HOUSTON — It’s no surprise that the education session on the tomato suspension agreement at this year’s Viva Fresh Expo was a packed house, given the extensive discussion recently over its future.
Dante Galeazzi, president and CEO of the Texas International Produce Association, and Devin Sikes, the legal counsel at Strauss Hauer & Feld, took the stage to dispel myths and share what the future could hold for Mexican tomatoes.
Sikes has had a firsthand seat for this suspension agreement as he represents the Mexican tomato associations in the suspension agreement.
Where we are now
In June 2023, the tomato suspension agreement entered a comment period ending in November. The industry awaits a statement from the Department of Commerce on this agreement. Also adding a layer of confusion is the tomato suspension agreement will enter a sunset review period — occurring every five years — to determine whether the agreement should stay in place.
Sikes says there are about 600 or 700 antidumping and countervailing duty orders in the U.S., however, there are only eight antidumping and countervailing duty orders managed similarly to the tomato suspension agreement by the Department of Commerce.
“Arguably, the tomatoes agreement is the most heavily enforced and monitored agreement,” Sikes said.
Mexican tomato growers submit quarterly certifications and growers and selling agents also submit quarterly audits to the Commerce Department, he said. The department also sends random questionnaires and audits to companies on both sides of the border, and it conducts sales reviews by U.S.- and Mexico-based companies to ensure compliance.
“Since the latest version of the agreement took place in 2019, Commerce has not found a single violation of the agreement which is pretty impressive,” Sikes said.
Some of the agreement’s critics have argued that it has led to an unfair competitive environment for the U.S. tomato industry.
Following the comment period where more than 415 companies throughout the tomato supply chain weighed in on the tomato suspension agreement, the Commerce Department signaled its intention to decide on the tomato suspension agreement without a formal hearing.
“We are sort of in a wait-and-see mode,” Sikes said. “There is no deadline by which the Commerce Department has to make this decision.”
Sikes says two elections — both in the U.S. and Mexico — complicate a swift resolution.
“The politics of tomatoes are intensifying as we get into the year with these elections,” he said.
Possible outcomes
As the tomato industry awaits the statement from the Department of Commerce, Sikes says there are three potential outcomes.
The first is that the Commerce Department disagrees with the termination request. The second is the department could have both U.S. and Mexican tomato representatives renegotiate to raise the floor prices of imported tomatoes. The third is the department ends the agreement.
If the agreement ends, Sikes says the Commerce Department will give Mexican signatories and the parties 90 days to come to a solution. Once the 90 days run out, the agreement would become a standard antidumping and countervailing duty, which would last for a year.
“Folks would be paying cash deposits or security on every single import for that first year,” Sikes said.
That would likely be 21% — the figure the Department of Commerce set in 2019 for the latest Tomato Suspension Agreement, Sikes says.
After that first year, the industry could request a review to change the dumping margins and dumping rates. But, Sikes says, given the bandwidth of the Department of Commerce, the department would likely only use the top two exporters to calculate the average rate. And that review would likely take 18 months.
While the rate could go down, Sikes cautioned the audience that the rate could go up, and tomato importers would have to pay the difference for all previous imports at the new rate.
“They’ll be beholden to whatever margin is then calculated for the companies that did get selected for individual examination, and then you would be paying the average of that,” he said. “It might sound nice, but there’s more unpredictability because the margin isn’t going to be set until the end of the first review. You wouldn’t know what your ultimate liability is until the end of 2027, and then you’re going to owe the difference if it’s the higher margin to the government.”
Sikes says orders stay in place for at least five years, but most of the antidumping and countervailing duties are in place for at least 25 to 30 years.
“If we go down that path, it’s a whole new world financially for folks in the industry,” he said.
Sunset review
Separate from the Department of Commerce’s comments, the department and the International Trade Commission will perform a sunset review of the Tomato Suspension Agreement. Sikes says every suspension agreement is subject to a mandatory review to ensure it still serves its purpose.
“Particularly when it came to the first sunset review of 2019, Commerce almost always finds there’s going to be dumping in the absence of an agreement,” he said. “The International Trade Commission looks at the number of different economic conditions such as the market share by the domestic growers, profit levels, volume of imports, prices of imports, things of that nature.”
Sikes says the decision will likely come in 2025. If the Department of Commerce and the International Trade Commission say no dumping or injury will occur if the agreement goes away, it becomes a free market with no barriers to trade.
But in the history of the agreement, there has always been some renegotiation, Sikes says.
“If the Commerce Department and the ITC both reach affirmative decisions … they agree that the agreement should stay in place, then the next sunset review wouldn’t happen for another five years, so it would take this into 2030,” he said. “Assuming it’s not separately terminated by the commerce department on the separate track of the termination request.”
Sikes says he ultimately sees the benefits of the Tomato Suspension Agreement as it is.
“I know there are immediate costs with the border inspection that’s $200 or $250 every inspection, but then there are cons if the agreement goes away, which is [that there will be] less predictability,” he said. “When the order goes into place, the predicate is dumping is occurring, so we need tariffs to address that.”
