The economic effects of tariff rate quotas and trade liberalization: An application to China's WTO accession

Tariff rate quotas (TRQs) have been increasingly used in agriculture trade in recent years. Many countries have included TRQs as part of their World Trade Organization (WTO) commitments. However, there are few studies focusing on TRQs. Analysis of trade liberalization under TRQs will be very important for policy makers as they assess the implication of alternative policies.; China is an important player in the world agricultural market. The US and China bilateral agreement for China to join WTO signed on November 15, 1999 includes significant cuts in tariffs, significantly increased quotas for bulk agricultural commodities (e.g. wheat, rice and corn), and elimination of export subsides (critical to US rice and corn producers). China also agrees to use TRQs for wheat, rice and corn with gradually increasing quota levels. To better understand how and to what extent China's WTO accession would affect each region and global economy, TRQs effects must be analyzed and incorporated in a solvable model.; A mathematically solvable trade model including TRQs is developed. A three-region and three-commodity synthetic partial equilibrium model is used as an empirical example of a TRQ for wheat in China. The graphical analysis and the empirical results suggest that a country could achieve its goals such as maximizing tariff revenue, quota rents, the sum of quota rents and tariff revenue, and trade liberalization through changing the parameters of TRQs. The three components of a TRQ have interactive effects and TRQ regimes may switch when one of the components changes.; To analyze trade liberalization effects for China and US grain markets under China's WTO, a dynamic trade model including TRQs is developed. A constrained demand system and a dynamic supply model used in the trade model are developed and estimated using generalized cross entropy (GCE) to solve the ill-imposed problem while fully satisfying the data constrained by the model and the prior information about the parameters. The support points for unknown parameters and prior weights are consistent with economic theory and previous research. The estimation results are reasonable as expected. The results suggest that China's trade policy change will significantly affect China and US grain production, demand, net trade and price and China's self-sufficiency rate. The various simulations show that China's relative position in international grain trade, domestic grain markets, and its grain self-sufficiency will primarily be determined by the alternative policies it chooses.