Effects of Tariff Reductions under the Domestic Support Programs: The Case of the Korean Rice Market

Abstract

This study examines the effects of tariff reduction under the domestic support program in the Korean rice market as the non-tariff quantitative restrictions on rice import have been replaced with ordinary tariff measures. A brief conceptual analysis with graphical treatment and a market model for the direct payments program are first provided. Then, an empirical examination is conducted within a partial equilibrium framework to determine the tariff reduction effects, the role of policy variables such as target price in protecting the rice industry and their relationship with threshold prices. Results show that the direct payments program plays an important role in protecting the Korean rice industry even when import tariffs are sharply reduced. Changes in policy variables have direct effects on the threshold prices. The target price change in particular has significant effects that minimize the negative impacts on the rice market from tariff reduction. Moreover, the results suggest that the current direct payments program should be maintained in future agricultural policy reform, and increases in its policy variables need to be positively considered.