Trump administration inheriting sugar dispute with Mexico

WASHINGTON, Jan. 4, 2017 - Is Mexico sneaking tons of refined sugar across the border, disguised as raw product? Some U.S. refiners believe so and the issue promises to be an early test for the incoming Trump administration.

The Commerce Department has already said in a preliminary finding that a 2014 “suspension agreement” to restrict Mexican sugar exports to the U.S. is not working, but government officials tell Agri-Pulse that a final ruling isn’t due until April.

For the next three months, Commerce will be conducting “an administrative review” of the suspension agreement, focusing on trade that occurred between Dec. 19, 2014, and Nov. 30, 2015, according to government documents.

“Based upon the current record of this review, there is some indication that certain individual transactions of subject merchandise may not be in compliance with the terms of the (antidumping agreement) and further, that the (antidumping agreement) may no longer be meeting all of the statutory requirements,” Commerce said. Meanwhile, quiet negotiations between U.S. and Mexican trade officials on a new agreement have stalled, according to U.S. industry sources. Commerce officials have presented the Mexican government with a new suspension agreement, but Mexico has not agreed to it or come up with a counter-offer acceptable to U.S. negotiators.

“The ball is in Mexico’s court,” one U.S. industry official said.

The U.S. tightly restricts the amount of sugar that can enter the U.S. from countries around the world, except Mexico. There is normally no cap on Mexican sugar, thanks to a provision in the North American Free Trade Agreement. In September 2015, however, Commerce ruled that Mexico was subsidizing its sugar shipments and allowing exporters to dump product into the U.S. at 40 percent below market prices. 

Mexico concurred with the suspension agreement that limits the country’s exports in order to prevent retaliatory tariffs of about 80 percent.

Shortly afterward, U.S. industry representatives said they realized that the agreement was not working. It wasn’t keeping enough Mexican sugar out of the U.S. market, and too much of the product that entered was refined instead of raw.

An abundant supply of raw sugar is needed by refiners here to keep the industry operating, but those U.S. companies suffer when too much product that’s already refined comes in.

It’s a situation that spurred U.S. refiners to take their concerns to Commerce officials about 10 months ago and ask for help.

On March 3, 2016, Commerce officials met separately with U.S. sugar refiners and Mexican government officials, and the story each side told was completely different.

Representatives of the American Sugar Coalition, according to a written account by David Cordell, a senior policy analyst at Commerce, complained that their refineries did not have enough sugar to process despite product flowing in from Mexico. The refiners said they expected the situation to worsen and provided a chart showing that record amounts of Mexican sugar were being classified as “other sugar” and bypassing U.S. refiners.

Four days later, Commerce staff met with representatives of the Mexican government and Mexican sugar companies. Cordell, in a separate account, described assurances from the Mexicans that “the agreements were working and that the (government of Mexico) and Mexican producers/exporters were complying with the agreements.”

But U.S. industry representatives saw things differently. According to Cordell, officials from Imperial Sugar, a refiner and subsidiary of Louis Dreyfus Company LLC, sent this message to Commerce at an April 6 meeting: “There is a core problem with the agreements because they permit far too much refined sugar and not enough raw sugar into the United States. As a result, Imperial Sugar representatives stated that the suspension agreements have caused a raw sugar shortage, a dramatic increase in raw sugar prices and an increase in U.S. refined beet sugar stocks such that there is now a refined sugar surplus in the United States.”

On Nov. 10, Imperial delivered test results to Commerce that the company said showed that imported sugar from Mexico that the company received was more refined than the Mexican exporters claimed, proving that at least some imports were fraudulent.

“While Imperial does not know how many other transactions may have the same problem…, there is no reason to believe that these transactions are not representative,” the company said in a letter to Commerce. “The information shows that the suspension agreements are being violated, the agreements are not capable of effective monitoring, and that the agreements are not in the public interest.”

Lawyers on behalf of the Mexican Sugar Chamber responded quickly to Imperial’s claims, saying the testing was conducted in the U.S., far away from Mexican mills and therefore suspect. That same sugar, they said in a Nov. 21 letter to Commerce, was also tested in Mexico and met all requirements.

“The testing results alleged by Imperial all appear to be based on testing after importation and arrival at Imperial’s refinery. As further detailed below, there are numerous reasons why testing in the United States may result in different polarity readings compared to the testing conducted in Mexico,” the lawyers said.

But regardless of whether or not there is fraud, U.S. sugar industry officials say that the suspension agreement is not working. The deal depends on the USDA predicting how much imported sugar will be needed from Mexico for an entire year and that is often unreliable.

The U.S.-Mexico suspension agreement does not allow for USDA to reduce the limit for imports after it has been set.

It was especially unreliable for the 2015-16 marketing year. USDA documents show that the department set the limit for Mexican imports at about 705,000 tons. Government and industry agreed that U.S. farmers produced more than expected and that meant that not nearly so much Mexican product was needed.

One industry source said the USDA-set limit was about 250,000 tons too much.

“That’s a lot of sugar,” the source said. “So now you’ve got the market well over-supplied. Adding sugar to a market is easy. Taking it out of the market takes a long time and it’s hard. So we’re stuck in this mess.”

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