TARIFF RATE QUOTA’s (TRQs)

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TARIFF RATE QUOTAs (TRQs)

• Lecture 11 AHEED Course International
  Agricultural Trade and Policy
• Taught by , Alex F. McCalla, Professor Emeritus,
  UC Davis.
• April 5, 2010 University of Tirana, Albania
• Lecture courtesy of Professor Colin A.
  Carter, UC Davis

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Tariff Rate Quotas (TRQs)

• A tariff quota is a two-tiered tariff. In a
  given period, the lower in-quota tariff (t) is
  applied to the first Q units of imports and
  higher over quota tariff (T) is applied to all
  subsequent imports.
• Important for CA agric as TRQs are commonly used
  to restrict imports of fruits vegetables.
  Worldwide, there are more than 350 TRQs placed on
  trade in fruits vegs more than 25 of all
  agric TRQs are concentrated in fruit vegs
  trade.

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Tariff Rate Quotas (TRQs)-2

• TRQs account for 20 of total agric. tariff lines
  in WTO developed countries.
• Legally, TRQs are not quantitative restrictions
  because they do not limit the imported quantity.
  
• However, if the over-quota tariff is prohibitive
  under normal market conditions it will yield
  exactly the same import volume as a traditional
  quota.

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Tariff Rate Quotas (TRQs)- 3

• URAA required tariffication of NTBs required
  min. access to pry open markets, such as Japanese
  rice Canadian poultry.
• WTO Members were required to maintain imports at
  1986-88 base levels, where access was lt 5 of
  domestic consumption, additional min. access had
  to be opened on a most-favored-nation (MFN)
  basis to reach 5 of consumption by 2000.
• Japan dragged it heels on rice

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Tariff Rate Quotas (TRQs)- 4

• Tariff Binding all countries declare the highest
  tariff for each commodity Bound Rate
• 3-5 to be imported to promote trade
• In quota volume based on 1985 consumption
• In quota volume to have a lower tariff

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http//www.ers.usda.gov/db/wto/
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Difference Btwn Bound Applied Tariff Rates

• Raises a domestic policy question
• How much protection actually needed to keep out
  imports preserve domestic rents?
• Put differently how much can the over-TRQ
  tariffs be lowered, with no effect on domestic
  industry prices profits?
• How much unused protection exists with current
  TRQs? (i.e., water in the tariff)

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Difference Btwn Bound Applied Tariff Rates - 2

• e.g., in negotiations lobby efforts, Canadian
  dairy industry repeatedly argues against lowering
  over-TRQ tariffs, even at the cost of giving up
  an increase in TRQ levels, increasing imports
  (Barichello)
• Political economy debate about TRQs
  liberalization focuses on increase in the quota
  (Q), reduction in the in-quota (t) or
  out-of-quota (T) tariffs

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Difference Btwn Bound Applied Tariff Rates - 3

• There are numerous cases where countries have
  TRQs in place with very large over-TRQ tariffs
  imposed.
• Prominent examples of mega-tariffs (over 100)
• Canadian Poultry products
• US sugar
• EU sugar
• Japanese rice
• Korean rice

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Tariff Rate Quotas (TRQs)- s

• As of May 2005, there were 1,434 different
  agricultural TRQs notified to the WTO 45
  countries employing TRQs.
• TRQs generate quota rents, legitimize a role for
  state trading, allow importers to discriminate
  among exporters.
• Based on theory, it is questionable whether the
  implementation of TRQs improves market access
  global welfare.

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Tariff Rate Quotas (TRQs) - How Administered

• Only 1 of all TRQs notified to the WTO in 2000
  used auctions (about 4 in 04).
• Quota fill rates are significantly higher for
  historical allocation state trading.
• In practice, trading quota rights tends to be
  prohibited by quota administrators.
• The displacement of inframarginal traders by
  extramarginal traders is a source of inefficiency
  in TRQ administration.
• The availability of quota rents provides an
  incentive for extramarginal traders to enter the
  market.

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Tariff Rate Quotas (TRQs) Reforms?

• Skully (2001) argues that if TRQs cannot be
  abolished or converted to tariffs, then 2nd best
  option is to make all TRQs global auction them.
  
• Quota expansion in-quota and over-quota tariff
  reductions would achieve maximum liberalization
  results (OECD 2002).
• IATRC (2001) advocated that further WTO
  negotiations should focus on developing better
  rules for the administration of quota licenses.

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Tariff Rate Quotas (TRQs)-Experience

• Brazil complained to WTO that EU import scheme
  for poultry products nullified or impaired any
  benefits from the TRQ regime.
• U.S. has pressured China to reform its TRQs US
  is concerned with Japans rice TRQ.
• Benefits of TRQ access have been reduced by
  administration methods (Skully 2001).
• WTO (2001) OECD (2002) stated that quota
  administration methods have had only a limited
  influence on fill rates.
• Li Carter find that administration methods do
  matter in terms of granting market access to
  exporters.

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Notified
Enforced
Source http//www.ers.usda.gov/Briefing/WTO/trq.h
tm
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Source http//www.ers.usda.gov/Briefing/WTO/trq.h
tm
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Source Skully
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Skully
small country world price W
excess demand
quota not binding
quota not binding but huge in quota rents
quota binding
in-quota tariff
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Skully
TRQ admin rationing F. trade CS
ABCDRentTariff Tariff DWL D TRQ CS A
Rent may be dissipated
DS left of equib. are inframarginal
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Japanese Rice TRQ

• In 2007, Japan failed to meet its WTO min access
  commitment of rice imports. Out of the 682,000
  MT quota, approximately 65,000 MT were left
  unfilled
• Normally filled by US (50) Thailand (40)
  China (10)
• About 600,000 Mt of MA rice is now going into the
  feed sector some into ethanol.

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Japanese Wheat TRQs
Japanese Govt resells imported wheat _at_ double
world price MAFF uses a Simultaneous-Buy-Sell
(SBS) system Imports about 5.7 mmt per year
1.14 Billion import rents
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China

• WTO evaluates TRQ administration by two criteria
  nondiscrimination and quota fill.
• China has TRQs for cotton, wheat, corn
  vegetable oils, etc.
• U.S. complains China gave quotas for reprocessing
  export rather than domestic consumption, has
  allocated the quotas in amounts too small to be
  commercially viable.
• USTR (2008) reported that Chinas agric TRQs are
  not functioning as per accession agreement they
  are impaired by inadequate transparency.
• Chinese govt allegedly allocates quotas to favor
  state trading enterprises.

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1.117 mmt 2.457 billion lbs Or 246 million
in rents _at_ 10/lb
Taiwan is a large net importer of sugar (400,000
mt/yr)
Over30m Rents/yr
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Skully

• Concludes that auctions are the best way to
  administer a TRQ.
• 1st-come, first-served license-on-demand
  methods present a moderate risk of biased trade.
• State trading organizations producer groups
  that directly administer TRQs can also bias
  trade.
• Historical allocation is the method most likely
  to be discriminatory.

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Li Carter

• Recommendations for the best way to liberalize
  agricultural TRQs vary.
• Abbott and Paarlberg (1998) argued that a
  reduction of the above-quota tariff on pork would
  boost pork imports into the Philippines.
• Introduction of TRQs in the EU banana market, for
  instance, induced a high degree of rent seeking
  (Herrmann et. al. 2001).
• It has been argued that increasing quota volumes
  would result in greater welfare gains than would
  tariff reductions in the EU (Bureau and
  Tangermann 2000).

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Li Carter - cont

• TRQ fill rates, on average, dropped from 66 in
  1995 to 58 in 2002.
• Relatively low fill rates suggest that the agric.
  TRQ regime has not led to a significant
  improvement in market access.

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Tariff Rate Quotas (TRQs) Fill Rates
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Li Carter - again

• Identify factors affecting the performance of
  TRQs in terms of improving market access.
• Analysis covers individual TRQs notified by 28
  WTO member countries from 1995 through 2000.
• Results show that reducing in-quota tariffs will
  significantly improve market access while the
  market access effect of any reduction in
  over-quota tariffs is marginal.
• Also find that the empirical ranking of the
  efficiency of alternative TRQ administration
  methods differs from the theoretical ranking.

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Rank of the Impacts on Fill Rates across
Administration Methods



Note AT Applied tariffs, AU Auctioning, FC
1st-come, 1st served, HI Historical
importers, LD Licenses on demand, PG
Producer groups, ST Imports by state trading
enterprises MX mixed allocation, OT
Other