U.S., Mexico sign deal to end sugar spat, avert import duties

MEXICO CITY/WASHINGTON (Reuters) - Mexico and the United States reached a deal on Monday to avert potentially steep duties on Mexican sugar imports to the United States, defusing a months-long dispute that threatened to escalate into a major trade war.

In the deal hammered out hours before U.S. regulators were going to slap penalties on Mexican imports, the U.S. Department of Commerce said that Mexican and U.S. officials and Mexican sugar exporters initialed a draft agreement that would suspend both anti-subsidy and anti-dumping duties on the goods, if adopted in full.

The deal included provisions that will prevent imports from being concentrated during certain times of the year, limit the amount of refined sugar that may enter the U.S. market and establish minimum price mechanisms to guard against undercutting or keeping U.S. prices artificially low, it said.

Mexican producers agreed to sell at a minimum of $0.2357 per pound for refined and $0.2075 for raw sugar.

The concessions will help resolve a dispute that threatened to spiral into a tit-for-tat trade war after Mexico warned it would take U.S. support for its sugar industry to the World Trade Organization and might consider retaliatory duties on U.S. fructose.

The spat started when U.S. sugar producers filed a claim - the first of its kind - in March contending that cheap, subsidized sugar from Mexico was flooding the heavily protected U.S. market and costing them nearly $1 billion in net income in 2013-14.

“The agreements should provide critical stability in a market that is important to both countries, while also ensuring that farmers and sugar refiners in the United States have an opportunity to compete on a level playing field,” said Stefan Selig, under secretary of Commerce for international trade, in a news release.

But the deal prompted Mexican mills to brace for new restrictions on sales to one of their biggest markets. The world’s mills are struggling to break even with prices near the cost of production amid four back-to-back years of surplus.

“How can you think that this is positive when before we had free trade and now we’ll have restrictions?,” said Carlos Rello, head of the FEESA fund that runs Mexico’s nine state-owned mills which produce about a quarter of the country’s output.

The U.S. Department of Commerce had recommended anti-subsidy duties on Mexican sugar of up to 17.01 percent and on Monday made a preliminary determination that imports should incur dumping margins ranging from 39.54 percent to 47.26 percent.

Those duties would be suspended under the agreement. Commerce released draft texts of the deal for a 30-day public comment period, after which it can be finalized.

Mexico is one of the United States' largest suppliers of sugar, as local producers cannot meet demand from companies such as sweets and food makers Hershey Co HSY.N, Mondelez International Inc MDLZ.O, General Mills Inc and drinks makers such as Coca Cola Co KO.N, as well as consumers.

Reporting by Dave Graham and David Alire Garcia in Mexico City and Krista Hughes in Washington; Additional reporting by Catherine Ngai and Christine Prentice in New York; Editing by Cynthia Osterman