U.S. and Mexico sugar trade
The governments of the United States and Mexico on June 6 announced an agreement in principle on sugar trade.

WASHINGTON – The governments of the United States and Mexico on June 6 announced an agreement in principle on sugar trade that prevented major disruption to the sugar and corn sweetener markets of both countries and was seen by many as a precursor to negotiations on the North American Free Trade Agreement (NAFTA) in coming weeks. Still, a few details remain to be worked out as U.S. sugar producers were dissatisfied with the final agreement.

Talks on the trade issue between the U.S. Department of Commerce and the Mexican government were on and off since last year and were going on in earnest the past two months and especially in recent days. A deadline of June 5 was extended 24 hours to allow for final negotiations.

The agreement made significant revisions to the 2014 trade agreements between the two countries that suspended anti-dumping and countervailing duties totaling nearly 80% on U.S. imports of sugar from Mexico. Flaws in those agreements in part allowed more refined sugar into the United States than anticipated, and allowed sugar classified as unrefined to bypass U.S. refiners, leaving some without sufficient feedstock to run efficiently, and go to melters as direct consumption sugar. The original “suspension agreements” superseded unlimited, duty-free trade of sugar and high-fructose corn syrup between the two nations provided for under NAFTA.

Wilbur Ross
U.S. Commerce secretary Wilbur Ross

“We have gotten the Mexican side to agree to nearly every request made by U.S. industry to address flaws in the current system and ensure fair treatment of American sugar growers and refiners,” said U.S. Commerce secretary Wilbur Ross. “I am glad to say that Minister Guajardo (Mexican Economy Minister Ildefonso Guajardo) and his colleagues have been honest and collaborative partners in seeking a fair and sustainable solution – this bodes well for our long-term relationship.

“Unfortunately, despite all of these gains, the U.S. sugar industry has said it is unable to support the new agreement, but we remain hopeful that further progress can be made during the drafting process. We look forward to continuing discussions with them as we finalize the agreement. We remain confident that this deal defends American workers across many industries and is the best way to ensure stability and growth.”

The American Sugar Alliance, which represents U.S. sugar producers, commended Mr. Ross for progress in the negotiations, but also expressed concerns.

U.S. sugar imports from Mexico

“U.S. sugar farmers and producers are concerned that the agreement in principle contains a major loophole in the section dealing with additional U.S. needs,” said Phillip Hayes, a spokesman for the A.S.A. “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. This loophole takes away the existing power of the U.S. government to determine the type and polarity of any additional sugar that needs to be imported and cedes that power to the Mexican government.

“We will work with Secretary Ross in the coming days to see if that loophole can be effectively closed so that the basic provisions of the agreement are not undermined and U.S.D.A. can effectively manage the sugar program.”

The five major elements of the agreement include price, the raw/refined split, purity/polarity, enforcement and additional U.S. sugar needs.

The new agreement raises the minimum price for raw sugar for export sold at the mill in Mexico to 23c a lb from 22.25c and for refined sugar to 28c a lb from 26c, which is aimed at protecting the U.S. sugar industry from harm caused by Mexico dumping sugar at low prices.

The new agreement requires an import mix of 30% refined and 70% raw sugar compared with a maximum of 53% refined in the original document, which is intended to provide more raw sugar to U.S. refiners.

Polarity (a measure of purity) for sugar to be classified as refined was reduced to 99.2 from 99.5, which means common “estandar” sugar in Mexico that fell just below 99.5 polarity but was used by U.S. melters for direct consumption now will be counted in the 30% refined sugar category.

Mexico agreed to increase enforcement measures and to accept significant penalties for violations.

Finally, Mexico accepted the modifications on the condition that it be granted a right of first refusal to supply 100% of any additional need for sugar identified by the U.S. Department of Agriculture after April 1 of each year, which was not part of the original agreement. For any additional sugar after April 1, the U.S.D.A. will specify whether imports will be raw or refined using 99.5 polarity as the dividing line between raw and refined, and any raw imports must be shipped in bulk by ocean vessel rather than in bags.

Sonny Perdue
U.S.D.A. secretary George (Sonny) Perdue

“This agreement protects American workers and consumers and marks a dramatic improvement for the U.S. sugar industry,” said U.S.D.A. secretary George (Sonny) Perdue. “This agreement prevented potentially significant and retaliatory actions by the Mexican sugar industry and sets an important tone of good faith leading up to renegotiation of the North American Free Trade Agreement.”

U.S. corn refiners, who stood to lose their largest export market if the talks failed, applauded the new agreement.

John Bode
John Bode, president and c.e.o. of the Corn Refiners Association

“This is a great day for American jobs,” said John Bode, president and c.e.o. of the Corn Refiners Association. “In this administration’s first major negotiation with Mexico, Secretary Ross succeeded in protecting against unfair trade practices and maintained vulnerable export markets. With both sides demanding more, he coolly pursued the broader public interest. Thanks to his leadership, U.S. sugar interests have much stronger protections than the previous suspension agreements without threatening the $500 million in U.S. corn sweetener exports to Mexico that support 4,000 U.S. jobs.”

But a major sugar users group continued to oppose the trade agreement, as well as the U.S. sugar program that controls sugar imports and markets.

“Today’s announcement is a bad deal for hardworking Americans, and exemplifies the worst form of crony capitalism,” the Coalition for Sugar Reform said. “The agreement in principle does not address the fact that the price of sugar in this country is already 80% higher than the world price. In fact, it will result in higher prices, costing U.S. consumers an estimated $1 billion a year. What the agreement does do is solidify that it’s time for Congress to shoulder the responsibility of fixing this broken program in the 2018 farm bill if not before.”

Since the new deal is an agreement in principle, there remains the possibility that it may not stand since U.S. sugar producers, who filed the original dumping charges against Mexico, oppose it due to the aforementioned “loophole.” A final draft of the agreement is expected in the next few days, Mr. Ross said.