Details of the U.S.-Mexico sugar agreement
June 7, 2017
Commerce Secretary Wilbur Ross and Mexican Economy Minister Ildefonso Guajardo Villarreal announced Tuesday afternoon that the U.S. and Mexican governments had reached an "agreement in principle" to resolve issues that stem from Mexican shipments of sugar that U.S. agencies have said violate U.S. trade laws.
Under NAFTA, Mexico can export unlimited amounts of sugar to the U.S., but not subsidized sugar or sugar sold at dump prices. In 2014, the U.S. threatened to impose punitive tariffs, but the two countries achieved "suspension agreements" to limit Mexican imports and avoid the tariffs.
But the U.S. sugar growers and the cane refiners said that the agreements were not working because Mexico was sending the U.S. too much semi-refined sugar and too little raw sugar that the refiners need. The U.S. threatened to impose the tariffs if an agreement more satisfactory to the U.S. growers and cane refiners was not achieved by Monday.
Ross announced that the 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 U.S.
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, commerce 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 USDA 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 seriously threaten the economic viability of the U.S. sugar refining industry.