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U.S. and Mexico Reach Deal on Bilateral Sugar Trade

Thursday, June 08, 2017
Sandler, Travis & Rosenberg Trade Report

U.S. Commerce Secretary Wilbur Ross and Mexican Secretary of Economy Ildefonso Guajardo announced June 6 a new agreement in principle to resolve ongoing issues over Mexican sugar exports and anti-bunching limits. These difficulties date back to April 2014 when the Department of Commerce initiated antidumping and countervailing duty investigations on Mexican sugar. In December 2014, the DOC entered into suspension agreements with the government of Mexico and Mexican sugar producers that suspended these investigations in exchange for Mexico limiting its exports and imposing minimum export prices on sugar sold to the U.S. However, alleged flaws in the suspension agreements have resulted in a shortage of raw sugar supplies and price suppression in the refined sugar market.

The U.S. has agreed to continue to suspend AD and CV duties on sugar imports from Mexico as part of the new deal. In return, Mexico has agreed to the following commitments.

- the price at which raw sugar must be sold at the mill in Mexico will be increased from 22.25 cents per pound to 23 cents per pound, and the price for refined sugar will be increased from 26 cents per pound to 28 cents per pound (these prices exclude packaging and transportation)

- the percentage of refined sugar that may be imported into the U.S. has been reduced from 53 percent to 30 percent, resulting in a significant increase in the amount of raw sugar available to U.S. sugar refiners while ensuring that subsidized refined Mexican sugar imports do not injure U.S. refiners

- the dividing line between refined and raw sugar (commonly known as polarity) has been reduced from 99.5 to 99.2 purity

- Mexico has agreed to increased enforcement measures and to accept significant penalties for violations, including a reduction in the amount of sugar allowed to be imported equal to twice the amount of any sugar found to be in violation of the modified agreements (if necessary, the DOC can increase this reduction to three times the amount to deter further wrongdoing)

Mexican authorities have accepted these modifications on the condition that Mexico be granted a right of first refusal to supply 100 percent of any “additional need” for sugar identified by the U.S. Department of Agriculture after April 1 of each year. Additional need is defined as demand for sugar in excess of the demand the USDA had predicted for that crop year. The dividing line between raw and refined additional need sugar is 99.5 polarity but raw sugar must be shipped in bulk in an ocean-going vessel, increasing the likelihood it will enter a U.S. refinery for further processing.

The DOC adds that when the export limit is increased pursuant to a request by the USDA prior to April 1, such sugar will be subject to the pre-April 1 70/30 split and the 99.2 polarity divide. In addition, the USDA retains the flexibility to specify the polarity of post-April 1 additional need sugar specifically needed to rectify certain extraordinary and unforeseen circumstances that seriously threaten the economic viability of the U.S. sugar refining industry.

The American Sugar Alliance has criticized the additional need provision of the deal, noting that Mexico could “exploit this loophole to continue to dump subsidized sugar into the U.S. market and short U.S. refineries of raw sugar inputs.” The Alliance hopes to work with Secretary Ross in the coming days to close this loophole so that the USDA is able to effectively manage the sugar program.

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