NAFTA and "Market Chaos"
In the more than 900 pages of the North American Free Trade Agreement (NAFTA), there is no mention of the term "market chaos." Yet this term has dominated recent discussion of NAFTA's sugar provisions.
Sugar producers in both Mexico and the United States are convinced that unless something is done, North America's sugar market will soon spiral out of control.
On January 11, the Mexican and U.S. sugar industries made public a list of recommendations to their respective governments to better coordinate sugar policies, maximize sugar trade under NAFTA, and make the trade pact work as intended.
At a press conference last week, Jack Roney with the American Sugar Alliance explained that NAFTA included an unintended loophole that has been corrected in every subsequent trade agreement since NAFTA.
This loophole, known as substitution, would allow Mexico to dump every pound of sugar it produces into the United States at a premium price and then purchase subsidized sugar from Brazil and other countries to meet its own domestic needs.
Under NAFTA, Mexico could begin shipping unlimited amounts of sugar into the United States as of January 1, 2008.
"If this happens, bankruptcies and retaliation would be imminent," explained Roney, who said American producers are already facing sugar surpluses and would likely ship these surpluses into Mexico and file anti-dumping cases.
"We're talking about years of expensive litigation, political posturing, and unnecessary sugar shipments moving back and forth between the countries," he said. "The end result would be an unstable North American sugar market with volatile prices that would drive producers on both sides of the border out of business."
Such a scenario is not attractive to Mexican sugar producers either, who for the first time would be staring at U.S. sugar shipments into their previously closed market. That's why representatives from both industries sat down to come up with a solution to avoiding this train wreck.
Under the joint recommendations made by the industries, Mexico would establish a system to allocate sugar exports to the U.S. based on market conditions within Mexico, and the sugar substitution loophole would be closed.
"These recommendations would not impose trade barriers or duties," explained Roney.
He was also quick to point out that nothing in the recommendations would affect the sale of U.S. corn or corn sweetener into Mexico. In fact, he added, these recommendations lessen the likelihood that future barriers would be erected for corn sweetener because market chaos would be avoided.
Sugar producers have been meeting with Hill offices and Administration officials in hopes that they will expedite talks with Mexican government officials and enact these recommendations quickly.
Juan Cortina Gallardo, president of the Mexican Sugar Chamber, told reporters at last week's press conference that the recommendations have been presented to the Mexican ministries of agriculture and economy.
"They understand that these recommendations are needed for us to have a NAFTA that works," he remarked.
"It's very important that these recommendations are implemented by both governments," he said, warning that the economies of sugar-dependent communities in rural Mexico would be in jeopardy if the governments fail to act.