February 11,2002

Senate Floor Speech of Senator Chuck Grassley on Mexico’s High Fructose Corn Syrup Tax

Mr. President, few trade policy developments in recent years have been more significant forthe United States than our flourishing economic partnership with Mexico. The comprehensive freetrade agreement in which we both participate, and which has contributed so much to the prosperityand freedom in both countries, stands out as a model of hemispheric cooperation.

However, I am greatly troubled by a recent Mexican action targeting our corn refiningindustry that I fear may disrupt, and even seriously damage, our bilateral trade relations.

On Jan. 1 of this year, Mexico imposed a totally unwarranted, discriminatory tax of from 10to 20 percent on soft drinks sweetened with high fructose corn syrup. The United States is a majorsupplier of high fructose corn syrup. We export it directly to Mexico, and it is produced in Mexicoby wholly-owned subsidiaries of United States firms. These companies have invested hundreds ofmillions of dollars in Mexico, providing many jobs to Mexican workers.

Much of the corn that is used to produce high fructose corn syrup is grown in my state ofIowa. Mr. President, I don’t like to attribute bad motives to my neighbors. We don’t do that in Iowa.And I certainly don’t like to do that to a country with whom we share both a hemisphere and a richcultural heritage. But facts are facts. And the fact is, Mexico applies this new tax only to soft drinkscontaining high fructose corn syrup. Soft drinks containing cane sugar – which Mexico produces ingreat abundance – are exempt from the tax. In my judgment, this discriminatory application of thetax clearly violates Mexico’s WTO national treatment obligations.

If the Mexican tax stays on the books for the rest of the year, the corn growers and cornrefiners in Iowa, and throughout the United States, will be badly hurt. I fear that some of them maylose their crops, their income, and perhaps even their farms and their livelihoods. Estimates are thatcorn refiners will lose about $244 million this year. Our farmers will lose another $66 million in cornsales. And as surplus high fructose corn syrup production mounts, other losses will pile up as well.

So even though there is new, progressive political leadership in Mexico – one that I greatly admireand respect – it looks like some are still employing the old, tired politics of the past. If you can’tcompete fairly or efficiently, try to muscle your competition out of the market.

Mr. President, this is just the sort of “beggar thy neighbor” trade policy of the past that wehave worked so hard to overcome, both with the creation of the North American Free TradeAgreement, and with the creation of the World Trade Organization. It is very discouraging,therefore, just as we are starting the real work on a new round of WTO trade negotiations, in whichwe hope to further liberalize world trade, to suddenly find ourselves fighting a harmful protectionistmeasure imposed by one of our closest neighbors and trading partners.

Currently, Mexico is our third largest agricultural export market. This market grew anastounding 15 percent last year. If the present trend continues, Mexico will surpass Canada as oursecond largest agricultural market in the next two or three years. I know this robust growth incompetitive agricultural exports has caused some friction between our two countries. But we cannotand must not handle our differences by resorting to the beggar thy neighbor policies of the past. Oneresponse to Mexico’s unfair and illegal tax on high fructose corn syrup would be to enact a similartax on a Mexican product, such as Mezcal. So far, I have not pursued this sort of retaliation. I stillhope that Mexico will respect its international trade commitments, and repeal this legislationpermanently. But, Mr. President, let me make this very clear. My patience is limited.

Minister Luis Derbez, Mexico’s Secretary of the Economy, stated that his government iscommitted to resolving this issue by Feb. 15. I accept Minister Derbez’s word on this. Mr.President, the time to resolve this problem is now, before we do any more damage to America’shard-working farming families.