Sugar Talks May Hint at Trump Approach to U.S.-Mexico Trade
MEXICO CITY — The sugar barons of Florida, Alfonso and José Fanjul, have been equal-opportunity political donors for decades, showering largess on the campaigns of Democrats and Republicans alike to ensure that lawmakers will protect the American sugar industry.
When Donald J. Trump was preparing to take office as president, the Fanjul brothers wrote another check. Among the contributors to Mr. Trump’s inaugural festivities in January was Florida Crystals, a Fanjul-owned company that contributed half a million dollars.
The brothers most likely had more on their mind than a sumptuous ball. Led by the Fanjuls, large American sugar producers and refiners were eager for the new administration to tackle some business left unfinished by the Obama administration: an agreement to control imports of Mexican sugar.
Now, with a Monday deadline for the United States and Mexico to settle on an accord, businesses on both sides of the border are watching to gauge what the sugar negotiations signal about Washington’s approach to renegotiating the North American Free Trade Agreement.
“In Mexico everybody is looking at the sugar agreement because it’s a thermometer of how things are going to be managed,” said Juan Cortina Gallardo, the president of Mexico’s sugar chamber, which represents refiners. “It’s a politically sensitive and charged issue.”
The sugar industry has been at the center of the most contentious trade issues between Mexico and the United States since Nafta was first negotiated in the early 1990s.
Even then, the protracted tussle over just one product raises questions about how quickly Nafta’s renegotiation could bog down if the Trump administration decides to open multiple fronts in rewriting the accord. Talks with Mexico and Canada could begin as early as August, and the administration has offered very little detail about what it hopes to accomplish.
Whatever the American sugar industry wrests from the negotiations will have effects that spread far beyond the cane fields of Florida and southeastern Mexico. The strands of the sugar story suggest just how intricate the weave of international trade can be.
It is up to Commerce Secretary Wilbur L. Ross to find a compromise that Mexican negotiators will accept; otherwise, he risks a trade war.
And Mr. Ross must also balance the power of the sugar lobby — including his Palm Beach neighbors, the Fanjuls — against United States food manufacturers who argue that any deal that raises the cost of sugar will drive away jobs.
Mr. Ross and his wife, Hilary Geary Ross, have had a long social relationship with José Fanjul, known as Pepe, and his wife, Emilia. They are frequent guests at the Fanjuls’ pre-Christmas dinners in Palm Beach and at their 7,000-acre resort, Casa de Campo, in the Dominican Republic, events that Ms. Ross gushes over in her society blog.
But in his transition from billionaire investor to public servant, Mr. Ross has so far been listening to all sides, say people with a stake in the sugar negotiations.
The Obama administration “kicked the can down the road in order not to make a decision” on sugar imports, said Paul Farmer, the president of CSC Sugar in New Canaan, Conn., who buys Mexican sugar to produce liquid sugar that competes with large refineries.
Now, Mr. Farmer said, he has found “a complete change in attitude to listening and wanting to understand” what is at stake in the negotiations.
Mr. Cortina agreed. “What I have seen in the current administration is that Secretary Ross and the chief of staff have dedicated a lot of time to understanding the underlying issues,” he said.
The American sugar industry has long been protected by a price guarantee held in place by import quotas and other mechanisms.
When Nafta went into effect in 1994, the industry won special treatment that limited Mexican sugar imports for 14 years.
“These guys have been punching above their weight politically,” Mr. Cortina said, referring to sugar industry executives in the United States.
In 2008, Mexico became the only country in the world with unrestricted access to the American sugar market. But when Mexican exports soared in 2013 after a bumper crop, American producers struck back, filing claims of unfair trading practices. The Commerce Department agreed, and prepared to assess punitive duties on Mexican sugar.
To head those duties off, the Mexican government and Mexican sugar refiners accepted limits on exports as well as a minimum price in two agreements signed at the end of 2014.
But the American sugar companies soon argued that the agreements were not strong enough to protect them, and the Commerce Department took their side in December with a preliminary ruling. The duties will be imposed if a new accord cannot be reached by Monday.
“Our industry is suffering tremendously,” said Phillip Hayes, a spokesman for the American Sugar Alliance, which represents sugar farmers and refiners, including Florida Crystals.
“A refinery needs raw sugar in order to operate,” he said. “Mexico has been sending in far too much refined sugar and starving the refineries of raw sugar.”
Marianne L. Martínez, a spokeswoman for Florida Crystals, said the company was only asking the Commerce Department to enforce its earlier rulings against Mexico. “We are asking the U.S. government to hold Mexico accountable and require Mexican companies to follow U.S. law,” she said in an emailed statement.
For its part, Mexico’s Economy Ministry has said that large American refineries are using the negotiations to lock in their own supply of Mexican raw sugar and eliminate all competition from Mexican refined sugar.
“Eliminating access for Mexican refined sugar to the United States market is unacceptable,” the ministry warned in a statement last month.
Mexican officials face their own political pressure to come up with a strong agreement.
“If you cave on sugar if you’re Mexico, then what does that say about what you’re going to do in Nafta negotiations?” said Andrew I. Rudman, a former United States trade official, who is a managing director at ManattJones Global Strategies, a trade and investment consulting firm.
Ildefonso Guajardo, the country’s economy minister, said at a luncheon on Thursday with Mexican agribusiness owners that the sugar dispute was virtually the only issue he had been discussing with Mr. Ross. The “few but very powerful” American sugar refiners had become angry, Mr. Guajardo said at the Mexico City event, because the 2014 agreements had not succeeded in steering enough raw cane sugar to their refineries.
Mexican sugar cane is grown by 190,000 small farmers scattered across some of Mexico’s poorest regions, and at harvest time, the labor-intensive work employs 450,000, making the industry a potent political force.
Hanging over the negotiations is the threat that Mexico could retaliate against American exports of high-fructose corn syrup, which is a sugar substitute.
“If we are to be cut off from the U.S. market, we are going to do our damnedest to cut off fructose coming into the Mexican market,” Mr. Cortina said.
The cane growers’ union in Mexico on Friday placed an ad in one of Mexico’s leading newspapers, accusing the United States of dumping fructose and warning the Mexican government against bowing to “interests and dictates” of American producers.
A claim of dumping fructose is already in the making.
“When the refineries accuse Mexico of dumping, then the logical thing is to accuse the fructose industry,” said Enrique Bojórquez, the founder of Sucroliq, a Mexican producer of liquid sugar.
The Mexican government has blocked such complaints in the past, Mr. Bojórquez said, because it was trying to preserve the accord with the United States. “What I don’t agree with is that we don’t defend ourselves when American companies are doing damage in Mexico,” he said.
The prospect of a trade war is not an idle threat to producers of corn syrup, who have sold more than $3 billion of the sweetener to Mexico over the past five years. Mexico shut off corn syrup in the 1990s in an earlier dispute.
“If it is an exchange of retaliatory blows, they are quite capable,” said John Bode, president of the Corn Refiners Association.
Other American industries are also watching the negotiations.
Companies that produce candy and baked goods have already begun to move production offshore, where sugar is cheaper, and then send products back to the United States, said Bill O’Connor, an agricultural expert at the Sweetener Users Association. “We are exporting our manufacturing because they can bring it in at no or low duty.”
Ten senators wrote to Mr. Ross this past week warning that “well-paying American jobs would be jeopardized by any further restrictions on sugar imports, which only advance the narrow interest of domestic growers and large sugar companies.”
“There is no doubt about it that there is political pressure,” said Mr. Farmer, the liquid sugar producer who goes up against the large sugar refiners. “My competitors have spent a lot of money in Washington over a long period of time.”