The Great Tomato Trade Wars

No tomatoes. Not in my taco salad today, my cheeseburger yesterday, or my Salad Nicoise the day before that. It seems that a salmonella outbreak has been linked to the consumption of tomatoes and the FDA has issued a nationwide warning to consumers to avoid eating tomatoes. The FDA warning “recommends that retailers, restaurateurs, and food service operators offer only fresh and fresh cut red Roma, red plum, and round red tomatoes and food products made from these tomatoes for sale or service from the sources listed above.” That list of safe tomatoes includes almost every state in the Union plus all tomatoes from Baja California, Mexico. Given the winter growing season for the tomatoes currently on sale, almost all tomatoes sold in the United States at this time come from either Florida or Mexico. So Baja tomatoes are safe, but other Mexican tomatoes are suspect.

This has had a devastating impact on the $900 million Mexican tomato industry. Despite the fact that the FDA has cleared the sale of tomatoes sourced from Baja California, Mexican tomato growers are reporting that all exports to the United States have come to a complete halt. “We can’t sell a single box of tomatoes,” said Jesus Macias, sales manager at the Productora Agricola Industrial del Noreste in the border state of Baja California. “Mexican growers said their produce is subject to double the scrutiny that U.S. tomatoes face: inspected first by Mexican officials and then again at the border when crossing into the U.S.”

The FDA salmonella warning provides a useful heuristic about the intersection between international trade litigation and investment arbitration. I am not suggesting that the United States is discriminating against Mexican tomatoes. But let’s assume there was discrimination. Would anyone, including Mexico’s Department of Agriculture, be talking about WTO trade litigation to resolve the problem? No. That’s because the WTO is completely impotent to address this sort of discrimination. If Mexico were to argue that the United States is unfairly targeting Mexican tomatoes with the FDA warning, what recourse before the WTO would Mexico have? None. Under the WTO dispute resolution rules, before the case could even by filed the FDA’s salmonella warning would be lifted. And because WTO relief is always prospective, and never retroactive, Mexico would have no remedy. The bottom line is that WTO trade litigation is relatively successful when it concerns protracted problems like long-term or systemic discrimination. But the WTO is virtually worthless when it comes to hit-and-run trade discrimination.

Not so with NAFTA investment arbitration. NAFTA investment arbitration would be a completely different story. If Mexican tomato growers and distributors held investments in the United States and wanted to argue that they had been unlawfully targeted by United States authorities, would they have a colorable claim? Yes absolutely, provided they could show the United States did not accord Mexican tomato growers national treatment under NAFTA 1102 or fair and equitable treatment under NAFTA 1105. The relief could include compensation for all retroactive harmed causes by any unfair treatment. The point is NAFTA investment arbitration offers a powerful vehicle that is similar to, but quite distinct from, WTO trade litigation. NAFTA investment arbitration looks backwards, awards money to the actual companies harmed, and fills a gaping hole that is left open by WTO’s approach of prospective relief.