ORGANISATION DE COOPÉRATION ET DE DEVELOPMENT ÉCONOMIQUES
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
Incorporating TRQs in AGLINK
Presentation for USDA/ERS
EU MODELLING WORKSHOP
Peter Liapis
November 15-16, 2001
Directorate for Food, Agriculture, and Fisheries
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PURPOSE
• Describe methodology
• Present preliminary results
Directorate for Food, Agriculture, and Fisheries
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Key Assumptions
•
•
•
•
•
Homogeneous products
Perfectly competitive markets
Country is a net importer of the good
Law of one price
Perfect price transmission between
world and domestic prices
• Only border policies in place
• TRQs administered efficiently
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Figure 1. Introduction of Tariffs
P
Pa
ES
Pt2d
ED1
Pt1d
Pt1w
Pt2
t1
ED2
w
ED
Mt2
Directorate for Food, Agriculture, and Fisheries
Mt1 Mf
Imports
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Figure 2. Three Zones of Effectiveness
P
Pa
ES
PdMA
X
PDMAX = PW*(1+t2)
PdMIN
PDMIN = PW*(1+t1)
PwMAX
ED1
t1
PwMIN
quota zone
t2 zone
ED2
t1 zone
MIN
total
imports
Directorate for Food, Agriculture, and Fisheries
MAX
total
imports
t2
ED
Imports
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Empirical Implementation
Three Ways TRQs are Introduced
• Case 1: closely follows the
analytical framework just laid out
• Case 2: incorporates the fact that
there are TRQs and export
subsidies for same products
• Case 3: incorporates the fact that
there can be “Domestic Price
Support”
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Empirical Implementation (cont):
Case 1
• Assume exports exogenous and imports are
residual
• No domestic policies to inhibit price
transmission
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Empirical implementation:
Case 1 (cont)
Two Steps
Step 1: Solve for the price P_TRQ
QCd = f(P_TRQ, P2, …)
QPd = f(P_TRQ, P2, …)
P_TRQ = QC+EX+ST-QP-QT-ST(-1)
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Empirical implementation:
Case 1 (cont)
Two Steps:
Step 2:
Make Imports residual that balance
domestic market
IM = QC+EX+ST-QP-ST(-1)
Domestic Consumption and Production
respond to model determined prices
QC = f(PD, P2, …)
QP = f(PD, P2, …)
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Empirical implementation:
Case 1 (cont)
Step 2:
Introduce IF statement to determine
domestic price
PD = IF
(P_TRQ >= PDMAX)
THEN PDMAX
ELSE IF (P_TRQ <= PDMIN)
THEN
PDMIN
ELSE
P_TRQ
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Empirical implementation:
Case 2 (EU)
• Imports and exports are
endogenous
• WTO export constraints respected
• No change in domestic price
determination
PD= QP+ST(-1)+IM-QC-EX-ST
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Empirical implementation:
Case 2 (cont.)
• Imports depend on the relationship
between domestic price and world
price with the relevant tariff
• Introduce IF statements to
determine imports
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Empirical implementation:
Case 2 (cont.)
IM=
IF
THEN
ELSE IF
THEN
ELSE
Directorate for Food, Agriculture, and Fisheries
PD > PDMAX
QUOTA*(PD/PDMAX)^n
PD < PDMIN
QUOTA*(PD/PDMIN)^n
QUOTA
1
3
Case 3-The domestic support
example:
Butter
in Canada
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Current situation
Case 3 (cont.)
•
•
•
•
•
Quota for milk production
Quota volume is an estimate of demand
Producers receive support prices
The support prices are greater than world price
Out of quota import tariff is very high
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Key Assumptions
Case 3 (cont.)
• 1)If PDMAX>=SP
• 2)If PDMAX < SP
• Producers receive support
• Producer support price remains in
price
place, production becomes
exogenous
• Consumers pay support price
• Consumers respond to lower price
• Fill rate is 100%
• Imports are equal to the quota • Imports becomes endogenous and
adjust to meet increased demand
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Implementation Step 1
Case 3 (cont.)
• Comparison between PDMAX and the Support price
• Min(PD
MAX,
SP)
• Imports and production could either be exogenous or
endogenous depending on price comparison.
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Implementation Step 2a)
Case 3 (cont.)
• If SP<PDMAX, imports are exogenous
and consumption respond to SP
• IM= QUOTA
• QC=QC(SP)
• while production is residual
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Implementation Step 2b)
Case 3 (cont.)
MAX, imports are
• If SP>PD
residual
consumption respond to PDMAX
• IM=QC+EX+ST-ST(-1)-QP
• QC=QC(PDMAX)
• while production becomes exogenous
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Empirical Implementation
• Agricultural Market Access Database (AMAD)
• Co-operative effort by:
– Agriculture and Agri-Food Canada
– EU Commission-Agriculture Directorate-General
– FAO
– OECD
– The World Bank
– UNCTAD
– USDA-Economic Research Service
– www.amad.org
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Scenarios
• 1) Gradual 50% expansion of the
quota in equal annual increments
• 2) Scenario 1 plus a gradual 36%
reduction in in-quota tariff rates in
equal annual increments
• 3) Gradual 36% reduction in outof-quota and non-quota tariff rates
in equal annual increments
• 4) Combine Scenarios 2 and 3
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Main results on
world market
• Small impact on world markets with quota
expansion even when combined with in-quota tariff
reduction.
• Bigger price changes with combine out-of-quota and
non-quota tariffs reduction.
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Changes in World Price of
Selected Commodities 2005
Scenario 1
Scenario 2
Scenario 3
Scenario 4
0.0
0.6
0.6
1.2
0.4
0.4
0.0
0.4
Butter
1.4
2.3
8.6
9.6
Cheese
0.3
0.4
4.7
5.0
SMP
0.7
0.8
0.8
1.9
Rice
0.6
0.6
0.1
0.7
Coarse grains
0.1
0.2
0.1
0.3
Wheat
-0.1
-0.2
0.3
0.1
Beef
(Pacific Market)
Beef
(Mercosur Market)
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Main results for
domestic markets
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Regime Switches
Scenario 1: Quota Expansion
• EU Butter:
– Out-of-quota tariff to Quota
• EU SMP
– Quota to In-quota tariff
• US Butter
– Quota to Out-of-quota tariff to Quota
• US Cheese
– Quota to Out-of-quota tariff to Quota to Out-of
quota tariff
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Regime Switches
Scenario 2: Quota Expansion
and in-quota reduction
• Similar to Scenario 1
• Except EU SMP
– In this case, in-quota tariff reductions result in
the Quota as the binding instrument through out
projections period.
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Regime Switches
Scenario 3: Out-of-quota tariff
reduction
• EU Butter:
– Out-of-Quota throughout projections period.
No shift back to Quota as in previous scenarios
• Japan Butter:
– Shift to Out-of-quota in last projection year
• US Butter:
– Quota to Out-of-quota tariff but no shift back to
Quota as in previous scenarios
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Main results for
domestic markets
• Butter and Cheese in Canada : Quota is
binding and high out-of-quota tariff rate
–  Quota expansion increases market access
– Imports increase one for one as the quota expands
– No change in domestic price
–  Lowering in-quota rates affect quota rents
–  Lowering out-of-quota rates have no effects
– Domestic support price still determines price
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Main results for
domestic markets
• US SMP: Out-of-quota rate binding
–  Reduction of out-of-quota tariffs increases
market access
• Quota expansion and in-quota tariff reduction had
no effect
• US Butter and Cheese: Quota binding
some years, out-of-quota binding other
years
–  Reduction in out-of-quota rates result in
greater increase in market access.
• quota expansion had minimal effects most years
• in-quota tariff reductions had no effect
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Main results for
domestic markets
• EU Cheese: Out-of-quota rate binding
–  Reduction of out-of-quota tariffs increases
market access
• Quota expansion and in-quota tariff reduction had
no effect
• EU Butter: Quota binding some years,
out-of-quota binding other years
–  Reduction in out-of-quota rates result in
greater increase in market access.
• quota expansion had minimal effects most years
• in-quota tariff reductions had no effect
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Main results for
domestic markets
• EU Coarse grains: Under-filled
–  Reduction of in-quota tariffs increases
market access
• EU Beef: 100% fill
–  Quota expansion increases market access
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Main domestic price effects
• Effects of increasing market access on
domestic prices depends:
–  US dairy
• No domestic policies preventing price transmission
– increase market access lead to lower domestic prices
–  Canada dairy
• Domestic support prices prevent price transmission
– increase market access no effects on domestic prices
–  EU dairy, beef, and grain markets
• Assumptions on domestic policy targets
– increase market access lead to minimal price change
–  Markets without TRQs
• Minimal world price changes lead to minimal
changes in domestic prices
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SUMMARY
• Only one of the three instruments is binding at a
time
• The binding instrument differs between countries,
commodities and over time
• Liberalization of all three instruments would have
biggest impact on market access
• For the commodities and countries examined:
– Increased liberalization leads to minimal price change
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