U.S. Commerce Sec. Ross: U.S.-Mexico Trade Deal Reached, Duties Averted

Posted on 06/06/2017 2:38 PM

The US and Mexico have reached agreement in principle on sugar trade issues between the two countries that will allow Mexican sugar access to the U.S. market as before and will suspend US antidumping and antisubsidy duties against imports of Mexican sugar, U.S. Commerce Secretary Wilbur Ross announced in Washington.

Mexico agreed to "nearly every" request from the U.S. to fix issues under the prior sugar deal, Ross said, and it bodes well for longer-term relations between the two countries. "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,” He said. 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," Ross added.

Plus, Ross noted the package will address US concerns and will avert negative impacts to other industries such as confectioners and corn producers. However, Ross noted the US sugar industry is "not on board" with the agreement. However, he added there would be a final drafting stage, during which the two sides would try to make it easier for US sugar producers to "come on board" with the deal.

"Unfortunately, despite all of these gains, the US 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,” Ross observed. "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 draft amendments, if finalized, would update certain provisions, such as, in the countervailing duty (CVD) agreement, the ratio between the quantities of Refined and Other Sugar that Mexico may export to the United States during a given export limit period, and the polarity division between the two types of sugar, according to information from the US Commerce Department

Further, in the antidumping (AD) agreement, Commerce said the minimum prices of Other Sugar and Refined Sugar would be higher to ensure that Mexican sugar imports do not suppress or undercut domestic price levels, in accordance with statutory requirements. The reference price for Other Sugar is being raised from 22.25 cents per pound to a level of 23 cents per pound, while the Refined Sugar price is being raised from 26 cents per pound to a price of 28 cents per pound.

There are also enhanced monitoring and enforcement provisions such as a requirement for polarity testing and stiff penalties for non-compliance, Commerce said. The AD and CVD Agreements signed by the Department and the Mexican government in December 2014 differentiated between “Refined Sugar” at a polarity of 99.5 degrees and above, and “Other Sugar” at a polarity less than 99.5 degrees, and provided that no more than 53 percent of Mexican exports could be of Refined Sugar.

The new deal defines "Refined Sugar” as sugar at a polarity of 99.2 degrees and above, and “Other Sugar” as sugar at a polarity less than 99.2 degrees and shipped in bulk, according to the Commerce Department. There are also shipping conditions for Other Sugar with provisions to address concerns regarding ensuring an adequate supply of sugar in the US market, and concerns that a large portion of Other Sugar is bypassing cane refiners for direct consumption or end use.

Because these changes substantially decrease the proportion of sugar from Mexico that may be Refined Sugar and mean that a higher reference price applies to semi-refined sugar, Commerce said, there is a greater likelihood that sufficient sugar for further processing would be available in the US market.

"This agreement protects American workers and consumers and marks a dramatic improvement for the US sugar industry," USDA Secretary Sonny Perdue said in a statement. "The accord sharply reduces the percentage of Mexican refined sugar that may be imported into the United States and also lowers the polarity dividing line between refined and raw sugar. We also achieved better pricing agreements for the industry. And significantly, the agreement requires that raw Mexican sugar be shipped flowing freely in the holds of ocean-going vessels, rather than being shipped in packages or by land. Finally, it is of great importance that USDA will have the flexibility to protect the U.S. sugar industry by making polarity adjustments in the event of extraordinary or unforeseen circumstances. These are important wins in the negotiations, and I congratulate President Trump and Commerce Secretary Wilbur Ross for their tenacity."

The deal also "prevented potentially significant and retaliatory actions by the Mexican sugar industry and sets an important tone of good faith leading up to the renegotiation of the North American Free Trade Agreement," Perdue said. "I maintain that if the rules are fair and the playing field is level, American agricultural products will succeed, thrive, and lead the way."

U.S. sugar growers said they are worried that a "loophole" in the preliminary sugar trade deal undermines the entire agreement and damages USDA’s ability to operate the sugar price-support program. Sugar growers fear the agreement, as it currently stands, gives Mexico too much of the existing U.S. power to determine the "type and polarity" of any additional sugar that needs to be imported to meet U.S. domestic demand. Polarity refers to the purity of sugar, including whether it is classified as raw or refined. "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," Phillip Hayes, a spokesman for the American Sugar Alliance, said in a statement. “It is important to note that the U.S. sugar industry has made substantial compromises throughout the negotiations," Hayes continued. "That includes giving Mexico 100 percent of additional U.S. needs on the condition that the U.S. government retains its authority to regulate additional imports into the U.S. market.”

The sugar growers, however, commended Commerce Secretary Ross for making progress toward reaching a deal and said they will work with him "in the coming days to see if that loophole can be effectively closed."

What are the Key Elements of the Deal?

The Department of Commerce and the Government of Mexico (GOM) and the Mexican sugar industry have reached agreement on draft amendments to the antidumping duty (AD) and countervailing duty (CVD) suspension agreements on sugar from Mexico.

The draft amendments, if finalized, would update certain provisions, such as, in the CVD agreement, the ratio between the quantities of Refined and Other Sugar that Mexico may export to the United States during a given export limit period, and the polarity division between the two types of sugar.

Further, in the AD agreement, the minimum prices of Other Sugar and Refined Sugar would be higher to ensure that Mexican sugar imports do not suppress or undercut domestic price levels, in accordance with statutory requirements.

Finally, each agreement would contain enhanced monitoring and enforcement provisions such as a requirement for polarity testing and stiff penalties for non-compliance.

Each of these elements of the draft amendments, if finalized, would ensure that the agreements provide an adequate remedy to the US domestic sugar industry against the dumping and unfair subsidization determined in the investigations.

In addition, the amendments will ensure that the sugar suspension agreements continue to promote stability in the US sugar market, in coordination with USDA’s sugar program.

What are the Improvements and How Do They Address the Problems?

The AD and CVD Agreements signed by the Department and the GOM in December 2014 differentiated between “Refined Sugar” at a polarity of 99.5 degrees and above, and “Other Sugar” at a polarity less than 99.5 degrees, and provided that no more than 53 percent of Mexican exports could be of Refined Sugar.

By contrast, the draft amendments define “Refined Sugar” as sugar at a polarity of 99.2 degrees and above, and “Other Sugar” as sugar at a polarity less than 99.2 degrees and shipped in bulk, freely flowing.

These changes, which move the dividing line between Refined and Other Sugar down to 99.2 from 99.5 degrees, and add shipping conditions for Other Sugar, address concerns regarding ensuring an adequate supply of sugar in the U.S. market, and concerns that a large portion of Other Sugar is bypassing cane refiners for direct consumption or end use.

Specifically, the petitioners have asserted that the sale of Mexican semi-refined sugar subject (to which the lower reference price of Other Sugar set in the AD Agreement applies) hinders the competitiveness of U.S. cane refiners by substantively diminishing the supply of Mexican sugar for their processing operations, and suppressing U.S. prices for refined sugar.  

Because these changes substantially decrease the proportion of Sugar from Mexico that may be Refined Sugar and mean that a higher reference price applies to semi-refined sugar, there is a greater likelihood that sufficient sugar for further processing would be available in the U.S. market.

For post-April 1 additional needs sugar (over the expected fiscal year U.S. needs) granted to Mexico, USDA will specify whether raw or refined sugar is needed but at a polarity divide of 99.5 and without regard to the pre-April 1 70/30 split.  Importantly, when additional needs sugar is granted to Mexico prior to April 1, such sugar shall be subject to the pre-April 1 70/30 split and the 99.2 polarity divide, added protections for U.S. domestic refiners.  Further, USDA retains the flexibility to specify the polarity of post-April 1 additional needs sugar specifically needed to rectify certain extraordinary and unforeseen circumstances that seriously threaten the economic viability of the U.S. sugar refining industry.

Further, the reference price for Other Sugar is being raised from 22.25 cents/pound to 23 cents/pound, while the Refined Sugar price is being raised from 26 cents/pound to 28 cents/pound.

In addition, the spread between the two prices has increased.  This enhanced pricing structure serves to ensure that U.S. producers’ prices are not suppressed or undercut by imports of Mexican sugar, thereby ensuring that the agreements provide an adequate remedy to the U.S. domestic industry found to have been injured.

 

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