Agricultural tariff rate quotas in the EU 1997-2002: Do developing countries enjoy quota rents?

Abstract

Tariff rate quotas (TRQs) were introduced and legitimised as a market access instrument in the Uruguay Round Agreement on Agriculture (URAA). TRQs combine both restrictions on imports, as well as safeguarding current or preferential agricultural trade flows. When market access is restricted by a high tariff level beyond the quota, exporters that enjoy the low in-quota tariff may be able to gain a share of the quota rent. Do developing exporting countries benefit from EU TRQs? Are quota rents or the guaranteed market access the more important gain from the operation of these TRQs? What interests should developing countries defend in the debate on TRQs in the WTO Doha Round agricultural negotiations? This paper analyses the implementation of 87 EU agricultural TRQs between 1997 and 2002 to examine their economic significance from the point of view of developing countries. Analysis of the database shows that TRQ trade can generate a high preference margin but that the potential rent is not so high. Moreover, this potential rent is concentrated on bananas and sugar, because TRQs are actually binding for those two commodities. More detailed analysis of those products indicates that only a few exporting countries are likely to enjoy this potential rent: Latin American countries for bananas and ACP countries for sugar. Whether developing country exporters benefit from this potential rent depends on their competitiveness relative to world market prices as well as on the market conditions which determine whether rent is collected by the exporting country or by the importer.