A sugar imbalance

THE RECENT RULING OF the World Trade Organization against Mexico for protecting its sugar industry is a victory for free trade and a reward for cynicism. Mexico will have to repeal a tax against bottlers that used fructose syrup from the U.S. and pay penalties that could exceed $300 million. Although the tax clearly violates provisions of the North American Free Trade Agreement and the WTO, the verdict is hardly fair.

The sugar industry is one of the most protected in Mexico; in 2001, President Vicente Fox nationalized many of the nation’s mills and established minimum prices they had to pay farmers. Tens of thousands of peasants make a meager living cutting sugar cane, and their methods have changed little over the centuries, with most cutters still using machetes. In 2002, the Mexican Congress and Fox slapped a 20% tax on imports of cheap U.S. corn sweeteners.

The U.S. cried foul and filed a claim with the WTO. The U.S. won its case, unsurprisingly, upholding the principle of free trade enshrined in NAFTA. Yet the victory does nothing for its reputation for fairness. When it comes to the sugar industry, there is hardly a more protectionist country in the world than the United States.

Subsidies to the sugar industry cost U.S. taxpayers about $1.2 billion annually, and in the last 10 years the price of sugar in the United States has risen at two to three times the rate in the rest of the world, costing U.S. consumers billions more. Such protectionist policies are all the more offensive considering that the sugar cane industry employs only about 62,000 people in the United States, with even fewer in the sugar beet industry.

Of course, Mexico’s protectionist policies harm its consumers as well. Mexican raw sugar costs about 25 cents a pound wholesale, more than twice the global average. But in Mexico the number of people employed in the sugar cane industry is about 350,000.

Mexico’s choices after this WTO decision are limited. Defying it could be catastrophic, as the U.S. could ask for punitive tariffs on other Mexican goods equal to the perceived damage suffered by U.S. firms. Appealing it will only delay the inevitable. The wisest move for Mexico is to accept the ruling and open its border to U.S. products. It also can wait patiently -- and complain loudly -- until the U.S. government allows the free flow of Mexican sugar across the border and changes a policy that is uneconomical and unfair.