Handbook on International Trade Policy
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Handbook on International Trade Policy

Edited by William A. Kerr and James D. Gaisford

The Handbook on International Trade Policy is an insightful and comprehensive reference tool focusing on trade policy issues in the era of globalization. Each specially commissioned chapter deals with important international trade issues, discusses the current literature on the subject, and explores major controversies. The Handbook also directs the interested reader to further sources of information.
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Chapter 23: Tariff Rate Quotas

David Skully


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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