Thursday, June 08, 2017

What is NAFTA for, anyway?



As a supporter of NAFTA over the last two decades, I read this with a bit of a shock:    
Mexico agreed to demands from the United States to cut exports of refined sugar, striking a deal on Tuesday in a contentious trade negotiation that was closely watched as a prologue to talks on renegotiating the North American Free Trade Agreement.The dispute stemmed from complaints by American sugar refiners that Mexico was taking advantage of unfair trade practices to dump refined sugar in the American market and at the same time limit the amount of raw sugar it exported to American refineries.The preliminary deal heads off the threat of punitive tariffs and maintains Mexico’s access to the American market. Mexico was forced to make significant concessions, but the American sugar industry, which had pushed for much tighter restrictions on Mexican sugar, opposed the deal.Commerce Secretary Wilbur L. Ross, speaking at a news conference in Washington alongside Ildefonso Guajardo, Mexico’s economy minister, said, “We have gotten the Mexican side to agree to nearly every request made by the U.S. sugar industry to address flaws in the current system and ensure fair treatment of American sugar growers and refiners.”     
Again, let me react with a couple of questions: Wasn’t NAFTA created to eliminate these trade issues? What other trade issues like the sugar dispute exist between Mexico and the U.S.?  
During my time living and working in Mexico, I remember that the government was always under a lot of pressure to subsidize major foodstuffs, from tortillas to milk to sugar. My office was across the street from the U.S. Embassy and there were frequent demonstrations about the cost of food. Picketing the U.S. Embassy was a sure way of getting in the news because it would cause major traffic problems.  
I recall talking to a Mexican friend about subsidized tortillas in the upscale neighborhoods of the city. In other words, why are upper-class Mexicans with apartments in Houston consuming subsidized tortillas? He explained by saying “asi es en este loco pais” or loosely translated to “that’s the way it is in this crazy country”.    
Overall, the timing of this sugar dispute is absolutely horrible for NAFTA.   
According to news reports, U.S. sugar producers protested the amount of cheap sugar pouring across the border. They argued that Mexico was subsidizing local producers, or dumping its exports, as we see in this report:
The dispute between Mexico and the US grew out of a collision between Washington’s long-running and controversial support for sugar growers and its obligations under Nafta, which in 2008 required the US to remove restrictions on Mexican imports.Angered by what they claimed was a flood of cheap sugar, US producers responded by launching an anti-dumping case in 2014. Before punitive tariffs were introduced, a deal was negotiated that set a floor price and strict quotas for Mexican imports. But that deal collapsed last year after US producers accused Mexico of gaming the system.Under the 2014 agreement Mexico, which expects to send almost 1m tonnes of sugar to the US this year, was allowed to send 53 per cent of its exports to the US as higher-value refined sugar. The US is pushing for Mexico to be forced to send 85 per cent of exports as less profitable raw sugar to be refined in US mills.That has angered the Mexican sugar industry and prompted its own protectionist calls. In a letter last week Enrique Bojórquez, president of Sucroliq, Mexico’s biggest liquid sugar producer, urged the government to crack down on imports of high fructose corn syrup from the US. “The US does well to defend its farmers. In Mexico, they are sacrificed,” he says.US farmers and refiners still accuse the Mexican industry of mounting a state-subsidised assault on their livelihoods and communities, pointing to a 2001 government rescue of the Mexican industry that saw 27 sugar mills nationalised with the last two returning to private hands only last year.
It appears that the issue was settled for now. However, it is an important window into the contradictions of NAFTA, an agreement that I understood was passed to avoid issues like this.   
Moral of the story: It is difficult to do “free trade” with countries that subsidize certain industries.   
P.S. You can listen to my show (Canto Talk), (YouTube) and follow me on Twitter.

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