Texas Ag producers continue fight against Border Adjustment Tax

MISSION, RGV – Leaders of the Texas International Produce Association will meet with U.S. Rep. Kevin Brady next week in hopes of persuading the chair of the House Ways & Means Committee to drop his border adjustment tax proposal.

Bret Erickson, president & CEO of TIPA, said a “BAT” tax would have serious consequences for Texas growers who own farms in Mexico and import fresh produce that is not grown in volume in the United States. He said any such tax or tariff would be passed on to U.S. consumers in the form of higher prices at the grocery store.

“Here in Texas the produce industry is highly reliant on imports. We do have domestic producers who grow only in Texas. We also have members and many businesses who import from Mexico only. And we have a lot of our large growers and shippers who are growing domestically and importing product out of Mexico. For them, it is really critical to be able to continue to bring that in and not add cost to it by instituting tariffs through the tax reform piece we are concerned about, the Border Adjustment Tax,” Erickson said, in exclusive interview with the Rio Grande Guardian.

Erickson made his comments after participating in a private meeting with U.S. Sen. Ted Cruz at the Center for Education and Economic Development building in Mission on Saturday. Many other Rio Grande Valley business and economic development leaders were present. They all wanted to impress upon Cruz the importance of international trade, not just for the Valley but Texas as a whole.

Erickson said Cruz was receptive to their message.

“My No. 1 priority was to express concerns from the fresh produce industry how important imports play in Texas. How important it is for U.S. consumers that they can get access to fruits and vegetables 365 days of the year at an affordable price. That they can go to the grocery store any time of the year and get blueberries or broccoli or spinach or whatever it is. You cannot grow those products here all the time. It has got to be sourced from somewhere else,” Erickson said.

“Senator Cruz was very receptive to what we discussed today. I was able to make my pitch to him on how important trade is and how detrimental tariffs or a border adjustment tax on fresh produce and food items would be to the U.S. consumer. Senator Cruz said he understood how important trade is to the region. He did not appear to have a lot of enthusiasm for the BAT proposal that is currently in the U.S. House.”

Erickson explained how important the fresh produce industry is to Texas.

“In the state of Texas, we crossed 220,000 trucks of fresh produce from Mexico in 2016. The value of that has been estimated to be around $5 billion. Texas crosses a little more than half so the total value of the fresh produce imports on the southwest border is about $10 billion. About 65 percent of the fresh produce consumed in Texas is imported. Nationally, about 50 percent of all the fruits and about 35 percent of all the vegetables are imported. A lot of it coming out of Mexico.”

Border Adjustment Tax

Congressman Brady, of The Woodlands, Texas, is the leading proponent of the BAT tax in Congress. Under his proposals, companies exporting products would get a tax credit while those importing products would pay a tariff. The idea, Brady said, is to encourage more production in the United States. However, that would not help the fresh produce industry, Erickson argued.

“There are a lot of commodities that we don’t grow in the United States, period. Almost 85 percent of avocados are imported, almost all limes are imported. Bananas, pineapples, mangos, we are not growing them here. One of the things I wanted to express to Senator Cruz was, let’s be cautious about tariffs, border taxes, customs fees, whatever you want to call it that increase the cost of moving product offshore into the United States because, it is going to hurt businesses here.”

Erickson said many growers have operations in Texas and Mexico. By being able to import goods from their farms in Mexico, workers stateside are able to be retained year-round, he argued.

“These guys are able to keep their employees on the job year-round, where, before, you had growing seasons where you hire people and then you let them go, then you bring them back. Now, these sheds can run year-round. It keeps their employees working, it is better for their business plan, and, most importantly, it is better for U.S. consumers,” Erickson said.

“Any tax or tariff or customs fee, or whatever you call it, added to food items that are coming into the United States, ultimately, will be borne by the U.S. consumer. That is a matter of fact. There is no other way to spin it. If you make it more expensive to bring them in, U.S. consumers will pay more at the grocery store. If it is a 20 percent tax your grocery bill is going to be 20 percent more. There is no way around that. That cost has to be absorbed somewhere. Unfortunately, it will be absorbed by U.S. consumers.”

Erickson said TIPA members met with the staff of Rep. Brady last week. On Wednesday, they are due to meet the Ways & Means Committee chairman himself.

“We were in Washington, D.C., this week talking about the importance of trade. A lot of us are for an overall tax reform package but a border adjustability tax component is something we are very concerned about. We have to get the message across (to Bready) that this would be detrimental to our business. It is going to hurt the American consumer.”

Erickson said he believes support for a BAT tax is dwindling.

“My sense is that, based on the meetings we have had this past week in D.C., there is not much of an appetite in the Senate to take this on. But, we need to stay vigilant and we need to continue to beat this drum that any type of tax or tariff that impacts imports is a bad thing for us, a bad thing for the economy, a bad thing for the State of Texas and a bad thing for consumers,” Erickson said.

“My sense has been, over the last few days, there is definitely not much an appetite in the Senate, either from the Democrats or the Republicans. On the House side, there is not as much of an appetite as I thought. It seems like this was an idea that was gaining steam. My sense over the last few days has been that maybe it is cooling off a little bit. My understanding is that even the Trump administration isn’t necessarily thrilled with the BAT idea.”

Erickson said his association has also been concerned about a tariff idea floated by the Trump administration.

“I had a huge concern, a few weeks ago, when the President talked about maybe putting a 20 percent tariff on all products coming out of Mexico. Our phones lit up, from the trade press that called, and the local news media, asking how this would impact the fresh produce industry, which is so big here in Texas. There is still a great deal of concern about this. It is still out there.”

NAFTA

Erickson said it is clear that the North American Free Trade Agreement would be renegotiated. After all, it was a key plank in President Trump’s campaign.

“Mexico has already had business consultations and how they are going to approach this. The wheels are churning. NAFTA is going to get renegotiated. That is not to say there are not areas where it could not be improved. It is a 20-year old agreement. The economy has changed. A lot of things have changed in the last two decades. But, tariffs on fresh produce is of concern from the 50,000 feet level, imports are such an important part of the fresh produce industry. All the major growers rely on imported produce. That is not to say there are not areas where we can fine tweak it (NAFTA).”

Erickson said if NAFTA is tweaked it could benefit watermelon and onion growers in the United States, for example. Their acreage has declined in Texas, with more produce coming from Mexico. “They are in a tough spot. You could look at it (NAFTA) on a product by product basis, rather than imposed an across the board tariff. Look at individual commodities.”

Erickson said there is no question in his mind that Mexico would retaliate if the U.S. imposes tariffs on Mexican exports. “There could be retaliatory action on corn or cotton. Those are major agricultural commodities going south. Ag tends to be the tip of the spear when you start getting into these trade wars, when you start going tit-for-tat. We have seen it in the past with Mexico taking action against the U.S. apple industry, in response to a trucking program they were displeased with. Rest assured, Mexico has its list of items that they are going to want to start attacking. Agriculture will get hit the most.”

Cruz View

Cruz held two private meetings at the CEED building in Mission on Saturday morning. The first was with border mayors, the second with economic development and business leaders. Later in the day, Cruz held a news conference with reporters on the banks of the Rio Grande at Anzalduas Park in Mission.

Asked about his stance on international trade, Cruz said: “International trade is hugely important. It is hugely important for Texas. It is hugely important for America. In Texas alone there are 2.2 million jobs that depend on international trade, farmers, ranchers, small businesses. I am a strong defender of free trade. I think free trade with Mexico, trade with the world is very important to us. And that was a major topic of discussion with the business leaders this morning. There are a great many business leaders, whether in agriculture, whether in manufacturing, whether in commerce and trade, that depend on international trade.”

Cruz said he hopes the Trump administration will focus “energy and resources” on opening up foreign markets. “I think Texas benefits when we open up foreign markets. I think Texas farmers and ranchers and businesses… when we are on a level playing field we compete and do well.

Cruz recalled a lunch meeting Vice President Pence had with Senate Republicans soon after the Trump administration’s executive order nixing the Trans Pacific Partnership. He said Pence read aloud two sentences from the executive order. Namely, that the administration strongly supports free trade and that the president believes the way to advance free trade is with bilateral negotiations, one on one with foreign countries, rather than with big multi-lateral negotiations with a whole group of foreign countries.

“I thought it was significant that the vice president chose to emphasize that point to Republican senators,” Cruz said. “What I am certainly urging the Trump administration to do, they are talking about renegotiating NAFTA. If renegotiating NAFTA opens up markets further for Texas producers, I think that is a great outcome. If we are able to sell more agricultural products and goods that are manufactured here, in (to) Mexico and Canada and across the world, I think that is a good outcome and I hope that is where their focus will be.”

Harlingen Mayor Chris Boswell attended both of the private meetings with Sen. Cruz. He said he was particularly pleased with the discussions that took place between Cruz and business and economic development leaders.

“We had a good meeting of the mayors. I very much enjoyed the trade discussion. I think the senator showed a lot of insight and was very, very, receptive to hearing what people here in South Texas have to say about what their concerns are and what their issues are as it relates to continuing trade and improving the economy down here. So, it was a great discussion,” Boswell said.

Editor’s Note: This is the second in a series of three stories about U.S. Senator Ted Cruz’s visit to the Rio Grande Valley on Saturday, February 18, 2017. Click here for Part One. Part Three will be posted in tomorrow’s editions.