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Mexico Removes Controversial Sugar Tax

by Mike Godfrey, Tax-News.com, Washington

06 March 2002

Mexico's President Vicente Fox yesterday suspended for seven months a 20% tax on imported high-fructose corn syrup (HFCS) which had been forced through Congress during tense negotiations over a tax-raising package two months ago. The tax forces beverage makers, including Fox's previous employer, Coca Cola, to use more expensive Mexican sugar.

Legislators of the opposition Institutional Revolutionary party (PRI) threaten to challenge reversal of the tax in Mexico's supreme court. "The constitution permits him to modify taxes if it will benefit the entire population, but this benefits his associates in the US beverage industry," said Senator Oscar Canton Zetina.

The US corn syrup industry on Tuesday applauded Fox's action and said any move to reinstate it should be met with US trade sanctions. US officials had said there would be no further negotiations on bilateral sweetener trade until Mexico removed the soft-drink tax.

"Any efforts to re-institute the tax should be met by strong action by the U.S. government to remove a similar amount of concessions from Mexican trade," said Corn Refiners Association, which represents HFCS firms in the United States such as Cargill and ADM.

NAFTA and World Trade Organization panels have declared Mexico's anti-dumping duty on HFCS from the US illegal, but Mexico had previously refused to remove the duty, instead insisting the United States open its doors to Mexican sugar. However, the United States has refrained from retaliating against Mexico, hoping negotiations would resolve the sugar and HFCS disputes.

Sen. Chuck Grassley of Iowa, the senior Republican on the Senate Finance Committee, which oversees U.S. trade policy, told reporters he hoped the suspension of the tax was permanent and that he would "watch all this very closely." Had Mexico's HFCS tax remained in effect all year, US farmers would have lost $66 million in corn sales, according to Grassley. Corn refiners, he said, would have lost about $244 million in sales.

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