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Obama's Tomato War Against Mexico: Policy or Politics?

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The Commerce Department has sided with US farmers from the key swing state of Florida in a trade dispute against Mexican tomato producers.

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MINYANVILLE ORIGINAL Tomato lovers, brace yourselves for a potential price increase in the coming winter.

Heeding the requests of US farmers, the Commerce Department has taken the first step towards ending a 16-year trade pact between the US and Mexico, which has kept prices of Mexican tomatoes low for American consumers.

Florida tomato growers, through the Florida Tomato Exchange, and other petitioners, had launched a complaint in June to the Obama administration that they were not able to compete with the prices of Mexican tomatoes, which they said were below the cost of production.

Last week, the Commerce Department reached an initial decision and issued a preliminary recommendation to end the agreement. It also said that a final decision on whether or not to terminate the agreement would be made in no more than 270 days.

The agreement between the US and Mexico is complex, and dates back to 1996. NPR explains:

[T]he Commerce Department's stance isn't so direct as to say, "This trade deal is now null and void."

Instead, the agency is recommending (bear with me) the end of the suspension of an investigation into Mexican exporters' "dumping" tomatoes on the US market. That inquiry started in 1996, the same year it was suspended and an agreement on prices that were not "lower than fair market value" was reached.

Since then, the agreement has been slated for the chopping block several times, only to be continued under new terms after the antidumping investigation is suspended anew.

"The current deal is a cover for ongoing massive dumping," Terence Stewart, managing partner at Stewart and Stewart, who is representing some of the US tomato producers, told the Wall Street Journal. Reggie Brown, executive vice president of the Florida Tomato Exchange, noted that sales of Florida tomatoes have plunged to $250 million per year from a high of $500 million since the agreement was signed in 1996.

Unsurprisingly, Mexico is less than pleased by the Commerce Department's decision.

"We are extremely disappointed," said Ricardo Alday, spokesman for the Mexican Embassy, adding that the decision seemed to be "dictated by politics rather [than] sound policy."

Lance Jungmeyer, president of the Nogales, Arizona-based Fresh Produce Association of the Americas, which promotes Mexican goods exported to the US, agreed with Alday, telling The Produce News, "The Mexican grower groups had tried in vain for four months to schedule a face-to-face opportunity to renegotiate this agreement. The fact that Commerce chose to terminate the agreement the day before this meeting only underscores the political pressure that Commerce was facing from the industry in Florida, a key swing state in the upcoming election."

Is President Obama siding with Floridian tomato producers in a bid to win votes in a swing state? The Wall Street Journal certainly thinks so, saying in an editorial that "the timing and truncated process suggest a political motive," and that "the world can see that a US President is using trade law as a domestic political weapon, and America's reputation for trade leadership takes another blow."

Though the review process typically takes up to nine months, the Florida tomato lobby is now urging Commerce to make a final decision before the elections. They argue that farmers need an early verdict to make seed planting decisions for the next season.

Several US business giants -- including Wal-Mart (NYSE:WMT), the US Chamber of Commerce, and the US National Restaurant Association -- have thrown their weight behind the Mexicans in this fight, arguing that abolishing the agreement would launch a trade war that would hurt the economy and cost job losses.

"Termination of the tomatoes agreement will benefit no one and will lead only to uncertainty and unpredictability in the market," wrote Wal-Mart, which is worried that it would have to increase its tomato prices, in a letter to the Commerce Department.

Democratic Arizona congressman Raul M Grijalva also penned a letter to Commerce, saying, "The $100 billion US produce market is now globally integrated, and up to $7 billion of the industry is comprised of fruits and vegetables from Mexico, affecting tens of thousands of US workers. Ending this agreement will put people out of work, reduce the variety and quality of tomatoes available to consumers, and hurt all Americans by raising prices at the supermarket check-out line."

US business organizations in support of continuing the pact with Mexico have even launched a campaign to save the agreement. At their Save My Tomato site, the campaign argues, "Without the existing trade agreement, US consumers would have fewer tomato varieties, especially in winter when many US-grown tomatoes are picked green and gassed to achieve red coloring on the grocery shelves."

The Florida tomato growers, however, argue that the agreement was simply unfair and out of date. "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," Florida Tomato Exchange executive vice president Reggie Brown said in a statement.

Even non-Floridian tomato farmers support abolishing the pact. Donna Vaughan, who holds a stake in Live Oak Farms in California, is one. Vaughan found her company losing against Mexican producers in recent years, as they have increased production in the summer months. She told the LA Times, "It's been difficult to compete. If the playing field was fair, I'd have no issues. But the playing field doesn't seem to be fair."

Twitter: @sterlingwong

No positions in stocks mentioned.
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