Commentary

A Rotten Deal at Commerce

By Aaron Lukas
August 31, 1998

Something is rotten in the U.S. tomato market, and it isn’t the tomatoes. The smell is coming from the Commerce Department, which recently sold out American importers and consumers by expanding the 1996 anti-dumping suspension agreement that set a floor price for Mexican tomatoes. What was already a bad deal for America is now worse.

The “improved” agreement commits Mexican growers to sell tomatoes in the United States at different floor prices in winter and in summer. Not surprisingly, the new winter prices are higher than they were under the original deal. The changes also bring on board Mexican growers who had refused to raise their “unfairly low prices.” Thanks to Commerce, 96 percent of all Mexican growers have now promised to charge their American customers higher prices.

Of course, when businesses at home get together to rig prices, the government steps in to stop it. If the Federal Aviation Administration called a meeting of commercial airlines to convince them to charge more, customers would be justly outraged.

U.S. tomato growers are naturally delighted with the changes, though they would have preferred stronger measures. A suspension agreement “was not what American farmers wanted,” explains Florida grower R. Jay Taylor. “It was thrust upon us by not having enough funds to continue the fight.”


Thanks to Commerce, 96 percent of all Mexican growers have now promised to charge their American customers higher prices.


But unlike consumers and tomato-using producers, U.S. growers have already gotten more than they deserve. What they still hope for is a 17 percent anti-dumping tariff, which is the margin calculated by Commerce in its initial tomato investigation.

The 17 percent figure is meaningless, however, because anti-dumping laws are severely flawed. If Mexican growers were selling below cost, U.S. farmers could retaliate because Mexico is an open market for our products. Dumping isn’t a danger to the U.S. economy, especially not when foreign producers lack a protected home market. Despite that, market access isn’t considered when Commerce makes a dumping determination.

Anti-dumping laws also seek to protect firms that suffer “material injury” from import competition, but that is a senseless goal. One of the big advantages of trade is that it weeds out inefficient producers in the domestic market.

In a preliminarily investigation on tomatoes, the International Trade Commission found “a reasonable indication” of injury, citing the domestic industry’s “dramatic declines in sales and unit sales values as imports rose.” Those findings should come as no surprise. Sheltered behind years of protectionist barriers, many growers who wouldn’t be competitive in a world market entered or remained in the tomato business. What’s unfair isn’t the increased Mexican competition — it’s that growers enjoyed a consumer subsidy for so long. If the transition to freer trade is difficult, we should remember that it is the legacy of protectionism that makes it so.

Ironically, it’s often Washington that stifles the competitiveness of U.S. business in the first place. Myriad misguided regulatory and foreign policies put American products at a disadvantage worldwide. Instead of turning to protectionism, however, the federal government should take steps to reduce that burden while safeguarding the freedom of Americans to trade.

Restrictive policies on immigrants and migrant labor, for example, drive up costs for U.S. tomato growers while denying employment opportunities to those who need them most. Overly zealous environmental regulations based on politics, not science, force farmers to turn to more expensive and less effective means of pest control.

Lifting the failed embargo against Cuba would also help U.S. tomato growers. By investing in an area with an early growing season and low labor costs, they could offset Mexico’s main advantages. “Cuba could be the land of opportunity,” says Bob Spencer of Florida’s West Coast Tomato Inc. “You’ll see a lot of Florida operations wanting to invest in Cuba, no doubt about it, and it would be a real threat to Mexican growers.”

Unfortunately, the expansion of the tomato agreement won’t be the last instance of U.S. anti-dumping folly. Though promulgated with the rhetoric of fairness, such measures are thinly disguised protectionism that take no account of the costs imposed on the majority of Americans.

To retain our status as the world’s most dynamic economy, we should scrap the anti-dumping code and drastically reduce the Commerce Department’s trade policy role. The time is ripe, you might say, to rid ourselves of those protectionist relics forever.

Aaron Lukas is an analyst at the Cato Institute’s Center for Trade Policy Studies.