Trade Fight Grows Over Table Grapes

Mexican farmer Carlos Bon has turned a sweltering patch of red Sonora desert into a veritable cornucopia that produces hundreds of tons of table grapes every year for U.S. and European supermarkets, personifying the globalization of agriculture.

But the success of the affable U.S.-educated Bon and the rest of this region’s grape farmers has provoked a bitter cross-border trade battle. The tussle carries huge implications for the future of U.S.-Mexico trade relations, the survival of many Californian and Mexican farmers and for prices that American consumers pay for fresh produce.

In March, growers in California’s Coachella Valley, about 150 miles east of Los Angeles, filed a complaint with the Commerce Department, accusing Mexican and Chilean growers of “dumping” their grapes--selling them for as much as 35% below cost to gain market dominance.

The charges, which Mexicans bitterly deny, are the latest evidence that the road to free trade, even between North American Free Trade Agreement partners, has its bumps. Mexico claims California growers are trying to fend off competition, while Californians say Mexico is unfairly blowing California growers off supermarket shelves.

Foreign trade officials and some economists contend the dispute is yet another example of how American industries--ranging from agriculture to timber to sugar to steel--use anti-dumping claims to try to thwart legitimate foreign competitors who are simply more efficient. The losers, these critics say, are American consumers who pay higher prices as a result.

“Are we playing a new game of free trade or not?” Bon asked amid 107-degree temperatures at his sprawling, high-tech farm about 170 miles south of the U.S.-Mexico border crossing at Nogales, Ariz.

The dispute has raised political hackles on both sides of the border. On Thursday, Mexico’s Economy Minister Luis Ernesto Derbez wrote Commerce Secretary Don Evans to express his “displeasure” at the government’s decision to initiate the anti-dumping investigation. Californians have enlisted both the state’s U.S. senators as advocates.

A decade ago, Coachella Valley grape farmers had the April-to-June table grape season mostly to themselves. But Bon and his fellow Sonoran farmers planted 20,000 acres of high-tech vineyards and now supply almost half of all the spring table grapes sold in the United States. Coachella is hanging on to the other half but is losing ground by the year.

The stakes are considerable. If the U.S. International Trade Commission sides with the Californians and slaps a 35% tariff on Mexican grapes, half the farmers in this area could go out of business and U.S. consumers could end up paying higher prices. The specter of Mexican government retaliation against U.S. imports to Mexico also looms. (Anti-dumping claims are filed initially with the Commerce Department. The ITC then decides if a preliminary penalty or tariff is warranted.)

By the same token, a Mexican win in the case could put thousands of California farm jobs at risk, and accelerate the decade-long decline in Coachella Valley grape farming, which even petitioning growers admit has lost a step in productivity and investment compared with the Mexicans.

“Our industry is shrinking because we haven’t been making any money,” said Robert O. Bianco, co-owner with his brother Dominick of Anthony Farms vineyards in Coachella. Valley vineyards now total 13,000 acres, down from the 17,000-acre peak of 1990, he said. “We firmly believe Mexico has been selling below its cost of production.”

A California victory--a preliminary ITC ruling is expected June 11--could open the way for similar anti-dumping cases by both California and Mexico that could limit the flow of fresh fruits and vegetables in both directions.

The basis of the Coachellans’ claim is the low prices of last year’s depressed market, when grapes sold for half their normal wholesale price, which they said was due to Chilean and Mexican farmers dumping grapes on the U.S. market at below their cost of production. Bon said last year was an anomaly caused by surplus Chilean grapes usually meant for the European market and early harvests in Mexico and California.

Bianco sees intentional and unfair below-cost pricing strategies by Mexico and Chile as the cause of the depressed market. “If we don’t do something now, we’ll wake up and there won’t be an industry here,” he said.

Anti-dumping claims are nothing new in the United States or Mexico, which has lodged several cases against U.S. industries. Although nearly all trading countries use anti-dumping rules, the United States attracts the most criticism because it’s the most coveted world market.

“The purpose of anti-dumping laws is simple--to ensure that trade is fair,” said Robert Pastor, an Emory University political science professor who has written four books on trade policy. “Each country has a responsibility to its citizens to ensure that an industry is not annihilated overnight.”

But anti-dumping penalties have come under the microscope recently because of high-profile U.S. cases, including the table grapes petition and one against Canadian timber producers. Chile and Brazil raised the volume by warning last month they won’t join a proposed hemispheric free trade zone unless Congress softens or eliminates U.S. anti-dumping rules.

The United States refused to discuss a softening of its anti-dumping rules at the last World Trade Organization meeting in Seattle in 1999, and has since expressed no willingness to consider changes.

Dan Griswold, a trade policy specialist at the Cato Institute, a conservative economics think tank in Washington, said most anti-dumping cases are anti-consumer.

“What we’re telling the rest of the hemisphere is that if you are producing something economically, you better watch out, because our anti-dumping laws will make sure our consumers don’t get too good of a deal,” said Griswold, who also criticized Mexico’s past use of anti-dumping rules.

The common practice of fresh produce purveyors to sell inventory at any price to get rid of it in certain market conditions also makes a dumping claim difficult to evaluate, said Roberta Cook-Canela, an agriculture marketing economist at UC Davis.

Another layer of complexity in the Coachellans’ claim, observers say, is that they are seeking to establish new legal standing for their April-to-June seasonal production as an industry unto itself. Grape growers in California’s Central Valley, which supply 90% of the state’s grapes, have not joined the petition.

The Mexicans say the petition has no grounds because it was filed by a small fraction of California growers. Michael Coursey, a Washington attorney who represents the Coachellans, said his clients are entitled to file “on behalf of the domestic producers who collectively produce a product that competes with the imports in question.”

In any case, the Californians won the first round when the Commerce Department found “reasonable indication of domestic injury.” The ITC will decide whether dumping has occurred and, if so, will come up with a preliminary tariff.

The outcome of the grapes case, like most anti-dumping fights, is hard to predict.

Once, table grapes were available to U.S. consumers six months of the year--when California harvests kicked in. But year-round global sourcing of the fruit from as far away as Chile, South Africa and Greece over the last two decades has whetted consumers’ appetites to the point that U.S. per capita consumption has tripled over 20 years.

The Mexicans have become major players in supplying that demand, converting unforgiving desert into a garden spot with the aid of drip irrigation technology and agricultural hormones that shorten grapevines’ natural dormancy, thus lengthening their productive lives.

Mexican farming also received a boost by changes in Mexican land ownership laws allowing larger maximum farm sizes, giving Mexicans access to economies of scale. Mexican grape exports to the United States reached $175 million last year, triple the 1990 level.