WTO Backs US In Soft Drink Tax Dispute With Mexico

by Mike Godfrey, Tax-News.com, Washington

08 March 2006

The World Trade Organisation Appellate Body has found in favour of the United States in its challenge of Mexico’s beverage tax, which, according to the US government, unfairly discriminates against American farmers and producers.

Under the Mexican tax, imposed in January 2001, soft drinks made with imported sweeteners, such as high-fructose corn syrup (HFCS) and beet sugar, are subject to a 20 percent tax on their sale and distribution, while beverages made with Mexican cane sugar are tax-exempt.

The beverage tax further imposes a 20 percent tax on services used to transfer soft drinks and syrups (e.g., distribution services). In addition, the beverage tax subjects taxed products to several bookkeeping and reporting requirements.

The beverage tax only applies to soft drinks and syrups that use any sweetener other than cane sugar, such as HFCS or beet sugar. Soft drinks and syrups sweetened exclusively with cane sugar are tax-exempt.

In Mexico, cane sugar is almost exclusively a domestic product, whereas before the tax, HFCS accounted for 99 percent of Mexico's sweetener imports.

According to the US Trade Department, by taxing soft drinks and syrups made with HFCS, but not those made with cane sugar, Mexico imposed a tax designed to discriminate against imports.

The WTO panel found that the Mexican tax was inconsistent with the country's obligations under the General Agreement on Tariffs and Trade 1994, a decision welcomed by US Trade Representative Rob Portman.

"This is a good result for our farmers and producers, who seek a level playing field," he stated.

"The Appellate Body has confirmed that Mexico’s beverage tax is discriminatory and breaks WTO rules. It is clear that Mexico must eliminate this tax and restore fairness for our US corn growers and refiners. We hope Mexico sees this decision as we do, as an opportunity to work together to quickly resolve all outstanding sweetener trade issues between us," Mr Portman added.

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