The Wall Street Journal
By Alexandra Wesler
Oct. 27, 2014
The U.S. is imposing additional tariffs on Mexican sugar imports next week, but the new fees may be short-lived.
The government said Monday it would impose additional tariffs on Mexican sugar imports as high as 47.26% after the Commerce Department preliminarily determined that Mexican sugar producers had dumped the sweetener in the U.S.
The government also said Monday it had drafted agreements with Mexico and its sugar exporters to suspend tariffs on Mexican sugar imports into the U.S. The agreement, if finalized, could narrow the gap between prices in the U.S. and the global market, where the sweetener is cheaper. If the agreements are finalized after a 30-day comment period, all tariffs would end and any fees collected in the interim would be refunded.
In August, the government imposed preliminary tariffs on Mexican sugar imports following complaints by U.S. sugar growers, who had said that Mexican subsidies for its sugar industry allowed producers to flood the U.S. market with cheap supplies, undermining American growers.
On Monday, the Commerce Department said it is planning to impose preliminary tariffs ranging from 39.54% to 47.26% on top of tariff fees as high as 17.01% on Mexican sugar coming into the U.S.
The additional tariffs are expected to go into effect once the decision is published in the Federal Register, likely during the first part of next week, a Commerce Department spokesman said.
The draft agreements between the U.S. and Mexico contains provisions to ensure there isn’t a flood of Mexican sugar that could cause price declines that would be harmful to the U.S. industry and its farmers, the Commerce Department said. That includes preventing imports from being concentrated during certain times of the year, limiting the amount of refined sugar that can enter the U.S. market and establishing minimum prices for Mexican sugar producers.
That price is 23.75 cents a pound for refined sugar and 20.75 cents a pound for all other sugars, according to the draft agreements.
The American Sugar Alliance, a U.S. industry group, declined to comment.
Anticipation of a tariff had already sent U.S. sugar prices higher, as traders feared it could reduce supplies. Earlier this month, U.S. raw sugar hit a two-year high, while in September world raw sugar for delivery fell to a 5 ½-year low.
The trade dispute “has absolutely changed everything, the complexion of the U.S. sweetener market,” said Frank Jenkins, president of JSG Commodities, a brokerage in South Norwalk, Conn.
On Monday, domestic sugar for delivery in January on ICE Futures U.S. ended down 1.7% at 26.17 cents a pound, while world sugar for delivery in March on ICE ended 2.1% lower at 16.03 cents a pound.
Global sugar production is expected to exceed demand for a fifth straight year, and prices have tumbled. The U.S. limits imports from most countries and sets a floor under domestic prices, meaning little of the global sugar surplus is expected to enter the country.
Mexico, one of the few countries with free access to the U.S. sugar market, shipped a record 1.9 million metric tons to the U.S. in the crop year that ended in September. Last year, a glut of sugar sent U.S. prices plunging, sparking loan defaults by U.S. sugar processors. The defaults cost the U.S. government more than $250 million.
But in its most recent supply-and-demand report, the U.S. Department of Agriculture said it expects lower imports from Mexico during the season that began Oct. 1 to lead to the tightest U.S. ending stocks since the season that began in 2010.
Mexican Economy Minister Ildefonso Guajardo said earlier this month that his country was seeking a settlement to the dispute. Failure to reach an accord could lead Mexico to take the case to the World Trade Organization, he said. He denied that Mexico is dumping sugar in the U.S.
The U.S. produces about 70% of the sugar it consumes, relying on imports, especially from Mexico, to cover the rest. The U.S. government keeps the price on the domestic market high through federal loans to sugar processors, and import restrictions.
“There’s probably some dissembling when the U.S. says to Mexico: ’You’re dumping sugar into a highly distorted sugar market,’” said David A. Gantz, a professor at the University of Arizona who focuses on trade law. “But the antidumping statutes do not make a distinction. Logically, it doesn’t make a lot of sense.”