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Last week, the Florida Tomato Exchange (FTE) filed a request with the U.S. Department of Commerce to terminate the 2019 Tomato Suspension Agreement and reimpose antidumping duties on the billions of dollars’ worth of tomatoes crossing into the United States each year. This request is the latest development in a dispute that has lasted for almost three decades and encapsulates the sometimes-rocky trade relationship between the United States and Mexico.
Q1: Why is the FTE asking the Department of Commerce to terminate the 2019 Tomato Suspension Agreement?
A1: Florida tomato growers claim that, in the past four years, Mexican producers have failed to address unfair trade practices they were required to stop after the 2019 Tomato Suspension Agreement with the United States. Specifically, Mexican exporters are accused of dumping the tomatoes in the U.S. market and selling them below Mexican market price while exporting to the United States in bulk. The practice endangers the financial viability of U.S. producers by rendering their own product unattractive to consumers, as it artificially lowers domestic prices. According to the FTE’s filing, Mexican producers have been evading reference prices set by the suspension agreement, as a part of which Mexican producers pledged to stop dumping their product and the United States suspended the antidumping duties. Michel Schadler, the executive vice president of the FTE, explained why tomatoes are particularly exposed to the dumping issue: “Suspension agreements might be an effective tool for products that can be kept in storage until market conditions improve, but for highly perishable items like fresh tomatoes, there is just too much incentive to evade the reference prices when markets are oversupplied.” Because dumping is considered trade discrimination, giving foreign exporters an unfair advantage over the domestic competition, the suspension agreement would be terminated if the Department of Commerce and the International Trade Commission side with the FTE’s filing, which would lead to the restoration of antidumping duties.
Q2: What is the current state of the U.S. tomato industry?
A2: Tomato growers are facing a host of issues which have gradually shrunk the importance of the United States in the global market for tomatoes. There is, for one thing, the threat that hurricanes will devastate crops and reduce output. In 2017, during the 16 weeks that followed Hurricane Irma, shipping volumes for Florida tomatoes fell by 55 percent compared to 2016, and the per case price for tomatoes shot up by 400 percent to $38 by December. Development is also increasingly taking away valuable farmland. In addition, as with many other food products, climate change poses a long-term threat on the industry’s ability to acquire fresh water. Lastly, labor costs in the United States are higher than most other tomato-producing countries, and there is an increasing shortage of workers to maintain competitive production levels. As a result, the United States, which reached a production peak of almost 4.5 billion pounds of tomatoes around the year 2000, has seen output decrease to around 2.5 billion pounds the following 20 years.
Q3: How has this trade dispute been dealt with in the past?
A3: The Mexican tomato producers have been accused of dumping their product for the past 29 years. Since the North American Free Trade Agreement (NAFTA) came into force in 1994 and tariffs between the United States and Mexico began to be phased out, Florida tomato growers have pointed out the unfair practices of Mexican exporters. There have already been five suspension agreements negotiated in the past 29 years in attempts to address the issue, but they have proven to be difficult to enforce given the strong incentives for the Mexican producers to export en masse. The first suspension agreement on fresh tomatoes from Mexico entered into effect on November 1, 1996. The Department of Commerce and the Mexican signatory growers entered into new agreements in 2002, 2008, and 2013. The most recent one, signed by the Department of Commerce and Mexican exporters in 2019, meant to ensure that Mexican tomatoes would be sold at or above the agreement’s reference prices to eliminate the injurious effects of exports of fresh tomatoes to the United States. The negotiations came after the Department of Commerce had determined that Mexico continued dumping and the International Trade Commission made an affirmative injury determination. All fresh or chilled tomatoes grown in Mexico, except tomatoes for processing, are covered under the 2019 agreement.
Q4: Have the Mexican exporters been rectifying their practices since the 2019 agreement was signed?
A4: Florida tomato producers point to their decreasing share of the North American tomato output as evidence that the suspension agreements have not worked. In 1994, the year NAFTA was signed, American tomato farmers supplied close to 80 percent of the U.S. market, while Mexico accounted for about 20 percent. Today, Mexico supplies around 70 percent of U.S. demand, while U.S. producers account for the rest. Since the 2019 agreement was signed, Mexican tomato imports have increased by 9 percent. These numbers alone do not make the case for unfair trade practices. However, plenty of products made in the United States have seen production increases abroad that have taken over a growing portion of the U.S. market, simply because, for example, climate and labor conditions provide a comparative advantage to the exporting nation. Perhaps more telling is the fact that average tomato prices rose directly after the 2019 agreement was signed, due to initial corrections from Mexican exporters, only to steadily decline later on as some exporters resumed selling the tomatoes in bulk under the reference price. The Department of Commerce has since documented over 100 examples of how Mexican companies have failed to comply with the 2019 Tomato Suspension Agreement.
Q5: What are the next steps for the case?
A5: The Department of Commerce must review the filing from the FTE and determine whether the accusation of dumping has standing. In 2019, Mexican exporters invoked defenses that they are likely to raise again this time, including that Florida growers cannot compete with their prices because they are simply not as effective at producing quality tomatoes at an affordable price. As Michael Schadler argued in 2019, “The Mexicans would like to make this into a taste test, or who has the better natural environment for growing tomatoes. Those are applicable for a broader debate, but a dumping case is very specific.”
Given how past accusations from Florida tomato growers have fared, and the Department of Commerce’s recent findings above, it is likely that the United States will terminate the 2019 suspension agreement and resume antidumping tariffs to balance out the low prices, against which Florida growers cannot compete. Mexico could then, in turn, impose tariffs on U.S. exports to Mexico, such as pork and corn. However, given the importance of tomatoes for U.S.-Mexico commerce, and the cost of a larger trade war, stakeholders on both sides would aim to find a more amicable resolution. For example, Mexican growers would aim to come to the table to negotiate another suspension agreement that would eventually settle on reference prices acceptable to both U.S. tomato producers and Mexican exporters.
While it is hard to say who the winner is in these complicated negotiations, it is easy to identify the loser: the American consumer who must pay higher prices for tomatoes. Suspension agreements are essentially price-fixing agreements in which the parties agree not to sell their produce below a set price, which is always higher than the price of the imports. Such an agreement is justified in U.S. law and World Trade Organization rules because it is intended to offset the effects of an unfair trade practice, but that does not offset the harm done to consumers via higher prices.
Thibault Denamiel is a research associate with the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, D.C. William A. Reinsch holds the Scholl Chair in International Business at CSIS.
