Endogenous Choice of Trade Instrument Under Uncertainty *

This Paper endogenizes the choice between import tariffs and quotas of two policy active countries in a duopsonistic world market. Without uncertainty, import quotas are welfare superior to import tariffs in equilibrium. If two importers can precommit to a type of instrument before deciding the level of the instrument to use in a future period, an import quota equilibrium emerges. We introduce asymmetric risk in the import demand schedule of the two importers. There exists a range of parameters in which a mixed equilibrium emerges, i.e. one country uses a tariff while the other restricts trade with an import quota. The likelihood that both importers choose a different trade instrument in equilibrium is increasing with the correlation coefficient of the two random shocks. [F13]     

On Functionally Distributed Quotas

We consider “functionally distributed” quotas, where trade is restricted to a function of another economic activity, paying special attention to the ratio constraint and its relation to “proportionally distributed” quotas. We propose a simple principle defining the optimal policy under a functionally defined restriction, extend the analysis of ratio import/production constraints to general equilibrium, introduce export constraints, and constraints defined in proportion to factor use. We develop the general‐equilibrium geometry of functional trade constraints and the concomitant optimal policies, deriving a “quota locus” that depicts the consumption possibilities under various regimes.     

Import sensitive products and perverse tariff‐rate quota liberalization

Abstract This paper shows that a Tariff‐Rate‐Quota's (TRQ) minimum access expansion can perversely trigger domestic price increases. Often, TRQs have prohibitive over‐quota tariffs to mimic import quotas in providing minimum market access. In the WTO's Doha Round, it is likely that countries using TRQs will avoid aggressive tariff reductions if they increase the quota portion of TRQs. We show that when the import price lies between the unit cost of production and the price received by domestic upstream firms, an increase in import quota as a share of domestic production may cause an increase in the domestic retail price.     

Climate Policy under Technology Spillovers

We study climate policy when there are technology spillovers between countries, as there is no instrument that (directly) corrects for these externalities. Without an international climate agreement, the (non-cooperative) equilibrium depends on whether countries use tradable quotas or carbon taxes as their environmental policy instruments. All countries are better-off in the tax case than in the quota case. Two types of international climate agreements are then studied: One is a Kyoto type of agreement where each country is assigned a specific number of internationally tradable quotas. In the second type of agreement, a common carbon tax is used domestically in all countries. None of the cases satisfy the conditions for the social optimum. Even if the quota price is equal to the Pigovian level, R&D investments will be lower than what is socially optimal in the quota case. It is also argued that the quota agreement gives higher R&D expenditures and more abatement than the tax agreement.     

Equilibrium audit strategies against tax treaty shopping

This paper examines game‐theoretic models of tax treaty shopping. An investor can choose a direct or indirect investment route across countries to minimize tax. A tax agency can audit the investor. The audit is costly but it can give additional revenue to the tax agency. In simultaneous‐move games, regardless of whether incomplete information exists and whether a home country allows foreign tax credits, there are mixed‐strategy equilibria where the investor may choose tax‐minimizing indirect routes and the tax agency may audit the investor. This equilibrium random audit strategy helps the tax agency raise revenue and reduce treaty shopping. Comparative statics yields an implication consistent with empirical evidence. However, if the home country has a foreign tax credit system with a high tax rate, or if the tax agency observes the investor's action in a sequential‐move game, the investor always chooses the direct route, and no treaty shopping occurs in equilibrium.     

Foreign Aid under Quantitative Restrictions: Welfare Effects and International Factor Mobility

Using a two‐country, general‐equilibrium model of international trade, this paper incorporates pre‐existing quantitative trade restrictions and international factor mobility into the transfer problem analysis. The effects of foreign aid on the welfare of both the donor and recipient nations are identified under each form of quantitative trade restriction: quotas and voluntary export restraints (VERs). In doing so, this paper identifies conditions under which international transfers are strictly Pareto‐improving (i.e. increase global welfare). A central result of this analysis is the direct welfare effect of a transfer received by a nation with quota‐constrained (VER‐constrained) imports is enhanced (may be enhanced) by a worsening of the recipient’s terms of trade.     

State Trading and Tariff Rate Quotas: The Case of Korea's Rice Imports

This paper analyzes the effects of trade liberalization of tariff‐rate quotas under import “state trading enterprises” (STEs) in agriculture. An analytical framework is provided to determine the importance of which instrument is binding under competition (the in‐quota or out‐of‐quota tariff or the quota) and under the initial STE equilibrium. It also depends on whether or not the STE controls both the domestic market prices and owns/controls the import quota (and whether it is obligated to fill the quota or not). An empirical example of the rice STE in South Korea has simulations showing that an increase in imports can be achieved through a moderate expansion of the quota or a decrease in the out‐of‐quota tariff to the level where it becomes binding. However, a significant level of quota expansion induces the STE to switch to the autarky solution and social welfare declines.     

ORDERLY MARKETING ARRANGEMENT IN THE CONTEXT OF THE GATT REGIME*

When a country faces a sudden surge of import, GATT allows it to impose an import quota to protect its domestic import-competing firms. Nevertheless, various types of OMAs (orderly marketing arrangements) are often utilized instead of import quotas. This paper shows that the threat of the exporting country's retaliation approved by GATT makes it advantageous for both the exporting and importing countries to establish an OMA. By designing an OMA under which its deadweight loss is appropriately distributed to them, they avoid the retaliation approved by GATT which causes an additional deadweight loss.     

ENVIRONMENTAL MANAGEMENT POLICY UNDER INTERNATIONAL CARBON LEAKAGE

This article studies environmental management policy when two fossil‐fuel‐consuming countries noncooperatively regulate greenhouse‐gas emissions through emission taxes or quotas. The presence of carbon leakage caused by fuel‐price changes affects the tax‐quota equivalence. We explore each country's incentive to choose a policy instrument in a two‐stage policy choice game and find subgame‐perfect Nash equilibria. This sheds new light on the questions of which policy instrument is more stringent and of why adopted instruments could be different among countries. In particular, our result suggests a reason why developing countries tend to employ emission taxes whereas developed countries tend to adopt quotas.     

Endogenous Timing in a Strategic Trade Policy Game: A Two-Country Oligopoly Model with Multiple Firms

This paper examines strategic trade policy games where the number of firms in the importing and exporting countries differs and all firms play as Cournot oligopolies. Under the assumption of linear demand and constant marginal cost, we show that, if the number of firms in the exporting country exceeds that in the importing country by more than three, the government of the exporting country chooses to move as a leader, imposing an export tax on firms. The government of the importing country then becomes a follower and imposes an import tariff. This lies contrary to the previous study, which assumed that there is only one firm in each country.     

WELFARE LOSSES FROM NON‐TARIFF BARRIERS: THE JAPANESE BEEF QUOTA CASE*

A standard method of estimating deadweight losses caused by import quotas is to estimate a utility function by data over a period in which the quota is not imposed, and to use the estimated utility function to evaluate the virtual price of quota‐laden imports. This method, however, is not applicable if preferences are different between quota and non‐quota periods. In order to overcome this difficulty, the present study introduces a method of estimating a utility function directly from data in a quota period. This method is applied to the estimation of deadweight losses attributable to the Japanese beef quota.     

考虑港口收费管制的进出口贸易竞争研究

考虑港口的收费管制因素,建立了进出口贸易竞争模型。该模型由一个出口国和两个进口国组成,且各国都拥有一个港口,位于出口国的两家公司均向两个进口国销售商品,并在各个进口国展开市场竞争（古诺竞争或伯川德竞争）,各贸易国的港口根据其是否存在价格管制确定港口收费。针对进出口公司的每种竞争模式,得到了不同的港口收费管制组合下各贸易国的港口收费、港口利润和社会福利,并将竞争均衡结果进行了比较。研究发现： （1）在进出口公司古诺竞争模式下,若三个贸易国的港口都无收费管制（有收费管制）且进出口产品的差异较大 （小）时,各贸易国的社会福利和港口利润均更高; （2）在进出口公司伯川德竞争模式下,若进出口产品的差异较大 （小）,则出口国的港口利润主要取决于港口收费 （贸易量）,而进口国恰好相反; （3）当进出口产品的差异较大 （小）时,进出口公司在古诺 （伯川德）竞争模式下各贸易国的社会福利、港口利润以及港口使用费都更高。     

Internal Quota-Allocation Schemes and the Costs of the Mfa*

This paper suggests that schemes used within developing countries to allocate textile export quota among domestic producers typically have more severe negative effects on developing-country economic performance than the MFA export quotas themselves. We summarize allocation schemes in 16 countries, highlighting common “lock-in” and “rent-dissipation” effects of such schemes. We then use a global general-equilibrium model to evaluate the effects of MFA removal with and without these additional effects. Results indicate that estimates of gains to developing countries from an MFA removal increase sharply when internal quota-allocation schemes are taken into account.     

International Technology Transfer: Who Gains and Who Loses?*

When one country has a superior technology in all commodities, a Ricardian model with two goods and two countries is used to examine uncompensated transfers of superior technology in one or both goods. A transfer of the superior but second‐best technology always benefits the advanced country because it was improting that good initially and now gets it cheaper. But the free gift of the first‐best technology can also benefit the advanced country if a certain productivity condition is satisfied because that country may now export its former import good at an even better terms of trade.     

Competition Policy as Strategic Trade with Differentiated Products

The paper analyzes how countries use competition policy as a tool for strategic trade. In the model, two countries export to a third country. Each exporting country is endowed with a set of differentiated products. Each government chooses the number of exporters for its country and the products that each exporter sells in the first period, and a tax policy in the second period. Firms choose prices or quantities independently in the third period. In the unique subgame‐perfect equilibrium, both countries group all their products within a single firm—the “national champion policy.” We study the implication of different assumptions about the timing of the game.     

The effects of periodic quotas limiting the stock of imports of durables

Analyses of trade quotas typically assume that the quota restricts the flow of some nondurable good. Many real-world quotas, however, restrict the stock of durable imports. We consider the cases where (1) anyone is free to export against such quotas and where (2) only those allocated portions of the total quota are free to export against such quotas. Recent econometric investigations of such quotas have focused on the price of the durable as an indicator of tightness induced by the quota. We show why this is an inappropriate indicator and suggest alternatives.     

Tariffs vs Quotas in a Model of Trade with Capital Accumulation*

This paper examines the equivalence among price‐modifying and quantity‐fixing international trade policies in a differential game. We employ two well‐known capital accumulation dynamics for firms, due to Nerlove and Arrow and to Ramsey, respectively. We show that, in both cases, open‐loop and closed‐loop Nash equilibria coincide. Under the former accumulation the tariff‐quota equivalence holds, while, in general, it does not under the latter. Moreover, in the Ramsey model, the country setting the trade policy (weakly) prefers a quantity‐equivalent import quota to the adoption of the tariff. These results are not a consequence of the equilibrium concept we adopt (with and without market power), but directly follow from the interplay between market power and the properties of accumulation dynamics.     

The Welfare Synergy of Bundling International Environmental Agreements with International Trade Treaties

This paper examines whether linking environmental cooperation with international trade agreements improves the welfare of the participating countries and allows countries to move closer to free trade compared with trade‐only agreements. The model is an infinitely repeated game with the threat of reversion to Nash equilibrium if an economy deviates from the cooperative agreement. It is found that such a synergy exists in a symmetric two‐country model with two goods, both emitting pollutants even when the externalities have local impact. A combination of analytic and numerical simulation analysis is used to derive the conclusions.     

Hidden costs of supply management in a small market

Canada regulates its dairy and poultry industries through supply management. The supply‐management programs use target prices, production quotas and import tariff‐rate quotas to raise domestic prices. Canadian supply‐managed producers cannot export their output to world markets as exports would be considered subsidized under World Trade Organization rules. In this paper, we show that once foregone export opportunities are accounted for, supply management may no longer be beneficial to domestic producers of the supply‐managed commodities. The extent to which foregone profits from exports dominate domestic rents depends on Canada's comparative advantage, domestic market elasticities and the extent of supply management distortion in the domestic market.     

Quota Wars In Conjectural Variations*

This paper uses a two-country, two-good, conjectural-variations model of trade to show that a quota war will not end in autarky as Rodriguez (1974) and Tower (1975) concluded. Since both countries expect retaliatory responses to reductions in their quotas, both countries are willing to stop the trade war before autarky is reached. the possible equilibria are free trade, two equilibria in which one country has its optimal quota while the other country chooses free trade, and an interior solution. It is possible that some, all, or none of these equilibria will exist.