U.S. to End Mexican Tomato Pact, Raising Risk of Trade War

The U.S. decided to end an accord that for 16 years set prices for Mexican tomato imports, siding with Florida farmers over the objections of Mexico’s government and produce buyers who have warned of a trade war.

Florida tomato farmers joined by colleagues in other states said the 1996 deal, adopted in place of an anti-dumping investigation, is outdated and ineffective. Buyers of tomatoes such as Wal-Mart Stores Inc. (WMT), the world’s largest retailer, wanted to keep it in place, saying it promotes price stability.

The Commerce Department issued a preliminary decision today to end the pact, with final action next year. Without a deal, U.S. growers can seek duties on Mexican tomatoes, which may spark a trade war, said the Fresh Produce Association of the Americas. The Nogales, Arizona-based importers group this month said the decision was driven by election-year politics, a claim U.S. growers denied.

“The decision-making process certainly seems one-sided, and seems to be dictated by politics rather than policy,” Arturo Sarukhan, Mexico’s ambassador to the U.S., said today in an e-mailed statement.

The dispute re-opens a rift between the U.S. and its third- largest trading partner. The U.S. last year imported $8.5 billion in agriculture and livestock goods from Mexico, more than any other nation, according to the Commerce Department. The U.S. sent $8.7 billion of those products to Mexico.

Retaliatory Tariffs

Mexico would consider retaliatory tariffs on $1.9 billion worth of U.S. exports if, after exhausting all legal appeals, the tomato agreement isn’t reinstated, Mexican Deputy Economy Minister Francisco de Rosenzweig said in an interview today.

“These types of decisions generate uncertainties in prices and labor stability and also in bilateral relations,” he said.

The Commerce Department issued its decision a day before a scheduled meeting with growers from Mexico who are seeking a new pricing agreement.

“We’re completely stunned,” Martin Ley, who represents a consortium of produce growers’ organizations from Mexico, said today in a phone interview. He said his group still plans to “put a strong proposal on the table” at the meeting tomorrow.

Mexico exported $2.1 billion worth of tomatoes last year, 93 percent to the U.S., the nation’s Agriculture Ministry said in a Sept. 6 statement.

Nine Months

As part of the preliminary decision, the Commerce Department said it will close its investigation into whether Mexican tomatoes were sold in the U.S. market below cost. That probe was suspended when the pricing agreement was adopted. Ending the probe terminates the agreement, the agency said in a memo on its preliminary findings. A final decision is due within nine months, the agency said.

Mexico’s ambassador cited a 17-year conflict with the U.S. over cross-border trucking, in which Mexico imposed tariffs on $2.4 billion of American goods, to show the nation is prepared to challenge the U.S. decision.

“Mexico will respond: you should ask those who were in the Mexican cross-hairs over the trucking dispute,” Sarukhan said. “When Mexico aims, Mexico hits the target.”

The tariffs were lifted last year after a Mexican trucking company won a cross-border permit.

The U.S. decision is “welcome news to domestic growers and the workers who have suffered under an outdated and failed agreement,” Reggie Brown, executive director of the Florida Tomato Exchange, a growers’ group, said today in a statement.

“The domestic industry has jumped through every hoop put in our path by our opponents who simply want to protect the sweetheart deal that they’ve enjoyed for far too long,” Brown said.

To contact the reporters on this story: Brian Wingfield in Washington at bwingfield3@bloomberg.net; Nacha Cattan in Mexico City at ncattan@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net

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