Tomatoes in Saveol experimental greenhouse in Guipavas, western France | Fred Tanneau/AFP via Getty Attack of the killer tomatoes EU alarmed by a rare challenge to its lavish farm subsidies.

A fight over Italian tinned tomatoes is threatening to undermine relations between the EU and Australia just as the two parties are set to launch talks for a free-trade agreement.

In the coming weeks, Australia will decide whether to slap retaliatory duties on two canneries near Naples — Feger and La Doria — which are accused of dumping their wares at unfairly low prices. Between them, the two companies represent about 40 percent of the Australian tinned tomato market.

While canned vegetables themselves are hardly critical to the European economy, Canberra’s move has sparked outrage in Brussels. From the European perspective, Australia’s anti-dumping commission is using the tomatoes as a test case to zero in on a far more sensitive target: the EU’s lavish agricultural subsidies.

In trade terms, the Australians are breaking one of the EU’s greatest taboos by suggesting that the tomatoes are excessively cheap because of payments under the Common Agricultural Policy. The CAP accounts for 40 percent of the EU budget, and France and Italy are traditionally very defensive over any attempt to undermine the legitimacy of farm subsidies.

The tomatoes case comes at a time when Australians are increasingly concerned about the impact on local farms of cheap international food imports.

“Australia will have to rethink its protectionist policies on canned tomatoes if it does not want to put the future free-trade agreement with the EU at risk,” said Paolo De Castro, a senior socialist lawmaker on the European Parliament’s agriculture committee.

De Castro, a former Italian agriculture minister, has raised the issue with Cecilia Malmström, the EU's trade commissioner. She said last week she was “very worried about the anti-dumping inquiries that Australia has undertaken against Italian tinned tomatoes and in particular the methodology used to calculate the dumping margins.”

The reason for the uproar is buried deep in the Australian anti-dumping commission’s initial report on the case in February, when it announced Feger should face retaliatory duties of 8.4 percent and La Doria of 4.5 percent. But those tariffs are now undergoing internal review by Australian regulators.

The anti-dumping commission said it reckoned the support “payments made to growers of raw tomatoes in Italy have significantly affected the prevailing market prices in Italy for raw tomatoes.” It added that it was “therefore satisfied that the costs recorded by Feger and La Doria for raw tomatoes in their records do not reasonably reflect competitive market costs.”

But EU officials insist that the largesse is permissible under World Trade Organization rules.

“The calculations for this anti-dumping case go against the WTO rules and there is no way that Australia would be able to defend its claim at a dispute settlement court in Geneva,” De Castro said.

The Australian government said its was "aware of Italian government concerns about Australia’s anti-dumping investigation of Italian canned tomatoes, including its WTO concerns."

A spokesperson for the Australian ministry for foreign affairs and trade added that Canberra had a strong commitment to "transparency and due process," noting that the anti-dumping commission's recommended duties on the tomatoes would be reviewed by an assistant government minister.

The spokesperson added: “The Australian government remains committed to securing a free trade agreement with the EU."

The EU’s massive farm subsidies are often under political attack — particularly from emerging markets that view them as unjust protectionism. However, the WTO’s information office said this was only the second time the EU’s sacrosanct agricultural subsidies had been challenged in a trade spat. The first occasion was in 1997, when the U.S. balked at EU financial support for processed cheeses, but that complaint did not make it through the first phases of the WTO court's decision-making process.

The tomatoes case comes at a time when Australians are increasingly concerned about the impact on local farms of cheap international food imports. An "Australian Made" campaign to get Australians to buy local has made a big impact.

The complaint against the Italian companies was brought by SPC Ardmona, Australia's last remaining tomato cannery and a vocal supporter of the Australian Made movement. The company is owned by Coca-Cola Amatil, which is itself 29 per cent owned by Coca-Cola.

SPC Ardmona declined to comment. However, at the time of the February ruling, the company said: "Since 2010, the illegal dumping of products has resulted in material damage to SPC, including a loss of 40 percent of its volume and reduced profitability, as it struggled to compete on price with these dumped Italian tomato products."

The company's managing director, Reg Weine, said: "You can’t provide €183 million in subsidies to the Italian tomato industry and expect it not to have downward pressure on production costs."

The anti-dumping commission said: “It is not appropriate for the commission to comment on a current reinvestigation.”