Washington Insider -- Wednesday

By DTN's Washington Insider

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

U.S. May Allow Crude Oil Exports

The United States is considering relaxing regulations that ban the export of crude oil, U.S. Energy Secretary Ernest Moniz said yesterday in Seoul, South Korea.

"The issue of crude oil exports is under consideration…. A driver for this consideration is that the nature of the oil we're producing may not be well matched to our current refinery capacity. So, there is a study going on involving multiple agencies," Moniz said at a media briefing.

U.S. legislation restricts the export of U.S. crude oil, but since domestic production has soared in recent years due to the use of new hydraulic fracking technology, there is growing interest in amending the restrictions. "It's true that we're producing a lot of oil. Frankly, we expect to be close to 10 million barrels a day of crude oil production within a few years," said Moniz. "But I want to remind you that we're still a major importer of oil."

Exporting oil of course does nothing to make the United States more energy independent, but it may help alleviate some logistical problems in moving product to market. It also will do nothing to put downward pressure on U.S. gasoline prices, but it should help boost profits of U.S. energy companies.

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Mexico Prepares to Defend Itself in U.S. Antidumping Case

Last week, the U.S. International Trade Commission ruled that imports of Mexican sugar were harming the U.S. industry, thus paving the way for the U.S. Commerce Department to continue antidumping and countervailing duty investigations. (Also see longer item below.)

Mexico's Economy Minister Ildefonso Guajardo says the country remains open to talks with U.S. officials on the matter, but that Mexico also is preparing to defend its sugar exports. "I wouldn't be surprised if Mexican sugar producers and national fructose producers look at fructose competitors in the United States and don't necessarily see terms they consider fair," Guajardo said.

In an interview with Reuters, the head of the Mexican national cane growers' union, Carlos Blackaller, warned the local industry maintains that U.S. fructose exports to Mexico are priced around 35% under Mexican fructose. "Of course, if (the U.S. government) establishes some measure that limit Mexican sugar exports into the U.S. market, then we would have to find a mechanism to explain why fructose imports arrive with that discount," he said.

The investigation by the Commerce Department is set to conclude in late June. Should it find against Mexico, retaliation could come about quickly.

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Washington Insider: The Lesson from Sugar

The U.S. International Trade Commission ruled last week that imports of sugar from Mexico could injure domestic sugar growers, apparently in spite of their strong government protections. The next step in the process is that the Commerce Department will continue its investigations into whether the sugar was the product of countervailable subsidies by the Mexican government and whether it was sold in the United States for less than fair value.

As is well known, the petitions for these investigations were filed by the American Sugar Coalition and its individual members: the American Sugarbeet Growers Association; the American Sugar Cane League; American Sugar Refining, Inc.; the Florida Sugar Cane League; Hawaiian Commercial & Sugar Co.; Rio Grande Valley Sugar Growers Inc.; Sugar Cane Growers Cooperative of Florida; and U.S. Beet Sugar Association. The same group makes up the American Sugar Alliance which also praised the decision, and claimed "Mexico's actions have harmed hardworking sugar producers as well as taxpayers."

The Coalition/Alliance didn't exactly say that Mexican exports damaged U.S. producers. Instead, it said that they made necessary "efforts by the U.S. government to keep the market from collapsing"... and cost taxpayers $278 million in fiscal year 2013.

The Sweetener Users Association downplayed the results of the preliminary vote. "Given the low threshold for determining injury in the ITC's preliminary determination, we are not surprised by today's ruling." The U.S. sugar producers will lose when the ITC is able to complete its full investigation, the Users Association told the press.

"This petition is a diversionary tactic to distract from the real cause of distortion in the U.S. sugar market — the U.S. government's sugar program," the Users Association said. "Changes made to the program in the 2008 farm bill are to blame, not Mexico. From 2009-2012, U.S. sugar prices soared well above the world price because of the sugar program, incentivizing growers in both Mexico and the United States to increase production. A surplus of sugar resulted, leading to a return to historical pricing levels that U.S. and Mexican sugar producers are experiencing in the United States today."

The Commerce Department's preliminary determination for its countervailing duty investigation is due on or about June 23. Its preliminary determination for the antidumping duty investigation is due on or about Sept. 4.

The case is being watched carefully by both sweetener producers and users, and has considerable significance for other commodities, as well. As both sides to the case have pointed out, there is no suggestion of direct damage from the Mexican program, or that it is illegal. And, it will be difficult to demonstrate direct damages for U.S. producers because there is a very extensive government program in place to protect them.

In fact, critics suggest that in order for the producers to win, they must make a case that it is the responsibility of the government to hold the domestic price of sugar above the program level — that is provide, additional protections to those already provided by the Congress — a fact likely to blame for the administration's very cool response to the grower petition. Still, sugar programs are complex and complicated and the producers well versed on the ins and outs of trade law, so it is likely that they have a very clear idea of what they want from this difficult case.

It certainly will be important for the rest of us to pay careful attention to what that may be as the case unfolds, Washington Insider believes.

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