The North American Free Trade Agreement (NAFTA) was signed in 1994, but over a period of about 14 years, restrictions on sugar imports from Mexico were slowly relaxed. Then, in 2008, all restrictions on sugar from Mexico were removed. In recent years, the world sugar production has increased and prices have declined. These changes are the result of unrestricted access to the United States’ sugar market as well as improved sugar-growing conditions worldwide. Other factors include increases in Mexican sugar production and a reduction in Mexican sugar consumption (due to many of Mexico’s food and soft-drink manufacturers substituting high-fructose corn syrup for sugar) Before these more recent changes, the trade liberalization policy had only small effects on the U.S. sugar industry.
American sugar refiners have complained that Mexico has been exporting low-cost refined sugar to the U.S. and limiting exports of raw sugar to be refined here. According to Phillip Hayes, spokesman for the American Sugar Alliance: “Mexico broke U.S. trade law and dumped subsidized sugar on the market. These unfair trade practices disrupted the market and jeopardized U.S. jobs. The agreement negotiated by the Trump administration is designed to bring Mexico into compliance with U.S. law, bring stability back to the market, and defend America’s sugar jobs, including more than 12,000 in Florida.”
On June 6, U.S. Secretary of Commerce Wilbur Ross and Mexican Secretary of Economy Ildefonso Guajardo announced a new agreement in principle to suspend antidumping and countervailing duties against Mexican sugar imports into the U.S. The agreement increases the price at which raw and refined sugar is sold to Mexican mills and reduces Mexico’s refined sugar exports to the U.S.
In a recent press release, Secretary Ross stated: “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. I am glad to say that Minister 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.”
Although the parties involved believed this new agreement was a good start, U.S. sugar producers and farmers were concerned that the agreement in principle contained a major loophole in the section dealing with additional U.S. needs. They contended that Mexico could exploit this loophole and continue to dump subsidized sugar into the U.S. market and short U.S. refineries of raw sugar inputs.
Addressing these matters, Mr. Hayes stated, “We were concerned with the language in the ‘additional needs’ section of the draft agreement. That language was tightened when the agreement was finalized to help address our concerns. We also had numerous discussions with administration officials and are confident that the agreement will be strictly enforced. Enforcing the agreement will be the key. If it is properly enforced, then it should end the injury caused by Mexico’s unlawful actions.”
Mr. Hayes explained the situation in more detail, stating: “In December 2016, Hawaii stopped producing sugar after more than a century in the business because of market uncertainty and disruptions. Other U.S. cane and beet producing areas were facing similar challenges as refined prices were extremely low. Mexico was the main contributor to market issues. Holding Mexico accountable for its actions and stopping the injury they caused was a big win for U.S. sugar producers.”
When asked about the effect of Mexico’s dumping of refined sugar into the U.S. market, Stewart Swanson, regional Sugarcane Extension Agent III for the University of Florida IFAS/Hendry County Extension Service, stated: “Profit margins related to the mineral soils on which sugarcane is grown in South Florida are very tight. With narrow profit margins, it doesn’t take much fluctuation in price to cause a significant economic impact. Our farmers constantly endeavor to increase production efficiencies by adopting new technologies and applying the best management practices so that they can remain competitive.”
Following substantial input from the U.S. sugar industry, each amended agreement to the U.S./Mexican sugar deal contains enhanced monitoring and enforcement provisions such as a requirement for polarity testing and stiff penalties for non-compliance. Further, in the amended agreement, the minimum prices of Other Sugar and Refined Sugar are higher to ensure that Mexican sugar imports do not suppress or undercut domestic price levels, in accordance with statutory requirements. These elements ensure that the amended agreement provides an adequate remedy to the U.S. domestic sugar industry against dumping and unfair subsidization.
On June 30, Secretary of Commerce Wilbur L. Ross Jr. and Juan Cortina Gallardo, representing Mexican Sugar Industry, an organization of sugar producers/exporters accounting for substantially all imports of sugar from Mexico, signed a finalized amendment to the AD CVD.
All major stakeholders have now endorsed this deal brokered by Secretary Ross and Secretary Ildefonso Guajardo. Detailed information on the Antidumping (AD) and Countervailing Duty (CVD) Agreements can be found in the Federal Register at: https://www.federalregister.gov/documents/2017/07/11/2017-14282/sugar-from-mexico-amendment-to-the-agreement-suspending-the-antidumping-duty-investigation.
The revised suspension of the 2014 agreement has five major elements:
• Price – The agreement increases the price at which raw sugar must be sold at the mill in Mexico from 22.25 cents per pound to 23 cents per pound. For refined sugar, the price at the mill must increase from 26 cents per pound to 28 cents per pound. These prices exclude packaging and transportation. This will protect the U.S. sugar industry from harm caused by Mexico “dumping” sugar in the United States.
• Raw vs. Refined Split – The new agreement also reduces the percentage of refined sugar that may be imported from 53 percent to 30 percent. This results in a significant increase in the amount of raw sugar available to U.S. sugar refiners while ensuring that subsidized refined Mexican sugar imports do not injure U.S. refiners.
• Purity/Polarity – The dividing line between refined and raw sugar was reduced from 99.5 to 99.2 purity, referred to in the industry as “polarity.” This means that “estandar,” a very common variety of sugar from Mexico, will count against the 30 percent limit on refined sugar. This will further protect against unfair competition from subsidized refined Mexican sugar imports.
• Enforcement – Mexico agreed to increased enforcement measures and to accept significant penalties for violations, including a reduction in the amount of sugar allowed to be imported equal to twice the amount of any sugar found to be in violation of the modified agreements. In addition, the Commerce Department can increase this reduction to three times the amount if necessary to deter further wrongdoing.
• Additional U.S. Needs – Mexico accepted the above significant modifications on the condition that Mexico be granted a right of first refusal to supply 100 percent of any “additional need” for sugar identified by the U.S. Department of Agriculture after April 1 of each year. Additional need is defined as demand for sugar in excess of the demand USDA had predicted for that crop year. USDA will specify whether the additional need sugar is raw or refined without regard to the 70/30 split. The dividing line between raw and refined additional need sugar is 99.5 polarity, but raw sugar must be shipped in bulk in an ocean-going vessel, increasing the likelihood it will enter a U.S. refinery for further processing. Importantly, when the export limit is increased pursuant to a request by USDA prior to April 1, such sugar shall be subject to the pre-April 1 70/30 split and the 99.2 polarity divide, an added protection 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 may occur (https://www.commerce.gov/news/press-releases/2017/06/us-and-mexico-strike-deal-sugar-protect-us-growers-and-refiners-ensure).
What are the improvements over the existing AD and CVD Agreements 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 finalized 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 previously asserted that the sale of Mexican semi-refined sugar (to which the lower reference price of Other Sugar set in the AD Agreement applies) was hindering 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 the changes in the finalized amendments 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 will be available in the U.S. market.
The amendments finalize an additional protection for U.S. domestic refiners that was added to the draft amendments with certain modifications to preserve USDA’s flexibility. Specifically, with respect to additional needs sugar (over the expected fiscal year U.S. needs) granted to Mexico, the date on which the polarity division changes from 99.2 to 99.5 has moved from April 1 to May 1. Thus, when additional needs sugar is granted to Mexico prior to May 1, except in cases where an extraordinary or unusual circumstance is declared, such sugar shall be subject to the pre-May 1 99.2 polarity divide. For post-May 1 additional needs sugar, USDA will specify whether raw or refined sugar is needed but at a polarity divide of 99.5. Further, at any time during a given fiscal year, USDA retains the flexibility to specify the polarity of additional needs sugar specifically needed to rectify certain extraordinary and unforeseen circumstances.
Further, in the finalized amendments, 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.