Spotlight on Economics: NAFTA renegotiation and issues related to sweetener trade
The North American Free Trade Agreement (NAFTA) was essentially a transition phase to free trade through the reduction of trade barriers among the U.S., Mexico and Canada during the 1994-2008 period.
In the U.S., sugar from cane and beet, and high-fructose corn syrup (HFCS) from corn starch are the main sources of sweetener inputs used in the production of final products. The U.S. is the net importer of sugar and an exporter of HFCS, while Mexico is a net exporter of sugar and an importer of HFCS.
Sugar and HFCS constitute approximately 80 to 85 percent of total sweetener consumption in the U.S.
Donald Trump has changed his stance on scrapping NAFTA before the presidential election to renegotiating a better NAFTA deal after his election. The change in the Trump administration’s position on NAFTA is apparently due to the suggestion of the U.S. secretary of agriculture, Sonny Perdue, who seems to have shown an Electoral College map to Trump to stress the importance of NAFTA to the constituencies of the U.S. who voted for Trump.
Sweetener trade is particularly interesting in the context of NAFTA because of competing interests of sugar associations and corn refiners’ associations in the U.S. and Mexico.
Key issues related to sweeteners that may crop up during the NAFTA renegotiations are:
- How much of the total U.S. sugar imports from Mexico is refined? In 2017, about 53 percent of total U.S. sugar imported from Mexico was refined. The sugar associations want the percent of total refined sugar imports to be at 30 percent.
- The historical sweetener trade balance between the U.S. and Mexico is worth looking into. A U.S. sweetener trade surplus in value terms existed before NAFTA came into effect. However, since NAFTA went into effect, the U.S. sweetener trade balance consistently has been negative.
- Given the importance of Mexico for U.S. HFCS and corn, how the negotiations will end is an important question. Recently, Japan replaced the U.S. as the top country for Mexican corn imports.
Other issues may include price restrictions on sugar imports and enforcing the trade agreements.
For additional details on historical disputes related to sweeteners between the U.S. and Mexico, see the article “Sweeteners May Leave a Sour Note on NAFTA Renegotiations” (https://tinyurl.com/NDSU-sweeteners) that Frayne Olson, NDSU Extension Service crops economist and an associate professor in the Agribusiness and Applied Economics Department, and I wrote. It was published in Choices, an Agricultural and Applied Economics Association publication.
Prithviraj Lakkakula is a research assistant professor in the North Dakota State University Agribusiness and Applied Economics Department.