Auctioning U.S. import quotas, foreign response, and alternative policies

Abstract

In this study we quantify the potential revenue available to the U.S. from auctioning import quotas, and the resulting drop in foreign producer surplus relative to free trade. Previous estimates of auction revenue are in the range of $3.7-5.15 billion for 1986 or 1987. Using simulation results from computable partial or general equilibrium models, we find that this revenue gain would be at the expense of a large drop in foreign producer surplus. Ignoring textiles and apparel, the potential auction revenue is $1.3-2.15 billion, and the foreign loss is $0.5-0.7 billion relative to free trade. As an alternative to auction quotas we propose a system of tariff-rate quotas, which are designed to keep supplier countries welfare equal to that in free trade. We calculate that the tariff-rate quotas could raise $0.67-1.55 billion in revenue for the United States. While this amount is less than available through auction quotas, it could still fund a significant program of worker adjustment, and would mitigate the foreign response.