A side agreement to the North American Free Trade Agreement (NAFTA) enables Mexico to ship more duty-free sugar to the United States than under the pre-1994 restrictive country-specific, tariff-rate quota (TRQ) policy. But U.S. and Mexican negotiators disagree over the issue of exactly how much sugar Mexico can actually export to the U.S. under the NAFTA side agreement. Disagreement focuses on which version of the NAFTA side agreement governs this issue. The U.S. argues that a 1993 side letter limits Mexican sugar exports to the U.S. to 250,000 MT. In contrast, Mexico insists it is entitled to ship all of its surplus sugar, currently 600,000 MT, to U.S. Consequently, Mexico has asked for a dispute-settlement panel to resolve the question under NAFTA. Three TRQ liberalization scenarios were simulated to show the possible policy implications. The simulation results report that, due to the sugar TRQ liberalization with Mexico, the net U.S. social welfare increases but U.S. producers lose.