Part One: Viva Fresh Experts Discuss Tomato Suspension Agreement

Mon. May 6th, 2019 - by Melissa De Leon Chavez

SAN ANTONIO, TX - If your produce career is less than 25 years old, you have not operated in an industry where the Tomato Suspension Agreement did not exist. That’s about to change come tomorrow, May 7, when Congress’ notice of withdrawal goes into effect. But even then, all the questions that have stirred within this significant produce category over the past several months might not be answered.

Lance Jungmeyer, President, Fresh Produce Association of the Americas (FPAA)“When the Department of Commerce put out that notice of intent, it said that it would withdraw on May 7. So, as of May 7, the agreement would come to an end and duties would go in place of presumably 17.56 percent. That’s what was agreed to last time even though only one or two of those companies are in business—the ones originally surveyed out of Mexico in the same shape that their in, those are the numbers they are likely to use. We’re not absolutely positive of that, but that’s probably what’s going to happen,” Lance Jungmeyer, President of the Fresh Produce Association of the Americas (FPAA), shared with those gathered to hear Viva Fresh’s discussion panel on the suspension agreement on April 26 in San Antonio, Texas.

As of that date, Jungmeyer assured that companies are going to be required to start putting up duties. He, along with Jason Klinowski of Wallace, Jordan, Ratli & Brandt LLC and J.O. Alvarez of U.S. customs house broker J.O. Alvarez, Incorporated, brought expertise from both the history of the agreement and current legal and political conditions to help lift the fog a bit and touch on opportunities for all in the tomato business to be ready.

Viva Fresh hosted the discussion panel on the suspension agreement on April 26 in San Antonio, Texas

On Klinowski’s part, the best preparation was to already be planning with bonds, banks, and insurers.

Jason Klinowski, Agricultural and Food Law Attorney, Wallace, Jordan, Ratli & Brandt LLC“Right now, everybody is going to have, I’m assuming, at least a $50K minimum commercial bond that comes in. Whether you are a Mexican grower serving as your own importer of record or you are the U.S. importer of record, in an anti-dumping duty situation, which is different than a tariff because it is a penalty-type situation, your bonds increase,” Klinowski said.

He emphasized those in the room should already be in contact with banks for letters of credit as needed to best avoid disruption in their supply chain from customs demanding higher bonds.

“In a anti-dumping situation, a $50K bond will get you roughly $2.8 million of interred value before you’re going to get a notice of bond insufficiency from customs. And at that point in time, pay up or stop. So these type of things need to be planned for now, and that doesn’t even touch on how you evaluate the relationships, how you modify your contracts to make sure you can certify what you need to certify; you deduct what you need to deduct, and keep your eye on, ultimately, the bigger issue, which is the proper valuing and pricing methodology that works for you,”Klinowski said.

Alvarez had some consolation with his decades of experience as a customs broker, sharing that while customs aims to review bonding requirements every 30 days, it is more like 60.

J.O. Alvarez, President, J.O. Alvarez, Inc“They'll see a big jump,” he explained. “Let’s say now you’re paying zero duties, and then they look at your shipments and they see your paying a couple hundred thousand dollars’ worth of duties, they might let you go three, four, five months, maybe eight, a year if you’re lucky, before they say you need to increase your bond.”

To increase the bond, especially foreign-based importer records, Alvarez agreed with Klinowski that all insurances are going to require collateral, meaning a letter of credit or a cash deposit to back up the bond. The dollar amount the bond stretches that Klinowski shared, Alvarez translated to a couple of months’ worth of shipments, depending on the value of merchandise, until customs sends a request for a bond increase.

On May 7, U.S. Congress’ notice of withdrawal goes into effect, ending the current Tomato Suspension Agreement

“We’re preparing for the customer not to get the letter of credit yet. Go to the bank, tell them what you need, get the bank to draw up what’s called a draft letter of credit so that if and when this goes into place, this draft basically is telling the bonding company this bank is ready to do a letter of credit for this importer,” he advised.

Another way to be ready Alvarez touched on was for the importer of record to have an automated clearing house account with customs.

“Your customs broker I think will be a good in-between with the importer, the exporter, customs, the insurance company, but duty payments are required and in this case, depending on the import of record if he has an automated clearing house account, you can pay your duties every 30 days. It helps to have that with customs. But if you don’t have one it’s going to take you 45 days to set up an automated clearing house with customs, and that gives you the opportunity to, instead of paying duties every shipment, you can pay them every 30 days,” he shared.

Much is still in the air, and will remain so even in the months following tomorrow’s May 7 deadline, but some changes that seem certain are how importers and exporters will define relationships, how contracts will be written, prices across the supply chain, and the number of players in the industry.

AndNowUKnow will go deeper into those changes from these veterans’ perspectives in a follow-up to this piece, so stay tuned.