Sugar from Mexico, As Amended

UNITED STATES DEPARTMENT OF COMMERCE International Tratle Atlministrntion W~rJmgton. 0.C. ;?0230

C-201-846 Admin Review: 10/01/17 - 12/3 1/17 Public Document ITA/E&C/P&N/OP/BAU: dwc

DATE: December 14, 2018

TO: Gary Taverman Deputy Assistant Secretary for Antidumping and Countervailing Duty Operations, performing the non-exclusive functions and duties of the Assistant Secretary for Enforcement and Compliance

FROM: P. Lee Smith Deputy Assistant Secretary ~Q ~ llt5 for Policy and Negotiations Enforcement and Compliance

SUBJECT: Decision Memorandum for the Preliminary Results of the 2017 Administrative Review of the Agreement Suspending the Countervailing Duty Investigation on Sugar from Mexico, as Amended

Summary

The Department of Commerce (Commerce) is conducting an administrative review of the current status of, and compliance with, the Agreement Suspending the Countervailing Duty Investigation on Sugar from Mexico (CVD Agreement), as amended on June 30, 2017 (collectively, amended CVD Agreement), for the October 1, 2017, through December 31, 2017 period of review (POR). For the reasons stated in this memorandum, we preliminarily determine that the Government of Mexico (GOM) is in compliance with the amended CVD Agreement and that the amended CVD Agreement is meeting its statutory requirements under sections 704(c) and (d) of the Tariff Act of 1930, as amended.

Scope of the Agreement The product covered by this amended CVD Agreement is raw and refined sugar of all polarimeter readings derived from sugar cane or sugar beets. The chemical sucrose gives sugar its essential character. Sucrose is a nonreducing disaccharide composed of glucose and fructose linked by a glycosidic bond via their anomeric carbons. The molecular formula for sucrose is CI2H22011; the International Union of Pure and Applied Chemistry (IUPAC) International Chemical Identifier (InCW) for sucrose is 1S/C 12822011/c 13-1-4-6( 16)8( 18)9(19) 11 (21-4 )23- 12(3-15) 10(20) 7(17) 5(2-14)22-12/h4-1 l, 13-20H,l-3H2/t4-,5-,6-,7-,8+,9-,10+,l l-,12+/ml/sl; the InChl Key for sucrose is CZMRCDWAGMRECN-UGDNZRGBSA-N; the U.S. National Institutes of Health PubChem Compound Identifier (CID) for sucrose is 5988; and the Chemical Abstracts Service (CAS) Number of sucrose is 57-50-1.

T R A O E Sugar described in the previous paragraph includes products of all polarimeter readings described in various forms, such as raw sugar, estandar or standard sugar, high polarity or semi- refined sugar, special white sugar, refined sugar, brown sugar, edible molasses, desugaring molasses, organic raw sugar, and organic refined sugar. Other sugar products, such as powdered sugar, colored sugar, flavored sugar, and liquids and syrups that contain 95 percent or more sugar by dry weight are also within the scope of this amended CVD Agreement.

The scope of the amended CVD Agreement does not include (1) sugar imported under the Refined Sugar Re-Export Programs of the U.S. Department of Agriculture; (2) sugar products produced in Mexico that contain 95 percent or more sugar by dry weight that originated outside of Mexico; (3) inedible molasses (other than inedible desugaring molasses noted above); (4) beverages; (5) candy; (6) certain specialty sugars; and (7) processed food products that contain sugar (e.g., cereals). Specialty sugars excluded from the scope of this amended CVD Agreement are limited to the following: caramelized slab sugar candy, pearl sugar, rock candy, dragees for cooking and baking, fondant, golden syrup, and sugar decorations.

Merchandise covered by this amended CVD Agreement is typically imported under the following headings of the HTSUS: 1701.12.1000, 1701.12.5000, 1701.13.1000, 1701.13.5000, 1701.14.1000, 1701.14.5000, 1701.91.1000, 1701.91.3000, 1701.99.1010, 1701.99.1025, 1701.99.1050, 1701.99.5010, 1701.99.5025, 1701.99.5050, and 1702.90.4000. The tariff classification is provided for convenience and customs purposes; however, the written description of the scope of this amended CVD Agreement is dispositive.

Background On December 19, 2014, Commerce signed an agreement with the GOM under section 704(c) of the Tariff Act of 1930, as amended (the Act), suspending the CVD investigation on sugar from Mexico.1 On June 30, 2017, the CVD Agreement was amended.2

On December 4, 2017, Commerce published a notice of opportunity to request an administrative review of the amended CVD Agreement.3 On December 29, 2017, the American Sugar Coalition and its Members4 (petitioners) filed a timely request for an administrative review of the amended CVD Agreement.5 On February 13, 2018, Commerce initiated an administrative review for the January 1, 2017 through December 31, 2017,6 POR. Commerce amended the

1 See Agreement Suspending the Countervailing Duty Investigation of Sugar from Mexico, 79 FR 78044 (December 29, 2014) (CVD Agreement). 2 See Sugar from Mexico: Amendment to the Agreement Suspending the Countervailing Duty Investigation, 82 FR 31942 (July 11, 2017) (CVD Amendment). 3 See Antidumping or Countervailing Duty Order, Finding, or Suspended Investigation; Opportunity To Request Administrative Review, 82 FR 57219 (December 4, 2017). 4 The members of the American Sugar Coalition are as follows: American Sugar Cane League, American Sugarbeet Growers Association, American Sugar Refining, Inc., Florida Sugar Cane League, Rio Grande Valley Sugar Growers, Inc., Sugar Cane Growers Cooperative of Florida, and the United States Beet Sugar Association. 5 See Letter from American Sugar Coalition and its Members, “Sugar from Mexico: Request for Administrative Review” (December 29, 2017) (Initiation Notice). 6 See Initiation of Antidumping and Countervailing Duty Administrative Reviews, 83 FR 8067 (February 23, 2018) (Initiation Notice). The Initiation Notice had incorrectly stated that the POR ended on December 30, 2017, and this was corrected in the initiation notice published on March 16, 2018. See Initiation of Antidumping and Countervailing Duty Administrative Reviews, 83 FR 11685 (March 16, 2018). 2

POR on April 19, 2018, to reflect the period from October 1, 2017 to December 31, 2017 (including sales prior to October 1, 2017 that resulted in entries during that period).7 On April 19, 2018, Commerce placed import data obtained from U.S. Customs and Border Protection (CBP) on the record of the proceeding to assist in respondent selection,8 and interested parties filed comments on respondent selection for the CVD review.9 On May 23, 2018, Commerce selected the four largest producers/exporters by volume as mandatory respondents and issued its questionnaire to the GOM, the signatory to the CVD Agreement, and asked the GOM to forward the producer/exporter questionnaire to the selected companies (and their affiliates). In alphabetical order, the selected companies were: Central El Potrero S.A. de C.V., Ingenio El Higo S.A. de C.V., Ingenio Melchor Ocampo S.A. de C.V, and Zucarmex S.A. de C.V.10

On July 9, 2018, the GOM filed its response to Commerce’s questionnaire. On July 11, 2018, Ingenio El Higo, S.A. de C.V., Ingenio Melchor Ocampo, S.A. de C.V., Zucarmex, S.A. de C.V., and their affiliates (collectively, Grupo Zucarmex) filed their response to the producer/exporter questionnaire. On the same date, Central El Potrero, S.A. de C.V. and its affiliates (collectively, Grupo Beta San Miguel) filed their response. On July 20, 2018, petitioners submitted comments on the questionnaire responses.11

Commerce issued a supplemental questionnaire to the GOM on July 26, 2018,12 to which the GOM responded on August 16, 2018.13 Commerce also issued supplemental questionnaires to Grupo Zucarmex and Grupo Beta San Miguel on July 26, 2018,14 to which they responded on August 17, 2018 and August 20, 2018, respectively.15

7 See Memorandum to P. Lee Smith entitled “Administrative Review of the Agreement Suspending the Countervailing Duty Investigation on Sugar from Mexico, as Amended: Period of Review” (April 19, 2018). 8 See Memorandum to the File entitled “Administrative Review of the Agreement Suspending the Countervailing Duty Investigation on Sugar from Mexico, as Amended: Placement of CBP Data on the Record for Respondent Selection,” dated April 19, 2018. 9 See Letter from petitioners, “Sugar from Mexico: Comments on CBP Data and Respondent Selection,” dated April 27, 2018; see also Letter from Camara Nacional de las Industrias Azucarera y Alcoholera (Mexican Sugar Chamber or Camara), “Sugar from Mexico – Rebuttal to Petitioners’ April 27, 2018, Comments,” dated May 2, 2018. 10 See Memoranda to P. Lee Smith entitled “2017 Administrative Review of the Agreement Suspending the Countervailing Duty Investigation on Sugar from Mexico As Amended: Respondent Selection” and “Questionnaire Regarding the Agreement Suspending the Countervailing Duty Investigation on Sugar from Mexico for the October 1, 2017 through December 31, 2017 Period of Review,” both dated May 23, 2018. 11 See Letter from petitioners entitled “Sugar from Mexico: Petitioners’ Comments Regarding the July 9, 11, 12 Responses of the Government of Mexico, Grupo Zucarmex, and Grupo Beta San Miguel to Commerce’s Administrative Review Questionnaire” dated July 20, 2018. 12 See Letter to GOM entitled “Agreement Suspending the Countervailing Duty Investigation on Sugar from Mexico; 2017 Administrative Review— Supplemental Questionnaire” dated July 16, 2018. 13 See Letter from GOM to Commerce entitled “Sugar from Mexico: Supplemental Questionnaire Response by the Government of Mexico,” dated August 16, 2018. 14 See Letters to Grupo Zucarmex, and Grupo Beta San Miguel entitled “Agreement Suspending the Countervailing Duty Investigation on Sugar from Mexico; 2017 Administrative Review — Supplemental Questionnaire,” dated July 26, 2018. 15 See Letters from Grupo Zucarmex, and Grupo Beta San Miguel to Commerce entitled “Sugar from Mexico – Supplemental Questionnaire Response,” dated August 17, 2018 and August 20, 2017 respectively. 3

Preliminary Results of Review

Section 751(a)(1)(C) of the Act specifies that Commerce shall “review the current status of, and compliance with, any agreement by reason of which an investigation was suspended.”16 In this proceeding, Commerce and the GOM signed the CVD Agreement suspending the underlying CVD investigation on December 19, 2014, which was subsequently amended on June 30, 2017. Pursuant to the amended CVD Agreement, the GOM agreed that the subject merchandise would be subject to export limits, as outlined in the amended CVD Agreement. The GOM also agreed to other conditions including limits on Refined Sugar, i.e., sugar with a polarity of 99.2 degrees or above or that is not transported in bulk and freely flowing in the hold(s) of an ocean-going vessel. The amended CVD Agreement also requires the GOM to issue contract-specific export licenses and institutes penalties for non-compliance with certain key terms of the CVD Agreement and the companion Agreement Suspending the Antidumping Duty Investigation on Sugar from Mexico, as amended.17 In addition, the amended CVD Agreement contains enhanced monitoring mechanisms, including the reporting of additional information to Commerce, such as contract identification information and the date of export, in the GOM’s monthly reports. See Appendix 2.

In the original and supplemental questionnaire responses, the selected respondents maintain that the information provided in their respective U.S. sales listings illustrates that their sales of sugar during the POR were made in compliance with the terms of the CVD Agreement. Specifically, the selected respondents provided data and sales listings in which they reported sales made in the POR that are within the export limits established by the CVD Agreement.

The GOM provided the monthly reports it had submitted to Commerce for each month of the POR as Exhibits 17-19 of its July 9, 2018 questionnaire response. The GOM also provided a list of all type 118 export licenses issued in the POR at Exhibit 10. The GOM demonstrated that it changed its regulations and laws to implement the terms of the amended CVD agreement and how it reported this information to Commerce.19 For example, June 30, 2017, the GOM enacted the implementing regulation titled “Agreement by which the exportation of sugar is subject to an export license and a maximum quota is establish {sic} for its exportation (Implementing Regulation)” and amended its tariff schedule to comply with the amended CVD Agreement.20

16 Section 751(a)(1)(C) of the Act also provides for a “review the amount of any net countervailable subsidy” that is “involved in the agreement.” Commerce has not reviewed the amount of any net countervailable subsidy in this administrative review because there is no net subsidy rate “involved” in this quantitative restriction agreement with the GOM. Unlike agreements under section 704(b) or 704(c) with foreign exporters, this agreement under 704(c) with a foreign government is not required to offset the amount of net countervailable subsidy, in whole (100%) or in part (85%). 17 See Sugar from Mexico: Suspension of Antidumping Duty Investigation, 79 FR 78039 (December 29, 2014); see also Sugar from Mexico: Amendment to the Agreement Suspending the Antidumping Duty Investigation, (AD Amendment), 82 FR 31945 (July 11, 2017). 18 The GOM classifies Type 1 licenses as exports of sugar from cane or beet to the United States. See, GOM July 9, 2018, Questionnaire Response at 7. 19 See, e.g., GOM July 9, 2018, Questionnaire Response at 7-13; Grupo Zucarmex’s July 11, 2018, Questionnaire Response at CVD-6; Grupo Beta San Miguel’s July 11, 2018 Questionnaire Response at CVD-6. 20 See GOM July 9, 2018, Questionnaire Response at 2, 7 14 and Exhibit 3 (noting that “{t}he Implementing Regulation provides that exports of sugar are subject to two types of export licenses: exports of sugar from cane or beet to the United States (Type 1) and exports of sugar to the rest of the world (Type 2) 4

In their respective responses to supplemental questionnaires, the GOM, Grupo Zucarmex, and Grupo Beta San Miguel addressed concerns raised by petitioners with respect to reconciling the export figures reported by the GOM with the export volumes reported by the mills in their responses.21 The detailed reasons are proprietary in nature but both Zucarmex and Grupo Beta San Miguel established that, based on the date of the pedimento (Mexican export declaration22), there is no discrepancy between what the companies and the GOM have reported.

Commerce finds no evidence of any deficiencies in the GOM’s implementation of the CVD Agreement. Similarly, we find no evidence that the selected respondents’ sales and exports of sugar from Mexico did not comply with the terms of the amended CVD Agreement during the POR. Our preliminary review of the information submitted by the GOM and the selected respondents indicates that the GOM has adhered to the terms of the amended CVD Agreement, including the export limit, the antibunching limitation, the proportion of exports that may be of Refined Sugar, and the requirement that an export license be obtained as a condition of entry into the United States.

When Commerce signed an amendment to the CVD agreement on June 30, 2017, we determined that the amended CVD Agreement met the criteria of section 704(c) and (d) of the Act, i.e., that extraordinary circumstances exits, and that the amended CVD Agreement will eliminate completely injurious effects, is in the public interest, and can be monitored effectively.23 In the context of this administrative review, no party has alleged that the amended CVD Agreement is not meeting the statutory requirements under sections 704(c) and (d) of the Act. Accordingly, and in light of our finding that the respondents are in compliance with the requirements of the amended CVD Agreement, we continue to find that the amended CVD Agreement meets the criteria of section 704(c) and (d) of the Act. Therefore, we preliminarily find that the amended CVD Agreement is functioning as intended.

21 See GOM’s Supplemental Questionnaire Response dated August 16, 2018 at 3 and 4. See also Grupo Zucarmex’s Supplemental Questionnaire Response, dated August 17, 2018 at 1-2, and Exhibit S-1 and Grupo Beta San Miguel’s Supplemental Questionnaire Response, dated August 20, 2018 at 1-2, and Exhibit S-1. 22 See Grupo Zucarmex’s July 11, 2018, Questionnaire Response at 6. 23 See CVD Amendment, 82 FR at 31942.

Recommendation

Based on the record evidence discussed above, we recommend preliminarily determining that the GOM has been in compliance with the amended CVD Agreement and that the amended CVD Agreement is meeting its statutory requirements under sections 704(c) and (d) of the Act. If this recommendation is accepted, we will publish the preliminary results of review in the Federal Register.

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Agree Disagree 12/14/2018

Signed by: GARY TAVERMAN

______Gary Taverman Deputy Assistant Secretary for Antidumping and Countervailing Duty Operations, performing the non-exclusive functions and duties of the Assistant Secretary for Enforcement and Compliance