Amended Sugar Agreements Recast U.S.-Mexico Trade

Amended Sugar Agreements Recast U.S.-Mexico Trade

July 21, 2017
Amended Sugar Agreements Recast U.S.-Mexico Trade
On June 30, 2017, the U.S. Department of Commerce
43.93%, while the AD duties were between 40.48% and
(DOC), the Mexican government, and the Mexican sugar
42.14%. The duties were to be applied cumulatively to
industry agreed to modify suspension agreements (SA) that
imported Mexican sugar. Mexican officials had threatened
have regulated bilateral trade in Mexican sugar since late
to retaliate against U.S. exports if the duties were imposed.
2014. The changes are meant to address criticisms by the
U.S. sugar industry that the SAs have not effectively
Since the SAs took effect in late 2014, U.S. imports of
redressed the effects of trade violations tied to Mexican
Mexican sugar have been limited based on an annual
sugar. Among the key changes that are to take effect on
calculation of U.S. needs once U.S. production and imports
October 1, 2017, minimum selling prices for Mexican sugar
of TRQ sugar have been subtracted from projected U.S.
will be increased, while the maximum percentage of those
food use of sugar. Under the SAs, Mexican exporters also
imports that may enter as refined sugar will be lowered.
agreed to observe minimum reference prices for sugar
exported to the United States that were higher than U.S.
Mexico is the largest source of imported sugar to the United
loan support levels, and to cap exports of refined sugar to
States and represents a significant share of the total U.S.
no more than 53% of the total bilateral trade.
sugar market, so changes governing this trade are likely to
be felt across the U.S. market. Over the three most recently
U.S. Industry Sours on Suspension Agreements
completed U.S. sugar marketing years (October-
Since the SAs entered into force in late 2014, they have
September), sugar from Mexico has amounted to between
come under increasing criticism from major stakeholders in
11% and 18% of U.S. sugar production plus imports.
the U.S. sugar industry, who contend they are not working
out as intended. Industry critics of the SAs include groups
Background
representing U.S. sugar producers, as well as cane refiners,
The U.S. sugar market is one in which supplies are
beet processors, and commercial sugar users. One criticism
carefully managed, consistent with the U.S. sugar program
is that Mexican shipments of raw cane sugar have been
authorized in the 2014 farm bill (P.L. 113-79). The program
inadequate for the needs of U.S. cane refiners that rely on
combines a price support feature with a supply management
these imports to produce crystalline sugar, and that this
structure that limits both sugar production for domestic
supply shortfall poses a threat to the economic viability of
human use and sugar imports (See CRS In Focus IF10223,
some cane refiners. Beyond the cane refining industry,
Fundamental Elements of the U.S. Sugar Program). The
commercial users have expressed concerns that the loss of a
program is intended to support domestic sugar prices, avoid
major cane refiner could lessen competition among
government outlays, and assure the availability of adequate
suppliers of crystalline sugar. Another criticism is that
supplies of beet and cane sugar.
Mexican exporters have circumvented the reference prices
in the SAs by shipping quantities of refined sugar that are
U.S. sugar imports are controlled by tariff-rate quotas
declared as raw sugar. This alleged circumvention has
(TRQ) that limit quantities of sugar that are eligible to enter
drawn concern from U.S. sugar producers, beet processors,
at low- or zero-duty rates under various trade agreements,
and cane refiners because selling refined sugar below the
while subjecting over-quota sugar, or sugar without such
minimum reference price could have the effect of
quota rights, to high rates of duty that generally preclude
undercutting overall market prices for refined sugar.
trade. The exception to this regime is sugar from Mexico,
which attained duty-free, unrestricted access to the U.S.
The Tariff Act of 1930 (19 U.S.C. §§1671(c) and 1673(c)),
market beginning in 2008 under terms of the North
which allows for the SAs in lieu of imposing AD and CVD
American Free Trade Agreement (NAFTA).
duties (in this case Mexican sugar), also requires that the
injury created by the subsidization and dumping of Mexican
Suspension Agreements Limit Mexican Sugar
sugar be entirely eliminated. A number of U.S. stakeholders
Imports
argued that the plight of some cane refiners due to the
Mexico’s unrestricted access to the U.S. sugar market
shortfall of raw cane imports was evidence the SAs have
ended in December 2014 when the U.S. Department of
failed to meet this standard of relief. Some of these
Commerce (DOC), Mexico, and Mexican sugar exporters
stakeholders also asserted that imports of refined Mexican
signed antidumping duty (AD) and countervailing duty
sugar that allegedly were wrongly declared as raw sugar
(CVD) suspension agreements (SAs) that imposed several
were evidence the U.S. government had failed to effectively
limitations on this trade. The SAs prevented steep duties
monitor the agreements as required under this same statute.
from being imposed on U.S. imports of Mexican sugar after
the U.S. government concluded that Mexican sugar was
In a review of the SAs in 2016, DOC drew several
being subsidized by the government and dumped in the
preliminary conclusions, including that some transactions
U.S. market, and that these actions had injured the U.S.
of Mexican sugar may not have complied with the SAs and
sugar industry. The CVD duties ranged from 5.78% to
that the SAs might not have met their statutory
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link to page 2 Amended Sugar Agreements Recast U.S.-Mexico Trade
requirements. In the wake of the DOC review, the agency
tandem with it in support of the objectives of the program,
initiated discussions with Mexico and the Mexican sugar
while also recognizing Mexico’s special status as a NAFTA
industry that resulted in a series of amendments to the SAs
partner. The sugar program, along with numerous other
that were agreed upon and signed in June 2017.
crop support and agricultural programs, is set to expire at
the end of FY2018. As Congress considers successor
Summary of Key 2017 Amendments
legislation to the current farm bill, lawmakers may want to
The June 2017 amendments retain the basic construct of the
evaluate a number of issues related to the SAs, such as
SAs, including setting initial overall limits on Mexican
sugar imports, while attempting to address the shortcomings
 whether the amended SAs are likely to effectively
identified by U.S. stakeholders and in the DOC review by
redress Mexican trade violations that caused injury to
introducing a number of changes to the SAs. These changes
the U.S. sugar industry;
include (1) raising the minimum selling prices for Mexican
sugar sold to U.S. importers; (2) substantially lowering the
 whether the SAs are consistent and compatible with the
maximum share of Mexican sugar that may be refined, thus
objectives of the U.S. sugar program to provide support
effectively raising the minimum share of raw sugar imports;
for domestic sugar prices and assure adequate supplies
(3) specifying that raw sugar must be shipped in bulk, free-
of sugar for the domestic market without incurring
flowing in ocean-going vessels; (4) lowering the purity
government costs; and
threshold, or “polarity,” that separates raw from refined
sugar under the SAs to increase the supply of non-refined
 whether the SAs are an effective means of equitably
sugar available to U.S. cane refiners; (5) increasing the
balancing the legitimate interests of various stakeholders
penalties for violations of the SAs; (6) granting Mexico
in the U.S. sugar market, including sugar producers,
priority to supply any additional U.S. sugar needs that arise
beet processors, cane refiners, commercial sugar users,
during the marketing year (referred to as additional needs
and consumers.
sugar); (7) agreeing that after April 1, USDA is to specify
whether any additional needs sugar is to be raw or refined,
Table 1. Selected Changes in U.S.-Mexico SAs
or a combination of both; (8) raising the minimum purity
A Comparison of 2014 Agreements and 2017 Amendments
level for refined sugar if additional needs sugar is sought
after May 1; and (9) providing USDA flexibility to specify
Selected
2014 Suspension
2017
the purity level of refined sugar above the initial export
Provision
Agreements
Amendments
limit throughout the marketing year under extraordinary
circumstances. For additional details, see Table 1.
Minimum import
$0.2225/lb
$0.23/lb
price for Mexican
U.S. Industry Viewpoints
raw sugar
U.S. industry responses to the amendments have been
Minimum import
$0.26/lb
$0.28/lb
mixed. The American Sugar Alliance (ASA), representing
price for Mexican
U.S. sugar producers, processors, refiners, and workers,
refined sugar
endorsed the changes. In doing so, ASA emphasized that
vigilant U.S. government enforcement is needed to entirely
Maximum share of
53%
30%
eliminate the injury caused by the trade violations. The
refined sugar
Corn Refiners Association, representing manufacturers of
imports
corn sweeteners, also endorsed the amended SAs, citing the
Minimum share of
47%
70%
potential threat to $500 million of U.S. corn sweetener
raw sugar imports
exports to Mexico without them. The U.S. Chamber of
Commerce lauded the deal for averting trade actions that
Minimum purity
99.5 degrees
99.2 degrees
would have led to job losses. But the Sweetener Users
threshold for
polarity
polarity
Association, consisting of businesses that use sugar in their
refined sugar under
products, roundly opposed the amendments, asserting the
initial import limit
amended SAs will raise U.S. sugar prices, erode the
Minimum purity
99.5 degrees
99.5 degrees
competitiveness of U.S. manufacturers of sugar-containing
threshold for
polarity
polarity
foods and beverages, cause job losses in their industries,
refined additional
and lead to higher retail prices for consumers. The Coalition
needs sugar
for Sugar Reform, which advocates for a broad array of
business interests, including baking, confectionary, and
Source: U.S. Department of Commerce
food and beverage associations, as well as taxpayer and
consumer groups, labeled the amendments “a bad deal,”
Notes: Minimum import prices for Mexican sugar are at Mexican
stating they would lead to higher sugar prices that would
plants (and thus do not include shipping costs to U.S. importers) and
cost consumers $1 billion per year.
compare with U.S. loan support rates for domestic sugar of
$0.1875/lb for raw cane sugar and $0.2409/lb for refined beet sugar.
Possible Issues for Congress
When Congress reauthorized the U.S. sugar program as part
Mark A. McMinimy, Section Research Manager
of the 2014 farm bill, the SAs did not exist. Although these
agreements have been negotiated outside the parameters of
IF10693
the U.S. sugar program, they are designed to work in
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Amended Sugar Agreements Recast U.S.-Mexico Trade

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https://crsreports.congress.gov | IF10693 · VERSION 2 · NEW