by Lawrence H. Meuers
Katy Esquivel's recent article highlighted the history of the Tomato Suspension Agreement and discussed the new requirements in the revised Agreement. Steve DeFalco followed it up with an article focused on the Agreement's terminology. This article will apply the terminology necessary for you to comply with the requirements of handling Mexican grown tomatoes.
Procedures for Rejection and Making Price Adjustments
The Suspension Agreement establishes procedures for handling rejections and making price adjustments due to condition defects for tomatoes originating from Mexico. These procedures only apply if the adjustment reduces the net sales price below the reference price. These rules are similar to PACA rules, but are much more stringent. We will set forth the procedures for claim adjustments under the Suspension Agreement and point out any variances from the PACA rules.
Ordering of Inspection:
Under the Suspension Agreement, in order to preserve the right to reject a shipment or make a claim for a price adjustment, the receiver must request a USDA inspection no later than eight hours after the time of arrival at the destination specified by the receiver.
Under PACA, the eight-hour rule is different. The buyer of a truck shipment must notify the seller of a rejection within eight hours, regardless of whether or not an inspection has been requested, and the eight-hour rule does not apply to the buyer's right to make price adjustments due to condition defects.
Timing of Inspection:
Under the Suspension Agreement, the inspection must be performed in a timely manner after ordered. PACA has no requirement as to when the inspection must be made after it is ordered.
Place of Inspection:
The first receiver of the tomatoes must specify the city or metropolitan area of the destination of the tomatoes prior to shipment. The inspection must take place at the specified destination of delivery.
No adjustments will be granted for a USDA inspection at a destination which is different from the destination specified by the first receiver of the tomatoes. If the first receiver does not specify the destination of the tomatoes, a six-hour period within which an inspection may be requested will begin to run when title to the tomatoes transfers to the first unrelated purchaser. For example, the six-hour period will begin to toll upon loading of the tomatoes at the first handler's (importer's) warehouse at the port of entry into the United States in an F.O.B. transaction or upon delivery of the tomatoes to the first buyer's warehouse in a delivered sale. The default destination of delivery is the warehouse of the Selling Agent.
If a broker or agent is involved in the transaction, since it arranges for delivery directly to the receiver and never takes ownership or control over the tomatoes, the receiver must request the inspection, and the inspection must take place at the receiver's destination, as specified in the broker's contract with the Selling Agent. Only the receiver, not the broker, is entitled to any resulting adjustments.
Type of Inspection:
Under the Suspension Agreement, a USDA inspection certificate must be provided to support claims for rejection of all or part of a lot. No adjustments will be made for failure to meet suitable shipping conditions unless supported by an unrestricted USDA inspection to the entire lot. If part of a lot is not available for inspection, and the USDA inspector is allowed full access to the partial lot, this will be considered an unrestricted partial-lot inspection. If the USDA inspector is not allowed full access to the partial lot, this will be considered a restricted inspection. No adjustments will be made for failure to meet suitable shipping conditions if the USDA inspection is restricted. When calculating an adjustment for failure to meet suitable shipping conditions where an unrestricted partial-lot inspection has taken place, only the portion of the lot inspected is eligible for adjustment. The portion of the lot that was not inspected will not be eligible for an adjustment based on the USDA inspection.
Next week, we continue our series on the Suspension Agreement by focusing on the procedure for determining if the tomatoes are defective and whether the receiver is entitled to a price adjustment or may reject the tomatoes.