Transcript Agricultural Policies in Emerging Economies

TARIFF RATE QUOTA’s (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.
2
3
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.
4
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 < 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
6
7
0
http://www.ers.usda.gov/db/wto/
Fiber
Skins & hides
Nuts & fruit: (dried, fresh, and prepared)
Nuts
Coffee
Fruit: preparations
Fats & oils
Cocoa beans & products
Fruit: dried & fresh (coconuts, dates & figs)
Food preparations
Feed
Vegetables: frozen or prepared (other)
Oilcake
Vegetable oils
Eggs
Vegetable juice: tomato
Vegetables: dried & fresh roots & tubers
Grains
Grain products
Meat: prepared
Dairy
Sweeteners
Tobacco: unmanufactured
World bound agricultural tariff averages, by commodity group
180
160
140
120
100
80
Average bound agricultural tariff (63 percent)
60
40
20
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Average Ag. tariff
Country
All Tariffs
InOverquota quota
%
Tariff lines
Over- TRQ lines as
Without In-quota quota % of total
TRQs
tariffs
tariffs lines
Number
%
Average for table
59
59
115
33,392
4,876
6,827
20
Australia
Brazil
Canada
China
EU
Japan
Korea,
Mexico
New Zealand
Norway
Taiwan
US
4
37
7
14
22
19
27
35
7
101
11
5
19
7
3
6
17
22
19
48
0
213
20
10
26
28
74
43
79
420
309
148
7
204
179
35
784
1,417
939
938
1,516
1,154
1,127
882
971
706
1,257
1,270
11
4
115
46
315
188
195
69
4
363
111
193
10
6
250
46
277
123
180
68
4
497
91
376
1
0
27
5
18
11
16
8
0
70
7
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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 overTRQ 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
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

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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?
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

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
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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 Japan’s 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.
16
Notified
Source: http://www.ers.usda.gov/Briefing/WTO/trq.htm
Enforced
17
18
Source: http://www.ers.usda.gov/Briefing/WTO/trq.htm
Source: Skully
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Skully
quota
not
binding
excess
demand
“small” country
world price: W
quota
binding
quota not binding
but huge in quota
rents
in-quota
tariff
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Skully
D&S left of equib.
are inframarginal
TRQ admin = rationing
F. trade: CS = A+B+C+D+Rent+Tariff
Tariff: DWL = D
TRQ: CS = A; Rent may be dissipated
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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 Gov’t resells imported wheat @ ~ double world price;
MAFF uses a Simultaneous-Buy-Sell (SBS) system;
Imports about $5.7 mmt per year; $1.14 Billion import rents
Japanese Wheat Imports by Source (MT)
Year
U.S.
Share
Canada
Australia
TOTAL
CY 2006
3,002,097
56.2%
1,193,154
1,133,540
5,337,110
CY 2007
3,166,974
60.0%
1,136,261
948,251
5,275,108
CY 2008
3,658,265
63.3%
1,180,784
932,665
5,780,711
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Source: Ministry of Finance
DAIRY TARIFFS
Region
WTO bound tariffs
Mean
Median
%
North America
83
45
Central America
68
60
Caribbean
87
100
South America
43
35
European Union
87
70
221
93
Eastern Europe
84
51
Middle East
65
35
North Africa
74
87
Sub-Saharan Africa
75
80
Southern Africa
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22
Asian Pacific Rim
71
30
104
100
Non-EU Western Europe
South Asia
http://www.ers.usda.gov/db/wto/
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China
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

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 China’s agric TRQs
are not functioning as per accession agreement &
they are impaired by inadequate transparency.
Chinese gov’t allegedly allocates quotas to favor
state trading enterprises.
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1.117 mmt = 2.457 billion lbs;
Or $246 million in rents @ 10¢/lb
Taiwan is a large net importer
of sugar (400,000 mt/yr)
Over$30m
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
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
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
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
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
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
Fill Rate(y)
Frequency
Percent
Cumulative
Percent
0
430
10.24
10.24
0<y≤0.1
454
10.81
21.04
0.1<y≤0.2
202
4.81
25.85
0.2<y≤0.3
155
3.69
29.54
0.3<y≤0.4
125
2.98
32.52
0.4<y≤0.5
138
3.28
35.80
0.5<y≤0.6
126
3.00
38.80
0.6<y≤0.7
111
2.64
41.44
0.7<y≤0.8
147
3.50
44.94
0.8<y≤0.9
167
3.98
48.92
0.9<y<1.0
389
9.26
58.18
1
1757
41.82
100.00
Total
4201
100.00
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Li & Carter - again



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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
Impacts on
Fill Rates
Theoretical Ranking
Low
Market allocation
methods
Medium
Quasi-market
methods
High
Discretionary
methods
Empirical
Results
{ AT
AU
AT
OT
MX
HI
{
FC
LD
HI
FC
PG
LD
{
PG
ST
ST
AU
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
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