Abstract
AbstractKorea replaced its rice import quota with a tariff rate quota (TRQ) in 2015. A structural model representing the Korean rice market is developed to evaluate this new trade policy and examine the possibility of Korean rice imports under uncertainty. Results indicate that rice imports in excess of the current TRQ quantity are unlikely for a range of market conditions. Two scenarios, which are the over-quota tariff rate reduction and the TRQ quantity expansion, show how the market responds to policy changes. In addition, Korean rice imports are sensitive to consumer preferences for different rice types.
Highlights
Tariffication is one of the mechanisms to liberalize trade
Given this outcome from 500 simulations based on correlated draws on historical distributions of the yield, world rice prices, and the exchange rate, the model suggests that only a serious departure from historical patterns could cause imports to rise above the tariff rate quota (TRQ) quantity
The TRQ quantity is changed by an amount that is equal to the mean increase in rice imports caused as the over-quota tariff rate is reduced to 213% and 113%
Summary
Tariffication is one of the mechanisms to liberalize trade. Tariffication, the conversion of import quotas to tariffs, is believed to stabilize international prices with respect to shocks in world supply or demand and the domestic price with respect to domestic supply or demand shocks (Abbott and Paarlberg, 1998; Tyers and Anderson, 2010). Under TRQs, the price stabilizing effects of tariffication might not be realized if the tariff on over-quota imports is prohibitive (Abbott and Paarlberg, 1998). The authors find that an expansion of the quota or a decrease in the over-quota tariffs would lead to more Korean rice imports These articles were published well before the TRQ was introduced and based on outlooks that preceded the price surges of the last decade. We build a structural model to represent the Korean rice market and stochastically simulate the possibility of importing rice. In addition to a base case without any adjustment to the TRQ parameters, we estimate medium- and longgrain rice imports given two possible policy changes—namely, (1) a reduction of the over-quota tariff rate and (2) an expansion in the TRQ quantity, or minimum market access (MMA) quantity. The last section summarizes our findings and draws some conclusions
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