US, Mexico Clinch "Agreement in Principle" On Sugar Trade

8 June 2017

Economic officials from the US and Mexico announced on Tuesday 6 June that they had reached a draft deal to prevent trade remedies planned by Washington on imported Mexican sugar, capping a prolonged series of talks between the two sides.

At issue were two existing “suspension agreements” dating back to late 2014 that put on hold anti-dumping and countervailing duties that would otherwise have been applied to imported Mexican sugar. Negotiators faced a 5 June deadline to reach new suspension agreements, which was later extended for one additional day to hammer out the final details of a draft accord.

Such duties would have ranged between 40.48-42.14 percent in the anti-dumping probe, and between 5.78-43.93 percent for the countervailing duty probe, according to the Mexican Secretariat of the Economy.

The outcome of the negotiations had been looked to closely in light of the upcoming talks between the US, Canada, and Mexico to update their decades-old trade deal, the North American Free Trade Agreement (NAFTA). Those negotiations are expected to kick off as early as August, following the end of a 90-day consultations period in the United States. (See Bridges Weekly, 24 May 2017)

While the original NAFTA had eventually removed tariffs on sugar exchanged between the two North American neighbours, US industry later complained that Mexican exporters were selling their sugar to the US at prices below their normal value – a practice known as dumping – and benefiting from unfair state aid. The two sides had later announced a draft deal in October 2014, several months after the US Commerce Department began its investigations into the dumping and subsidy allegations. (See Bridges Weekly, 30 October 2014)

US industry debates result

“We have gotten the Mexican side to agree to nearly every request made by US industry to address flaws in the current system and ensure fair treatment of American sugar growers and refiners,” said US Secretary of Commerce Wilbur Ross in announcing the deal.

According to the US Department of Commerce, the deal will incorporate a series of elements, including the prices of raw and refined sugar at Mexican mills; how much refined sugar can be imported into the United States; a revision in the definition of raw and refined sugar; and the type of policies in place to enforce the agreement’s terms.

For example, only 30 percent of US-bound Mexican sugar can now be refined – compared to the 53 percent threshold permitted before – with the remaining 70 percent allocated to raw sugar.

“This results in a significant increase in the amount of raw sugar available to US sugar refiners while ensuring that subsidised refined Mexican sugar imports do not injure US refiners,” said the US Commerce Department in describing the deal’s terms.

Furthermore, Mexico will be granted “a right of first refusal” should US agricultural officials determine a need for increased imports into the United States. This would need to be confirmed annually, by the beginning of April. In that instance, some of the above-mentioned requirements, such as the 30 percent limit for refined sugar imports, can be revised. Various other conditions would also apply.

The US commerce chief noted that the “agreement in principle” has faced scepticism among some players in domestic industry, while pledging to continue talks with those businesses as the process to finalise the new “suspension agreement” continues.

The American Sugar Alliance, in its own statement following the news, specifically flagged the “additional needs” component of the agreement announced Tuesday, calling it a “major loophole” that could be deeply damaging to the US sugar sector.

“This loophole takes away the existing power of the US government to determine the type and polarity of any additional sugar that needs to be imported and cedes that power to the Mexican government,” said the industry group, which says its represents producers of US-grown sugarcane and sugar beet.

Polarity refers to the level of “purity” with regards to sugar – in other words, what constitutes refined versus raw sugar. Under the “additional needs” clause, imported sugar requested by the US after 1 April can revert back to using the 99.5 polarity threshold, versus the 99.2 polarity which would otherwise apply.

That same alliance had lodged the original complaints that led to the anti-dumping and countervailing duty probes.

However, the news of the agreement in principle was welcomed by the US Corn Refiners Association, which called it a “great day for American jobs.”

“As good as this success is, it is also an excellent sign for the coming NAFTA negotiations. Today’s announcement sets a thoughtful tone and positive posture for modernising NAFTA,” said the group, whose members include companies that make starch, sweeteners, and other goods derived from corn.

Some Mexican industry officials have similarly noted that the results of this week’s sugar deal could be a harbinger of things to come when the formal NAFTA renegotiations kick off.

“In Mexico, everybody is looking at the sugar agreement because it’s a thermometer of how things are going to be managed,” said Juan Cortina Gallardo in an interview with the New York Times. Cortina heads the Grupo Azucarero México, which describes itself as the third most important private sugar producer in the country.

ICTSD reporting; “NAFTA renegotiations roil Mexico’s sugar-cane fields,” GLOBE AND MAIL, 4 June 2017; “Sugar Talks May Hint at Trump Approach to U.S.-Mexico Trade,” NEW YORK TIMES, 4 June 2017; “U.S., Mexico reach sugar pact despite U.S. producer resistance,” REUTERS, 6 June 2017.

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