While tense trade negotiations between the US and Mexico over the price and quota for U.S. imports of Mexican sugar continue (a happy ending appears unlikely, especially after a Mexican sugar company on Friday called on the government to take action against American fructose producers and protect the local industry from US deals), a new protectionist measure involving sugar half way around the globe was unveiled on Monday when China – the world’s biggest importer of the sweet substance – said it will impose significant penalties on sugar imports following lobbying by domestic mills.
According to the ruling first described by Reuters, up to a third of China’s annual sugar imports will be impacted by an extra tariff for the next three years on shipments that the government said had “seriously damaged” the domestic industry.
The details: China currently allows just over 1.9 million tonnes of imports at a tariff of 15% as part of its commitment to the World Trade Organization. All imports above this amount are slapped with a 50% levy. After Monday’s ruling, the total sugar duty will nearly double, with Beijing imposing an additional 45% tax to these imports in the current fiscal year taking the total to 95%. This will fall to 90% next year and 85% a year later, China’s Commerce Ministry said in a statement. The ruling exempted 190 smaller countries and regions from the new duty, including smaller producers such as the Philippines, Pakistan and Myanmar.
Today’s decision will drastically reduce imports from top growers such as Brazil and Thailand as it will close the big gap between Chinese sugar prices – currently double those on the London market – and international prices. However, according to traders, the higher tariffs will also likely spur increased smuggling across China’s southern border, while some imports from major producers may be shipped through third-party nations excluded from the tariffs.
While China has traditionally been a low-cost farming powerhouse, sugar is one of the few commodities where China struggles to compete given the higher costs of its smallholder farmers, who produce about 10.5 million tonnes of cane and beet sugar a year. The country then imports another 3 million tonnes a year, even as Beijing has been trying to crack down on illegal shipments of as much as 2 million tonnes a year, Reuters reports. Which is why today’s move has prompted some consternation: “while smuggling has temporarily slowed, there is a risk that the incentives for smuggling are still strong and in fact could increase if domestic prices rise,” said Tom McNeill, director of Green Pool Commodities in Brisbane.
Another reason why the tariff may backfire: it won’t take a big drop in sugar prices to offset the tariff’s impact: “Of course it will support the domestic industry for a short time,” said a China-based trader. “(But) the global raw sugar market just needs to drop a little below 15 cents” to make it profitable to import into China. Worse, Beijing may have no choice but to intervene directly in the domestic market by selling some of its state reserves to prevent supplies tightening and prices spiking.
In response to the tariff, sugar futures initially fell more than 1% as traders interpreted the move, which was in line with a draft proposal issued in April, as too lenient to staunch shipments.
Thailand, the world’s third largest producer, played down the impact of the duty. Its millers have a much lower shipping cost to China than rivals, Brazil and Australia, said Viboon Panitwong, chairman of the Thai Sugar Millers Corp Ltd, who did not expect the duty to significantly affect sugar exports. Thailand exports about 300,000 to 400,000 tonnes of sugar to China a year.
Ultimately, China’s decision is unlikely to do much to defend its domestic infustry, at least until an even higher tariff is imposed by Beijing, and the downstream effects impact global prices. It is however notable that the country which recently spoke of itself as the flag-bearer for new and improved globalization, promptly engaged in precisely the kinds of protectionist measures that it blasted the Trump administration for proposing.
via http://ift.tt/2qdsc3K Tyler Durden