Tariff-Rate Quotas: Difficult to model or plain simple?

Phillip M. Bishop, Charles F. Nicholson, James E. Pratt and Andrew M. Novakovic
Additional contact information
Phillip M. Bishop: New Zealand Institute for Economic Research

Trade Working Papers from East Asian Bureau of Economic Research

Abstract: The difficulty of reliably and accurately incorporating tariffrate quotas (TRQs) into trade models has received a lot of attention in recent years. As a result of the Uruguay Round of GATT negotiations, TRQs replaced an assortment of tariff and nontariff instruments in an effort to standardise trade barriers, and facilitate their future liberalisation. Understanding the nuances of TRQs is now particularly crucial for New Zealand because of the preferential access arrangements that New Zealand has for a number of products in highly protected markets such as the European Union, Japan, and the United States. It has been argued that TRQs are complex instruments and are difficult to model because for any trade flow between two countries, one of three regimes may be applicable : 1. The import quota may not be binding and the within-quota tariff applies; 2. The quota may be binding, the within-quota tariff applies, and a quota rent is created; or 3. Trade occurs over and above the quota, in which case an over-quota tariff applies (although, even in this regime, someone is still able to collect the quota rent on within-quota trade). But even this characterisation, which many claim is too complex to model, is a major simplification of reality. Bilateral preferences are ubiquitous, and such preferences are usually included in the determination of multilateral market access quotas. It is usual, therefore, that the TRQ instrument has several tiers to the quota schedule, plus a number of within and over-quota tariff rates applicable on either a bilateral or a multilateral basis. Further trade liberalisation creates something of a dilemma for New Zealand. Any decrease in over-quota tariffs and/or increase in quota levels potentially reduces the value of quota rents, many of which accrue to New Zealand due to the bilateral preferences. It is important, therefore, that New Zealand trade negotiators understand how much additional trade is required to offset the loss of New Zealands quota rents. Modelling trade in the presence of TRQs is the only way to ascertain this knowledge. The purpose of this paper is to show that complex TRQs can be modelled very easily and precisely. The only catch is that the model must be formulated as a complementarity problem rather than the more conventional linear or nonlinear optimisation problem. The concept will be demonstrated using a simple 3-region, single commodity spatial price equilibrium model of trade.

Keywords: Tariff-rate quota; trade modelling; mathematical programming; complementarity (search for similar items in EconPapers)
JEL-codes: F10 F11 (search for similar items in EconPapers)
Date: 2001-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.eaber.org/node/22011 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 301 [REDIRECT LOOP] Moved Permanently (http://www.eaber.org/node/22011 [301 Moved Permanently]--> https://www.eaber.org/node/22011 [301 Moved Permanently]--> https://www.eaber.org/node/22011 [301 Moved Permanently]--> https://www.eaber.org/node/22011 [301 Moved Permanently]--> https://www.eaber.org/node/22011 [301 Moved Permanently]--> https://www.eaber.org/node/22011 [301 Moved Permanently]--> https://www.eaber.org/node/22011 [301 Moved Permanently]--> https://www.eaber.org/node/22011)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eab:tradew:22011

Access Statistics for this paper

More papers in Trade Working Papers from East Asian Bureau of Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by Shiro Armstrong ().