WTO Panel Finds Tax
Discriminatory and Contrary to WTO Rules
– U.S. Trade Representative Rob Portman applauded a World Trade
Organization (WTO) panel decision issued today siding with the
States in its case against
Mexico’s beverage tax. Under the tax, 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. Beverages made with Mexican cane sugar
are tax-exempt. The beverage tax
resulted in an immediate drop in U.S. exports of HFCS to
As of 2004, U.S. exports of HFCS to
Mexico remained at less than six percent of their
“This is an important win for our industry.
The WTO panel could not have been clearer:
Mexico’s beverage tax is discriminatory and
contrary to WTO rules,” said Portman.
“Mexico needs to eliminate this tax as soon as
possible, and in doing so, I urge Mexico not to merely substitute one barrier to HFCS
Mexico must echo the
States’ commitment to free trade for all goods as
the implementation of the final NAFTA duty reductions quickly approaches. We
hope the recent announcement by Mexico to provide additional duty-free access for
HFCS is a step in that direction.”
The WTO panel report sided with the
States on all major issues in the dispute. Specifically, the panel agreed that the
beverage tax discriminates against U.S. products because it taxes the distribution
and sale of beverages that use HFCS and beet sugar but does not tax beverages
that use Mexican cane sugar. The
panel concluded that such discrimination is contrary to WTO rules – in
particular, those rules that prohibit higher taxes on, and require no less
favorable treatment for, imported products as compared to directly competitive
or like domestic products. The
panel’s findings cover both beverages and the sweeteners HFCS and beet
The WTO panel also agreed with the
States that several bookkeeping and reporting
requirements associated with collection of the beverage tax afford less
favorable treatment to HFCS and beet sugar as compared to Mexican cane sugar and
are, therefore, also contrary to WTO rules.
In the course of the dispute, the WTO panel
rejected Mexico’s request for it to decline jurisdiction in
favor of a North American Free Trade Agreement (NAFTA) dispute settlement panel.
The panel concluded that WTO panels may not decline to exercise jurisdiction
over disputes properly brought before them. The panel also rejected
Mexico's defense that, although discriminatory, its
beverage tax is nonetheless justified as necessary to secure compliance with
what, in Mexico's view, are
U.S. obligations under the NAFTA. As the
States explained before the WTO panel, although it
shares Mexico’s desire to resolve differences over
sweeteners, WTO dispute settlement is not the appropriate forum to resolve a
disagreement under the NAFTA. The
States did, however, reiterate its commitment to a
negotiated solution to the NAFTA sweeteners dispute and continues to work hard
to achieve that.
Mexico imposed the beverage tax on January
1, 2002. The beverage tax levies a 20 percent tax
on soft drinks and other beverages, as well as on syrups and other products that
can be diluted to produce soft drinks and other beverages (“soft drinks and
syrups”). 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.
Mexico, cane sugar is almost exclusively a domestic
product, whereas before the tax, HFCS accounted for 99 percent of
Mexico’s sweetener imports. Thus, by taxing soft drinks and syrups
made with HFCS, but not those made with cane sugar,
Mexico imposed a tax designed to discriminate
The beverage tax had an immediate effect on
HFCS. Prior to its imposition, soft
drink bottlers were the principal consumers of HFCS in
Mexico and were increasingly substituting HFCS as a
cost-effective alternative to cane sugar.
The beverage tax reversed this trend as application of the beverage tax
made the use of HFCS in soft drinks and syrups cost-prohibitive.
At the request of the
States, the WTO established the panel on
July 6, 2004.
Before the WTO panel, the United
States claimed that the beverage tax is
inconsistent with Mexico’s WTO obligations under Articles III:2 and
III:4 of the General Agreement on Tariffs and Trade 1994. The
States challenged the tax as applied on soft drinks
and syrups, as well as on HFCS and beet sugar used to make soft drinks and
syrups. The panel found in favor of
States on all counts, including rejecting
Mexico’s defense that the beverage tax is justified
as necessary to secure compliance with the NAFTA.
The NAFTA calls for duties that remain on a
handful of products, including sugar, to be eliminated by 2008.