Trade diversion from tomato suspension agreements

Abstract

Abstract:Trade barriers can cause output to be diverted to other countries and into other products. We study the effect of a voluntary price restraint (VPR) on Mexican tomatoes entering the United States. The diversion caused by the VPR is statistically and economically significant -representing over four-fifths of the direct effects of the trade barrier. When the VPR was binding, Mexico exported more tomatoes to Canada, the United States cut back on exports while Canada increased their exports to the United States. The VPR also diverted fresh tomatoes in Mexico into paste production, which was then exported to the United States. Trade Diversion from Tomato Suspension AgreementsBilateral trade barriers not only alter trade flows between the named exporter and importer, they can divert trade to third countries, and from raw to processed goods. This trade diversion may largely offset the intended price gains from the trade barrier. We trace the effect of an anti-dumping suspension agreement that resulted in a voluntary price restraint (VPR) on Mexican tomato exports to the United States. We consider the effect of the VPR on trade in fresh tomatoes among the North American Free Trade Agreement (NAFTA) countries, and between fresh and processed tomatoes.We use a broad definition of trade diversion to include not only imports from third countries induced by the trade barrier, but also increased exports from the affected exporting country to third countries, also referred to as 'trade deflection' (Bown and Crowley 2007a).Last, we include the diversion from raw to processed goods, which are subsequently exported.No previous paper has looked at the trade diversion effects of a VPR and only a few papers have examined the diversion effect of antidumping cases. In a comprehensive study of trade diversion in antidumping (AD) cases, Prusa (1997) uses 7-digit Tariff Schedule of the United States Annotated (TSUSA) data on U.S. antidumping cases and finds that the instigation of the cases caused considerable trade diversion from the named countries (those facing tariffs) to other exporters. He concludes that, over the six years following initiation of an investigation, the resulting trade diversion almost completely mitigated the effect of the trade restriction due to the tariffs.2 Krupp and Pollard (1996) find evidence of trade diversion in chemical industry AD cases using monthly import data. Imports from non-named countries rose during the investigation in slightly fewer than half the cases (9 out of 19), and these imports rose after the conclusion of the case in 11 cases. However the specific effects of AD duties were more difficult to identify.Duties increased imports from non-named countries in only 9 out of the 17 cases that had AD duties imposed. Both Prusa and Krupp and Pollard find that there were reductions in imports from named countries even if the case was terminated. In a 1995 investigation, the USITC considers the effect of AD cases from 1980 to 1993 on trade diversion, and found that during the latter part of...

US-Mexico tomato dispute

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Protectionism versus risk in screening for invasive species

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