U.S. to Investigate Sugar From Mexico for Trade-Rule Violations

Apr 18, 2014 2:41 pm ET

April 18 (Bloomberg) -- The U.S. will investigate whether imports of sugar from Mexico violated international trade rules, a step that may lead to penalties on trade that was valued at $1.1 billion last year.

The Commerce Department examination will determine whether sugar cane and sugar beets from Mexico were subsidized and sold in the U.S. below cost, a practice known as dumping, according to an agency statement today.

“Mexico is clearly dumping sugar onto our market and seizing market share from U.S. producers,” Phillip Hayes, spokesman for the Washington-based American Sugar Alliance, which represents growers and processors including American Sugar Refining Inc., maker of Domino Sugar, said before the agency’s decision was announced.

The dispute pits the domestic sugar industry, among the most active lobbies in Washington among commodity groups, against the main source of sugar imports, which under the North American Free Trade Agreement are unfettered. Mexico’s government and its supporters say the exports are proper, while backers of a probe say cheap Mexican goods pose a dire threat to U.S. producers.

The American Sugar Coalition, representing farmers’ groups, filed complaints with the U.S. Commerce Department and the U.S. International Trade Commission March 28, saying the Mexican industry’s practices will cost producers almost $1 billion for the most recent crop year.

Decision Timetable

The trade commission, which determines whether the domestic industry has been harmed, will make a preliminary finding by May 12 and the Commerce Department will issue preliminary decision by Sept. 4, according to today’s statement.

The coalition’s complaint excluded specialty sugar such as rock candy, or processed foods that contain sugar, including cereals and soft drinks.

“Sugar is the most protected industry in the United States” and was exempt from Nafta rules until five years ago, James K. Glassman, chairman of Public Affairs Engagement LLC in Washington, which represents Mexico’s sugar industry, said in an e-mail today, before the Commerce Department announced its investigation. “Sugar companies had plenty of time to get ready. Instead, they decided to go piggish.”

Mexico’s Agriculture Ministry in March disputed the coalition’s complaint, and said the dispute could “seriously affect the delicate balance” in trade of the sweeteners and the import of fructose from the U.S. and pledged to defend its sugar industry.

Mexico government officials didn’t respond to requests for comment yesterday, a holiday there.

Guarantees, Quotas

U.S. producers have benefited from government policies, including price guarantees and import quotas. 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. The price fell 37 percent in 2012.

For the first time, the U.S. bought the sweetener at a loss for use in ethanol plants as part of an aid program. The purchase prompted calls to change the supports, an effort that failed to materialize in the farm bill Congress passed in February.

U.S. sugar sold in New York closed yesterday at 24.68 cents, and on April 4 reached its highest since October 2012. Futures are up 20 percent for the year, reducing the likelihood of future government aid. The U.S. Agriculture Department projects that imports from Mexico, estimated at 2.124 million tons last year, will fall 18 percent to 1.745 million tons this year.

Lobbying Clout

In part because its business is controlled by government policy, sugar groups are among the largest spenders on Washington lobbying. Four of the top five political contributors among crop organizations are sugar-affiliated, according to data from the Center for Responsive Politics in Washington.

Global trade in sugar, one of the world’s most heavily subsidized and regulated commodities, is governed through a complex international quota system.

Trade between the U.S. and Mexico is set by Nafta, which U.S. sugar-producer groups maintain allows Mexicans to dump cheap sweetener into the U.S. The coalition is asking the Commerce Department to impose duties that would make up for subsidies and artificially low prices on Mexico’s sugar.

U.S. Agriculture Secretary Tom Vilsack has called the sugar-lobby effort “ill-timed.”

“We are at a very delicate circumstance and situation with Mexico on a variety of issues, and I’m sure that they don’t see this as a particularly friendly gesture,” Vilsack said in a hearing of the House Agriculture Committee this month.