Tariff rate quotas: structural and stability impacts in growing markets

Abstract

AbstractThis paper examines several aspects of tariff rate quotas (TRQ) as adopted during tariffication of agricultural policies under the Uruguay Round of GAIT. Quota rents and non‐tariff barrier effects may remain under TRQs, contrary to the objectives of the tariffication process. Further, price stability impacts of a TRQ are more complex than those for either tariffs or quotas, and under certain circumstances TRQs may be more stabilizing than either case, since TRQs truncate domestic production distributions much like price bands policies. This complexity results from the possibility of regime switching, and may reflect behavior under either a tariff, a quota, or a combination of cases. A TRQ policy may affect the timing of import decisions based on incentives created under quota allocation procedures envisioned for this institution. It may also allow increased imports as demand growth occurs because the quota is not necessarily a binding constraint. This means the above quota tariff is the critical policy instrument. An empirical study of Philippines port: imports illustrates these issues.