A years-long fight with Mexico over illegal dumping of cheap, subsidized sugar on the U.S. market is emerging as a major issue as the United States looks to tackle a rewrite of the North American Free Trade Agreement.
"What I was hearing on Capitol Hill … is this sugar issue is going to be front and center, and we must resolve it before we can renegotiate a full NAFTA deal," Louisiana Agriculture Commissioner Mike Strain said. "I do understand that they were close to a settlement agreement just a few days ago, and I think that the negotiations are back in earnest, and I think that’s what’s got to happen."
If the two countries can't iron out their differences, the U.S. will reinstate an 80 percent tariff on Mexican sugar imports, and that could trigger a cycle of trade retaliation, Strain said. The good news is that Strain believes both countries can resolve their sugar dispute. The bad news is they have only about two weeks to do so. The 80 percent tariff is set to kick in on June 5.
Strain spent Thursday in Washington, D.C., meeting with U.S. and Mexican trade officials to discuss NAFTA and the sugar dispute.
Although some like Strain want to avoid the tariff, Louisiana Reps. Ralph Abraham, Garrett Graves and Cedric Richmond are among nearly 40 members of Congress who have asked President Donald Trump to reinstate the penalty.
American Sugar Cane League Manager Jim Simon said Mexico's sugar dumping — selling sugar abroad for less than the domestic price — and illegal subsidies cost the U.S. industry more than $2 billion before a December 2014 deal to end the practices. In the two years since that agreement, Mexico has continued those practices, and the U.S. sugar industry has lost an additional $2 billion, he said.
"The agreement has not worked. The American sugar industry continues to be harmed by Mexico's sugar," Simon said.
Figuring out the exact impact on Louisiana is complicated, he said. Seventeen states are involved in sugar cane farming, milling and refining and in sugar beet farming, factories and distribution.
Louisiana accounts for roughly 15 percent to 20 percent of sugar's economic impact on the domestic sugar market, Simon said. Saying the state absorbs a similar portion of the damage from Mexican imports — or roughly $150 million to $200 million a year — would be a very general number and not necessarily accurate.
Mexico accounted for 1.1 million tons of the 3 million tons of sugar the U.S. imported during the 2016 fiscal year, which ended Sept. 30.
The U.S. and Mexico blame each other for the current impasse.
Meanwhile, critics say the U.S. sugar industry is itself heavily subsidized. From 2000 to 2001, the domestic sugar program cost taxpayers close to $500 million, according to a 2015 article by Americans for Tax Reform, a powerful conservative group.
Americans for Tax Reform described the sugar program as "crony capitalism at its worst," and the reason Americans paid twice as much for sugar in 2015 as the world price.
Strain said once the sugar issue is settled, the United States and Mexico can begin working on the North American Free Trade Agreement.
Those negotiations will cover everything and are expected to be lengthy, he said. But a new agreement is crucial. Among other things, the country's combined trade with Canada and Mexico is greater than that with China.
Mexico is the United States' and Louisiana's second-largest export partner. The United States sent $231 billion worth of goods to Mexico in 2016, while Louisiana exports amounted to $5.7 billion, according to figures from the International Trade Administration. Petroleum and coal products made up $3.2 billion; agriculture products, $1.1 billion; and chemicals, $674.5 million.
Strain said another reason to rework NAFTA is that the original 1994 agreement didn't envision all of the changes wrought by technology.
For example, the Mexican government wants to import U.S. cattle genetics, raise the cattle, send them to the United States for processing, and then on to China. "The economy is a world economy and everything is in motion," Strain said.