Tariffs, TRQs and Import Composition: The Case of Beef Trade Between the EU and Mercosur

JEAN-CHRISTOPHE BUREAU; LUCA SALVATICI; MARIA PRISCILA RAMOS

Dublin

Conferencia; European Trade Study Group (ETSG), Seventh Annual Conference; 2005

European Trade Study Group (ETSG)

Specific tariffs and tariff-rate quotas (TRQ) affect the composition of imports. By altering price ratios between products of different quality, such provisions can create an Alchian-Allen "shipping the good apples out" effect. The quality upgrading affects consumer and producer welfare. Because the EU tariff structure includes a large number of composite or specific tariffs, especially in agriculture, and the EU offers a managed trade liberalization through a multiplicity of TRQ, this issue is of particular importance in the EU-Mercosur trade negotiations. We model consumer demands for traded goods of different quality in the presence of a TRQ, deriving comparative statics results for changes in each policy variable (in-quota and out-of-quota ad-valorem and specific tariffs, quota level). We use detailed data on EU's beef imports from Mercosur countries to test the theoretical results and assess the welfare effects of the quality upgrading component of tariffs and TRQs, based on actual negotiation proposals. As predicted by theory, TRQs have an impact on the average quality of exports.