WTO rules in favor of U.S. on HFCS tax dispute with Mexico

Food & Drink Weekly, August 15, 2005

A WTO panel last week upheld a preliminary ruling favoring the United States in a dispute over a Mexican tax on high-fructose corn syrup used to sweeten drinks, the Mexican government said. Mexico has said in the past it would contest the ruling, but has yet to launch an appeal. "They made some changes, basically to the form, but the content is basically the same as the provisional report," said Hugo Perez Cano, of the Mexican trade negotiating team, referring to the final ruling.

The ruling is due to be circulated to all WTO members and made public in early September, after which Mexico will have 60 days to decide whether to appeal any aspects of the panel's findings. A ruling by the Appellate Body is normally required within 90 days of the date of appeal.

At the heart of the dispute is Mexico's decision in 2002 to impose a 20 percent tax on soft drinks and other beverages that use sweeteners other than cane sugar, as well as a 20 percent tax on the commissioning, mediation, agency, representation, brokerage, consignment, and distribution of soft drinks and beverages using sweeteners other than cane sugar.

The taxes are aimed mainly at imports of HFCS from the United States, which compete directly with Mexican cane sugar for use in soft drinks. The U.S. Corn Refiners Association, which represents HFCS producers, said the Mexican market has been effectively "shut down" to U.S. imports since the imposition of the tax. Prior to that, U.S. producers were exporting 2 million tons of HFCS worth $620 million per year.

The United States argues that the tax violates the national treatment provisions of GATT. Under Article III:2, products imported into the territory of any WTO member should not be subject to internal taxes in excess of those applied to like domestic products, while Article III: 4 requires members to accord treatment to imported products no less favorable than that accorded to like domestic products.

Mexico counters that the tax measures fall under Article XX(d), one of the general exception clauses of GATT, because they are "necessary to secure compliance" of the United States with its commitment under the North American Free Trade Agreement to allow any production of Mexican sugar in excess of domestic consumption to enter the U.S. market duty-free.

In its final ruling, the panel said it is not convinced that the NAFTA argument put forward by Mexico should justify an exception to GATT's national treatment provisions, and therefore it found in favor of the United States, according to sources familiar with the ruling.