October 2, 2012 / 3:56 PM / 7 years ago

UPDATE 2-US groups fear Mexican trade war over Obama tomato move

* Senior Mexico trade official in Washington this week for talks

* Mexican ambassador said U.S. decision based on ‘bad politics’

By Doug Palmer

WASHINGTON, Oct 2 (Reuters) - U.S. business groups said on Tuesday they were worried about a damaging trade war with Mexico if President Barack Obama’s administration follows through on a preliminary decision to end a 16-year-old tomato trade agreement.

They also expressed concern that last week’s Commerce Department decision was politically motivated to sway voters in Florida, the second largest U.S. tomato producer and one of a handful of battleground states expected to play a decisive role in the Nov. 6 presidential election.

“We think the U.S.-Mexico economic relationship is tremendously important,” Patrick Kilbride of the U.S. Chamber of Commerce told reporters on a conference call. “We don’t want to see another trade war ignited,” he added, referring to a previous dispute over cross-border trucking.

Florida tomato growers have pressed the Obama administration since June to terminate a 1996 agreement with Mexico on the grounds it fails to protect them against Mexican tomatoes sold in the United States below the cost of production.

Terminating the pact would clear the way for Florida growers, who compete with Mexico for the U.S. winter and early spring tomato market, to file a new anti-dumping case against their Mexican rivals.

Last week, the U.S. Commerce Department stopped short of immediately tearing up the agreement, but took a preliminary position in favor of ending the pact. It promised a final decision “as soon as practicable” and in no more than 270 days.

Mexican growers export about $1.9 billion worth of tomatoes to the United States. They say Florida producers have failed to keep pace with technological changes that have produced a tastier Mexican tomato and propelled sales in the United States.

The decision surprised Mexican officials and tomato producers, who have offered to renegotiate the pact. They argue the agreement has benefited U.S. consumers and brought stability to the North American market.

Lance Jungmeyer, president of the Fresh Produce Association of the Americas, said U.S. importers were also “shocked” by the decision because more than 370 U.S. companies and business organizations wrote to the Commerce Department arguing to keep the pact.

Walmart, the National Pork Producers Council, the American Meat Institute and others said they were worried that ending the agreement could damage their exports to Mexico and increase the cost of tomatoes for U.S. consumers, Jungmeyer said.

Mexican Ambassador to the United States Arturo Sarukhan also has said the decision appeared to be “dictated by bad politics rather than sound policy.”

He raised the threat of retaliation if Mexico’s tomato exports to the United States are damaged by the dispute, noting the country had aggressively defended its interest in a long-running dispute with the U.S. over barriers to Mexican trucking.

“If Mexico’s interests end up being affected, Mexico will respond: you should ask those who were in the Mexican cross-hairs over the trucking dispute. When Mexico aims, Mexico hits the target,” Sarukhan said after the preliminary decision.

Francisco de Rosenzweig, Mexico’s undersecretary of foreign trade, is expected to raise the same issues in meetings with U.S. trade officials this week.

Bill Reinsch, president of the National Foreign Trade Council, said U.S. business groups were concerned the Obama administration might rush to make a final a decision ahead of the presidential election.

He urged the department to carefully consider the issue of whether Florida growers really have the support of 85 percent of the U.S. industry, which is required to terminate the pact.

Florida growers say they do, based on official U.S. Agriculture Department production numbers. But Mexico growers and U.S. importers say the USDA data leaves out thousands of smaller growers throughout the United States.

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