By David Lawder

WASHINGTON (Reuters) -A trade-dispute panel ruled on Friday that Mexico’s restrictions on U.S. genetically modified corn exports violate the U.S.-Mexico-Canada Agreement, handing the Biden administration a major trade victory in its final weeks.

The U.S. Trade Representative’s office said the USMCA dispute settlement panel ruled in favor of all seven U.S. legal claims in the long-running case. It said the panel found Mexico’s restrictions are not based on science and violate the USMCA’s chapters on sanitary and phytosanitary measures and on market access and national treatment.

The three-member panel’s final report recommended that Mexico bring its corn-trade policies into compliance with the trade agreement. It has 45 days to do so under the 2020 trade deal’s rules and failure to comply could result in punitive duties on some exports to the U.S.

Mexico’s economy and agriculture ministries said in a joint statement they disagreed with the ruling but would respect it, providing no details on what steps they would take.

“The Government of Mexico does not agree with the Panel’s decision, as it considers that the measures in question are aligned with the principles of public health protection and the rights of Indigenous peoples,” the agencies said.

Nonetheless, they said that dispute resolution was a key component of the USMCA trade deal, noting that Mexico and Canada prevailed over the U.S. in an automotive rules of origin dispute case last year.

The corn dispute began six months after USMCA came into force in July 2020 when then-President Andres Manuel Lopez Obrador decreed that GM corn be banned by the end of 2024 — a move largely targeting U.S. corn exports. His successor, President Claudia Sheinbaum, has supported the policy.

After years of little movement in consultations, USTR requested arbitration to settle the dispute, challenging Mexico’s 2023 decree that immediately banned use of GM corn in tortillas and dough, and instructed government agencies to gradually eliminate its use in other foods and in animal feed.

The U.S. argued the Mexican government’s claims that GM corn is harmful to human health were not based on science.

“The panel’s ruling reaffirms the United States’ longstanding concerns about Mexico’s biotechnology policies and their detrimental impact on U.S. agricultural exports, U.S. Trade Representative Katherine Tai said in a statement.

U.S. Agriculture Secretary Tom Vilsack said the decision ensured that U.S. farmers and exporters “will continue to have full and fair access to the Mexican market.”

“It is also a victory for the countries around the world growing and using products of agricultural biotechnology to feed their growing populations and adapt to a changing planet,” Vilsack added.

In February, Mexico’s government softened its initial ban on GM corn, explicitly allowing its use for livestock feed and industrialized products for human consumption, but maintained the ban for use in tortillas.

Mexican officials have defended restrictions on GM corn in tortillas and argued it is up to Washington to demonstrate its exports do not harm human health.

U.S. President-elect Donald Trump has threatened to impose a 25% blanket tariff on all imports from Canada and Mexico when he takes office on Jan. 20 unless they stem the flow of illegal migrants and fentanyl to the U.S.

If implemented, those duties would appear to violate the USMCA’s rules, possibly spawning another dispute case.

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Mexico, birthplace of modern corn, prohibits planting of GM corn due to fears it would contaminate native strains of the grain. Yet the country is the top foreign buyer of U.S.-grown yellow corn, nearly all of which is genetically modified.

Mexico’s government expects local buyers will import a record 22.3 million metric tons during the 2023/24 agricultural season.

In 2024 through October, the U.S. exported $4.8 billion worth of corn to Mexico, according to U.S. Census Bureau data.

Mexico boasts over 60 native varieties of corn, known as landraces, many coming in a kaleidoscope of colors and featuring distinct flavor profiles.

This month, Deputy Economy Minister Luis Rosendo Gutierrez stressed that the government was doing everything it could to protect the free trade pact amid Trump’s tariff threats. He added Mexico would comply with the panel’s ruling.

U.S. and international agriculture and biotechnology groups applauded the ruling.

“This is the clearest of signals that upholding free-trade agreements delivers the stability needed for innovation to flourish and to anchor our food security,” said Emily Rees, president of CropLife International, which represents the plant science industry.

(Reporting by David Lawder and Adriana Barrera; additional reporting by Brendan O’Boyle, David Alire Garcia and Cassandra Garrison in Mexico City, Tom Polansek in Chicago and Leah Douglas in Washington; editing by Diane Craft, Rod Nickel and David Gregorio)

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