Effects of the Mexican Apple Tariff on the World Apple Market

• Author: William Ridley,Stephen Devadoss
• Published date: 01 November 2014
• DOI: http://doi.org/10.1111/rode.12117
• Date: 01 November 2014

Effects of the Mexican Apple Tariff on the World

Apple Market

Stephen Devadoss and William Ridley*

Abstract

In response to the USA blocking Mexican trucks from traveling to the inland part of the USA, Mexico

imposed tariffs on US fresh apple exports. This study analyzes the impacts of the Mexican tariff on USA,

Mexican and world apple markets by using theoretical analysis and developing a spatial equilibrium trade

model. The results show that this tariff increases apple prices in Mexico, to the benefit of Mexican produc-

ers but harming Mexican consumers. Even though Mexico collects revenues from its tariff, the overall

welfare impact is negative because consumers’ loss outweighs producers’ gain and tariff revenues. Since the

USA exports less to Mexico, its prices and production decline, but consumption increases. To mitigate the

export market loss to Mexico, the USA redirects its exports to other importing countries, displacing other

apple exporting countries’ trade with these importing countries.

1. Introduction

Based on the North American Free Trade Agreement (NAFTA), which took effect in

1994, the USA and Mexico agreed to allow each other’s freight trucks to transport

goods into the interiors of their countries. NAFTA stipulated that US and Mexican

trucks would be permitted to haul goods within border states beginning in 1995 and to

other states of both countries by 2000 (Prozzi et al., 2007). In 1995, the USA asked

Mexico to postpone the implementation of the trucking provision owing to concerns

from the American Trucking Associations about safety, foreign competition and job

loss (Wheat, 2010).

In spite of increased trade and closer economic integration between the two coun-

tries (Miles and Vijverberg, 2011; Prina 2013), the USA did not allow Mexican truck-

ers into the interior part of the country. Consequently, Mexico filed a complaint with

a NAFTA arbitration panel, which ruled in Mexico’s favor in 2001, allowing Mexico

to retaliate by imposing punitive tariffs on imports from the USA. To avoid retribu-

tion from Mexico, the US government implemented a pilot program in 2007, which

permitted about 100 Mexican trucks to transport commodities into the interior USA

and monitored the safety concerns (Federal Register, 2007; Price and Gould, 2010).

Even though no accidents occurred during the pilot program and Mexican truckers

were held to the same safety standards and protocols (e.g. drug and alcohol testing

and hours of operations) as the US truckers, the American Trucking Association con-

tinued its opposition to Mexican truckers driving within the USA. Consequently, the

US government canceled the pilot program in 2009 (Federal Register, 2009). As a

result, this prolonged 15-year dispute continued without resolution. Ultimately,

Mexico retaliated in March 2009 by imposing tariffs on 99 products imported from the

* Devadoss: Department of Agricultural Economics, University of Idaho, PO Box 442334, Moscow, ID,

83844-2334. Tel: 303-885-6806; E-mail: devadoss@uidaho.edu. Ridley: Department of Economics, Univer-

sity of Colorado, 256 UCB, Boulder, CO, 80309-0256, USA. The authors thank the anonymous reviewer

for valuable suggestions.

Review of Development Economics, 18(4), 763–777, 2014

DOI:10.1111/rode.12117

© 2014 John Wiley & Sons Ltd