The 2013 Mexican Fresh Tomato Suspension Agreement continues to provide for penalties against Mexican tomato growers and exporters (the “signatories”) who violate terms of the agreement with the U.S. Department of Commerce. It also creates additional risks of Customs law violations for importers. This article describes the risks faced by importers and incentives for reducing those risks by complying with U.S. Customs and Border Protection (CBP) requirements and the Suspension Agreement’s provisions for importing Mexican tomatoes into the United States.
Importers And The 2013 Suspension Agreement
Under U.S. Customs law, importers of record are responsible for the accuracy of the declarations made regarding their imported merchandise, including but not limited to the classification and value (“price paid or payable”) of this merchandise.
The Suspension Agreement (which we will abbreviate as “SA” for the purposes of this article) requires that each category of tomato within an exporter’s shipment be sold above the reference price for these varieties as established by the 2013 SA. Importers must therefore correctly classify and value Mexican tomatoes coming into the United States or face significant penalties.
Tomatoes: Classifications and Categories
There are noteworthy differences between the Customs approach to classification of tomatoes and identifying the tomato categories under the 2013 SA, which can present challenges to diligent importers and may tempt the unscrupulous importer to finesse these tasks.
For CBP classification purposes, the Harmonized Tariff Schedule of the United States (HTSUS), specifically provides for “greenhouse” and “other” tomatoes, with the “other” category including cherry, grape, Roma (plum type), and still “other” varieties.
The first classification question concerns whether imported tomatoes are grown in a greenhouse, which may be a covered building with environmental controls and soil-like media for growing plants heated by solar radiation and other sources inside the building.
If the tomatoes are not classified as “greenhouse” for Customs purposes, they are to be classified as “other,” and then further as “cherry,” “grape,” “Roma (plum type),” or as “other, other.”
The SA covers all types of fresh tomatoes (not those imported for processing), including the “important” commercial varieties described as “common round, cherry, grape, plum, greenhouse, and pear tomatoes.” These SA categories do not directly correspond to Customs classifications specifically provided for in HTSUS.
The category of “specialty tomatoes” under the SA is relatively clear, because they are specifically defined to include “grape,” “cherry,” “heirloom,” and “cocktail” varieties. From this definition of specialty tomatoes arises a category of “other than specialty” tomatoes which includes “common round,” “greenhouse,” “pear,” and others deemed as less important commercial varieties.
The 2013 Mexican Fresh Tomato Suspension Agreement continues to provide for penalties against Mexican tomato growers and exporters (the “signatories”) who violate terms of the agreement with the U.S. Department of Commerce. It also creates additional risks of Customs law violations for importers. This article describes the risks faced by importers and incentives for reducing those risks by complying with U.S. Customs and Border Protection (CBP) requirements and the Suspension Agreement’s provisions for importing Mexican tomatoes into the United States.
Importers And The 2013 Suspension Agreement
Under U.S. Customs law, importers of record are responsible for the accuracy of the declarations made regarding their imported merchandise, including but not limited to the classification and value (“price paid or payable”) of this merchandise.
The Suspension Agreement (which we will abbreviate as “SA” for the purposes of this article) requires that each category of tomato within an exporter’s shipment be sold above the reference price for these varieties as established by the 2013 SA. Importers must therefore correctly classify and value Mexican tomatoes coming into the United States or face significant penalties.
Tomatoes: Classifications and Categories
There are noteworthy differences between the Customs approach to classification of tomatoes and identifying the tomato categories under the 2013 SA, which can present challenges to diligent importers and may tempt the unscrupulous importer to finesse these tasks.
For CBP classification purposes, the Harmonized Tariff Schedule of the United States (HTSUS), specifically provides for “greenhouse” and “other” tomatoes, with the “other” category including cherry, grape, Roma (plum type), and still “other” varieties.
The first classification question concerns whether imported tomatoes are grown in a greenhouse, which may be a covered building with environmental controls and soil-like media for growing plants heated by solar radiation and other sources inside the building.
If the tomatoes are not classified as “greenhouse” for Customs purposes, they are to be classified as “other,” and then further as “cherry,” “grape,” “Roma (plum type),” or as “other, other.”
The SA covers all types of fresh tomatoes (not those imported for processing), including the “important” commercial varieties described as “common round, cherry, grape, plum, greenhouse, and pear tomatoes.” These SA categories do not directly correspond to Customs classifications specifically provided for in HTSUS.
The category of “specialty tomatoes” under the SA is relatively clear, because they are specifically defined to include “grape,” “cherry,” “heirloom,” and “cocktail” varieties. From this definition of specialty tomatoes arises a category of “other than specialty” tomatoes which includes “common round,” “greenhouse,” “pear,” and others deemed as less important commercial varieties.
In addition, specialty tomatoes that are packed will have a higher reference price than those that are loose.
For “other than specialty” tomatoes, the SA distinguishes between tomatoes grown in an “open field and adapted environment” and those grown in a “controlled environment.”
A “controlled environment” is a “fully-enclosed permanent aluminum or fixed steel structure clad in glass, impermeable plastic, or polycarbonate using automated irrigation and climate control, including heating and ventilation capabilities, in an artificial medium using hydroponic methods.”
This is very similar to the Certified Greenhouse Farmers Standard (although without the integrated pest management support and the restrictions on herbicides and soil fumigants), and is a narrower concept than a “greenhouse” for Customs purposes.
“Open field and adapted environment” tomatoes would include open field tomatoes as well as tomatoes grown in greenhouses that do not meet the strict definition of a “controlled environment.”
Importers must correctly classify tomatoes for Customs purposes, which requires detailed information about their production, but should also identify the correct SA category to ensure the price paid or payable complies with the agreement.
Valuation and Pricing
The essential purpose of the SA is to increase the price of Mexican tomatoes imported into the United States, and the SA establishes reference prices for the four distinct categories of tomatoes described above, as well as seasonal variations for each.
In addition to the classification challenges the SA categories poses for some importers, the agreement also creates Customs valuation issues to which importers must pay close attention.
For Customs purposes, the importer must declare the price actually paid or payable to the supplier, and the SA requires the price be at or above the established minimum reference price.
The commercial invoice must accurately describe the tomatoes being imported, including the manner in which they were grown, if relevant, and accurately reflect the price paid or payable for each category. The importer should also confirm this price meets or exceeds the established reference price.
In summary, the importer of record must have detailed knowledge of the tomatoes in each entry to correctly classify the tomatoes for Customs purposes, and to confirm that the declared value is at or above the reference price established by the SA for each type of tomato.
Just as importers have been penalized for classifying merchandise on the basis of the lowest duty rate, tomato importers may be tempted to use the SA category with the lowest reference price. Penalties under Customs law and the SA are intended to discourage such conduct, and violations may be identified through the SA’s monitoring system as well as CBP’s own activity.
Penalties
As in the case of previous suspension agreements on Mexican tomatoes, the 2013 SA contains penalty and monitoring provisions that are potentially applicable or at least of concern to importers.
Although other entities involved in the sale and importation of tomatoes may be subject to Perishable Agricultural Commodities Act (PACA) penalties or sanctions for their role in import transactions, our focus is on the “importer of record” for CBP purposes.
Violations
While only parties to the SA have obligations under the agreement, signatories are required to incorporate the terms of the SA into their contracts.
Importers, in general, are not subject to penalties directly under the SA, but importers acting as ‘selling agents’ under the agreement may be. While neither the SA nor PACA specifically define “importer,” the SA provides that a “selling agent” may be an importer, “or any other entity that facilitates the transaction between the signatory and the first unaffiliated U.S. customer,” further defined as either a commission merchant, dealer, or broker.
The SA describes potentially violative activities which importers (regardless of whether or not they are selling agents) should take steps to prevent to avoid both Customs penalties and suppliers who may violate the SA. Practices which may result in incorrect classification or valuation of the product for Customs purposes merit special attention. These include sales below the reference price through improper “rebates, backbilling, discounts for quality and other claims” by hiding the real price (e.g., through “bundling arrangements, commingling tomato products, discounts/free goods financing packages, swaps, or other exchanges”), or through price calculations not in accordance with the SA (e.g., transactions involving adjustments due to changes in condition after shipment).
Violation of §1592(a)
Even if the U.S. importer of record is not in a position to violate the SA, importers may always be subject to Customs penalties under 19 U.S.C. §1592(a) for false statements related to entries of any product, including those regarding the entry of tomatoes from Mexico, independent of the suspension agreement.
If committed by or known to an importer, these acts could subject the importer to a §1592 penalty if they result in a false statement to Customs. As mentioned previously, an importer who is a selling agent may potentially violate both §1592(a) and the agreement.
In addition, signatories to the SA, or parties of sales subject to the SA, may be subject to Customs penalties under 19 U.S.C. §1592(a), for aiding or abetting an importer’s violation.Penalties under §1592(a) can be very high, up to the domestic value of the merchandise. For importers, the greatest risk would be for fraudulent or negligent statements regarding the classification or valuation of the imported tomatoes.
Incentives For Compliance
In addition to the potential for penalties, the 2013 SA includes traditional and new incentives for signatories and importers to comply with Customs requirements.
The SA enhances enforcement on the Mexican side of the border, with new import monitoring tools through a working group which will supply data to the U.S. Department of Commerce to determine whether imports inconsistent with the SA have been made.
Violations may now also be a breach of PACA’s fair trade regulations, because of the requirements for selling agents to have a PACA license and to incorporate the SA’s terms into the sales agreements they negotiate. The SA continues to authorize the Department of Commerce to refer intentional violations to CBP officials.
Importers should acknowledge the increased risk of CBP attention to entries created by the SA, and take appropriate compliance action. The Dept. of Commerce’s monitoring of Customs data will likely be performed by reviewing HTSUS classifications and Customs value declarations.
If an importer’s classification is incorrect, it will likely cast suspicion upon the valuation of the tomatoes. If the importer’s valuation is wrong, it will likely cast suspicion on the classification. Either type of error can expose importers to the risk of Customs penalties.
