The U.S. and Mexico have ended a bitter dispute over sweeteners and will begin dismantling trade barriers in preparation for a complete opening of trade in sugar and corn syrup by 2008.
The agreement ends a decade of feuding over a sensitive trade issue that had inflamed powerful farm interests on both sides of the border. The accord could affect the pricing on a variety of products, including baked goods and soft drinks.
The deal will allow the U.S. to export as much as 500,000 metric tons of high-fructose corn syrup to Mexico free of tariffs from Oct. 1, 2006, to Dec. 31, 2007. Mexican sugar growers in turn will be able to ship an identical amount of tariff-free cane sugar to the U.S. over the same time period.
Companies on both sides will be allowed to sell their sweeteners across the border without tariffs or quota restrictions after all agricultural trade barriers are eliminated Jan. 1, 2008, under the North American Free Trade Agreement.
In addition, Mexico said it would abide by a previous commitment to scrap a controversial 20% tax on Mexican soft drinks made with imported corn syrup by January 2007, a move that still must be approved by Mexico's Congress. U.S. makers of corn sweeteners say that levy, which was ruled illegal by the World Trade Organization, has cost American producers more than $4 billion in lost sales to Mexico since 2002.
"This agreement paves the path to free trade that we have long been promised," said Audrae Erickson, president of the Corn Refiners Assn., a Washington trade group whose members include agribusiness giants Archer Daniels Midland Co. and Cargill Inc.
Although unfettered trade in agricultural products is fast approaching, the farm sector remains a huge irritation for the NAFTA trading partners. Small growers in Mexico have been particularly aggrieved by U.S. government subsidies and other protections that they say put them at a disadvantage. Sugar, corn and bean growers are particularly peeved. Trade negotiators from both countries said the interim accord on sweeteners was a way to ease some of that long-standing friction.
"This sends an important signal that both countries are committed to the full opening of agriculture," said Kenneth Smith, Mexico's director general for international trade negotiations.
Still, both sides acknowledged that weather played as crucial a role as goodwill in coming up with the agreement.
Hurricane Katrina damaged thousands of acres of sugar cane fields in the United States. American food processors are now experiencing tight supplies of the sweet stuff, which made U.S. trade negotiators more willing to accept additional imports from Mexico.
The 2005 natural disaster also helped end a long-running dispute between the countries over Mexican cement, which has been in high demand in the U.S. for rebuilding along the Gulf Coast.
The spat over sugar dates to 1997, when Mexico, frustrated by U.S. trade barriers to Mexican cane sugar, slapped steep anti-dumping duties on low-cost corn sweeteners from the United States, which were gaining inroads with Mexican soft drink bottlers and food processors.
When the World Trade Organization later ruled those duties to be illegal, Mexico's Congress replaced them with a 20% tax on Mexican soft drink bottlers who used imported high-fructose corn syrup.
U.S. trade negotiators again complained to the trade organization, which in 2005 ruled that levy to be illegal as well.
Sugar is a highly protected industry on both sides of the border. Sugar subsidies in the United States cost U.S. taxpayers more than $1 billion annually. Meanwhile, Mexico has nationalized mills and established minimum prices for farmers in a bid to prop up a troubled industry that employs more than 2 million people.
Although Mexican trade negotiators are enthusiastic about the prospect of a wide-open U.S. market for their nation's sugar, workers in the industry said they were fearful of losing market share at home to cheap imports of U.S. corn sweeteners.
Mexicans are among the world's largest per capita consumers of soft drinks. About a quarter of Mexico's sugar production gets slurped up by Mexican bottlers.
"Indisputably, this accord represents a latent danger for the [sugar] industry in Mexico," said Enrique Ramos, secretary general of the National Sugar Industry Workers Union. "High-fructose corn syrup will lead to the closing of refineries and more unemployment."
But at least one Mexican soft drink bottler said it wouldn't use corn sweeteners regardless of how attractive the pricing.
Ajegroup, the maker of a fast-growing soda brand known as Big Cola, said its customers love the taste of soft drinks flavored with cane sugar and will accept no substitute, Chief Executive Alfredo Paredes said.
"For Mexicans, corn sweetener has a plastic flavor. It tastes artificial," he said. "You can make a cheap product. But if people don't like it, they won't buy it again."
Times staff writer Cecilia Sanchez contributed to this report.