WTO rejects appeal of its decision against Mexico's HFCS tax

Food & Drink Weekly, March 13, 2006

The World Trade Organization's Appellate Body has rejected a Mexican appeal against a WTO panel ruling that condemned Mexico's tax on soft drinks and other beverages that use sweeteners other than cane sugar, including imports of U.S. high-fructose corn syrup (HFCS). In its ruling circulated March 6, the Appellate Body rejected Mexico's claim that the special HFCS tax was justified on the grounds that the United States has failed to live up to its commitments under the North American Free Trade Agreement allowing Mexico to sell its surplus sugar on the U.S. market.

The Appellate Body also rejected Mexico's procedural claim that the WTO should have refrained from ruling on the dispute until a NAFTA arbitration panel had ruled on Mexico's claim that the United States failed to comply with its NAFTA commitments. Mexico charges that the NAFTA panel proceedings have been deliberately delayed by the United States.

"This is a good result for our farmers and producers, who seek a level playing field," U.S. Trade Representative Rob Portman said in a written statement issued March 6. "The Appellate Body has confirmed that Mexico's beverage tax is discriminatory and breaks WTO rules. It is clear that Mexico must eliminate this tax and restore fairness for our U.S. corn growers and refiners. We hope Mexico sees this decision as we do, as an opportunity to work together to quickly resolve all outstanding sweetener trade issues between us."

Senate Finance Committee Chairman Charles Grassley (R-Iowa) issued a statement March 6 urging Mexico to abide by its WTO obligations and repeal the tax quickly. "I also urge Mexico not to replace this tax with yet another WTO-illegal barrier to imports of U.S.-produced high fructose corn syrup," he said. "Also, while I appreciate that Mexico recently began to permit the importation of limited amounts of U.S.-produced high fructose corn syrup, the fact is that Mexico remains in violation of its WTO commitments," Grassley said.

Mexico imposes a 20 percent tax on soft drinks and other beverages that use sweeteners other than cane sugar, most notably HFCS and beet sugar. Mexico also imposes a 20 percent tax on the commissioning, mediation, agency, representation, brokerage, consignment, and distribution of soft drinks/beverages using sweeteners other than cane sugar. Furthermore, Mexico imposes bookkeeping and reporting requirements on entities subject to the taxes.

Beverages made with Mexican cane sugar are exempted from the taxes. USTR's statement noted that in Mexico, "cane sugar is almost exclusively a domestic product, whereas before the tax, HFCS accounted for 99 percent of Mexico's sweetener imports. Thus, by taxing soft drinks and syrups made with HFCS, but not those made with cane sugar, Mexico imposed a tax designed to discriminate against imports." The taxes were levied in 2002 as part of a long-running battle with the United States over U.S. commitments under the NAFTA agreement. Mexico says the NAFTA deal allows Mexico to sell its surplus sugar duty-free in the United States but that Washington has failed to respect this agreement.

Mexico previously said it would impose a bound tariff rate of up to 210 percent on U.S. HFCS imports if Mexico was forced to remove the tax and if the United States did not increase the amount of Mexican sugar allowed tariff-free into the United States. The Corn Refiners Association had estimated previously that U.S. exporters and U.S.-owned HFCS producers in Mexico have lost out on more than $3 billion in sales since 1997, when Mexico first imposed antidumping duties on U.S. HFCS. Those duties were later removed after WTO and NAFTA panel rulings, and Mexico's Congress responded by imposing the soft drink tax in 2002.