- The Washington Times - Friday, August 18, 2000

Efforts to resolve a long-running dispute between the United States and Mexico over sugar imports collapsed Thursday as Mexican negotiators abruptly charged that the United States is violating the North American Free Trade Agreement by not allowing imports to increase.
Instead, Mexico's trade minister, Herminio Blanco, informed U.S. Trade Representative Charlene Barshefsky that Mexico plans to use NAFTA procedures to arbitrate a solution to the disagreement.
"This is not a positive development," said Greg Frazier, USTR's special negotiator for agricultural issues. "We don't believe that this is the best way or the most productive way or an appropriate way to resolve this dispute."
U.S.-Mexican wrangling over sugar trade comes at a time when the American sugar industry, heavily subsidized by the federal government, is reeling from the lowest prices in two decades. The Department of Agriculture, mindful of the strong political support the sugar industry enjoys on Capitol Hill, has bought sugar from the open market to boost prices.
The negotiations with Mexico stem from several developments over the past few years that upset the delicate structures governing the sugar trade between the United States and Mexico. In the months before Congress approved NAFTA in 1994, the Clinton administration, in a desperate attempt to shore up political support for the embattled pact, convinced a reluctant Mexico to negotiate a "side letter" to the deal that carefully managed the transition to free trade in sugar.
The supplemental agreement allows Mexico to export up to 250,000 tons of sugar to the United States each year, beginning Oct. 1, provided Mexico's production outstrips its domestic demand. Unrestricted trade would begin in 2008.
But through a still-unexplained oversight, the United States failed to obtain the signatures of Mexican officials on the side document. As a result, Mexico would appear to be well-positioned to overturn many of the trade restraints the United States imposes on its sugar exports by arguing that an agreement without signatures from both countries is invalid.
The Clinton administration, backed by the U.S. sugar industry, has nevertheless argued that the letter, though lacking the proper signatures, should govern U.S.-Mexican trade in sugar.
"The domestic sugar industry is committed to supporting the U.S. government in its efforts to maintain the sanctity of international agreements entered into by the United States and approved by the Congress," the American Sugar Alliance said in a statement yesterday.
American sugar producers have long charged that Mexico has pumped billions of dollars of subsidies into its industry in an effort to boost exports.
The sugar battle took on an added dimension when Mexico in 1998 charged that American producers were dumping high-fructose corn syrup, a common sweetener, on the Mexican market. It imposed tariffs on the American exports, but the United States this year won a case against the duties in the Geneva-based World Trade Organization.
With the United States on the defensive over the meaning of the sugar letter and Mexico under pressure to revoke its duties on corn syrup, the two countries began intensive negotiations earlier this year to find an overall solution to the sweetener dispute.
Mr. Frazier said negotiations were going well until Mexico surprised the United States by opting to use NAFTA dispute-resolution procedures, a process that can last up to one year and will determine whether the United States is legally obliged to open its market to Mexican sugar.
If a NAFTA arbitration panel, which would be composed of neutral experts in trade law, ruled against the United States, the next administration would be under considerable political pressure to open the door to Mexican imports. But this pressure, unlike in the World Trade Organization, would not be backed up by trade sanctions.
The United States now must decide whether to follow through on the apparent agreement in the side letter to allow 250,000 tons of Mexican sugar into the U.S. market or whether to permit only the current lower level of imports. Mr. Frazier said that no decision had been made on this point, but conceded that blocking Mexican exports would constitute another escalation of the dispute.

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