Edited by William A. Kerr and James D. Gaisford
Chapter 23: Tariff Rate Quotas
Domestic market price P = pd/W 1+T 259 Supply 1+t W=1 Tariff revenue D3 D1 0 M(t) D2 Q Import demand Imports Figure 23.1 In quota tariﬀ binding Domestic market price P = pd/W 1+T Overquota tariff Supply 1+t+r 1+t W=1 Quota rent Tariff revenue Import demand 0 Q Imports Figure 23.2 Quota binding 260 Handbook on international trade policy Domestic market price P = pd/W Supply r=T–t Quota rent Over-quota tariff revenue Import demand 1+t W=1 In-quota tariff revenue 0 Q M(T) Imports Figure 23.3 Over-quota tariﬀ binding imports, imports within the quota are charged the in-quota tariﬀ and imports beyond the quota are charged the over-quota tariﬀ. Thus there are two shaded rectangles of tariﬀ revenue in Figure 23.3. In-quota imports can be imported for (1ϩt) and sold on the domestic market for (1ϩT) so the per unit quota rent, r, equals (TϪt). The shaded rectangle labeled ‘quota rent’ represents the total value of quota rents. Why tariﬀ quotas? The primary instruments of trade policy examined in economics texts are tariﬀs and quotas; there is little or no mention of tariﬀ-rate quotas. This general neglect was justiﬁed because, until the establishment of the WTO in 1994, tariﬀ-rate quotas were infrequently employed; quotas were far more commonly used. What happened in 1994 is addressed below. The fact remains that governments did impose tariﬀ quotas prior to 1994 and this leads to the question: why would a government choose...
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