Current Agriculture, Food & Resource Issues
D. Surprenant and J.-P. Gervais
increase in market access, the surplus derived from domestic production decreases. Define
the total net surplus collected by processors under the TRQ as the incremental surplus
obtained from holding import permits minus the decrease in domestic surplus. Total net
rents equal the difference between the area delimited by b, c, d, e, f and g and the area
delimited by p +τ ov, a, b and p0 in figure 1. The net rents are more likely to be positive
the larger the difference between the world price and the marginal cost of producing the
first chicken product domestically.
Different import licensing administration procedures are likely to affect the effective
marginal cost function of processing firms in different ways. For example, compare two
opposing administration procedures such as first-come-first-served and a historical
allocation. The former method does not assign property rights to import licences. Each
marketing year, firms hurry to the border in order to import as many products as they can
under the MAC. Once the quota fills up, the over-quota tariff must be applied to
additional imports. Under that procedure, firms with low import-related transaction costs
have a competitive advantage over firms located far away from the border or lacking
established marketing channels with foreign firms. This type of procedure is likely to
create a race to the border if bureaucratic impediments to trade are insignificant
(Skully,1999). If import licences are allocated according to some historical criterion, firms
own the exclusive right to import a product at the in-quota tariff, and thus have the option
to import the product at any moment during the marketing year. Property rights to import
licences are unambiguously assigned and firms can spread their importing activities
throughout the year. Given that the industry depicted in figure 1 is perfectly competitive
and that processing firms are symmetric, different TRQ administration procedures will not
impact the distribution of income within the industry. However, Fulton and Tang (1999)
show that evidence exists of imperfect competition in the chicken industry. In that case,
the positioning of each firm’s effective marginal cost function as determined by, among
other things, the TRQ import licensing procedure is likely to have significant impacts on
the important variables of the industry (prices, production and import rents). Under that
condition, firms will not be indifferent towards various import licensing methods.
While the literature on non-tariff trade barriers is voluminous, relatively few studies
have documented the implications of allocating import licences under quantitative barriers
to trade. Krishna and Tan (1998) show that, independently of who has market power
among the potential licence holders and/or foreign/domestic producers, rents can be
extracted or dissipated through higher domestic and/or world prices. They show that the
(shadow) value of an import licence can be decomposed into three different components.
First, there exists a scarcity value attached to the licence in a quota-constrained market. It
is a function of the difference between the domestic price and the world price inclusive of
the in-quota tariff. Second, if the licence is voluntarily held, the licence price must vary in
proportion to the opportunity cost of holding the licence (e.g., the interest rate). Finally, a
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