The U.S. Department of Commerce announced on October 27 an affirmative determination in the anti-dumping (AD) investigation of sugar imported from Mexico and set dumping margins on sugar from Mexican processors ranging from 39.54 percent to 47.26 percent. These preliminary AD duties come after Commerce imposed preliminary countervailing duties (CVD) in August ranging from 2.99 to 17.01 percent. Also on October 27, Commerce announced a draft agreement with the Government of Mexico to suspend the AD and CVD investigations.

Under NAFTA, Mexico can export unlimited amounts of sugar to the U.S. tariff free. The Mexican government is like many other national governments that politically cannot refuse to provide assistance to the sugar industry when prices are low and sugar processors face bankruptcy. Pressure also comes from the thousands of small-scale cane growers that do not have other crops they can grow profitably.

When world sugar crops are large, the support price for U.S. sugar is substantially above world market prices and encourages Mexican sugar to flow into the U.S. Imports from other producing countries are constrained by WTO tariff rate quotas (TRQ).

The suspension agreement was no great surprise. The CVD law allows for a suspension agreement to be negotiated on the basis of a quantitative restriction. This protects Mexico’s preferential access to the U.S. sugar market under NAFTA. The suspension agreement has two parts. The CVD suspension agreement is between the U.S. Department of Commerce and the Mexican government and limits the quantity of imports, and the AD draft suspension agreement is between Commerce and the Mexican industry and sets minimum prices for imports.

The draft suspension agreement provides for:

  • Minimum reference prices of 23.57 cents per pound for refined sugar and 20.75 cents per pound for other sugar from Mexico entering the U.S.,
  • Mexican export licenses for sugar to enter the U.S.,
  • Export limits based on anticipated U.S. needs for imported sugar,
  • Limits on the amount of refined sugar that can enter the U.S., and
  • Limits on the timing of shipments prior to December 31 and March 31 of the marketing year.

The deadline for comments from interested parties to Commerce on the draft suspension agreement was November 18. The duration of the agreements is not defined, but termination of the agreements can be considered during the course of a customary five-year sunset review.

The suspension agreement more closely aligns the Mexican sugar program with the U.S. program. The minimum import prices will remove price competition of imported Mexican sugar with domestic sugar under U.S. price support program. That is the easy part of the agreement.

The much more difficult part is to avoid oversupplying the U.S. market by restricting how much sugar Mexico can import throughout the year and in specific parts of the year. USDA needs to balance supply and demand under the U.S. sugar program to meet the needs of domestic users at reasonable prices. The quantity that Mexico can supply to the U.S. is not established as a specific amount in the agreement.  A ‘target quantity’ of U.S. needs provided by Mexico will be calculated several times during specific periods in the crop year.

The agreement also tries to spread shipments throughout the year, with no more than 30 percent of the Mexican quota calculated in July and effective Oct. 1 being shipped between Oct. 1 and Dec. 31. No more than 55 percent of the quota calculated each December and effective Jan. 1 may be exported from Mexico from Oct. 1 through March 31.

These target quantity calculations and timing of shipments are the supply management tools that are hard to manage. This is doubly hard with USDA’s mandate to keep sugar market prices high enough to avoid producer loan forfeitures and government costs, while ensuring users pay reasonable prices.

Some analysts have concluded the agreement will let Mexico supply the U.S. sugar market needs in excess of what can be supplied by U.S. production, imports under a WTO TRQs and imports from other countries that have a free trade agreement with the U.S. Other sugar suppliers see themselves as being shut out of any growth of the U.S. market.

The Australian Sugar Industry Alliance (ASA) was quoted in The Land magazine as saying “In return for the US not imposing anti-dumping and countervailing duties on sugar imported from Mexico, the Mexican government has agreed to limit the quantity of sugar it sells to the US…The quid pro quo is that Mexico will take the first opportunity to supply any additional sugar that may be required to meet shortfalls in US production ….It effectively cuts Australia and other TRQ (‘tariff rate quota’) suppliers out of the opportunity they would otherwise have to meet these additional US supply needs.” The Australian sugar industry considers itself is as the world’s third-largest exporter of raw sugar and has been a historical supplier to the U.S. Australia already has a dispute with the U.S. over additional access for sugar under the Trans-Pacific Partnership free trade agreement now being negotiated.

The suspension agreement with Mexico will not end the challenges in managing the U.S. sugar program. Any price support program like sugar requires by its nature a managed trade program to keep the U.S. market price above the loan rate when global prices are low to avoid or minimize forfeitures.

Ross Korves is a Trade and Economic Policy Analyst with Truth About Trade &Technology (www.truthabouttrade.org). Follow us: @TruthAboutTrade on Twitter |Truth About Trade & Technology on Facebook.