In 2008, Mexico became the only country in the world with unrestricted access to the American sugar market. But when Mexican exports soared in 2013 after a bumper crop in its cane fields, American producers and refiners struck back, filing claims of unfair trading practices. The U.S. Commerce Department agreed and prepared to assess, in violation of Article 302 of the NAFTA Agreement, punitive customs duties on Mexican sugar. To head those duties off, the Mexican government and Mexican sugar refiners accepted limits on exports as well as a minimum price in two agreements signed at the end of 2014. Those limits effectively cut Mexican exports in half! But the American sugar companies soon argued that the agreements were not nearly strong enough to protect them, and the Commerce Department took their side in December of 2016 with a preliminary ruling: punitive duties, totaling a combined rate of 80%, would be imposed by Monday, June 5th of 2017 if a new accord could not be reached with Mexico. In very contentious – if not to say brutal – negotiations, Wilbur Ross, the U.S. Secretary of Commerce, argued that Mexican producers were circumventing the terms of the 2014 agreement. He insisted that Mexico had agreed that refined sugar shipments would not exceed 53% of total sugar exports, and raw sugar would be limited to 47% of total exports. The 2014 agreement also set minimum prices at which Mexican sugar could be sold in the U.S.: 26 cents per pound for refined sugar and 22.5 cents per pound for raw sugar.
Well, all of that changed in the afternoon of Tuesday, June 6th: the U.S. chief negotiator, secretary Wilbur Ross, gleefully announced: “We have gotten the Mexican side to agree to nearly every demand made by U.S. industry to address the flaws in the current system and ensure fair treatment of American sugar growers and refiners!” The U.S. victory over our negotiation team headed up by Ildefonso Guajardo, our Secretary of Economics, will have a devastating effect on our sugar farmers, numbering 190 000 and scattered across some our poorest regions and at harvest time, an additional 450 000 farm hands will feel the painful impact: Last year we exported 1.13 million tons of refined sugar to the U.S. and now, instead of being able to sell 53% of our refined sugar on the U.S. market, we will be limited to 30% - a loss of nearly 250 million Dollars! Instead of selling our high value-added refined sugar we will now be limited to exporting 70% of our sugar in the form of low value raw sugar. In the same vein, Wilbur Ross also managed to get us to agree to lower the quality of our refined sugar exports to make them less attractive on the U.S. market: we will be forced to lower our sugar polarity, a measure of quality, from 99.5 % to 99.2 %. If it was that easy for Trump’s people to reduce our sugar exports by 23% - should we cave in by the same margin in the renegotiation of NAFTA in August – we can kiss our annual trade surplus with the U.S. of 63 billion Dollars goodbye!
Even though Ildefonso Guajardo thought on Tuesday, that he had initialed a binding agreement, on Wednesday Wilbur Ross added insult to injury: “Unfortunately, despite all of our gains, the U.S. sugar industry has said it is unable to support the new agreement, but we remain hopeful that further progress can be made during the drafting process. We remain confident that this deal defends our American workers across many industries…” In clear text: the American sugar industry is not happy at all with an export level reduction of 23% of Mexico’s refined sugar, they demand, in a special round of post-negotiation modification, a reduction to 15% which would deal a death blow to our producers and refiners!
The above example demonstrates the tone in which the renegotiation of NAFTA is going to take place. First you start with a tough threat, then you sit down at the negotiating table to show that your intentions are not so bad with your counterpart and let you know that it is better to come to an agreement if you really want to continue with a business relationship. In the case of sugar, we realize that although the export volume did not decrease, the proportion of the exported product did change, but if we apply this principle to the products that are sensitive to the US market, then the rules of origin will change for the benefit of the American companies. In that sense, what will be the strategy that the Mexican government should adopt in this scenario?
