Trade Creation and Diversion Effects of the North American Free Trade Agreement of U.S. Sugar Imports from Mexico

Abstract

A world sugar model consisting of 21 countries was developed to determine the effects of NAFTA of U.S. and Mexican sugar markets and to quantify the trade creation and diversion effects on U.S. imports from Mexico. Mexican sugar production increases under NAFTA, causing Mexico to become a net exporter. NAFTA induces sugar imports from Mexico to displace U.S. production, to meet demand expansion, and also to divert U.S. imports from other foreign suppliers to Mexico. Effects of NAFTA on the U.S. sugar market are small because of the side agreements which limit Mexican exports and which include corn sweetener consumption when computing Mexico's production surplus.

Keywords

• nafta
• trade creation
• trade diversion