Mexico and the United States reached a deal to avert potentially steep duties on Mexican sugar imports to the United States, defusing a months-long dispute that threatened to escalate into a major trade war. In the deal hammered out hours before U.S. regulators were going to slap penalties on Mexican imports, the U.S. Department of Commerce said officials initialed a draft agreement that would suspend both anti-subsidy and anti-dumping duties on the goods, if adopted in full. The deal would set a price floor to guard against undercutting or keeping U.S. prices artificially low, smooth out supply over the year and limit the amount of refined sugar that may enter the U.S. market, it said. A source close to the negotiations said Mexico could export 1.4 million tonnes of sugar in 2014. That compares with an estimated 1.9 million tonnes for the 2013/14 crop year that ended on Sept. 30. The concessions will help resolve a dispute that threatened to spiral into a tit-for-tat trade war after Mexico warned it would take U.S. support for its sugar industry to the World Trade Organization and might consider retaliatory duties on U.S. fructose. The news will be seen as a victory for the powerful U.S. sugar industry which fired the opening shot in the spat in March. U.S. producers filed a suit accusing Mexican mills of flooding cheap, subsidized sugar into the heavily protected U.S. market and costing them nearly $1 billion in net income in 2013-14. Companies such as sweets and food makers Hershey Co, Mondelez International Inc, General Mills Inc and drinks makers such as Coca Cola Co may also be relieved they will not have to pay higher prices for Mexican sugar due to hefty duties. The United States is a net importer of sugar and Mexico is one of its largest suppliers. Under the agreement, Mexican producers agreed to sell at a minimum of $0.2357 per lb for refined and $0.2075 for raw sugar - about half the level that would have applied had maximum import duties been slapped on the goods, according to Reuters calculations. The agreement should provide "critical stability" for both countries, while ensuring that U.S. farmers and refiners "compete on a level playing field," said Stefan Selig, under secretary of Commerce for international trade, in a news release. Mexico will be allowed to meet 100 percent of remaining U.S. demand after U.S. producers and other countries with fixed quotas have exhausted their supply. Monday's deal is now open for a 30-day public comment period, after which it can be finalized. Still, in Mexico mills braced for new restrictions on sales to one of their biggest markets. The world's mills are struggling to break even with prices near the cost of production amid four back-to-back years of surplus. "How can you think that this is positive when before we had free trade and now we'll have restrictions?," said Carlos Rello, head of the FEESA fund that runs Mexico's nine state-owned mills which produce about a quarter of the country's output. The U.S. Department of Commerce had recommended anti-subsidy duties on Mexican sugar of up to 17.01 percent and on Monday made a preliminary determination that imports should incur dumping margins ranging from 39.54 percent to 47.26 percent. (Reuters)