Wilbur Ross Sets Deadline in U.S.-Mexico Sugar Dispute

By Julie Wernau and William Mauldin Features Dow Jones Newswires

U.S. Commerce Secretary Wilbur Ross is threatening to reinstate duties on Mexican sugar on June 5, after talks between the U.S. and Mexican sugar industries stalled.

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Antidumping and antisubsidy duties on Mexican sugar that are currently suspended will be brought back, the Commerce Department said in a statement late Monday. The last deadline for reaching an agreement in the longstanding dispute over sugar expired Monday.

"While I regret that such measures were needed, it is my hope that Mexico and the U.S. can reach a fair agreement before June," Mr. Ross said in the statement.

Mexico's Economy Ministry said the "excessive demands of U.S. producers and refiners" prevented an agreement from being reached. If the duties are imposed, the move would drive up prices for one of the U.S.'s main sources of sugar, essentially locking Mexico out of the U.S. sugar market. Roughly 50% of U.S. sugar imports are from Mexico, by far the cheapest supplier to the U.S.

The U.S. sugar industry has argued for years that cheap, subsidized Mexican sugar is hurting margins.

After a number of U.S. sugar producers defaulted on their government loans in 2013, the U.S. government investigated and considered imposing duties on Mexican sugar. But in 2014, the two countries entered into a voluntary trade agreement that placed restrictions on sugar imports from Mexico and avoided the U.S. antidumping and antisubsidy duties.

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Mexico denies that it subsidizes local sugar producers.

"The Mexican sugar industry will request that the government put brakes on imports of U.S. high-fructose corn syrup if we're shut out of the U.S. sugar market," said Juan Cortina, president of the Mexican sugar industry chamber.

The latest friction over sugar comes as the Trump administration is preparing to formally renegotiate the North American Free Trade Agreement. The impasse in the sugar dispute, if unresolved, could complicate the Nafta talks.

Mexican sugar, along with Canadian lumber and dairy, will be key issues to resolve before or during Nafta negotiations. U.S. producers of all three agricultural products have staunch defenders in Congress.

Last month, Mr. Ross slapped preliminary tariffs on Canadian softwood-lumber in a move many trade experts saw as leverage ahead of talks, and President Donald Trump has repeatedly also criticized Canadian dairy practices.

Mr. Ross eased his tone on sugar in March during a press conference on the issue with Ildefonso Guajardo, Mexico's economy minister. The meeting had marked a softening of rhetoric toward Mexico City after Mr. Trump insisted early in his term that the country pay for a border wall.

The American Sugar Coalition, a group representing more than 95% of the U.S. sugar industry, asked the Department of Commerce to review the sugar trade agreement in December 2015 and reopen negotiations, saying the agreements weren't working as intended.

The situation has caused a pricing distortion in the market that sugar cane refiners say makes it difficult to be profitable. A glut of refined sugar combined with tightly restricted imports for unrefined sugar have caused unrefined sugar prices and refined sugar prices to reach parity at about 29 cents a pound. Two years ago, prices for refined sugar were about 10 cents a pound higher on average than for raw sugar.

"We're basically looking at negative margins before you turn on the lights in the refinery," Frank Jenkins, president of Jenkins Sugar Group, said at a recent presentation in New York.

Users of the sweetener blame federal support for U.S. farmers who produce sugar crops and say aid has only added to problems.

The price U.S. refiners pay for sugar is tightly controlled under a federal law dating back to the early 1980s. As a way to support farmers, sugar cane and beet processors can borrow money from the U.S. Department of Agriculture and secure the loans with sugar as collateral.

The USDA is then required to do what it can to keep prices high enough to prevent defaults. Domestically produced sugar is capped at 85% of U.S. consumption and the U.S. government tightly controls import supply by a system of quotas.

"Whether the agreements are revised or the antidumping duties take effect on June 5, America's sugar policy is clearly a mess," the Sweetener Users Association, a coalition of candymakers and other users of sugar, said in a statement Tuesday.

(END) Dow Jones Newswires

May 02, 2017 15:22 ET (19:22 GMT)