American politicians used to be the ones standing in the way of free trade–but then last summer Congress finally gave President Bush the Trade Promotion Authority he needs to negotiate economic pacts with other countries.
Now we’re having trouble south of the border, where Mexican pols are retreating from provisions agreed to long ago in the North American Free Trade Agreement. Unless we solve this problem soon, we may see free trade deals unravel everywhere.
Our current predicament started on January 1, 2002, when Mexico slapped a 20-percent tax on soft drinks not made with sugar cane. This move was a classic bit of protectionism, because it aimed to prop up Mexico’s sugar industry–one of the country’s largest employers–and also to pulverize imports of high-fructose corn syrup from the United States.
Mexicans consume more soft drinks per capita than any other people on the planet, which means this was a large and attractive export market for neighboring U.S. corn growers. The potential is still there, even though the tax has now priced us out of the market. Before the tax went in place, American farmers could count on selling more than 30 million bushels of corn –with the potential of 130 million bushels – for the purpose of producing sweeteners in Mexican beverages, according to the National Corn Growers Association.
In February, one major U.S. producer of high-fructose corn syrup announced its intention to file a suit against Mexico. It’s claiming economic damages of $250 million.
Trade between the United States and Mexico should be getting easier, not harder. Under NAFTA, most agriculture tariffs came to an end last January. They’re still in place for corn, sugar, powdered milk, and a handful of other products. These are supposed to be phased out completely by 2008.
The immediate problem is a so-called “side letter” to the NAFTA agreement, which intends to restrict Mexican sugar from the American market. Sugar interests in the United States want to keep it in place, but Mexico says the side letter isn’t valid because they did not sign it. The soft-drink tax is their retaliatory measure.
Now, our sugar industry wants to prolong restrictions on U.S. imports of Mexican sugar beyond 2008. To do so, would seriously jeopardize our exports not only of HFCS, but, pork, beef, corn, apples, rice and dry edible beans – all products that Mexico wants to shut out of its market.
This politically charged issue represents a crucial threat to the integrity of free-trade agreements everywhere. We have a square deal with NAFTA, and if Mexico manages to rewrite a portion of this decade-old pact, then no trade agreement anywhere is worth the paper it’s printed on.
The World Trade Organization already has ruled in favor of the United States, in a decision that came down a year and a half ago. There’s really no serious question about who’s in the right and who’s in the wrong on this one.
The implications range far beyond the United States and Mexico. The whole world looks to America for leadership on trade issues. We set precedents that everybody else follows–and allowing Mexico to finagle out of its obligations now would set a very bad precedent indeed. This is reason enough not to renegotiate a trade treaty we’ve already negotiated, to say nothing of how much corn-syrup exports mean to farmers struggling in a stagnant economy.
If we give in to Mexico now on sugar and corn, we’ll give in again on something else before too long. Before we know it, we will have lost so many of the gains we’ve made with NAFTA.
Many corn growers believe the federal government hasn’t done enough to address this problem. Last month, our trade negotiators had an opportunity to raise the corn-syrup issue in formal talks with Mexican officials, but they chose to avoid the subject.
Mexican politicians aren’t so reluctant to discuss the matter. Their posture is downright aggressive. On May 15, a group of Mexican senators is scheduled to visit their counterparts in Washington. The meeting is advertised as a “dialogue.” Yet it’s not open to the public and news reports indicate that the Mexicans will press for revisions to the agricultural sections of NAFTA.
We have to hang tough against these efforts to soften. At the same time, we must recognize that the situation may get worse before it gets better. In July, Mexico holds congressional elections, which means there will be plenty of political grandstanding between now and then.
In the final analysis, however, the economic interests of the United States and Mexico have nothing to do with political grandstanding–and everything to do with the unrestricted flow of goods and services between our two countries.