On Monday, the US and Mexico reached an agreement that will end potential high tariff burdens on sugar imports from Mexico. The ongoing dispute was ended only hours before regulators of the world’s largest economy imposed sanctions on Mexican imports.
The United States Department of Commerce said that officials from both countries and other Mexican sugar importers signed a draft that would prevent the imposition of duties. The agreement includes a provision that will prevent concentrated imports during certain seasons, as well as limiting the amount of refined sugar that can enter the US market. The agreement also includes guidelines to avoid minimum price undercutting and / or maintaining artificially low prices.
According to Forbes Mexico, the result means that Mexican producers agree to sell sugar for a minimum of $0.2357 per pound of refined sugar and $0.2075 per pound for unrefined sugar. The new agreement will help resolve a dispute that has threatened to turn into a trade war, as Mexico already said it would turn to the World Trade Organization for assistance against the US.
The long-standing dispute began in March, when the US filed a complaint claiming Mexico was flooding the heavily-protected US market with cheap sugar products, potentially costing them $1 billion in net income loss during the 2013 and 2014 crop year.
In a recent statement, the Agriculture Secretariat said, “We deeply regret the U.S. industry’s decision, which is contrary to the spirit of cooperation that has marked the relationship between the two countries in the sweetener industry, and could seriously disrupt the delicate balance that exists in the trade of these products.”
The Secretariat also said that the actions of the U.S. sugar industry “have the potential to affect a significant number of families in Mexico who are employed in this activity, as well as damage those U.S. productive sectors that depend on Mexican sugar as a production input, such as the pastry and confectionery industry.”
In a press release, Stefan Selig, Undersecretary of International Trade said, “The agreements should provide a key stability in a market that is important for both countries, ensuring that farmers and sugar millers United States have the opportunity to compete on an equal footing.”
The deal allowed Mexico to prepare for the new restrictions on sales in one of its largest markets while Global Mills continues to struggle to cover operating costs after four consecutive years of surplus revenues.
Carlos Rello Lara, CEO Fund Expropriated Sugar Sector Enterprises (FEESA), who operates nine state-owned mills in Mexico says, “How do you think this can be positive if before we had a free trade agreement, and today we have restrictions.”
On Monday, the US Department of Commerce recommended that tariffs on Mexican sugar be increased 17.01 percent, differing from preliminary suggestions of margins between 39.54 percent and 47.26 percent for dumping what they referred to as cheap, subsidized supplies on the US market. For now, under the agreement, these duties are suspended for at least 30 days until the US Department of Commerce completes a new draft agreement.
According the American company, Sweeteners Users Association, “If the draft agreement between the US and Mexico is adopted, we can expect the same market uncertainty that is generating excessively high sugar prices in the US now. That uncertainty will mean that US consumers and users of sweeteners in the United States, including food and beverage manufacturers, will be forced to spend more on sugar.”
Mexico is one of the largest sugar providers to the US, providing sugar for consumer use as well as company manufacturing to Mondelez International Inc., Hershey Co., Coca Cola Co., and General Mills Inc. The US is unable to meet its own sugar demand.