U.S. Stakeholders Critical of U.S.-Mexico Sugar Agreements

U.S. Stakeholders Critical of U.S.-Mexico Sugar Agreements

Updated November 30, 2016
U.S. Stakeholders Critical of U.S.-Mexico Sugar Agreements
Overview
the U.S. sugar program, see CRS Report R43998, U.S.
Two suspension agreements (SAs) between the United
Sugar Program Fundamentals, by Mark A. McMinimy.)
States and Mexico in December 2014 recast bilateral trade
in Mexican sugar by imposing annual limits on exports and
Share of Mexican Cane to Refiners at Issue
establishing minimum prices for this sugar. The agreements
A number of major stakeholders in the U.S. sugar market
were entered into by the U.S. Department of Commerce
have soured on the agreements since they entered into
(DOC) with the Mexican government and the Mexican
force, contending that they are not working as intended. In
sugar industry in lieu of imposing U.S. antidumping (AD)
part, this is because some U.S. cane sugar refiners that
and countervailing duties (CVD) that would have otherwise
depend on imports of raw cane sugar from Mexico have
been placed on Mexican sugar exports. The duties were the
received an inadequate proportion of the sugar that Mexico
result of U.S. government determinations that Mexican
exports to the United States. This circumstance has left
sugar was being subsidized and dumped in the U.S.
these refiners short of raw sugar to process into refined
market—that is, sold at less than fair value—and that the
sugar and, according to some industry participants, is
U.S. sugar industry was materially injured by these
placing them in increasingly difficult economic straits.
practices. Over time, the agreements have come under
Sugar users are concerned that if these conditions continue,
increasingly pointed criticism from major stakeholders in
the potential loss of an existing cane refiner from the
the U.S. sugar economy, though with different views about
market could reduce competition among suppliers of
how they should be amended or what arrangement should
refined cane sugar with adverse consequences for users.
replace them.
Some stakeholders in the U.S. sugar market contend that
Background on SAs
Mexican suppliers are exporting quantities of refined sugar
Under the SAs, the signatories agree to three fundamental
that are declared as raw sugar and then selling this sugar at
restrictions to manage bilateral sugar trade and eliminate
less than the reference price established in the SAs for
injury to the U.S. sugar industry.
refined sugar. They contend that this practice is
contributing to higher prices of raw cane sugar and lower
1. Mexico agreed to limits on the quantity of sugar it is
prices for refined sugar, creating a cost-price squeeze for
allowed to export to the United States based on an
cane refiners while also posing a competitive threat to sugar
annual calculation of U.S. needs after factoring in U.S.
beet processors who compete as suppliers of refined sugar.
production and tariff-rate quota imports;
2. Mexico’s exports of refined sugar are limited to no
At the very least, a number of close industry observers and
more than 53% of its total, meaning that at least 47%
participants contend that significant quantities of raw sugar
of its exports must be raw cane sugar.
are being shipped to market participants other than cane
3. Mexican sugar exports are subject to minimum
refiners, including liquid sugar producers for end use in
reference prices (at Mexican plants) of 26c/lb for
foods such as candy, beverages, and ice cream. The criteria
refined sugar and 22.25c/lb for raw sugar, levels that
for raw sugar in the agreements is such that semi-refined
are well above loan support levels for U.S. sugar of
sugar that requires little to no additional refining for
$18.75c/lb for raw cane sugar and 24.09c/lb for refined
conversion to liquid sugar at U.S. plants can qualify as raw
beet sugar.
sugar under the agreements. As such, a portion of Mexico’s
Prior to the SAs, Mexican sugar represented the only
raw cane exports are bypassing traditional U.S. sugar cane
unmanaged source of sugar in the U.S. market, a status it
refiners that produce crystalline sugar, reducing the supply
achieved in 2008 under the North American Free Trade
of raw cane imports these refiners depend upon to maintain
Agreement (NAFTA). The U.S. sugar program manages
an adequate level of capacity utilization and profitability in
sugar supplies by limiting the amount of sugar that U.S.
favor of alternative outlets, among which are “melt houses”
processors can sell for domestic human use. Prices are
that produce liquid sugar.
further supported by government loans to processors using
the sugar as collateral. The processors may keep the loan
By itself, the sale of Mexican raw cane sugar to melt houses
and forfeit the sugar to the government if market prices fall
is not a contravention of the SAs. But U.S. cane refiners
toward loan levels. Sugar imports, except those from
and other sugar stakeholders point out that the Tariff Act of
Mexico, are limited through tariff-rate quotas and high
1930 (19 U.S.C. §1671(c) and 1673(c)), which allows for
over-quota tariffs.
SAs in lieu of imposing the AD and CVD duties on
Mexican sugar, also requires that the injury created by the
An important consideration in structuring the agreements
subsidization and dumping of Mexican sugar be entirely
was to avoid an oversupply of sugar in the U.S. market that
eliminated. These stakeholders assert that the plight of cane
could depress prices and lead to costly forfeitures of
refiners that depend on Mexican cane sugar is evidence the
domestic sugar under the U.S. sugar program. (For more on
SAs have failed to meet this standard of relief. Some of
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link to page 2 U.S. Stakeholders Critical of U.S.-Mexico Sugar Agreements
these stakeholders also assert that the U.S. government has
that would effectively mean that Mexican raw cane sugar
failed to effectively monitor the SAs as required under
would need additional processing by U.S. refiners.
Sections 1671(d) and 1673(d) of the same statute,
contending that quantities of Mexican sugar that meet the
Table 1. Sources of U.S. Sugar Supplies by Crop Year
definition of refined sugar are being shipped under a
(Percentage of U.S. Production Plus Imports)
declaration of raw cane and priced below the reference
level established in the SAs for refined sugar, a practice that
Source
2013/2014
2014/2015
2015/2016
would tend to undercut U.S. refined sugar prices. Moreover,
Domestic
some elements of the U.S. sugar industry have expressed
69%
71%
73%
Production
concern that this situation could result in potentially costly
forfeitures of beet sugar under the U.S. sugar program, an
Imports
outcome that Congress has directed the Secretary of
from
18%
13%
11%
Agriculture to avoid to the maximum extent possible.
Mexico
U.S. Sugar Stakeholder Perspectives
All Other
13%
17%
17%
Imports
In light of these concerns, DOC officials have been engaged
in discussions with their Mexican counterparts for months
Source: U.S. Department of Agriculture.
on possible modifications to the SAs but without coming to
Notes: Totals may not add up to 100% due to rounding.
terms. Major stakeholders in the U.S. sugar market
generally agree that the SAs are not working out as
Users Seek Revised Supply, Price Terms
intended but have taken very different positions in
From the opposite end of the U.S. sugar market, the
advocating for a possible successor arrangement.
Sweetener Users Association (SUA), which represents
companies that use sugar in their business operations, has
The American Sugar Alliance—representing sugar cane and
called for renegotiating the terms of the SAs. Although the
sugar beet producers and sugar processors, refiners, and
SUA asserts the agreements further distort the already
workers—in November 2016 called on DOC to withdraw
managed U.S. sugar market, the trade group contends that
from the agreements, asserting that the agreements are not
renegotiating the agreements is preferable to imposing the
working as intended and that discussions between U.S. and
suspended AD and CVD duties, an action it contends would
Mexican officials on altering their terms have been
virtually eliminate Mexican sugar from the U.S. market. In
unsuccessful. On November 29, 2016, DOC issued
a letter in mid-September 2016, SUA called on DOC to
preliminary results of administrative reviews of the CVD
negotiate three key changes in the SAs with Mexico.
and AD agreements requested by numerous U.S. sugar
industry stakeholders. DOC found some indications that
1. Reduce the minimum prices for Mexican sugar to U.S.
certain transactions of Mexican sugar may not have been in
loan support levels. Under the SAs, the minimum
compliance with the SAs and that the SAs may not be
export price of Mexican raw cane of 22.25c/lb (at
meeting the statutory requirements, including whether the
Mexican plants) compares with the national average
SAs are still in the public interest and whether there is an
U.S. loan support level for raw cane sugar of 18.75c/lb.
adequate supply of raw sugar for domestic cane refiners.
2. Increase the U.S. stock-to-use ratio in the formula that
But the agency said it needs more information before
determines Mexico’s annual export limit from 13.5%,
issuing final results, which, in the absence of revised SAs, it
raising the limit on Mexican sugar exports.
expects to do by early April 2017. Parties to the SAs have
the option to terminate them at any time.
3. Increase the proportion of raw sugar that Mexico is
required to export to the United States, thus increasing
Consequences of Terminating the SAs
the availability of raw cane for U.S. refiners.
A decision to terminate the two sugar agreements would
Issues for Congress
trigger the imposition of the AD and CVD duties that range
The SAs are intended to redress trade violations that caused
from 5.78% to 43.93% and 40.48% to 42.14%, respectively.
injury to the U.S. sugar industry while operating alongside
The duties are cumulative and would be paid by U.S.
the framework of the U.S. sugar program to avoid loan
importers, so imposing them could push the price of
forfeitures and government outlays. The sugar program
Mexican sugar to potentially uncompetitive levels. Mexico
expires with the 2018 crop on September 30, 2018, along
is the leading foreign supplier of sugar to the U.S. market,
with much of the 2014 farm bill (P.L. 113-79). As Congress
supplying between 11% and 18% of the total of U.S.
considers the future of farm programs, it could consider
production plus imports in recent years (Table 1). As such,
whether the sugar program, in tandem with the sugar
the loss of Mexican sugar could have meaningful
agreements with Mexico, represent a policy arrangement
consequences for U.S. sugar prices and for all participants
that best balances the needs of sugar industry
in the U.S. sugar market. As such, some cane refiners have
stakeholders—including producers, processors, refiners,
advocated retaining the SAs but with the proviso that the
commercial users, consumers, and taxpayers—while also
split between raw and refined exports under the SAs be
meeting U.S. trade commitments to foreign suppliers.
adjusted so that the current maximum percentage of sugar
that may be exported to the U.S. market as refined sugar of
Mark A. McMinimy, Specialist in Agricultural Policy
53% would be sharply reduced so that the overwhelming
IF10517
majority of Mexican sugar exports would be in the form of
raw cane. Some U.S. refiners also insist on adding criteria
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U.S. Stakeholders Critical of U.S.-Mexico Sugar Agreements

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https://crsreports.congress.gov | IF10517 · VERSION 5 · UPDATED