Sugar producers in the United States are not feeling so sweet these days to their neighbors to the south. After the American Sugar Coalition filed antidumping and countervailing duty petitions against Mexico’s sugar industry on March 28 with the U.S. Department of Commerce (DOC) and the U.S. International Trade Commission (ITC)), the DOC announced on April 17 that it will investigate the situation to see if the Mexican government has been subsidizing Mexico’s sugar production and whether or not sugar is being dumped into the U.S. market. If the DOC finds this to be the case, penalties could be forth coming on an industry that was valued at $1.1 billion in 2013.
The American Sugar Coalition is a powerful Washington, DC lobbying group. Its members include the American Sugar Cane League, the American Sugarbeet Growers Association, American Sugar Refining, Inc., the Florida Sugar Cane League, the Hawaiian Commercial & Sugar Company, Rio Grande Valley Sugar Growers, Inc., the Sugar Cane Growers Cooperative of Florida, and the United States Beet Sugar Association. Its membership includes all U.S. producers of beet and raw cane sugar as well as nearly 70 percent of refined cane sugar and mirrors that of the American Sugar Alliance, the U.S. sugar industry’s primary trade association.
The American Sugar Alliance, which represents growers and processors, including American Sugar Refining Inc., maker of Domino Sugar, claims that the Mexican industry’s practices will cost U.S. producers almost $1 billion in 2014.
U.S. antidumping law allows the United States to collect antidumping duties after administrative determinations by the ITC and DOC that a foreign product is being sold in the U.S. market at less than fair value and that the imports are materially injuring (or threatening to materially injure) the U.S. industry.
U.S. countervailing duty law also allows the United States to collect duties to offset any unfair competitive advantage that foreign manufacturers or exporters might enjoy over U.S. producers as a result of subsidies after administrative determinations by ITC and DOC that a foreign product is being subsidized and that the imports are materially injuring (or threatening to materially injure) the U.S. industry.
To date, Mexico, the United States and Canada have prosecuted 114 antidumping and countervailing duty cases against each other since the North American Free Trade Agreement (NAFTA) went into effect. Mexico has filed 31 petitions against the United States and the United States has filed 30 petitions against Mexico; the remaining cases involved Canada.
A recent article by the New York Times reported that behind the dispute is the determination of both Mexico and the United States, even under NAFTA, to continue protecting their industries. “Industry representatives from both countries have been looking for a compromise since October that would allow some corn syrup into Mexico and open the American market to surplus sugar,” it said.
Mexican officials, however, state that the issue is not clear cut, despite the Alliance’s claim that the petitions are neither an attack on NAFTA nor an effort to change NAFTA. “Antidumping and countervailing duty cases are explicitly permitted by Article 1902 of NAFTA to ensure fair trade in the U.S. market,” the Times writes.
Hanging in balance, Mexico says, could be NAFTA. Mexico’s agriculture minister, recently quoted by the New York Times, said the dispute could “seriously affect the delicate balance” in trade of the sweeteners and the import of fructose from the United States. He pledged to defend Mexico’s sugar industry, and claimed that U.S. producers have benefited from government policies, including price guarantees and import quotas.
According to the Times article, the U.S. spent more than $250 million in 2013 to boost the domestic sugar industry after two years of bumper crops and booming imports triggered federal supports.
But the American Sugar Alliance insists that Mexico is clearly dumping sugar onto U.S. markets and seizing market share from U.S. producers. It reports that the Mexican sugar industry—20 percent of which is owned and operated by the Mexican government—has rapidly increased exports to the United States in recent years, rising from 9 percent of the U.S. market in FY2012 to nearly 18 percent in FY2013. And, according to recently updated U.S. Department of Agriculture (USDA) data, Mexico is accelerating its rate of exportation in FY2014.
John W. Bode, president and CEO of the Corn Refiners Association (CRA), however, takes Mexico’s defense, calling the petitions filed by the American Sugar Coalition “unwarranted and unnecessary.”
“The U.S. sugar industry is the beneficiary of the only U.S. agriculture program that has not been reformed in modern times, a program that confers huge subsidies on petitioners or their fellow industry members paid from consumer and taxpayer pockets,” he wrote in a letter to ITC Commissioner Irving A. Williamson. “The U.S. sugar industry is virtually alone in enjoying a government guaranteed price floor.”
He further states that while petitioners allege imports from Mexico have depressed U.S. sugar prices, they fail to address the fact that total sugar imports declined by 14 percent from crop year 2010/11 to crop year 2012/13.
“Nor do petitions account for the large domestic crop in 2012/2013, which was not anticipated by USDA and overwhelmed the substantial decline in imports,” Bode says. He admits that sugar imports declined from 48 percent of U.S. production in crop year 2010/11 to 36 percent of U.S. production in crop year 2012/13. He adds, however, that the decline in total imports allowed the U.S. sugar industry to increase its share of the U.S. market from 67 percent in crop year 2010/11 to 76 percent in crop year 2012/13.
Figures indicate that as of March 31, Mexico had already shipped to the United States 1.15 million tons of sugar, putting it on pace to ship 2.3 million tons for the year. That is compared to last year’s all-time record of 2.1 million tons. “Unless the pace slows, imports of sugar from Mexico will be 500,000 tons more than U.S. government officials had expected this year,” the Alliances states in a press release.
Bode particularly warns that such ill-advised petitions could threaten to re-ignite a trade war between the United States and Mexico regarding sweetener products.
“Specifically, the U.S. corn refining industry’s exports of high fructose corn syrup (HFCS) to Mexico, as well as its HFCS production in Mexico, could be imperiled by this case,” he writes. If duties are imposed on Mexican sugar, CRA is concerned that the Mexican government will consider adopting counter-measures that will curtail U.S. HFCS exports to Mexico.
“Any such counter-measures would severely impact the U.S. HFCS industry, the 65,000 U.S. personnel our members employ and the agriculture economies that supply corn refineries,” Bode says.
U.S. producers argue that Mexico’s growth in exports to the United States is the result of substantial subsidies and by dumping margins of 45 percent or more. They also say Mexico is directly responsible for sinking U.S. sugar prices, which have fallen 50 percent since late 2011 and are back to the lows of the 1980s.
“We predict that Mexico’s actions will cost domestic producers nearly $1 billion this crop year,” Hayes explains. “The low-price environment has already forced U.S. farmers to plant less.”
Earlier this month, the U.S. Department of Agriculture (USDA) announced an acreage decline of 4 percent for the U.S. sugar beet crop currently being planted. That marks the fourth consecutive year that U.S. sugar farmers have reduced plantings.
USDA further projected U.S. sugar carryover on Oct. 1, 2014, at 1,825,000 short tons, raw value, down 56,000 tons, or 3%, from its January projection and down 332,000 tons, or 15%, from 2,157,000 tons on Oct. 1, 2013, which was lowered 3,000 tons. The 2013-14 ending stocks-to-use ratio was projected at 14.9%, down from 15.4% as the January projection and down from 17.9% as the 2012-13 ratio.
For 2012-13, domestic production was lowered 2,000 tons to 8,980,000 tons, based on a like decrease in beet sugar production. All import figures were unchanged from January. Total supply also was lowered 2,000 tons to 14,183,000 tons. Total sugar use for 2012-13 was forecast at 12,026,000 tons, up 1,000 tons from January, based on a like increase in deliveries for food at 11,487,000 tons.
Total 2013-14 U.S. sugar production was projected at 8,725,000 tons, down 53,000 tons from January based on a like reduction in Florida cane sugar production, which was forecast at 1,780,000 tons.
The American Sugar Coalition points out in its petition that, meanwhile, Mexico has dramatically expanded its share of the U.S. sugar market, despite the inefficiencies of its industry.
“In market share terms, [Mexican] imports rose from approximately 9.0 percent in FY 2011/2012 to over 17.8 percent of the market in FY 2012/2013,” it said.
“If the Mexican sugar industry was gaining market share in the United States because it was more efficient than U.S. producers, that would be one thing, but they are inefficient and are simply making advances because of unfair trading practices,” Hayes says.
The ITC is responsible for determining whether or not domestic producers are injured by dumped and subsidized imports. It is expected to make a preliminary determination in May.
NAFTA “gives Mexico the right to export sugar to the United States on a tariff-free and quota-free basis—but that does not give the Mexican industry the right to export its surplus to the U.S. market at dumped prices, nor does it permit the [Mexican government] to subsidize its sugar industry without regard to the impact of those subsidies on U.S. producers,” read the petitions filed by U.S. sugar producers.
NAFTA explicitly permits the filing of antidumping and countervailing duty cases, and NAFTA countries have filed 114 antidumping and countervailing duty cases against each other since the trade deal went into effect. Of these 114 cases, Mexico has filed 31 cases against the United States, and the United States has filed 30 cases against Mexico, not counting the pending sugar petitions.