Current Agriculture, Food & Resource Issues
D. Surprenant and J.-P. Gervais
licence has an option value since it can be used at any time during the quota year; that is,
the holder of a licence can either import some units of the good now or defer use of the
licence until a future period in the expectation of higher quota-related returns. Gervais and
Surprenant (2000) have shown that the type of import licence allocation rule chosen by a
government can affect the distribution of profits in an industry by changing the strategic
nature of firms’ behaviour under imperfect competition.
Skully (1999) documented the existing TRQ allocation methods as notified by WTO
members. Roughly speaking, administration methods can be classified into two different
categories. The first category encompasses all non-discretionary methods such as
auctioning licences, allocating licences on a first-come-first-served basis and licensing on
demand. The second category includes more discretionary methods since trade flows are
often less flexible and do not respond to exogenous market forces. This category includes
licences allocated according to historical criteria and imports administered by state trading
enterprises or producer groups. Barichello (2000) surveyed import licence allocation
procedures used in Canada and concluded that Canada is “reasonably successful” at
keeping the administration of the quota system efficient.
It is well known that non-tariff trade barriers promote rent-seeking behaviour among
potential beneficiaries of import licences (Vousden,1990). The import licence allocation
schemes described above, combined with the potential existence of market power at the
farm level (through the control of domestic production of live chickens) and concentration
at the processing and retail levels of the chicken market, justify investigating the
preferences of importing firms.5 The allocation of import licences to domestic firms
affects their marginal costs and has the potential to generate significant rents. The
magnitude of these rents can be influenced by the method policy makers choose to
allocate the right to import. Given that a wide variety of methods can be used to allocate
import licences, how do importers perceive the Canadian TRQ policy and import
licensing administration methods? To analyze this general question, a number of
hypotheses based on the preceding discussion and the simple analysis in figure 1 can be
put forward:
1. Some import licence holders should support an allocation based on historical
criteria because this approach can best protect existing import rents. Newly
established or highly efficient firms may wish to have the current system
reformed since change could result in new profit opportunities.
2. Importers have different opinions about how the government should
liberalize trade (if at all) in the Canadian chicken market because increases in
the current minimum access commitment and/or decreases in the over-quota
tariff potentially will have different impacts on profits (rents) for different
types of importers.
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