Sugar border battle heats up

by Jay Sjerven
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The long simmering issue of whether the Mexican government is subsidizing sugar exports to the U.S. market reached a boil on Aug. 26 when the U.S. Department of Commerce announced an affirmative preliminary determination in connection with its countervailing duty investigation of imports of sugar from Mexico. The D.O.C. preliminarily determined the financial assistance the Mexican government extends to producers and the Mexican sugar industry constituted subsidies allowing the Mexican sugar industry to compete unfairly in the United States market with U.S. sugar producers.

Pending the final D.O.C. determination in the case, which is scheduled for Jan. 7, 2015, U.S. Customs and Border Protection was directed to begin collecting cash deposits on Mexican sugar imports based on the subsidy rates established under the affirmative preliminary determination.

The D.O.C. action was part of a complicated process involving two federal agencies, the D.O.C. and the International Trade Commission, and two parallel investigations, a countervailing duty investigation and an antidumping investigation.

A countervailing duty investigation considers whether assistance provided by a foreign government to its producers and industries allowed those producers and industries to compete unfairly in the U.S. market, and whether this unfair competition materially injured or threatened to injure U.S. producers and industries. An antidumping investigation considers whether a foreign company or concern sells a product in the United States at less than its “fair” value.

The petitioners in the Mexican sugar case were the American Sugar Coalition and its individual members. The coalition petitioned the I.T.C. and the D.O.C. on March 28, alleging its members were being materially injured because of imports of subsidized Mexican sugar. The coalition alleged the subsidies provided by the Mexican government enabled Mexican sugar to be sold on the U.S. market at less than its fair value; essentially, they alleged subsidized Mexican sugar was being “dumped” on the American market.

The I.T.C. on May 9 issued a preliminary determination holding “there is a reasonable indication that an industry in the United States is materially injured by reason of imports from Mexico of sugar that are alleged to be sold in the United States at less than fair value, and that are allegedly subsidized by the Government of Mexico.”

This opened the way for both countervailing duty and anti-dumping investigations to proceed.

Now that both agencies have issued their preliminary determinations with regard to the countervailing duty investigation, and cash deposits on Mexican sugar imports are being collected pending resolution of the trade case, the next step in the countervailing duty investigation will be for the D.O.C. to issue its final determination in the case. This it was scheduled to do in January 2015.

If the D.O.C.’s final determination affirms its current findings that Mexican government subsidies provide its producers and industries an unfair advantage in the U.S. market, the I.T.C. will consider and issue by Feb. 23 its final determination related to injury resulting from imports of such subsidized sugar.

If the I.T.C. final determination also is affirmative, the agencies will issue by March 2 a countervailing duty order instituting specified duties on Mexican sugar, which may be the same or higher or lower than those contained in the D.O.C.’s affirmative preliminary determination. The cash deposits collected in the span between the D.O.C.’s preliminary determination and the issuance of the countervailing duty order would not be returned.

Antidumping decision due soon

Meanwhile, the antidumping investigation was continuing with the D.O.C.’s preliminary determinations scheduled to be issued Oct. 24. The D.O.C. may determine that Mexican sugar was not “dumped” on the U.S. market, but an affirmative finding in the countervailing duty investigation would seem to strongly argue for an affirmative finding in the antidumping investigation. An affirmative finding in the antidumping investigation may raise duties levied on Mexican sugar imports beyond levels imposed under a countervailing duty order.

Phillip Hayes, a spokesman for the American Sugar Alliance, said, “The D.O.C.’s finding validates our claim that the flood of Mexican sugar, which is harming America’s sugar producers and workers, is subsidized by the Mexican government. The preliminary duties are important, and we fully expect the final countervailing duties to be higher.”

Mr. Hayes said the A.S.A. also expects a favorable outcome when the D.O.C. issues its preliminary antidumping ruling this fall.

American sugar users criticized the D.O.C.’s affirmative preliminary determination.

“Today’s ruling that the Mexican sugar industry received support from the Mexican government should surprise no one,” the Sweetener Users Association said. “The only surprise in this case has been that the U.S. sugar industry — which is among the most protected and supported industries in all of agriculture — would complain about support received by Mexican growers. This case has been, and continues to be, a cynical effort to drive up prices for consumers and kill American jobs in the food manufacturing sector.

“Mexico has become the scapegoat for the failings of the U.S. sugar program. Instead of blaming Mexico for sugar market distortions over the past few years, years in which U.S. sugar producers enjoyed record profits, the focus should be on reforming the sugar program.”

Robb MacKie, president and chief executive officer of the American Bakers Association, said, “This move will only continue to penalize bakers as they struggle to provide fresh, wholesome products to American families in this sluggish economy. Making it more difficult to secure adequate supplies of sugar may lead to another supply crunch: a recurring theme within the archaic U.S. sugar program.”

Cory Martin, the A.B.A.’s director of government relations, added, “The D.O.C. needs to take a hard look at their 2006 report highlighting domestic job losses due to the current U.S. sugar program. The current program has already led to the loss of approximately 127,000 jobs. Restricting free trade with Mexico through duties will only exacerbate the problem.”

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