Tariff rate quotas: structural and stability impacts in growing markets

This paper examines several aspects of tariff rate quotas (TRQ) as adopted during tariffication of agricultural policies under the Uruguay Round of GAIT. Quota rents and non-tariff barrier effects may remain under TRQs, contrary to the objectives of the tariffication process. Further, price stability impacts of a TRQ are more complex than those for either tariffs or quotas, and under certain circumstances TRQs may be more stabilizing than either case, since TRQs truncate domestic production distributions much like price bands policies. This complexity results from the possibility of regime switching, and may reflect behavior under either a tariff, a quota, or a combination of cases. A TRQ policy may affect the timing of import decisions based on incentives created under quota allocation procedures envisioned for this institution. It may also allow increased imports as demand growth occurs because the quota is not necessarily a binding constraint. This means the above quota tariff is the critical policy instrument. An empirical study of Philippines port: imports illustrates these issues.     

Market Integration and Market Efficiency under Seasonal Tariff Rate Quotas

Switzerland applies seasonal tariff rate quotas (TRQs) for the import of many fruits and vegetables during the domestic harvest season. We examine how this system affects the relationship between Italian and Swiss tomato prices and test for physical market integration and spatial equilibrium conditions over time. We use detailed, transaction‐based data on trade flows and trade costs and estimate an extended parity bounds model, following Barrett and Li (2002). We confirm that in the summer season, when TRQs are in place, markets are inefficient. While quota holders receive positive rents, the marginal rents for importers without quota shares are negative. This inhibits trade flows above the in‐quota import quantity allowed by TRQs. Hence, despite leading to inefficiencies and creating rents for importers, seasonal TRQs are effective in protecting domestic production against competing imports.     

Trade Elasticity,Gravity and Trade Liberalisation: Evidence from the Food Industry

We present an econometric investigation of the trade effect produced by the elimination of tariffs in 18 food sectors for a large sample of developing and developed countries. The standard CES monopolistic competition trade model and the gravity equation were used to estimate trade substitution elasticities, exploring their sensitivity to different estimation methods. Using these elasticities, we simulate the trade effect of the elimination of tariffs, dealing with the problem of uncertainty in the estimated values. Results point to a significant variation in the elasticities estimated by different econometric methods, suggesting that the Poisson pseudo‐maximum‐likelihood estimator significantly inflates their magnitude. Simulation results indicate that trade liberalisation will strongly increase food exports especially from high income and emerging countries, leading to a general loss of market share by developing countries. The simulated trade flows obtained from the econometric approach are quite close to current evidence based on computable general equilibrium models.     

Do state-owned enterprises benefit more from China's cereal grain tariff-rate quota regime?

In 2016, the United States launched a formal dispute with the World Trade Organization (WTO) concerning China's wheat, corn, and rice tariff-rate quota (TRQs) administration. A formal panel was requested in August 2017, with several major grain exporters, including Canada, joining as third-party members. This study employs two unique micro-level datasets to investigate the role of state-owned and non-state-owned enterprises’ (SOE and non-SOE, respectively) in China's agricultural imports. Results suggest that SOEs are noticeably more active in importing quota-bound commodities compared to quota-free imported commodities. Moreover, the larger role of SOEs in China's cereal grain imports is negatively correlated with China's food security targets, as measured by estimated prior year stocks-to-use ratios. Conversely, above average food security targets in China's cereal grain market leads to an important extensive margin adjustment of non-SOE import participation. Finally, we find very little compelling evidence that China's September reallocation of unused TRQ has any economic or statistically significant impact on non-SOE entry into importing or the intensity with which their imports occur.     

Brexit and Tariff Rate Quotas on EU Imports: A Complex Problem

Tariff rate quotas (TRQ s) are a means by which non‐EU suppliers of agri‐food products can be given preferential access to EU markets within a regulated framework of quotas at tariff rates below the Most Favoured Nation rates bound in the GATT . TRQ s are common in governing trade in the meat and dairy sectors of the EU , although they apply to a wide range of other agricultural commodity and processed agri‐food products. Brexit poses a complex set of problems regarding TRQ s in terms of how the respective parties should divide up jointly undertaken commitments within the WTO , since TRQ s have been negotiated by the Commission on behalf of all EU Member States. Whilst individual quota allocations can be allocated to specific third country suppliers, individual Member States receive no specific allocation of the global product TRQ either in total, or from any named preferential supplier. The article outlines the nature of TRQ s in the meat and dairy sectors of the EU , and how a simple partitioning of existing quotas between the EU ‐27 and the UK is unlikely to resolve the complex issue of access rights of third countries to both markets. Possible solutions are explored, including the potential need for reciprocal EU ‐27–UK TRQ s post Brexit.     

Evaluating the TRQ Import Licensing Mechanisms in the Canadian Chicken Industry

Tariff rate quotas (TRQs) were introduced at the end of the Uruguay Round to support market access following the tariffication of nontariff barriers to trade in agriculture. The allocation of import licenses under the TRQ regime in the Canadian chicken industry is currently made according to discretionary criteria. The welfare properties of this import licensing scheme are evaluated in comparison with a less discretionary allocation method such as first-come, first-served (FCFS) using a numerical model. The analysis also provides a welfare evaluation of both methods as the current minimum access commitment for chicken imports is expanded. It is found that total welfare in the Canadian chicken industry is likely to be higher under a TRQ administration method based on nondiscretionary criteria such as firstcome, first-served. However, particular assumptions about the chicken producers'response to increased foreign competition can reverse this finding. Moreover the welfare differences between the two license administration schemes are less important when market access to imports is substantial.     

Dairy Tariff-Quota Liberalization: Contrasting Bilateral and Most Favored Nation Reform Options

A highly disaggregated, "tariff line," source-differentiated, partial equilibrium model of U.S. specialty cheese imports is developed to investigate reform options for tariff-rate quotas (TRQs). A mixed-complementarity framework is used to represent bilateral and most favored nation (MFN) tariff quotas. The impacts of liberalizing U.S. specialty cheese imports via bilateral and MFN quota expansions, out-of-quota tariff cuts, and simultaneous liberalization scenarios are evaluated. We find that the path of liberalization is quite different, depending on the reform approach undertaken, particularly if the United States adopted an MFN quota administration mechanism for specialty cheese imports.     

The Equivalence of Tariffs and Quotas under a Tariff‐Rate Quota System: A Case Study of Rice

This study examines the effect of tariff‐rate quota (TRQ) expansions as have emerged from the international trade negotiations that are designed to ensure market access for many sensitive agricultural products. We extend the existing models on tariff–quota equivalence to a TRQ system. Our theoretical finding indicates that the equivalence of domestic price between out‐quota tariff reduction and quota expansion depends on domestic producer's behavior and on the values of conjectural variation. An empirical spatial equilibrium model of international rice trade is used to examine the price and welfare impacts of replacing quota expansions with tariff reductions. Le présent article examine les répercussions de l’expansion des contingents tarifaires issue des négociations de commerce international pour assurer l’accès au marché de nombreux produits agricoles sensibles. Nous avons élargi les modèles existants d’équivalence entre les quotas et les tarifs à un système de contingents tarifaires. Nos résultats théoriques ont indiqué que l’équivalence de prix intérieur entre la diminution des tarifs hors contingent et l’expansion des contingents dépend du comportement du producteur national et de la valeur des variations conjecturales. Nous avons appliqué un modèle empirique d’équilibre spatial dans le commerce international du riz pour examiner les répercussions du remplacement de l’expansion des quotas par des réductions de tarifs sur le prix et le bien‐être.     

Agricultural Trade Liberalisation in the 21st Century: Has It Done the Business?

Based on a novel, detailed, time‐consistent tariff database taking account of import protection developments in the agricultural sector since 2001, we propose a statistical decomposition of the changes in the various types of tariffs. The results show that the multilateral system has played a limited role in trade liberalisation over the period. Many countries have continued to apply much lower tariffs on agricultural products than their WTO ceilings. Moreover, there has been substantial unilateral dismantling of tariffs over the period, so that much of the liberalisation took place outside WTO and regional agreements. The number of regional trade agreements has surged, but their impact on applied agricultural tariffs has been limited. Finally, we investigate the tariffs, trade and production implications for food and agricultural products of two extreme scenarios in the future development of trade negotiations: an ambitious surge of regional agreements and a trade war within the WTO context.     

TRQ‐complications: who gets the benefits when the EU liberalizes Mercosur's access to the beef markets?

The European Union (EU) and the Mercosur countries resumed negotiations on trade liberalization in May 2010 after several years of interruption. The article analyzes who stands to benefit and who is likely to lose if the EU liberalizes Mercosur's access to domestic beef markets. This economic assessment is performed using a partial equilibrium model for beef operating at a low level of product aggregation, paying specific attention to the role of Tariff Rate Quotas (TRQs). Consultations with experts from the meat sector allowed us to identify the allocation of the quota rents to different stakeholders. Under an agreement based on the EU's negotiation proposal, trade impacts are projected to be small due to the present quota overfill. As expected, impacts are more pronounced under the conditions set out in Mercosur's proposal. The results confirm that the distribution of quota rents can be decisive in determining welfare effects.     

Armington Elasticities and Tariff Regime: An Application to European Union Rice Imports

The European Union’s (EU) import sources for rice include developing countries and least developed countries (LDCs). The EU has made a commitment to allow duty‐free and quota‐free access to rice imports originating in the LDCs from September 2009 onward. The purpose of this article is to answer two questions: (1) does the inclusion of import tariffs lead to different estimated Armington elasticities? (2) when a discriminating tariff is introduced, what happens to the market share of large rice exporters to the EU, especially of poor countries? We present the Armington model, derived from a constant elasticity of substitution (CES) utility function, and a non‐homothetic CES utility functional form, which is more flexible. We then estimate the Armington model, with and without the inclusion of a tariff, and we compare the elasticities. Lastly, we model five scenarios with different discriminated import tariff rates to calculate the changes in the market access of large rice exporters to the EU. Our empirical results show the importance of non‐homothetic preferences and import tariffs. Ignoring import tariffs and the non‐homothetic parameter may produce results which are biased and of uncertain validity. Furthermore, the simulation findings demonstrate that, in spite of a large difference between import tariff rate of Suriname and other countries (scenario V), its market access would not change greatly. This may be caused by supply side problems like poor infrastructures, weak technology and small capacity production in LDCs.     

The Effectiveness of Antidumping Measures: Some Evidence for Farmed Atlantic Salmon

Counterfactual simulations of a partial equilibrium model of the world salmon market suggest safeguard tariffs imposed by the European Commission on salmon imports from Norway, Chile, and the Faroe Islands would do more to punish producers in the named exporting countries than to reward United Kingdom producers. The reason is that export supply is less elastic than import demand on a bilateral basis, which means that most of the tariff's incidence is borne by the targeted producers rather than EU consumers. The incidence problem is exacerbated by the feed quota (now biomass limit) that Norway uses to limit its production. A marketing fee that expands market demand is shown to be less distortionary than its tariff equivalent, and thus may be preferred from a second‐best perspective.     

‘Deal’ or ‘No Deal’? Impacts of Alternative Post‐Brexit Trade Agreements on UK Agriculture

Brexit will have important implications for UK agricultural commodity markets due to potentially significant changes to trade flows. We quantify the sectoral impacts on UK agriculture of three illustrative scenarios, which capture a broad range of potential trade arrangements: Bespoke Free Trade Deal , WTO Default and Unilateral Trade Liberalisation . It is estimated that the projected market impacts are relatively small if the UK negotiates a Bespoke Free Trade Agreement with the EU. The projected impacts are much greater under the two other scenarios, which capture potential trade arrangements if ‘no deal’ is reached. The high tariffs imposed under the WTO default scenario lead to significant adjustments in trade between the UK and EU‐27, with the impact on the domestic UK market depending on whether the UK is a net importer or a net exporter of the relevant commodity. All sectors experience price and production declines under the trade liberalisation scenario in which the UK unilaterally sets tariffs on imports from both the EU‐27 and the rest of the world to zero; the impacts are particularly severe in the beef and sheep sectors where international competition is very strong.     

The Contingent Tariff of the Special Safeguard Mechanism: What Happens When Markets are Imperfectly Competitive?

Contingent tariffs for agri‐food commodities have been proposed as a Special Safeguard Mechanism (SSM) in the Doha Round negotiations by the G33 group of countries as an instrument to control downward spikes in their border prices and/or surges of imports. The objective is to safeguard the livelihood security of farm households in poor countries. To date, most analysis of such tariffs uses stochastic partial equilibrium models with perfect competition. Yet in many markets for such commodities, imperfectly competitive market intermediaries play an important role in determining producers' prices, as do state trading enterprises (STEs). A stochastic partial equilibrium model of a typical importing country situation is specified in which there are either imperfectly competitive domestic intermediaries with a contingent tariff or an STE. The role of these intermediaries in influencing price behaviour and livelihood security in the presence of contingent tariffs alters the conclusion based on models of perfect competition. Using Monte‐Carlo simulation, it is shown that the efficacy of a contingent tariff is substantially reduced as the number of firms declines because increasingly they absorb the tariff, and the procurement price and producer surplus do not increase to the extent that they do under perfect competition.     

How important are tariffs and nontariff barriers in international markets for fresh fruit?

International markets for agricultural products are often subject to a range of trade barriers, and horticultural products are no exception. This article examines the economic implications of tariffs and sanitary and phytosanitary (SPS) regulations that are applied to global markets for fresh apples and fresh oranges. We calculate regional‐level tariff rates and ad valorem equivalents for SPS barriers following the price‐wedge approach. A simulation model is developed and used to assess the price, quantity, and welfare implications of reducing tariffs, removing SPS barriers, and removing SPS barriers that have been identified as a Specific Trade Concern (STC) by the World Trade Organization. Results suggest that a 36% reduction in global tariffs would lead to greater welfare gains than would the elimination of SPS measures in apple markets. However, in orange markets, we find that SPS measures have much larger economic implications for producers and consumers. Here, a 36% reduction in tariffs would lead to smaller overall welfare effects compared to removal of all SPS measures, and only slightly larger effects than those from removal of STCs alone.     

Trade policy, biotechnology and grain self-sufficiency in China

Over the past 20 years the growth of China's agricultural economy has been extraordinary. However, it seems unlikely that China will maintain self‐sufficiency in grains by 2005 without substantial intervention. We develop a CGE model to assess the options available to Chinese policy makers. We compare the welfare effects of import tariffs and domestic support, and explore the potential of biotechnology as a means to achieve self‐sufficiency through improvements in agricultural productivity. Our results indicate that the price interventions that would be required to maintain China's desired self‐sufficiency ratios are considerable, and are unlikely to be compatible with WTO accession. The productivity improvements required are also significant, and likely beyond the current potential of biotechnology.     

Political competition and policy choices: the evidence from agricultural protection

This article investigates whether political competition plays an important role in determining the level of agricultural protection. In order to do so, we exploit variation in political and economic data from 74 developing and developed countries for the post‐war period. We use two measures of political competition: one that captures the extent to which political power can be freely contested regardless of election results and one based on vote share at last parliamentary elections. Our results, based on static and dynamic panel estimators, show unambiguously that the higher the level of political competitions is, the higher the agricultural protection.     

Analysis of a supply-control program under uncertainty and imperfect competition: Chinese cabbage in Taiwan

Researchers have often attributed the farm–wholesale price spread, after adjusting for marketing costs, as compensation for marketing firms' risk bearing. However, price spreads in excess of marketing costs can also be due to marketing firms' exercise of market power. In settings where both imperfect competition and marketer risk aversion are plausible, a modeling framework must be sufficiently general to accommodate both types of behavior. This article develops and estimates such a model in the context of fresh produce marketing and develops the implications for analysis of supply‐control programs. The model is applied to the production and marketing of Chinese cabbage in Taiwan and specifically to the analysis of supply‐control programs implemented in this industry by the Taiwanese government. The empirical results provide little support for the hypothesis that marketing firms exhibit risk averse behavior, but they do show that marketing firms exercise oligopsony power in procurement of the product from farmers, and that this power is positively related to the quantity supplied in each market period. This provides a heretofore unexplored impetus for supply controls intended to raise producer incomes. However, such controls are also rendered less effective by imperfect competition because marketing firms capture part of the benefits from supply reduction.     

Dairy disaggregation and joint production in an economy‐wide model*‡

We examine the impact of dairy disaggregation and joint production on trade liberalisation outcomes in an economy‐wide model. Depending on parameterisation, our model includes either (i) a single dairy commodity, (ii) several dairy commodities without joint production or (iii) several dairy commodities with joint production. In a numerical application, we consider the removal of US tariffs on dairy exports from New Zealand (the world’s largest dairy exporter). We show that failing to account for joint production when dairy commodities are disaggregated leads to misleading results. Our preferred dairy production function differs from those used in other applied trade models. Our analysis can be used to determine when accounting for joint production in other sectors is important.     

Re‐evaluating the Harbinson Proposal – Prospects for the EU25: A Note

In this study, we use the Harbinson Proposal and July Framework to compare a ‘likely’ Doha scenario with a realistic baseline. The novelty of this study is that we focus exclusively on the trade‐led welfare impacts in selected EU member states. The important features of this note are the: (i) usage of the latest Global Trade Analysis Project (version 6) data; (ii) focus on EU25 regions incorporating all major Common Agricultural Policy instruments and reforms; and (iii) inclusion of binding tariff overhangs into the Harbinson tariff reductions. Results show the damping effects of tariff‐binding overhangs on welfare outcomes. This and other factors which limit the gains to liberalisation mean that the EU25 only realises 10% of its long‐run welfare gain potential, as defined by complete liberalisation.