Tariff-Rate Quotas, Rent-Shifting and the Selling of Domestic AccessEstey Centre Journal of International Law and Trade Policy
Publication VersionPublished Version
AbstractTariff-rate quotas (TRQs) have replaced quotas at the end of the Uruguay Round. We analyze TRQs when a foreign firm competes against a domestic firm in the latter's market. Our benchmark is the strategic rent-shifting tariff. We show that the domestic price-equivalent TRQ is a better instrument welfare-wise, as it can extract all of the rents from the foreign firm. We show that different pairs of within-quota tariff and quota can support full rent extraction. The implication is that reduction of the former and enlargement of the latter, holding the above-quota tariff constant, may have no liberalizing effects. The first-best TRQ and the strategic tariff generate different prices. When firms have identical and constant marginal cost, the first-best TRQ entails selling a subsidy to the foreign firm and forcing the exit of the domestic firm.
Copyright OwnerThe Estey Journal of International Law and Trade Policy
Citation InformationBruno Larue, Harvey E. Lapan and Jean-Philippe Gervais. "Tariff-Rate Quotas, Rent-Shifting and the Selling of Domestic Access" Estey Centre Journal of International Law and Trade Policy Vol. 11 Iss. 1 (2010) p. 213 - 226
Available at: http://works.bepress.com/harvey-lapan/50/