Bloomberg News

Sugar, Steel Strain U.S.-Mexico Ties as Kerry Ends Visit

May 22, 2014

Disputes over sugar and steel trade between the U.S. and Mexico are straining ties between the countries just as negotiators try to hammer out the details of a Pacific-rim trade pact to further integrate their economies.

U.S. Secretary of State John Kerry today concludes a two-day visit to Mexico aimed at bolstering trade and security, and the nations are among 12 countries seeking to conclude the Pacific accord that would be the largest in history.

“The fact is, more than a billion dollars a day passes between us in bilateral trade,” Kerry said yesterday in Mexico City. He said he met with business leaders in Mexico to “advance our interests and to ensure our citizens have an even greater amount of opportunity, and benefit from the growth that takes place between our countries.”

U.S. producers of sugar and steel within the last year have filed separate complaints with the U.S. government, alleging that unfair trading practices by their Mexican competitors have led to a flood of imports at the American industries’ expense. The rifts highlight the growing complexity in the $507 billion annual trading relationship between the U.S. and Mexico under the 1994 North American Free Trade Agreement, which also includes Canada.

The Trans-Pacific Partnership would build upon Nafta, which was negotiated before the age of Internet commerce. It would unite economies with $28 trillion in annual economic output, about 38 percent of the world total.

Digital Trade

“These kind of disputes do not help maintain the support of the Mexican industry to these negotiations,” Juan Antonio Reboulen, vice president of corporate affairs for Mexican steel producer Deacero SA, said in a phone interview. “We need to find another way to solve this.”

While the agreement would address so-called 21st-century issues such as digital trade and environmental standards, age-old disputes in commodities are laying bare the tensions between the U.S. and its third-largest trading partner.

The U.S. Commerce Department in a preliminary determination on April 21 set duties as high as 67 percent on imports of Mexican-made steel reinforcing bar, used in building construction to strengthen concrete and masonry.

Mexican producers are now seeking an agreement with the U.S. to stave off the penalties before the agency issues its final ruling, scheduled for July.

The U.S. International Trade Commission determined in a preliminary finding on May 9 that the domestic sugar industry has been harmed by imports from Mexico, which reached $1.1 billion last year -- more than the value of sugar imports from all other nations combined. The Commerce Department is investigating whether the Mexican goods should be subject to penalties and may begin to issue its first findings as early as next month.

Regulated Commodity

“Sugar is a big deal,” Carlos Gutierrez, U.S. Secretary of Commerce under President George W. Bush, said in an interview in Mexico City on May 15. “Sugar is highly protected in the U.S., and the consumer is paying for that protection. It’s an example where Mexico can point to double talk on the side of the U.S.” as they work toward the Pacific agreement.

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

Unlike other nations who face sugar quotas, Mexico has uninhibited access to the U.S. market under Nafta. When the agreement was negotiated, sugar producers successfully lobbied to have restrictions for Mexican sugar kept in place for more than a decade. After they were lifted in 2008, Mexican sugar exports boomed, surging tenfold through last year.

Sugar Alliance

U.S. producers say Mexican competitors are selling sugar at 30 percent to 64 percent below production cost to gain market share, a practice prohibited by international trade laws, and are asking for tariffs to offset the advantage.

“This is about enforcing U.S. law,” Phillip Hayes, a spokesman for the Arlington, Virginia-based American Sugar Alliance, which represents U.S. producers, said in a phone interview. “Nafta is very explicit on the fact that trading partners must adhere to one another’s anti-dumping” and anti-subsidy laws, he said.

The Washington-based Sweetener Users Association, representing soft drink and candy companies, says U.S. producers already enjoy ample government support, including price guarantees and import limits, that keep domestic sugar prices artificially high. The U.S. spent more than $250 million last year to boost the domestic sugar industry after two years of bumper crops and booming imports triggered federal supports.

Corn Refiners

U.S. imposition of tariffs on Mexican sugar exports could spur Mexican companies to push their government to retaliate against products such as high-fructose corn syrup, a sweetener exported from the U.S. to Mexico, said John W. Bode, president of the Washington-based Corn Refiners Association.

“To have a trade war break out because of the U.S. sugar (SGG:US) industry’s attempts to renegotiate Nafta could be very damaging,” Bode said.

If tensions with the U.S. increase, it will be difficult for Mexican companies to support the proposed Pacific trade deal, which the U.S. is aiming to conclude this year, according to Deacero’s Reboulen.

“We are going to push very, very hard here with other sectors to tell our government that we can’t support them in other negotiations if we can’t get support from our partners,” he said.

‘Take Jobs’

Alan Price, a lawyer with Wiley Rein LLP in Washington who represents U.S. steel producers including Nucor Corp. (NUE:US) of Charlotte, North Carolina, in the case, said illegal imports from Mexico and other nations “take jobs from Americans.”

He said the U.S. industry isn’t open to an agreement to suspend the duties against Mexican producers led by Deacero.

Price said Deacero is trying to portray itself as the victim after being caught violating international trade laws.

“Any attempt for this company to paint itself in a white hat as being the innocent here is very unfortunate,” Price said.

Mexico wants its sugar producers and those from the U.S. to have a dialogue to avoid penalties on exports, Economy Minister Ildefonso Guajardo said in an interview with Radio Formula on May 14. U.S. Agriculture Secretary Tom Vilsack said during an April 3 House Agriculture Committee hearing that the complaint by U.S. sugar producers is “ill-timed.”

Peeps Maker

Just Born Inc., the maker of Peeps, the yellow bird-shaped marshmallow candies that have become an icon of U.S. Easter celebrations, is one of the companies that wants the U.S. to refrain from placing tariffs on Mexican sugar. Duties would further distort an already-controlled market and raise the company’s production costs, said Tim Jones, senior manager of procurement and operations in Bethlehem, Pennsylvania.

“If they put duties on the Mexican imports, it would be bad for U.S. businesses,” he said in a phone interview. “It’s bad for the cost we have to pay out for the sugar, our ability to be able to reinvest in the business, and it could turn into price increases for consumers. It’s a slippery slope if they do this.”

To contact the reporters on this story: Eric Martin in Mexico City at emartin21@bloomberg.net; Brian Wingfield in Washington at bwingfield3@bloomberg.net

To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net Michael Shepard


The Good Business Issue
LIMITED-TIME OFFER SUBSCRIBE NOW

Companies Mentioned

  • SGG
    (iPath Bloomberg Sugar Subindex Total Return ETN)
    • $37.65 USD
    • -0.04
    • -0.11%
  • NUE
    (Nucor Corp)
    • $49.33 USD
    • -0.22
    • -0.45%
Market data is delayed at least 15 minutes.
 
blog comments powered by Disqus