Mexico, U.S. Reach New Agreement on Sugar Trade

By Navarro, Carlos | SourceMex Economic News & Analysis on Mexico, June 14, 2017 | Go to article overview

Mexico, U.S. Reach New Agreement on Sugar Trade


Navarro, Carlos, SourceMex Economic News & Analysis on Mexico


After weeks of difficult negotiations, the US and Mexico have agreed in principle to change the terms of sugar trade between the two countries.

But the US and Mexican sugar industries both expressed reservations about the agreement reached between the negotiating teams led by US Commerce Secretary Wilbur Russ and Mexico's Economy Secretary Ildefonso Guajardo. Under the accord, Mexico agreed to reduce the amount of refined sugar it ships to the US in exchange for an increase in shipments of raw sugar.

The two sides agreed to modify an accord negotiated in 2015 after the US moved to establish quotas on imports of Mexican sugar. That decision followed a yearlong investigation that showed that Mexican sugar mills were flooding the US market with sugar at below-market prices. According to the investigation, production subsidies in Mexico resulted in increased production (SourceMex, Jan. 30, 2013) and eventually, in a surplus. The quotas were an alternative to a push by the US sugarcane industry to impose anti-dumping and countervailing duties (SourceMex, April 9, 2014).

The issue came to the forefront in March, when Mexico came close to surpassing quotas that were established in 2015 for the 2016-2017 marketing year. The Mexican sugar industry chamber (Camara Nacional de las Industrias Azucarera y Alcoholera, CNIAA), which was in charge of monitoring exports of refined sugar to the US, suddenly stopped issuing permits (SourceMex, March 29, 2017), worried that Mexico would surpass the quotas set by the US.

If the quota had been surpassed, exports would have been subject to penalties. According to US and Mexican sources, the quota for this year was set at 820,000 tons.

The Mexican government's decision was untimely for Mexican sugar producers, because the harvest was in full swing in March, and mills, known as ingenios, were operating at close to full capacity.

A change in the export formula

The confusion over the situation that led to the CNIAA actions prompted Guajardo and Ross to begin a series of consultations. Earlier this month, the two countries announced they had reached an agreement in principle that would keep the quota of Mexican sugar exports at current levels but change the ratio of refined and raw sugar that would be shipped north of the border. Mexico agreed to reduce the amount of refined sugar exports to 30% from 53% of the total quota. Unrefined sugar exports would increase to 70% from the current rate of 47%. By accepting the quotas, Mexico avoids tariffs on sugar, which would have been set at 43.9%.

The agreement also raises the price of raw sugar imported from Mexico to US$0.23 per pound from US$0.2225 cents and to US$0.28 from US$0.26 for refined sugar.

US, Mexican producers concerned

The agreement left industry groups on both sides of the border with some concerns. Representatives for the American Sugar Alliance (ASA), based in Arlington, Virginia, mentioned a loophole in the accord that could potentially take away decision-making powers from the US Department of Agriculture (USDA).

The loophole deals with a clause that gives Mexico the right to supply all US sugar needs when domestic or other foreign suppliers are not able to meet those needs. The ASA is worried that should that circumstance arise, Mexico would be able to flood the US market with refined sugar rather than the raw sugar needed to keep processors in the US running. ASA officials said they are working with Ross to see how that concern could be addressed.

Some trade experts noted that the objection from the US sugar industry was an expected outcome of the negotiations.

"Petitioners are never entirely happy with suspension agreements like this," said William Perry, who served in the US Commerce Department and the US International Trade Commission during the administration of former US President Ronald Reagan (1980-1988). …

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