The Economics of Two-Tier Tariff-Rate Import Quotas in Agriculture

Abstract

This paper analyzes the economics of two-tier tariff import quotas (TRQs) and implications of alternative trade liberalization scenarios. The Uruguay Round Agreement on Agriculture had tariffs replace nontariff barriers as the protective mechanism while quotas ensured minimum trade flows. Our framework isolates the effects of changes either in the second-tier tariff, and first-tier tariff, or the quota. We show how market conditions or relative policy instrument levels determine which tariff or quota affects trade and domestic and world prices. Whether or not exporting countries have been allocated export quotas and the procedures for the distribution of the rights to export and import also influences the efficiency of TRQs.