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Published November 19, 2012, 10:25 AM

Tomato trade troubled

The agreement between U.S. and Mexico is not working for domestic producers and the outcome could have consequences for all agriculture in the U.S.

By: Leo McDonnell, Agweek

You may wonder why a cattle industry organization is inserting its opinion in a trade dispute over tomatoes. The answer is simple. U.S. Cattlemen’s Association members firmly believe that all domestic agricultural producers have the absolute right to pursue their legal rights under U.S. law without facing intimidation or threats of illegal trade retaliation from any other country.

There’s an old saying, “a right undefended is a right waived.” In this case, unless the tomato growers’ rights are defended, our collective rights to seek remedies or relief in trade disputes could be compromised by the precedent established in the current U.S.-Mexican dispute over tomatoes.

Problematic pact

On June 22, domestic tomato producers filed a document with the U.S. Commerce Department to terminate an anti-dumping proceeding on tomatoes from Mexico.

While the Commerce Department had, in 1996, entered a suspension agreement with the Mexican tomato exporters that was supposed to have addressed unfair trade practices found to be causing harm to the domestic industry, domestic producers were concerned that after 16 years, the agreement was not meeting statutory requirements, had serious enforcement problems and was out of date. Indeed, domestic tomato producers were losing ground to Mexican tomato products, which had tripled in value on imports into the U.S. from less than $600 million in 1996 to some $1.8 billion in 2011.

At the same time, domestic producers were growing and selling fewer tomatoes, incurring significant pricing problems and were seeing producers and packers go out of business.

Imports from Mexico now represent some 90 percent of total import volume into the U.S. Moreover, the suspension agreement was intended to see that nearly all dumping was eliminated to provide domestic producers a level playing field. But after 16 years, the reference price — a figure determined by the Commerce Department to address the dumping concerns — had barely changed from the level in 1996, despite inflation in Mexico of some 250 percent and a change in production in Mexico to the much more expensive greenhouse approach. Nor had the suspension agreement ever differentiated between types of tomatoes (all tomatoes were assigned a single reference price value for winter and for summer, regardless of the cost structure for different size tomatoes, such as cherry or grape tomatoes) and reflected no difference for the growing environment (field versus greenhouse). A 2007 Mexican government study of Mexican greenhouse producers who exported showed costs in 2006 that were as much as five times the reference price (stated differently, the reference price was as little as 21 percent of the Mexican cost of production).

With Mexican product labeled as greenhouse-grown now accounting for 40 percent of imports from Mexico, domestic producers are understandably concerned that the reference price does not deter dumping into the U.S. Prices last winter in the U.S. were some 40 percent below prior levels and Florida’s field producers found their revenues in the winter season down $180 million. Clearly for our nation’s tomato producers, the market situation cried out for a change.

The effort to terminate the existing agreement, as permitted by U.S. law, is the approach the domestic industry has pursued in an effort to get out of an arrangement that was not working for domestic producers.

Under review

In August, the Department of Commerce commenced what is called a changed circumstances review and provided parties an opportunity to submit facts relevant to the statute, regulations and Department of Commerce practice where domestic producers had indicated a lack of interest in an existing anti-dumping proceeding.

There have been more than three dozen changed circumstance reviews conducted in the past 12 years, so the process is neither novel nor difficult to understand.

Where there is an indication that the domestic industry no longer wants the relief provided by a particular case, the Commerce Department will initiate a changed circumstances review and see whether substantially all domestic producers indicate a lack of interest; where there is an indication that a significant part of the domestic industry doesn’t want the relief, Commerce provides those who want to keep the current situation in place to come forward and so indicate. If at least 15 percent of domestic production opposes a change, the Commerce Department will leave the order or suspension agreement in place.

The Commerce Department recently issued a preliminary determination of changed circumstances based on the receipt of a large number of statements from domestic producers who accounted for more than 90 percent of 2011 production as identified in U.S. Department of Agriculture reports.

While four companies opposed a change, they provided no information on what volume of production they represented. Mexican producers, the Mexican government, U.S. importers of Mexican tomatoes and others have filed opposition but they do not account for any U.S. production of tomatoes. Mexico and its producers also have engaged in an extensive media campaign, calling the Commerce Department decision a political exercise and implying that retaliation measures would be imposed on other U.S. products exported to Mexico even though Mexico has taken no action (such as filing a dispute under the North American Free Trade Agreement or the World Trade Organization and establishing any violation by the U.S. or being authorized to retaliate).

Agricultural industries that have found themselves in situations where they sought trade remedy relief over time include cattle, hogs, mushrooms, garlic, potatoes, table grapes, producers of apple juice and orange juice and various segments of the fishing or aquaculture industries such as salmon or shrimp, among others.

Rules to follow

Our fellow producers who grow tomatoes deserve our support as they pursue their legal rights and it’s time for our trading partners to play by the rules and not engage in verbal bullying. The U.S. Cattlemen’s Association stands with American tomato growers in their effort to seek a factual resolution of their issues, which are specifically authorized by our anti-dumping law.

We are a “rule of law country,” and we historically have not succumbed to bullying by trading partners no matter how important or whether they are our neighbors.

Our system provides all parties the chance to be heard and for a decision to be based on the record compiled and the law, regulations and past practice and interpretation of the agency administering the law. That is all our neighbors are entitled to in this situation, and it is the right of our domestic tomato producers to receive such a determination without threats of retaliation or other actions that are designed to deprive our producers of their legal rights.

Editor’s Note: McDonnell is a Montana cattleman and the director emeritus of the U.S. Cattlemen’s Association.

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