Mexico and the United States reached a deal on Monday to avert potentially steep duties on Mexican sugar imports to the United States in talks that went down to the last minute.

The U.S. Department of Commerce said late on Monday that Mexican and U.S. officials and Mexican sugar exporters initialed a draft agreement that would suspend both anti-subsidy and anti-dumping duties on the goods, if adopted in full.

The deal defuses a dispute that threatened to escalate into a tit-for-tat trade war after Mexico threatened to take U.S. support for its sugar industry to the World Trade Organization and could have led to retaliatory duties on U.S. fructose.

U.S. sugar producers claim cheap, subsidized sugar is flooding the heavily protected U.S. market and costing them nearly $1 billion in net income in 2013-14.

The U.S. Department of Commerce had already recommended anti-subsidy duties on Mexican sugar of up to 17.01 percent and gave the green light to additional anti-dumping duties in a preliminary decision taken on Friday.

Commerce gave no details of the terms of the accord in its statement. A suspension agreement would typically involve exporters agreeing to limit sales to an agreed amount and potentially only above a certain price.

A Mexican official and a U.S. trade lawyer briefed on the discussions said shortly before the announcement that talks on the agreement included discussion of a reference price.

A Mexican source close to the talks told Reuters on Tuesday

Mexico was seeking a floor on sugar exports of at least 1 million tonnes per year as part of any deal.

Advocates of free trade and critics of U.S. support for sugar producers had warned against returning to a quota system, saying it would push up prices and hurt consumers.

A bipartisan group of lawmakers urged Commerce not to strike a deal, although U.S. Agriculture Secretary Thomas Vilsack said in May he would encourage a negotiated agreement.

Mexico is one of the United States' largest suppliers of sugar, as local producers cannot keep up with demand from companies such as sweets and food makers Hershey Co (HSY.N), Mondelez International Inc (MDLZ.O), General Mills Inc and drinks makers such as Coca Cola Co (KO.N), as well as consumers.