US-Mexico tomato dispute

• Pages: 167-184
• DOI: https://doi.org/10.1108/JITLP-10-2013-0031
• Date: 10 June 2014
• Published date: 10 June 2014
• Author: Elijah Jacob Kosse,Stephen Devadoss,Jeff Luckstead
• Subject Matter: Strategy,International business,International business law

US-Mexico tomato dispute

Elijah Jacob Kosse and Stephen Devadoss

Department of Agricultural Economics and Rural Sociology, University of

Idaho, Moscow, ID, USA, and

Jeff Luckstead

Department of Agricultural Economics and Agribusiness, University of

Arkansas, Fayetteville, AR, USA

Abstract

Purpose – The purpose of this paper is to provide a historical background of the tomato dispute,

review the USA trade law and its effect on the tomato trade, discuss the role of the North American Free

Trade Agreement and other supply and demand factors on increased tomato imports from Mexico and

present a conceptual analysis of the effects of a Suspension Agreement (a form of Voluntary Export

Restraint) on the USA and Mexico. In 1996, the USA and Mexico signed the Suspension Agreement

which sets a guaranteed minimum price for Mexican tomato imports.

Design/methodology/approach – Conceptual analysis graphically illustrates how the Suspension

Agreement affects the tomato trade for the USA and Mexico and shows the benets and losses of

consumers and producers in these two countries.

Findings – There is no consensus regarding whether Mexico dumps tomatoes onto the US market.

However, US trade law favors domestic producers, leading to the signing of the Suspension Agreement.

It is shown here that this agreement has substantial welfare effects in both Mexico and the USA. While

it was designed to protect US producers, it also aids Mexican consumers and may potentially improve

Mexican producer surplus as well. Only US consumers unambiguously suffer a loss.

Research limitations/implications – As the theoretical model indicates, the Suspension

Agreement’s minimum price does help Floridian farmers but, if the rents are large enough, may also aid

Mexican producers. If Mexican producers do gain, then quota rent is shifted from tomato consumers to

Mexican producers. On the other hand, US consumers are hurt as well as tomato processing plants

because they purchase fresh tomatoes for use as inputs. The higher price minimum after the 2013

agreement will likely intensify the welfare effects, and the addition of different categories with distinct

prices is likely to have additional consequences for both welfare and trade distortions.

Originality/value – As the USA and Mexico recently signed a new Suspension Agreement, this paper

deals with a very timely and contentious trade dispute and contributes to the area of research

international trade war. The literature on Suspension Agreements is also expanded by providing

welfare analysis of both producers and consumers.

Keywords Mexico, Trade policy, Florida, Suspension Agreement, Tomatoes

Paper type Research paper

1. Introduction

The US-Mexico “Great Tomato War” is not truly between the USA and Mexico, but is

rather primarily a battle between tomato growers in a few provinces of Mexico

The authors acknowledge the helpful comments of an anonymous reviewer. Funding for this

research project was provided, in part, by the Idaho Agricultural Experiment Station and the

USDA-NIFA.

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/1477-0024.htm

US-Mexico

tomato dispute

167

Received 31 October 2013

Revised 31 October 2013

Accepted 13 April 2014

Journal of International Trade Law

and Policy

Vol. 13 No. 2, 2014

pp. 167-184

© Emerald Group Publishing Limited

1477-0024

DOI 10.1108/JITLP-10-2013-0031

(predominantly Sinaloa and Nayarit) and in Florida, both of which grow tomatoes for

the US winter market. Floridian growers have claimed for many decades that Mexico is

dumping its tomatoes in the US market and called for antidumping investigations

against Mexico as far back as 1978 (Baylis and Perloff, 2010). Furthermore, the North

American Free Trade Agreement (NAFTA), which reduced tariff rates, exacerbated the

Floridian grower’s claims of Mexican dumping. As a result, Florida initiated an

antidumping investigation. However, the US and Mexican Governments signed a

Suspension Agreement in 1996, and the purpose of this agreement was to discontinue

the antidumping investigation and set a minimum price for US tomato imports from

Mexico. In 2012, after heavy lobbying from Floridian growers, the US Government

decided to end the Suspension Agreement, which had been in effect for 16 years. In

response, Mexico threatened to institute $1.9 billion worth of retaliatory tariffs. The US

Government ultimately signed a new agreement which increases the minimum price for

imported tomatoes (Wineld and Cattan, 2012).

The USA rarely suspends antidumping investigations and the tomato Suspension

Agreement is the most well-known. Currently, only a few antidumping Suspension

Agreements exist, including steel plates from Russia and the Ukraine, lemon juice from

Mexico and Argentina and uranium from the Ukraine. In each case, the USA either sets

import limits or institutes a price minimum (International Trade Administration (ITA),

2013c). Despite their rarity, Suspension Agreements have important welfare

implications, not only for the countries involved but also for their trade partners. This

paper contributes to the literature by developing a conceptual analysis which shows the

welfare effects of the Suspension Agreement for both producers and consumers in the

USA and Mexico.

Tomatoes are of particular interest because they are a key agricultural export for

Mexico, thus the Suspension Agreement, for good or bad, has a substantial effect on

Mexican producers. For the USA, the agreement was designed primarily to protect

Floridian producers by setting a price oor. Therefore, the Suspension Agreement raises

importance questions regarding the role of political economy in trade negotiations.

The objectives of this paper are to:

• discuss the history and economic debate of the tomato dispute;

• investigate the role of political considerations in the Suspension Agreement by

analyzing relevant trade laws;

• cover changes in the tomato trade over recent decades and the role of NAFTA; and

• develop a conceptual model to illustrate the welfare effects of the minimum price

on Mexican tomato imports.

While the USA primarily considers domestic producer welfare when ruling on trade

disputes, trade policies affect both producers and consumers in each country. Unlike

many trade policies, the Suspension Agreement does not generate government

revenues. However, it does create (export quota) rents for producers in the exporting

nation (Mexico) which are paid by the importing country (the USA). This paper

examines these effects for both the USA and Mexico.

The rest of the paper is organized as follows: the next section discusses the US and

Mexican tomato markets. Section 3 examines the relevant history of the dispute. Section

4 covers different laws regarding trade protection in the USA and their relevance to the

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