Aggregation of Tariff-Rate Quotas within GTAP Sectors

In a recently published GTAP technical paper Elbehri and Pearson supplied a modification of the GTAP model (Hertel and Tsigas) to implement tariff rate quotas (TRQ). The approach allows the introduction of a TRQ for each trade relation of the GTAP data base. Several sectors of the GTAP data base comprise different goods. For example sector 19 (CMT) includes meat products of cattle, sheep, goats and horses. It is possible that each good has its own TRQ. The situations of the several goods may differ: in some cases, imported quantity may exceed the quota quantity and consequently the over-quota tariff is used, while other goods are below their quota quantity and the in-quota tariff is applicable. The question arises how to aggregate the TRQs of all goods to get a sector-wide TRQ, which is necessary to apply the approach by Elbehri and Pearson. If at least one good exceeds its quota quantity, we assume that the sector-wide TRQ exceeds the aggregated quota quantity. The import of this one good yields a quota rent, and consequently the aggregated or sector-wide quota rent is greater than zero. This also means that the aggregated import quantity must exceed the aggregated quota quantity, otherwise there would be no quota rent. In the paper two alternative aggregation methods are presented. They allow the analysis of TRQ even if a sector of the GTAP data base comprises several goods with TRQ-regimes. For the first aggregation method, the in-quota and over-quota tariffs of all goods are weighted with the imported quantities. The advantage is the ideal depiction of the real magnitude of the aggregated in-quota and over-quota tariffs. Since every good has an influence on the over-quota tariff, although its quota quantity may not be exceeded, this aggregation method leads to an inexact sector-wide quota rent. This is especially the case if only one good exceeds its quota quantity. The second method is based on the calculation of the quota rent of all goods, which sums up the sector-wide quota rent. The exact depiction of the sector-wide quota rent is obtained whereby inaccuracies in the depiction of aggregated tariff powers must be accepted. If the sector-wide quota rent is small, in-quota tariff and over-quota tariff are quite similar. Unfortunately it is not possible to achieve both accurate quota rent and accurate power of tariffs when TRQs are aggregated. Therefore, it seems to be reasonable to calculate the model twice using either aggregation method. An example is provided for illustration. Four sectors of Swiss agriculture includes several goods with their own TRQs which must be aggregated to a sector-wide TRQ. We analyze the impacts of the new Swiss agricultural policy and the bilateral contracts between Switzerland and the European Union. The two aggregation methods lead to slightly different changes in both quantities and prices. Literature Elbehri, A. and K. R. Pearson. (2000). Implementing Bilateral Tariff Rate Quotas in GTAP using Gempack. GTAP Technical Paper 18. Hertel, T. W. and M. E. Tsigas. (1997). Structure of GTAP. In T. W. Hertel. Global Trade Analysis Modeling and Applications: 13-73. Cambridge University Press. New York. This paper contains the suggestions that the authors made to Elbehri and Pearson. They can be found in their GTAP technical paper no.18 on pages 43 to 45.