Sometimes all it takes to unravel a whole tapestry is to yank on a single thread. Right now, the fate of free trade between the United States and Mexico may hang on nothing larger than a slender filament.
That’s because the Mexican government apparently has stumbled upon a successful formula for getting around the rules it accepted ten years ago in the North American Free Trade Agreement--and its hardball tactics are now costing American corn growers and refiners hundreds of millions of dollars each year.
Under NAFTA, commerce between our two countries was supposed to become easier and more plentiful. By and large, this is in fact what has happened. (For example, we take 65% of their fruit and vegetable exports.) Almost all Americans and Mexicans alike are better off because of it.
Yet the agreement included special protections for the U.S. sugar industry, which feared that increased competition from Mexico would destroy it. I’m no fan of protectionism, but I also recognize that Congress might have voted against NAFTA if American negotiators had not forced Mexico to accept several key concessions on sugar. Nobody wanted to throw the baby out with the bathwater, so trade representatives drew up a “side letter” to NAFTA on sugar. The United States signed and ratified the side letter, the Mexican government did not. And that’s where the troubles began.
Suffice it to say, after many years of fruitless negotiating, the Mexicans decided to protest the sugar rules by slapping a high tax (20%) on soft drinks that use high-fructose corn syrup as a sweetener. The tax has no economic rationale beyond its single purpose of imposing an impregnable barrier between American growers and refiners and a Mexican marketplace comprised of people who imbibe more soft drinks per capita than any other people on the planet. (It reminds me of the advice world travelers so often receive: Don’t drink the water. The Mexicans seem to follow it as well!)
There’s no question that the Mexicans are violating their NAFTA promises. As a simple legal matter, the United States has an airtight case. Unfortunately, it’s not that simple – it’s economic and political as well. The costs of allowing it to remain unresolved have become too steep.
We’re currently experiencing Mexico’s third year of defiance on this matter. American exports from the Farm Belt are suffering. Investments both in the United States and Mexico are hurting as well. Obviously, we need to continue negotiating hard to find an answer. But we also need to begin considering new types of solutions to this problem.
One possibility is to support efforts by Senator Charles Grassley of Iowa to impose a “Tequila Tax” on Mexico--a set of tariffs aimed at key Mexican exports to the United States. Nobody wants to launch a trade war, though we may want to think about whether one has already been launched against us. As the therapists like to say, the first step to a solution is recognizing that you have a problem.
And the fundamental problem is that Mexico has found a way to flout its NAFTA commitments. If it succeeds here, it will succeed in other areas where it wants to protect local industries from U.S. competition. America’s other trade partners are closely watching how we respond to this Mexican challenge. If they detect any signs of weakness, they will try to exploit us as well.
The dispute over high-fructose corn syrup – more than seven years in the making - should be the number-one issue between the United States and Mexico. Unfortunately, it isn’t. When Mexico makes the news these days, it’s usually in relation to the Bush administration’s recent guest-worker proposal. The Mexican government desperately wants the United States to permit more of its people to legally find work within our borders. That may or may not be a good idea, but I don’t think it should even come up for discussion until Mexico agrees to accept this vital American product into its own economy. Why should we import their people if they won’t take our farm exports?
Meanwhile, our government will have to very seriously reconsider the wisdom of protecting certain American industries from foreign competition. An effort to protect one sector of our economy now is damaging another. And who gets to decide? In the future, it would be better if we simply remembered that freer trade is better trade.
Otherwise, there are too many loose strings--and too many people tempted to pull on them.
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Sometimes all it takes to unravel a whole tapestry is to yank on a single thread. Right now, the fate of free trade between the United States and Mexico may hang on nothing larger than a slender filament.
