(Updates with U.S. decision, background)
MEXICO CITY Aug 26 (Reuters) - The United States will slap anti-subsidy import duties on Mexican sugar, sources said on Tuesday, a move that could push up candy and soft drink prices for U.S. consumers and incite retaliation from Mexico on other products.
The duties, if confirmed, will bolster prices for U.S. sugar but mean companies like candy makers Hershey Co and Mondelez International Inc will have to pay more for imported sweetener.
The preliminary decision to slap duties on sugar imports from Mexico, which could still be overturned, is backed by U.S. sugar industry complaints of unfair competition from subsidized sweeteners in the industry's first trade case in decades.
Sources told Reuters the duties were as much as 17.01 percent.
The preliminary determination means the U.S. Department of Commerce found Mexican imports benefited from government support.
U.S. sugar producers have claimed cheap imports from Mexico are causing nearly $1 billion in damages in the local market.
Juan Cortina, president of the Mexican sugar chamber, said the Mexican sugar industry is prepared to agree to a deal that limits sugar exports to the United States, but said any agreement would have to fix an export minimum of at least 1 million tonnes per cycle.
He said the chamber believed a deal could be reached before the United States resolves a separate anti-dumping case in October.
U.S. sugar users and manufacturers and Mexican mills have fought against the case, arguing the case could prompt Mexico to retaliate on other products like high-fructose corn syrup and inflate the cost of a key raw material. The United States is a net sugar importer.
They also argue that any restrictions on sugar imports, even as part of a brokered deal, would undermine free trade across the continent under the North American Free Trade Act.
"I think this is an area where consumers would be a lot better off if the market were simply allowed to operate freely without either government intervention or deals being cut by the growers," Bill Reinsch, president of the National Foreign Trade Council, said on Tuesday.
"The likely result is that the growers, particularly in the United States, will make more money, and the consumers will pick up the tab."
Concerns about tightening supplies in the United States, even as the global market remains in surplus, have pushed domestic prices up 18 percent since the case was first filed in March.
"Even a small duty could mean a lot of money," said one U.S. sugar importer. "We're apparently going to be short of sugar in the United States market, so prices will come up to a level that compensates for any duty."
Second-month U.S. domestic raw sugar futures traded in New York jumped 2.7 percent to a two-week high of 26.75 cents a lb in thin trade on Tuesday. (Additional reporting by Chris Prentice in New York and Krista Hughes in Washington; Writing by David Alire Garcia; Editing by Simon Gardner, Marguerita Choy and Andrea Ricci)