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March 10, 2011

Wanna maximize NAFTA Claims? Create as few jobs as possible.

In my long post on the Cargill v. Mexico investor-state claim under NAFTA that was published last week, there were a couple of dimensions that I did not delve into, but which merit mention.

First, Cargill was able to get a much bigger damages award ($77.3 million) than its competitors Archer Daniels Midland (ADM, $33.5 million) or Corn Products International (CPI, $58.38 million).

There are a lot of similarities between the three. All three are U.S.-registered firms that sell high fructose corn syrup (HFCS) in the Mexican market. All three brought NAFTA claims against the same Mexican policy - the special excise tax on soda drinks that contain HFCS.

The main difference was that ADM and CPI actually went to the trouble to build HFCS facilities in Mexico, thus creating jobs in Mexico. Cargill thought about creating a facility in Mexico, but instead decided to process the HFCS in the United States and ship it to Mexico, thus creating only distribution-related jobs in Mexico, but not substantial manufacturing jobs.

Why does this matter? Well, the much reviled Mexican soda tax was motivated by Mexico's desperate attempts to salvage jobs as the country's rural sector got hammered post-NAFTA. CPI and ADM, who helped moderate the job destruction (by a tiny bit), were not able to claim as much in damages as Cargill, who moderated the job loss even less. Simon Lester over at IELP quotes the relevant reasoning, which relates to whether so-called "up-stream losses" should be counted among the damages in a NAFTA investor-state case.

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