Public Citizen | 2 March 2011
Cola wars beat drug wars
by Todd Tucker
The award in agribusiness giant Cargill’s NAFTA investor-state attack on Mexico’s jobs program was published last week.
The short version: a tribunal of three unelected judges determined that Mexico’s efforts to save or create jobs for campesinos in the sugar sector were a violation of NAFTA. Mexico’s taxpayers were ordered to cough up over $77 million plus interest, all the judges’ and court fees, and to even pay Cargill $2 million for Cargill’s own lawyers’ costs.
Here’s the longer version:
For years, large agribusiness groups have been pushing the use of high fructose corn syrup in soda drinks, despite concerns about the environmental and public health impact. Not only is HFCS opposed on health grounds, it’s also opposed by some foodies on taste grounds: witness the growing demand for Mexican Coca Cola, much of which is made with sugar and is said to therefore taste better.
By the late 1990s, Mexico had a whole lot of excess sugar in its market that it hoped to be able to export to the U.S.This pile-up was driving down prices and hurting Mexico’s farmers, who were generally getting battered by NAFTA-style rules and in turn driving displacement into drug trafficking or immigration, as President Obama himself noted during the campaign.
The Mexican government thought that it had a deal with the United States under NAFTA to allow more sugar exports if there was excess production within Mexico. But the Clinton and Bush administrations disputed the deal, and from 1997 onwards refused to address Mexico’s concerns or even respond meaningfully to their phone calls and emails.
At the same time as Mexico’s sugar farmers were getting hit from excess supply and low prices, they were also getting hit by another phenomenon: an increase in HFCS corn exports from the United States. Cargill was one of the leading companies involved in this trade, and focused on selling to soda companies in Mexico. The company apparently considered, but ultimately rejected, processing the HFCS in Mexico - which would have at least created jobs. Instead, they decided to simply ship it fully processed from the U.S. In other words, Mexico was seeing job losses due to the sugar sector problems and HFCS imports, and wasn’t even seeing much job creation from the HFCS.
So, in 2001, Mexico did what any country facing a job crisis and diplomatic stonewalling would do: it imposed a 20 percent tax on soft drinks and other beverages that contained sweeteners other than sugar.
Of course, Cargill was unhappy with this, and tried to get the Mexican government to reboot the HFCS trade. In 2004, Cargill launched a challenge under NAFTA to get cash compensation from Mexico’s taxpayers. So, Mexicans got a triple whammy from NAFTA: widespread campesino displacement due to agribusiness exports, a refusal to allow an outlet for excess sugar, and then they had to pay a giant U.S. corporation for the privilege of trying to construct a lifeboat for some of their farmers.
Folks that are interested in the full NAFTA award can peruse it here. Some of the lowlights, for the real trade wonks:
In sum, the Cargill v. Mexico panel did not adopt the most extreme and ideological interpretations of the "indirect expropriation" and "fair and equitable treatment" concepts. But this will be little consolation to the taxpayers that now have to pay the company for the privilege of enacting a jobs program at a moment when diplomacy had failed and the country was spiralling towards the abyss of narco-trafficking and failed statehood. Under NAFTA, the politically available option to a pressing problem may get you stuck with hundreds of millions of dollars in corporate claims.