New Era Dawns in U.S.-Mexico Sugar Trade

New Era Dawns in U.S.-Mexico Sugar Trade

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December 31, 2014
New Era Dawns in U.S.-Mexico Sugar Trade
Overview
(ASC). The ASC alleged that exported sugar from Mexico
was being subsidized and was entering the U.S. market at
On December 19, 2014, the U.S. Department of Commerce
less than fair value—defined as below the sale price in
(DOC) signed an agreement with the Government of
Mexico, or below the cost of production—thereby injuring
Mexico suspending the agency’s countervailing duty
the U.S. sugar industry.
(CVD) investigation into subsidization of Mexican sugar
exports. The DOC also signed a second agreement with
Mexican Sugar in the U.S. Market
Mexican sugar producers and exporters that suspends an
antidumping (AD) duty investigation into Mexican sugar
Mexico has been a significant source of sugar in the U.S.
exports to the United States. Beginning in 2008, Mexican
market in recent years, as Figure 1 illustrates. During the
sugar exporters occupied a uniquely favored position
three most recently completed marketing years, from
among sugar exporters supplying the U.S. market, because
2011/2012 to 2013/2014, Mexican sugar amounted to
the North American Free Trade Agreement (NAFTA)
between 9% and 17% of the sum of U.S. sugar production
provided Mexican sugar with unlimited, duty-free access.
and total sugar imports, while averaging 13% over this
The two suspension agreements fundamentally alter the
same period.
nature of trade in sugar between Mexico and the United
States: first by imposing volume limits on Mexican sugar
Figure 1. Sources of U.S. Sugar Supply
exports to the U.S. market, and second by setting minimum
price levels for the exported sugar.
Background
Historically, the U.S. sugar market has been managed to
help stabilize supplies and prices (see CRS Report R42535,
Sugar Program: The Basics, by Mark A. McMinimy).
Prices of U.S. sugar are supported via government
commodity loans and by limiting supplies of sugar for
human use. Domestic production for human consumption is
managed through marketing allotments, while imports of
sugar are controlled via tariff-rate quotas (TRQs). Prior to
the finalization of the two sugar suspension agreements, the
exception to the limit on sugar imports was Mexican sugar,

which had unrestricted, duty-free access to the U.S. market
Source: CRS.
under NAFTA.
Elements in the Suspension Agreements
The two CVD and AD agreements signed in December

2014 suspend the CVD and AD investigations that led
Both agreements cover raw, estandar, or standard, high-
U.S. government agencies to issue preliminary findings that
polarity or semi-refined, special white, refined, brown,
Mexican sugar was being subsidized by the Mexican
edible molasses, desugaring molasses, organic raw, and
government, and sold in the U.S. market at less than fair
organic refined sugars, as well as other sugar products
value. Based on these preliminary findings, the DOC had
such as powdered, colored, and flavored sugars, and
imposed cumulative duties on U.S. imports of Mexican
liquids and syrups that contain 95% or more sugar by
sugar, ranging from 2.99% to 17.01% under the CVD order
dry weight.
and from 39.54% to 47.26% under the AD order. Final
 Excluded from the scope of these agreements are sugar
determinations in the two investigations had not yet been
imported under the Refined Sugar Re-Export Programs
issued when the agreements were signed. A negative final
of the U.S. Department of Agriculture; sugar products
determination in either of the two investigations (i.e., an
produced in Mexico that contain 95% or more sugar by
outcome that did not affirm the preliminary findings that
dry weight that originated outside Mexico; inedible
Mexican sugar was being subsidized and dumped in the
molasses; beverages; candy; processed food products
U.S. market) would have negated the corresponding duties.
that contain sugar, such as cereals; and specialty sugars,
including caramelized slab sugar candy, pearly sugar,
The suspension agreements are the end result of parallel
rock candy, dragees for cooking and baking, fondant,
CVD and AD investigations initiated in the spring of 2014
golden syrup, and sugar decorations.
by the International Trade Commission (ITC) and the

International Trade Administration (ITA) of the DOC in
U.S. imports of Mexican sugar are limited to an
response to petitions filed by the American Sugar Coalition
assessment of domestic needs by the U.S. Department of
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New Era Dawns in U.S.-Mexico Sugar Trade
Agriculture (USDA) in July, with the initial calculation
 Refined sugar is defined as having a polarity of 99.5%
subject to a recalculation in September, December, and
and above, compared with 99.9% in the draft
March, with the potential for upward revisions to
agreements, to be consistent with existing standards.
Mexico’s export limit. Mexico’s export limit is the
residual of U.S. needs less domestic production and
Legal Authority and Stakeholder Views
imports from tariff-rate quota (TRQ) countries.
 The government of Mexico is to determine the amount
Sections 704 and 734 of the Tariff Act of 1930 (19 U.S.C.
of sugar that each Mexican sugar producer/exporter can
§1671(c) and §1673(c)), as amended, provide the legal
export to the United States, and is to issue export
authority for the CVD and AD suspension agreements,
licenses in tandem with these allotments that must
respectively.
accompany Mexican sugar exports to the United States.
Among key stakeholders, the American Sugar Alliance, a
 Mexico agrees not to use imported sugar to fill a
coalition of U.S. sugarcane and sugar beet producers,
domestic shortfall in order to be in a position to ship
processors, refiners, workers and suppliers, issued a
sugar against its export limit to the United States.
statement in support of the agreements, indicating they
 New restrictions are imposed on the pattern of sugar
should stop Mexico from dumping subsidized sugar onto
exports from Mexico to the United States as follows: no
the U.S. market, and asserting they are a “good deal” for
more than 30% of U.S. needs in a given export period as
U.S. sugar producers, taxpayers and consumers. The
calculated on July 1 from October 1 through December
Sweetener Users Association, composed of businesses
31; and no more than 55% of U.S. needs from October 1
using sweeteners, blasted the agreements, contending they
through March 31. The initial export period is December
dismantle free trade in sugar between the United States and
19 through September 30, and thereafter from October 1
Mexico, undermine core principles of NAFTA, and force
through September 30.
consumers and businesses to pay more for sugar. The SUA
asserted the suspension agreements make it more critical
 Mexican sugar exporters are subject to reporting
that a Trans-Pacific Partnership (TPP) trade agreement
requirements to monitor compliance with quantitative
provide sugar exporters Australia and Canada with greater
limits and minimum price levels; violations are subject
access to the U.S. market, to offset what it believes will be
to civil penalties and potential loss of export licenses.
reduced shipments from Mexico. According to DOC, the

two agreements do not alter the United States’ obligation
Cash deposits collected by U.S. Customs and Border
Protection as a result of the CVD and AD duty
under the World Trade Organization (WTO) to provide
investigations are to be remitted.
TRQ countries with access to the U.S. sugar market.
 The agreements have no termination date, but
Possible Issues for Congress
signatories may terminate them at any time; suspended
CVD and AD investigations are subject to a review after
The final suspension agreements represent a major course
five years.
adjustment in U.S.-Mexican trade in sugar—one that closes

a chapter on unrestricted trade in favor of a regime of
The investigations would be resumed if a signatory to
limited access and minimum prices. In broad strokes, the
the agreements, or an interested party such as a U.S.
outcome appears to favor the U.S. sugar industry over sugar
sugar refiner, were to request such within 20 days of
users. At the same time, the imposition of stiff duties on
public notice of the agreements.
Mexican sugar is shelved, while the possibility of Mexican
Key Changes from Draft Agreements
retaliation against U.S. exports is likely avoided. The
USDA’s task of managing the U.S. sugar program at no
The final CVD and AD agreements include several changes
cost to the government, as Congress directed when it
from the draft agreements initialed in October, among
reauthorized the program intact though 2018 crops as part
which the following three are perhaps the most significant.
of the 2014 farm bill (P.L. 113-79), is likely to be
facilitated. As recently as crop year 2012/2013, large
 Minimum reference prices of Mexican sugar exports are
forfeitures of U.S. sugar in the face of low market prices
raised in the final AD agreement to $0.26 per pound for
cost the government $259 million.
refined sugar and $0.2225 for all other sugar (from
$0.2357 per pound and $0.2075 per pound, respectively,
Congress could consider whether the suspension
in the draft agreement). Prices are based on dry weight,
agreements, in tandem with the existing U.S. sugar
commercial value, f.o.b. Mexican plant. These prices are
program, adequately balance the needs of U.S. sugar
well above loan rates under the U.S. sugar program of
producers, users and consumers, and whether this new
$0.1875 for raw cane sugar and $0.2409 for refined beet
outcome is consistent with U.S. objectives in current trade
sugar, both per pound.
talks, including the TPP and the Transatlantic Trade and
 Exports of Mexican refined sugar are limited to 53% of
Investment Partnership (TTIP).
Mexico’s allowable export quantity in a given period
(initially December 19, 2014, to September 30, 2015,
Mark A. McMinimy, Section Research Manager
and thereafter, from October 1 through September 30),
IF10034
down from 60% in the draft CVD agreement.

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New Era Dawns in U.S.-Mexico Sugar Trade

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