Current Agriculture, Food & Resource Issues
D. Surprenant and J.-P. Gervais
Implications and Conclusions
Asurvey filled out by 112 active Canadian chicken importers revealed that a large
majority (65.5 percent) of respondents are generally satisfied with the current TRQ
administration methods and do not feel that licence allocation mechanisms need to be
revised. A significant proportion (40.5 percent) of those who responded also wish to see
market access for foreign chicken products expanded above the current minimum access
commitment (MAC) of the TRQ. Market-based licence allocation methods (such as
auctions) are supported by only a few firms. Finally, firms operating in the province of
Quebec are significantly more satisfied with the current licence administration methods
than are firms operating in other provinces. Overall, the survey indicated that importers
generally wish to preserve the existing TRQ administration methods although they would
prefer to see market access to imports increase in future rounds of negotiations.
Background
Trade of chicken products included on the Canadian Import Control List (ICL)2 has
been regulated by a TRQ since 1995. TRQs are two-tier tariffs. Imports within the
minimum access commitment (equivalent to 7.5 percent of the previous year’s domestic
production) are taxed at a relatively low in-quota tariff (zero percent under NAFTA). Any
imports exceeding the specified minimum access commitment are taxed at the over-quota
tariff. TRQs theoretically differ from standard import quotas since they do not fix a
ceiling on the volume of imports that can enter the country. However, as the over-quota
tariff is generally set at a prohibitive level, TRQs de facto act as import quotas. Since the
world and domestic prices will differ if the minimum access commitment is effective
(binding), TRQs potentially create valuable rents to those holding the right to import
within the MAC.
The allocation of import licences under the Canadian chicken TRQ is administered
using mixed licensing allocation methods. In 2000, traditional importers held 37.2 percent
of all import licences. Traditional importers are defined as firms importing chicken
products prior to the imposition of import controls in 1979. This category encompasses
both chicken processors and retailers. The chicken TRQ is also allocated, in the first
instance, to further processors producing chicken products competing with non-controlled
imports (products not listed in the ICL, such as TV dinners, soup, etc.).3 The final
allocation is made to members of the food-service sector. The amount allocated to the
food-service sector cannot be less than 2.5 million kilograms of import access. The
licences within each category are allocated to individual firms on the basis of market
share, calculated on the volume of chicken purchased. Any residual part of the TRQ not
previously allocated is split 70/30 between chicken processors and chicken distributors.
Figure 1 illustrates the economic implications of a TRQ for a given level of the
market, which is assumed to be competitive. Processors’ technology exhibits decreasing
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