Political economy of the US-Mexican tomato trade agreement

We develop a political economy model to analyse the US-Mexican tomato trade agreement by treating the minimum import price as a negotiated settlement. We incorporate the special characteristics of the US-Mexican tomato dispute, namely trade among large countries, the role of competing fresh and processed tomato lobbies, quota revenues accruing to Mexican producers, bargaining for a minimum import price rather than a tariff, and the role of the Canadian tomato market. We show the importance of the size of the lobby group's supply, the weight elected officials' place on national welfare, and the elasticities of export supply and import demand in determining the optimal price wedge. For the United States, larger fresh tomato or cherry-grape tomato supply intensifies the degree of protection awarded to US growers, while US processors work to mitigate this effect. From Mexico's perspective, larger Mexican fresh or cherry-grape output induces a push towards free trade due to the agreement's depressing effect on Mexican prices, while Mexican processors and quota revenues exacerbate the price wedge.