By Karl Reiner
On November 8, the Tucson City Council voted 6-0 to ask the U.S. Department of Commerce to reverse its decision to terminate the Mexican tomato suspension agreement. The council fears damage to the region's economic relationship with Mexico and wants to avert the possibility of a trade war. Senators Kyl and McCain, Representatives Grijalva, Barber, and others have expressed similar positions.
When the North American Free Trade Agreement (NAFTA) took effect in 1994, it eliminated U.S. tariffs on imported Mexican tomatoes. The American producers of fresh winter tomatoes then charged the Mexican producers with low price dumping that injured the industry. In November 1996, the resulting U.S. anti-dumping investigation was suspended when agreement was reached between the U.S. Department of Commerce and Mexican growers. In 2008, a review established a revised floor price for Mexican tomatoes at $.0172 per pound in summer and $0.216 in winter.
Florida's and some other growers argue they cannot compete at those prices. They want the suspension agreement ended. It is not protecting them from unfair competition. They want it set aside so they can file a new anti-dumping case. They contend that unfairly priced imports from Mexico are crushing the Florida growers. Imports have pushed prices down from $13 per box to the $4 to $7 per box range.
Florida growers say they are being driven out of business. The cost of producing a crop in the U.S. has doubled. The production costs now run about $9,000 per acre while the floor price for Mexican tomatoes has barely increased. In 2011-12, Florida growers had their worst season in 10 years.
According to U.S. Department of Agriculture research, prices last winter were depressed due to bumper tomatoes crops in both countries. Since both had good crops, prices slumped as supply exceeded demand. In previous winters, freezes reduced supply, resulting in prices of $0.80 to $1.00 per pound.
Tomatoes from Florida and Mexico supply the winter and spring market. Mexican tomatoes compete with Florida's from December to April. Mexico now provides 40%-50% of the fresh winter tomatoes sold in the U.S.
The tomato imports from Mexico are valued at around $1.8 billion per year. Mexico's growers have been switching from field growing to greenhouse production. The expansion of greenhouses has helped offset the uncertainty of weather.
In response to the Florida growers' petition, a changed circumstances review was initiated by Commerce with a final decision due by May 13, 2013. On September 27, the Import Administration (part of Commerce) announced a preliminary decision to terminate the suspended anti-dumping investigation of Mexican tomato imports. If the final decision remains unchanged, it will end the suspension agreement in effect since 1996.
Under World Trade Organization rules, if a country exports a product at a price lower than the price normally charged in the home market, the receiving country's government can impose retaliatory duties when there is damage to the domestic industry.
A detailed investigation has to be conducted. Factors such as declines in output, market share, utilization of capacity and the effect on domestic prices have to be considered. Serious damage has to be done to the domestic industry in the importing country. The investigation must prove that the offending product was sold at a price lower than the cost of producing the product in the exporting country.
Mexican growers want the suspension agreement to remain in force. They have said they will accept a higher floor price, expand the number of growers covered by the agreement and get the Mexican government involved in enforcement.
Although preliminary, the decision to terminate the suspended investigation irritated Mexican authorities. They threatened to impose retaliatory tariffs if the final ruling is unfavorable. Retaliation could affect the American exports of meat, poultry, and grains to Mexico.
The members of Florida's congressional support the state's growers. So far, 15 of them (10 Republican and 5 Democrat) have expressed disappointment with the Commerce decision to undertake a review instead of outright termination. While congressional delegations can support constituent positions, the executive branch has to consider the broader implications and interests of consumers, exporters, importers, workers and producers.
Many economists see the matter as a classic trade problem. The commercial environment between these countries should allow investment decisions to be made with long-term certainty. The U.S. and Mexico should find a better way to settle trade disputes than the use of anti-dumping cases. The law has cut both ways, Mexican chicken, meat and pork producers have brought cases against American producers.
In this case, Mexican producers with a good product have captured about half of a fresh tomato market. Are inefficient producers trying to use the anti-dumping process to protect themselves against competition? Are Mexican growers dumping tomatoes at prices below the cost of production? The investigators will sort it all out in accordance with the trade laws.