Rejecting warnings that it could ignite a trade war, the Obama administration on Thursday said it planned to change its tomato-trading rules with Mexico, siding with Florida growers who complained that a glut of imports threatened to shut down the U.S. industry.
In the long-awaited ruling, the Commerce Department said the U.S. can change the trading rules to benefit domestic growers without violating its obligations under the World Trade Organization.
While its ruling is preliminary, the department said it planned to scrap a 1996 agreement, allowing the federal government to resume an investigation into whether Mexican growers are dumping tomatoes in the United States at below-market prices.
Mexican officials say the dispute is important because it could force U.S. consumers to pay three to four times as much for fresh tomatoes and lead to fewer jobs for farm workers on both sides of the border. They said it also will put a strain on relations between the two longtime trading partners and ultimately could lead to declining exports of other products to Mexico.
“We’re stunned – we’re completely stunned,” said Martin Ley, executive vice president of Del Campo Supreme, a company that grew more than 200 million pounds of tomatoes in Mexico last year. “This does not serve the interests of the U.S. consumer.”
Arturo Sarukhan, the Mexican ambassador to the U.S., said the Mexican government was “extremely disappointed” and suggested that the ruling could lead to retaliation, comparing it to a bitter fight over cross-border trucking that resulted in Mexico putting tariffs on a long list of U.S. exports.
“Mexico will respond – you should ask those who were in the Mexican crosshairs over the trucking dispute,” Sarukhan said. “When Mexico aims, Mexico hits the target.”
The ruling is a victory for the Florida Tomato Exchange, which represents a majority of growers in the Sunshine State. On June 22, the Florida growers formally asked the Commerce Department for help, saying the U.S. industry would not survive unless the federal government intervened
With Mexico now accounting for more than 70 percent of the U.S. import market for tomatoes, it has resulted in “a catastrophic collapse” of the domestic industry, said Reggie Brown of Maitland, Fla., executive director of the Florida Tomato Exchange. In the past 16 years, he said, domestic growers have suffered while the size of the Mexican tomato industry in the U.S. has doubled in size and tripled in value.
Brown called the ruling “welcome news,” adding: “It will help reverse the downward spiral the industry has been facing.”
Sarukhan said the Obama administration’s ruling appeared to be “dictated by politics, rather than policy.” Mexican growers had accused the Florida growers of pursuing the change during the presidential campaign, seeking to leverage the importance of the state for both Obama and his GOP challenger, former Massachusetts Gov. Mitt Romney.
After producing 38 million 25-pound boxes of tomatoes last year, Florida growers had a higher-valued crop than any other state. According to the U.S. Department of Agriculture, Florida growers accounted for nearly half – or $547 million – of the $1.3 billion fresh tomato industry in 2011. California, with a crop valued at $378 million, ranked second, followed by North Carolina, Virginia, Tennessee, Ohio, New York, New Jersey, South Carolina and Michigan, respectively.
The tiff is the latest trade spat between the United States and Mexico, partners who joined forces to sign the historic North American Free Trade Agreement nearly 20 years ago. And now the two are among 11 countries pushing to finalize the new Trans-Pacific Partnership, which could become the largest trade pact in U.S. history.
Members of the Arizona congressional delegation, reflecting the state’s close proximity to Mexico, wanted to keep the rules intact and urged the administration not to rush into anything, particularly before the election. And Wal-Mart had sided with the Mexican growers as well, saying they had provided a predictable and steady supply of tomatoes for the U.S.
But the Florida growers won backing from the Florida congressional delegation and from workers and government officials across the country, including in California, Texas, North Carolina, South Carolina, Pennsylvania, Virginia, Tennessee, Georgia, Ohio and Illinois.
In a letter to the Commerce Department, Armando Elenes of Delano, Calif., vice president of the United Farm Workers, said the 1996 agreement had “failed miserably” to address unfair trade practices by Mexican growers, and he said that keeping it intact could threaten gains won for thousands of farm workers in recent labor contracts.
Instead of changing the trade rules, Mexican growers said, the U.S. industry needs to be more efficient and make better use of technology to compete.
Ley said Florida growers have become “less and less and less relevant in the marketplace” as Mexican growers – unlike their U.S. counterparts – have developed new varieties of tomatoes that are tastier and more popular. Mexican growers say they also have an advantage with lower labor costs, along with better soil, weather and growing conditions.
“They’re irrelevant because they are not evolving with the industry – the industry has evolved dramatically,” Ley said. “All they have to do is evolve and stop spending money on lawyers in Washington, D.C.”
And he warned that no one will win if consumers are forced to pay higher prices. “Before the consumer pays $5 or $6 a pound for tomatoes, they will go and consume another vegetable,” Ley said. “The consumer is going to walk away from the tomato industry. Even if Florida wins, they win nothing because they’re going to destroy the industry.”
The two sides are sparring over a 16-year-old agreement that came after the signing of NAFTA, which eliminated tariffs on imported tomatoes from Mexico and resulted in a flood of imports. Under pressure from the Florida growers, the Commerce Department began an investigation into whether Mexican growers were dumping their tomatoes on the U.S. market by selling at below-market prices. But federal authorities suspended the agreement when Mexican growers agreed to a minimum price, and the so-called “suspension agreement” has remained on the books ever since and been renewed twice, in 2002 and 2008. Scrapping the agreeement now would allow the government to reopen the dumping investigation.
The Commerce Department said it planned to consider any new facts in the case before issuing a final ruling in the next few months.