have an open border with Mexico in all commodities."

Whether the sugar industry can overcome the procedural and political hurdles is unclear.

Two of the key players in the farm bill negotiations are Rep. Collin C. Peterson, D-Minn., chairman of the House Agriculture Committee, and Sen. Kent Conrad, D-N.D. Both states have large sugar beet industries, and the two lawmakers have generally been sympathetic to the sugar industry.

But neither Peterson nor Conrad has publicly endorsed the sugar industry's proposal. Peterson told reporters recently that he wanted more information about how the proposal could other commodities. A Conrad spokesman said the senator has not seen a formal proposal but supports "fair trade" for sugar.