Mexico loses W.T.O. appeal on tax of U.S. HFCS

by Ron Sterk
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GENEVA, SWITZERLAND — A World Trade Organization appellate body on Monday denied Mexico’s appeal seeking to overturn an earlier W.T.O. ruling that Mexico’s tax on beverages not sweetened with cane sugar violated trade rules.

The ruling supports the United States’ claim that Mexico’s 20% sales tax and additional 20% distribution tax on beverages not sweetened with cane sugar were directly aimed at blocking high-fructose corn syrup exports from the U.S.

The appeal concerned an Oct. 7, 2005, W.T.O. panel ruling against Mexico, which upheld a preliminary ruling from June 2005. Monday’s decision cannot be appealed further with the W.T.O.

Mexico was the largest market for U.S. HFCS before it imposed anti-dumping duties on U.S. shipments in 1998. The U.S. exported 193,519 tonnes of HFCS to Mexico in 1997, but only 4,111 tonnes in 2003, the Office of the U.S. Trade Representative said.

Although not a tax specifically on HFCS, the taxes were aimed at blocking HFCS exports from the U.S. and protecting Mexico’s domestic sugar cane industry, the U.S.T.R. contended when it filed its case with the W.T.O. in 2004. The tax was first implemented by the Mexican Congress in 2002 after the W.T.O. ruled in favor of a U.S. challenge to the anti-dumping duties. Mexico renewed the tax in 2004, prompting another challenge from the U.S. before the W.T.O.

The W.T.O. appellate body on Monday said it "recommends that the (W.T.O.) dispute settlement body request Mexico to bring the measures that were found in the panel report to be inconsistent with the General Agreement on Tariff and Trade 1994 into conformity with its obligations under that agreement."

In its Oct. 7 ruing, the W.T.O. decision panel said, with respect to Mexico’s soft drink tax and distribution tax as imposed on sweeteners:

• "imported beet sugar is subject to internal taxes in excess of those applied to like domestic sweeteners."

• "imported HFCS is being taxed dissimilarly compared with the directly competitive or substitutable products, so as to afford protection to the Mexican domestic production of cane sugar."

• "imported beet sugar and HFCS are accorded less favorable treatment than that accorded to like products of national origin."

The panel also said the tax, as imposed on soft drinks and syrups, imported soft drinks and syrups sweetened with non-cane sugar sweeteners (including HFCS and beet sugar) are subject to internal taxes in excess of those applied to like domestic products.

Since 1997, the U.S. has lost more than $3 billion of HFCS sales to Mexico, according to Corn Refiners Association estimates.

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