Milling & Baking News - March 14, 2006 - 41

I N T E R N A T I O N A L

Mexico loses W.T.O. appeal on tax
of U.S. high-fructose corn syrup
GENEVA, SWITZERLAND - A World
Trade Organization appellate body on
March 6 denied Mexico's appeal seeking
to overturn an earlier W.T.O. ruling that
Mexico's tax on beverages not sweetened
with cane sugar violated trade rules.
The ruling supports the United
States' claim that Mexico's 20% sales
tax and additional 20% distribution
tax on beverages not sweetened with
cane sugar were directly aimed at
blocking high-fructose corn syrup exports from the U.S.
The appeal concerned an Oct. 7, 2005,
W.T.O. panel ruling against Mexico,
which upheld a preliminary ruling from
June 2005. The March 6 decision cannot
be appealed further with the W.T.O.
Mexico was the largest market for
U.S. HFCS before it imposed antidumping duties on U.S. shipments in
1998. The U.S. exported 193,519 tonnes
of HFCS to Mexico in 1997, but only

4,111 tonnes in 2003, the Office of the
U.S. Trade Representative said.
Although not a tax specifically on
HFCS, the taxes were aimed at blocking HFCS exports from the U.S. and
protecting Mexico's domestic sugar

cane industry, the U.S.T.R. contended
when it filed its case with the W.T.O.
in 2004.
The W.T.O. appellate body on March
6 said it "recommends that the (W.T.O.)
dispute settlement body request Mexico
to bring the measures that were found
in the panel report to be inconsistent
with the General Agreement on Tariff
and Trade 1994 into conformity with its
obligations under that agreement."

E.U. member countries to cut sugar
production 2.5 million tonnes
BRUSSELS, BELGIUM - European Union
member countries on March 3 agreed to a
one-year cut in sugar production of 2.5
million tonnes to relieve pressure on the
market in the first year of the new E.U.
sugar regime that begins July 1.
Twenty-one member countries could
produce 15,768,530 tonnes of sugar, isoglucose and inulin syrup after the reduction, down 13.6% from 18,268,936 tonnes
under the current sugar regime. The new
total includes 15,047,113 tonnes of sugar,
448,023 tonnes of isoglucose and 273,394
tonnes of inulin syrup.
On Feb. 20 the E.U. adopted the most
radical reform to E.U. sugar policy in 40
years, bringing the system in line with
the rest of the E.U. Common Agricultural
Policy. The key to the new sugar regime
is a 36% cut in the guaranteed minimum
sugar price, generous compensation
for farmers and a restructuring fund as
a "carrot" to encourage uncompetitive
sugar producers to leave the industry.
"This one-off reduction is necessary to ensure that the newly-reformed sugar regime
gets under way without heavy surpluses
undermining market balance," the E.U.
said. "The first marketing year under the reformed sugar regime could be very difficult
because of possible oversupply of the market, due to limited export possibilities and
the fact that in this first year, the effects of the
restructuring fund will not yet be felt."
42 / Milling & Baking News, March 14, 2006

Also on March 3 E.U. members agreed
to fix transitional arrangements to take
into account that the first year of the new
regime 2006-07, will last 15 months, from
July 1, 2006, to Sept. 30, 2007. That change
was made so that in the future the E.U.
sugar marketing year will run from Oct. 1
through Sept. 30, which is in line with the
U.S. and other countries' marketing years.
The E.U. said the new sugar regime
"will ensure a long-term sustainable future for sugar production in the E.U., enhance the competitiveness and marketorientation of the sector and strengthen
the E.U.'s position in the current round
of world trade talks."
Three European sugar companies, Danisco Sugar AG, Copenhagen, Denmark, CSM
n.v., Diemen, The Netherlands, and Greencore Group P.L.C., Dublin, Ireland, previously said they would reduce sugar production, including the closing of several plants,
because of the new E.U. sugar policy.
Also a factor in E.U. sugar policy
changes was a World Trade Organization
ruling that the E.U. was exporting excess
subsidized sugar onto the world market.
The E.U. has until May 22 to implement
W.T.O. guidelines, which some in the
trade estimate could take up to 4 million
tonnes of sugar from the world market.
"The E.U. will of course use the export
possibilities available under its international obligations, but will have to respect

In its Oct. 7 ruing, the W.T.O. decision panel said, with respect to Mexico's soft drink tax and distribution tax
as imposed on sweeteners:
* "imported beet sugar is subject to
internal taxes in excess of those applied
to like domestic sweeteners."
* "imported HFCS is being taxed dissimilarly compared with the directly
competitive or substitutable products,
so as to afford protection to the Mexican
domestic production of cane sugar."
* "imported beet sugar and HFCS
are accorded less favorable treatment
than that accorded to like products of
national origin."
The panel also said the tax, as imposed
on soft drinks and syrups, imported soft
drinks and syrups sweetened with noncane sugar sweeteners (including HFCS
and beet sugar) are subject to internal
taxes in excess of those applied to like
domestic products.
Since 1997, the U.S. has lost more
than $3 billion of HFCS sales to Mexico, according to Corn Refiners Association estimates. MBN

the ruling of the W.T.O. appellate body,"
the E.U. said concerning the possibility of
domestic sugar oversupply.
The E.U. reduction comes at a time when
world sugar supplies are tight because of
increased demand in several countries
and reduced production in others that are
typically key exporters, such as Thailand
and Australia. World sugar futures prices
hit a 25-year high in New York in early
February. The International Sugar Organization last week estimated world sugar
demand would outpace production by
2.225 million tonnes, and that import demand would outstrip export availability
by 286,000 tonnes this year (2005-06).
The I.S.O. forecast 2005-06 world sugar
production at a record 148,969,000 tonnes,
raw value, and demand at 151,194,000
tonnes.
But since then, several other events
have occurred that could increase global
supply of exportable sugar, or at least
limit price gains.
Brazil, the world's largest producer and
exporter of sugar, on Feb. 22 reduced to
20% from 25% the amount of ethanol that
must be blended into gasoline. Although
it was not known how long Brazil would
leave the reduced amount in effect, the
I.S.O. said the change could generate up
to 1 million tonnes more sugar for the export market. Brazil uses just over half its
sugar for ethanol.
China on March 2 said it would release
1.2 million tonnes of reserve sugar into
its domestic markets to bring down local
sugar prices. MBN
bakingbusiness.com / world-grain.com

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Milling & Baking News - March 14, 2006

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