WASHINGTON, DC - United States Trade Representative Susan C. Schwab made the following statement applauding Mexico's repeal of the 20 percent tax on soft drinks and other beverages made with sweeteners other than cane sugar:
"We commend the efforts of the Calderon Administration and the Mexican Congress to repeal the beverage tax and respond to the WTO ruling. Repeal will help ensure a smooth transition to full implementation of the NAFTA on January 1, 2008, and benefit sweetener industries on both sides of the border."
Beginning on January 1, 2002, Mexico applied a beverage tax that discriminated against U.S. high-fructose corn syrup ("HFCS") and soft drinks and syrups made with HFCS. The beverage tax levied a 20 percent tax on soft drinks and other beverages, as well as on syrups and other products that could be diluted to produce soft drinks and other beverages ("soft drinks and syrups"). In addition, the beverage tax imposed a 20 percent tax on services used to transfer soft drinks and syrups (e.g., distribution services) and subjected taxed products to several bookkeeping and reporting requirements. The beverage tax only applied to soft drinks and syrups that used any sweetener other than cane sugar, such as HFCS or beet sugar, making the use of HFCS in soft drinks and syrups cost-prohibitive. Soft drinks and syrups sweetened exclusively with cane sugar were exempt from the beverage tax.
At the request of the United States, the World Trade Organization (WTO) established a dispute settlement panel on July 6, 2004. Before the WTO panel, the United States claimed that the beverage tax was inconsistent with Mexico's WTO obligations under Articles III:2 and III:4 of the General Agreement on Tariffs and Trade 1994. The United States challenged the tax as applied on soft drinks and syrups, as well as on HFCS and beet sugar used to make soft drinks and syrups. The panel found in favor of the United States on all counts. The panel report was circulated to Members and the public on October 7, 2005. Mexico appealed the panel's findings. In its report dated March 6, 2006, the Appellate Body rejected Mexico's contentions and upheld the panel's findings.
The United States and Mexico agreed on a reasonable period of time for Mexico to bring the beverage tax into conformity with Mexico's WTO obligations of no later than January 1, 2007, or if Mexico's Congress passed legislation to repeal the tax in December 2006, no later than January 31, 2007. The Mexican government's repeal of the tax took effect January 1, 2007.
The NAFTA calls for duties that remain on a handful of products, including sugar, to be eliminated by 2008. The United States and Mexico have worked together the last two years to restart bilateral trade in sweeteners, with the two governments granting each other reciprocal duty-free market access for Mexican sugar into the United States and U.S. HFCS into Mexico, respectively. Elimination of the beverage tax enables U.S. HFCS exports entering Mexico to be used in soft drinks and syrups, the most common end-use for HFCS.