June 6, 2017 / 1:46 PM / 2 months ago

U.S., Mexico reach sugar pact without backing from U.S. producers

WASHINGTON/NEW YORK (Reuters) - Mexico agreed to significant concessions on Tuesday to maintain its access to the lucrative U.S. sugar market, but U.S. sugar producers refused to endorse the deal between the governments, raising the risk that it could collapse.

The agreement in principle between U.S. Commerce Secretary Wilbur Ross and Mexican Economy Minister Ildefonso Guajardo aims to aims to avoid steep duties on Mexican sugar and resolve a longstanding trade dispute between the United States and Mexico as the two countries and Canada prepare to renegotiate the North American Free Trade Agreement this year.

Under the deal, Mexico would sharply reduce the share of refined sugar in its exports to the United States, while increasing its share of raw sugar exports and the agreement lifts the minimum prices for Mexican imports. (See Factbox)

"We have gotten the Mexican side to agree to nearly every request made by U.S. industry to address flaws in the current system and ensure fair treatment of American sugar growers and refiners," Ross told a news conference.

Still, Ross said the U.S. sugar producers had told him that they could not accept the deal in its current form, but he hoped that they would agree to some changes in a final drafting of the agreement in the next several days.

He did not elaborate on what action the Commerce Department would take if there were no final agreement with the U.S. producers.

The negotiations were an attempt to settle an anti-dumping and anti-subsidy case brought by a coalition of cane and beet farming groups and ASR Group, the maker of Domino Sugar that is owned by the politically well-connected Fanjul family of Florida.

While the limits on refined sugar from Mexico at 30 percent were significantly below the previous 53 percent limit, these groups had initially pushed for a 15 percent limit.

Sources on both sides of the border had said on Monday that the U.S. sugar industry had added new demands outside of the terms agreed on earlier yesterday by the two governments.

Workers spray fertilizer in a sugar cane field in Zacatepec de Hidalgo, in Morelos state, Mexico, May 31, 2017. Picture taken May 31, 2017.Edgard Garrido

The American Sugar Alliance said it objected to the new deal because it said that Mexico would still be able to ship in refined sugar to meet additional U.S. demand above quota, rather than the U.S. Department of Agriculture having the final decision over the type of sugar that was shipped.

It was also unclear whether Ross would simply impose the settlement on the industry if the U.S. producers did not sign onto it.

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The agreement, if finalized, was expected to avert potential retaliation from Mexico on imports of U.S. high-fructose corn syrup which had worried corn growers and refiners.

"Avoiding a trade war will benefit everyone, and I'm glad that this years-long trade dispute is finally reaching its end," said Republican Senator Chuck Grassley of Iowa, adding that Ross balanced all interests in the negotiations.

U.S. refiners have complained that high-quality Mexican raw sugar was going straight to sugar consumers, rather than passing through U.S. refineries.

The deal would mark the culmination of a multi-year dispute between the countries over sugar, after U.S. groups in 2014 asked the government for protection from subsidized exports from Mexico to the U.S.In 2014, the U.S. government slapped large duties on Mexican sugar but hammered out a deal with Mexico that suspended those levies. Factions of the U.S. industry have said that the deal has failed to eliminate harm to U.S. producers from Mexican imports.

ASR and fellow cane refiner Imperial Sugar, owned by commodities firm Louis Dreyfus Company BV [AKIRAU.UL], have said they are being starved of raw supplies under the current deal. They have asked the U.S. government to terminate the pact.

The latest talks began in March, two months after U.S. President Donald Trump took office vowing a tougher line on trade to protect U.S. industry and jobs.

Additional reporting by Susan Heavey in Washington, Anthony Esposito and Dave Graham in Mexico City and Chris Prentice in New York.; Editing by Chizu Nomiyama, Meredith Mazzilli, David Chance and Lisa Shumaker

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