Incorporating trqs in aglink
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ORGANISATION DE COOPÉRATION ET DE DEVELOPMENT ÉCONOMIQUES. Incorporating TRQs in AGLINK. ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT. Presentation for USDA/ERS EU MODELLING WORKSHOP Peter Liapis. November 15-16, 2001. 1. Directorate for Food, Agriculture, and Fisheries.

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Incorporating TRQs in AGLINK

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Incorporating trqs in aglink

ORGANISATION DE COOPÉRATION ET DE DEVELOPMENT ÉCONOMIQUES

Incorporating TRQs in AGLINK

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

Presentation for USDA/ERS

EU MODELLING WORKSHOP

Peter Liapis

November 15-16, 2001

1

Directorate for Food, Agriculture, and Fisheries


Purpose

PURPOSE

  • Describe methodology

  • Present preliminary results


Key assumptions

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


Incorporating trqs in aglink

Pt2d

ED1

Pt1d

Pt1w

t1

Pt2w

Mt2

Mt1

Figure 1.Introduction of Tariffs

P

Pa

ES

ED2

ED

Mf

Imports


Incorporating trqs in aglink

Figure 2.Three Zones of Effectiveness

P

Pa

ES

PdMAX

PDMAX = PW*(1+t2)

PdMIN

PDMIN = PW*(1+t1)

PwMAX

ED1

t1

PwMIN

quota zone

t2

ED2

ED

t2 zone

t1 zone

MIN

total

imports

MAX

total

imports

Imports


Empirical implementation three ways trqs are introduced

Empirical ImplementationThree 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”


Empirical implementation cont case 1

Empirical Implementation (cont): Case 1

  • Assume exports exogenous and imports are residual

  • No domestic policies to inhibit price transmission


Empirical implementation case 1 cont

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)


Empirical implementation case 1 cont1

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, …)


Empirical implementation case 1 cont2

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


Empirical implementation case 2 eu

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


Empirical implementation case 2 cont

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


Empirical implementation case 2 cont1

Empirical implementation:Case 2 (cont.)

IM=

IF PD > PDMAX

THEN QUOTA*(PD/PDMAX)^n

ELSE IF PD < PDMIN

THEN QUOTA*(PD/PDMIN)^n

ELSE QUOTA


Case 3 the domestic support example butter in canada

Case 3-The domestic support example:Butter in Canada


Current situation case 3 cont

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


Key assumptions case 3 cont

1)If PDMAX>=SP

Producers receive support price

Consumers pay support price

Fill rate is 100%

Imports are equal to the quota

2)If PDMAX < SP

Producer support price remains in place, production becomes exogenous

Consumers respond to lower price

Imports becomes endogenous and adjust to meet increased demand

Key Assumptions Case 3 (cont.)


Implementation step 1 case 3 cont

Comparison between PDMAX and the Support price

Min(PDMAX, SP)

Implementation Step 1Case 3 (cont.)

  • Imports and production could either be exogenous or endogenous depending on price comparison.


Implementation step 2 a case 3 cont

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


Implementation step 2 b case 3 cont

Implementation Step 2b)Case 3 (cont.)

  • If SP>PDMAX, imports are residualconsumption respond to PDMAX

  • IM=QC+EX+ST-ST(-1)-QP

  • QC=QC(PDMAX)

  • while production becomes exogenous


Empirical implementation

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


Scenarios

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 out-of-quota and non-quota tariff rates in equal annual increments

  • 4) Combine Scenarios 2 and 3


Main results on world market

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.


Changes in world price of selected commodities 2005

Changes in World Price ofSelected Commodities 2005


Main results for domestic markets

Main results for domestic markets


Regime switches scenario 1 quota expansion

Regime SwitchesScenario 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


Regime switches scenario 2 quota expansion and in quota reduction

Regime SwitchesScenario 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.


Regime switches scenario 3 out of quota tariff reduction

Regime SwitchesScenario 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


Main results for domestic markets1

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


Main results for domestic markets2

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


Main results for domestic markets3

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


Main results for domestic markets4

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


Main domestic price effects

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


Summary

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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