My son would love last week’s news report about the popularity of Mexican-made Coca-Cola in some U.S. specialty stores.
Having spent several summer study terms in Mexico, he is quick to assert that Mexican Coke, which is made with sugar rather than high-fructose corn sweetener (HFCS) as in our country, is a superior product.
The distinction between HFCS and sugar isn’t important to me. However, the phenomenon does illustrate the intricacies of so-called “free trade” agreements.
I say “so-called” because the North American Free Trade Agreement, the Canadian-U.S. pact that preceded it and others that have followed are riddled with exceptions to the stated aim of free trade. From the U.S. perspective, few exceptions are as glaring as the treatment of sugar and sugar-containing products.
The U.S. sugar program keeps the price of sugar to U.S. consumers 40 percent or more above market-determined prices in many other countries. This not only reflects the political power of a small number of U.S. beet- and cane-sugar producers but also that of more numerous corn producers.
HFCS has achieved large market shares in beverage sweetening, canned fruits and factory bakery goods. Use of the corn product has grown strongly over the past quarter-century as a result. But HFCS is price competitive in many uses only because U.S. sugar prices are higher than world prices.
The “free trade” pacts the United States has negotiated during the past two decades have contained provisions to ensure that cheaper sugar will not flow into our country as a result of the agreement.
Canada also got protection for its milk, egg and broiler price-support programs, and Canadian consumers continue to pay higher prices for those products than do their neighbors to the south.
It is not enough, however, to stop the flow of sugar itself. When manufacturers of sugar-containing products face different input costs in two free-trading countries, those with cheaper costs will undersell those paying the higher price.
That happened with candy manufacturing after the 1988 signing of the agreement with Canada. Canadian manufacturers of hard candies that are nearly pure sugar paid substantially lower sugar prices than their U.S. competitors. Soon, shipments of cheaper Canadian butterscotch balls and peppermints into the United States grew dramatically.
So far, shipments of Mexican sugar-sweetened soft drinks into this nation are just a trickle. I doubt many consumers can detect any difference. The Coca-Cola Co. discourages any shipments that cut into franchise rights of its U.S. bottlers. So Mexican Coke may not pose any substantial threat to U.S. corn producers.
The case illustrates the ramifications of trade restrictions. It mimics the way in which U.S. steel protectionism handicaps U.S. manufacturers of bulldozers and locomotives as they compete in world markets. Oh, what a tangled web we get, when first we practice to protect.
© 2004 Edward Lotterman
Chanarambie Consulting, Inc.