This week, we conclude our series on the Tomato Suspension Agreement. Thus far, we have provided an overview of the Agreement, focused on the basic terminology used in the Agreement, and highlighted the requirements of handling Mexican grown tomatoes. Last week, Katy Esquivel provided a checklist detailing the procedure for determining if the tomatoes are considered defective under the Agreement and whether the receiver is entitled to a price adjustment or may reject the tomatoes. For the last installment in this series, we examine sales of Mexican grown tomatoes to Canada and what activities are considered violations of the Agreement.
Sale of Tomatoes Covered Under the Agreement to Canadian Buyers
The Agreement covers two situations where Mexican grown tomatoes are sold to companies in Canada. The first situation is when the Mexican producers and exporters sell their tomatoes to a U.S. receiver who then re-sells the tomatoes to a Canadian buyer. Under this situation, the producer or exporter must require the U.S. receiver to maintain the following information and documentation in its files:
- The name of the Mexican producer or exporter and its identification number;
- Shipping Manifest (i.e., bill of lading);
- An invoice identifying sale date, brand, tomato type, quantity (boxes), and value; and
- Entry documentation from Canadian Customs (i.e., Landing Form such as Form B3 or the Canada Customs Coding Form).
The Mexican producer or exporter and the U.S. receiver face two consequences if either fails to properly document sales to a Canadian buyer. First, both may be found to have violated the Agreement. Second, the transaction will be considered a U.S. sale, which will assumingly impose requirements and procedures upon a Mexican producer or exporter and the U.S. receiver to follow. These requirements and procedures were discussed in previous articles.
The second situation covers tomatoes shipped into Canada but later resold into the United States. The crucial aspect with these transactions is ensuring that the Mexican producer or exporter notifies the Canadian buyer that any resale of the tomatoes from Canada into the U.S. must be in accordance with the Agreement's terms. This notification can be made by the producer or exporter by 1) using the suggested form provided by the U.S. Department of Commerce, or 2) requiring the U.S. receiver to notify the Canadian buyer of the ramifications of its re-sale of the Mexican grown tomatoes into the U.S. Under the latter scenario, the U.S. receiver must maintain all documentation wherein it notifies the Canadian buyer that the resale of the tomatoes into the U.S. subjects that sale to the Agreement's terms.
Violations of the Agreement
The Agreement has three pages worth of activities considered violations of the duties and requirements imposed upon a Mexican producer or exporter, a U.S. receiver, and other parties covered. The violations of most importance to our clients are:
- Aiding and abetting another party's violation of the Agreement;
- If, after rebates, backbilling, or discounts for quality and other claims, the net price is below the reference price;
- Actions that hide the real price of the tomatoes sold;
- Making adjustments due to changes to condition after shipment without proper documentation;
- Failure to comply with the procedures and requirements for selling tomatoes into Canada;
- Selling tomatoes for processing in the U.S. inconsistent with the procedure set forth in the Agreement;
- Mislabeling boxes;
- Overfilling boxes beyond reasonable variations in weight; and
- Other practices considered by the U.S. Department of Commerce in violation of the Agreement.
Violating the Agreement exposes a U.S. receiver to civil penalties, suspension or revocations of its PACA license, and employment restrictions upon individuals considered responsibly connected with the receiver.
In conclusion, we hope this series has been informative in understanding the Tomato Suspension Agreement. If you have any questions concerning our series of articles or questions we have not addressed, please feel free to contact our office.