July 26, 2016 Trade Warriors

Volume 3 | Issue 1

The Mexican Sugar Industry is preparing to confront new changes and new opportunities as NAFTA trade liberalization reaches its culmination.

The Mexican sugar industry is one of Mexico’s most important economic sectors, making its greater competitiveness and consolidation with the global market a must. As it readies itself for the final step in NAFTA trade liberalization to take place on Jan. 1, 2008 – the date as of which all tariffs will be dropped on sweetener products traded between the U.S., Mexico, and Canada – this sector has set to work to restructure itself by developing strategies that increase agro-industrial productivity and the growth of the Mexican economy. Working together, manufacturers, sugar cane producers, laborers, the financial sector, vendors, and federal, state, and local authorities are carrying out their commercial commitments for the development of agro-industry.

Background

To give some context to what trade liberalization offers to the Mexican sugar industry, sweetener production in the United States for fiscal year 1993/1994 totaled 13.689 million tons. In addition, that fiscal year the U.S. imported 112,000 tons of dry fructose, and internal consumption levels reached 6.787 million tons, with exports of 112,000 tons of dry base, in both cases.

Meanwhile, no fructose was produced in Mexico – it was all imported, and almost entirely from the United States. During fiscal year 1993/1994, Mexico imported 45,000 tons of dry fructose, the equivalent of 1.2 percent of its domestic sugar production. The year before, fructose imports had been 33,600 tons, and the year before that, 21,900.

These statistics reflect the interests of the economic groups of the U.S. sweetener industry – corn, beetroot, and sugar cane growers; fructose refiners; and sugar mills – as opposed to those of Mexico’s sugar cane producers, laborers, and processors. Because of this, the Mexican sugar cane industry prepared to produce surpluses of sugar that could be sold on the regional market.

The North American Free Trade Agreement (NAFTA), approved by the legislature on Nov. 22, 1993, and put into effect on Jan. 1, 1994, established in Appendix 703.2 a transition regimen for the trade of sugars and syrups between Mexico and the U.S. that – until complete trade liberalization takes place in January of 2008 – would have left the Mexican sugar cane industry in such a position that total tariff elimination would without question destabilize it.

Tariff-free quotas

Beyond doubt, there have been some disagreements over the U.S.’s non-compliance in its NAFTA obligations in matters of permitting Mexican sugar access to its market and the entry of U.S. sweeteners to Mexico’s. Yet in spite of that, both governments were able to reach an agreement in July of 2006 on some changes in conditions for bilateral sweetener trade in order to facilitate the transition to free trade that would take place in January of 2008.

One of the most important agreements the two countries have achieved is the granting of a tariff-exempt quota that has allowed 7,258 metric tons (gross weight) of U.S. sugars and syrups to enter Mexico for each of the fiscal years since the quota was granted in October of 2005.

This agreement also established quotas for the importations of U.S. sugars or syrups between October of 2005 and Dec. 31, 2007, up to 500,000 tons of high fructose corn syrup. In return, the U.S. would receive the equivalent in metric tons of Mexican sugar.

Even if these accords have resulted in some of the conflicts between the two countries, they remain essential for the health of the Mexican industry and the economy as a whole. The Mexican sugar industry constitutes an activity with a public interest due to the presence it has in the Mexican diet, as well as the investment and employment it creates, especially in the Mexican countryside where jobs and investment can be scarce.

Regulating trade

Undoubtedly NAFTA will accomplish its fundamental goal of establishing a complete free trade area by Jan. 1, 2008, which will have no tariffs on products traded between Canada, the U.S., and Mexico, save for those sectors that in the negotiation a country has decided to leave out.

Yet that doesn’t mean trade should proceed unsupervised. The sugar industry has taken preventative measures that allow it to move forward in this trade transition, establishing some regulations the same as the United States (such as anti-dumping, for example).

North American exports to Mexico could increase considerably as of 2008, and faced with that possibility, Mexican agro-industry is looking at the possibility of establishing a permanent monitoring system that would detect any American action that devalues its sugar. That system would also serve to investigate and keep track of possible official actions, with the goal of their immediate detection through proactive, not reactive, measures.

Safeguarding Mexican exports to the U.S. is essential in order to avoid the collapse of the market, although if Mexican sugar is to be allowed free access to the North American market, it is not possible to prevent the imposition of some regulatory measures there.

For its part, the actions of the Mexican government must reaffirm and assure compliance with the rules of origin as laid out in the treaty. At the same time, it must avoid parallel agreements and negotiations that affect the sector without actively involving the members of agro-industry through the prevention of conflict, and through direct lobbying of and collaboration with the authorities.

Compliance and the future

It is imperative that the U.S. comply with what it agreed to in NAFTA, specifically the authorization of additional sugar quotas through a trade framework of surplus exports to the U.S. market, thereby benefiting the sugar cane sector of the economy and, for Mexican agro-industry, achieving the just normative equilibrium in the regional market.

Even if the trade agreement is already agreed upon, it must be stressed that the final revision of these statutes is essential to reaching the goal of free trade in the sugar and syrup industry. The statutes should create objective conditions of equality in trade that, taking into account the asymmetrical nature of the Mexico-U.S. trade relationship, contain guarantees that allow Mexico to retain and increase its level of employment, savings, investment, and development of the sugar cane producing regions. All of this would benefit the farmers, small property owners, and agriculture workers in those regions, thus reducing the risk of increasing Mexican emigration.

Aiding the agro-industry with its integration into the global market is the National Program of Sugar Cane Agro-Industry (in its Spanish acronym, PNACA). The program seeks to address the replacement of sugar by imported fructose and fructose manufactured in the country out of subsidized, imported corn. The program is working to modernize the sugar industry through the implementation of public policy and through supporting the diver

sification of the industry in Mexico.

In addition, the PNACA seeks to make the relationship between sugar cane producers and the sugar processors more transparent, to achieve equilibrium and a competitive price for the national sugar cane production. Without a doubt, the relationship between the field laborer and the industrial sector is one of the highest priorities.

The Mexican sugar agro-industry has the responsibility as well as the ability to confront this new development in the regional market. Without a doubt it offers a wide variety of challenges, but the strength of the agro-industry will make it able to meet its commercial responsibilities, as well as take whatever measures may be required to advance and strengthen the Mexican sugar agro-industry and the national economy as a whole.

René Martínez Cumming is the general director of the National Chamber of the Sugar and Alcohol Industries. The Chamber can be contacted through its Web site at www.cniaa.org.mx.

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