The Possibility of Inefficient Liberalization through Tariffication

William Kaempfer and Stephen V Marks

Review of International Economics, 1994, vol. 2, issue 2, 123-30

Abstract: A typical step in trade liberalization under the GATT is tariffication--the conversion of quantitative import restrictions to their ad valorem tariff equivalents. This paper shows that, if there is market power in the protected industry, tarrification may cause a global efficiency loss. In particular, in a small country if the protected industry is a monopoly that is freely able to export but cannot profitably do so, then tarrification unambiguously imposes global efficiency costs. In a a large country, the global efficiency effects are uncertain a priori. In both cases, however, tarrification unambiguously benefits the monopoly and lowers foreign welfare. Copyright 1994 by Blackwell Publishing Ltd.

Date: 1994
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