Tariffication and Welfare in a Differentiated Duopoly

• Author: Hong Hwang,Cheng‐Hau Peng,Hsiu‐Ling Wu
• DOI: http://doi.org/10.1111/twec.12048
• Published date: 01 July 2013
• Date: 01 July 2013

Tariffication and Welfare in a

Differentiated Duopoly

Hong Hwang

1

, Cheng-Hau Peng

2

and Hsiu-Ling Wu

3

1

Department of Economics, National Taiwan University and the RCHSS, Academia Sinica,

2

Department

of Economics, Fu Jen Catholic University, and

3

Department of Economics, Soochow University

1. INTRODUCTION

NON-TARIFF barriers (NTBs) have been popular among Asian countries. For example,

South Korea completed negotiations with trading partners, which ended with an agree-

ment that it could continue to apply the quota system in its rice market until 2014 (Lee and

Lee, 2009). An import quota system applied to the rice market can also be observed in Japan

and the Philippines. Moreover, China implements import quotas for corn, cotton, rice, wheat

and movies. Vietnam imposes an import quota on auto components. Taiwan enforces an

import quota on Japanese cars.

1

Being members of the WTO, these countries along with other

member countries are required by the WTO to convert NTBs into tariffs as the latter are far

more transparent in their application, are less intrusive in the market and are less of an imped-

iment to changing competitive conditions. This kind of conversion has been referred to as

tariffication, which is one of the most important outcomes of the Uruguay Round’s Agreement

on Agriculture.

The main purpose of tariffication, which has been implemented on a global scale, is to pro-

vide a methodology to convert NTBs to tariffs so as to make trade barriers more visible and

easy to reduce in the long run. Before the Uruguay Round, some agricultural imports were

restricted by quotas and other NTBs. These have been replaced by tariffs that provide more-

or-less equivalent levels of protection as the GATT, and the WTO have called for in the

conversion. In the case of Taiwan’s accession to the WTO, one of the major commitments is

the removal or reduction of non-tariff measures in agricultural sectors. Of the 41 products that

had been subject to non-tariff barriers before the accession, 18 of them were completely con-

verted to tariffs with tariff rates ranging between 20 per cent and 30 per cent after the

accession.

2

Another 22 formerly import-banned agricultural products were also liberalised and

replaced by a tariff-rate quota (TRQ) scheme.

3

Rice was agreed to be under special treatment

1

NTBs can also be found in non-Asian countries. For example, in the US, quotas exist on peanuts, cotton,

sugar and syrup, etc. The European Union implements import quotas on garlic and mushrooms from China,

and on chicken from Thailand.

2

They are logans, lichees, oranges, lemons and limes, grapefruits, grapes, peaches, plums, apples, other

fresh mandarins, potatoes, papayas, other citrus fruits, guavas, whole ducks, turkey meat, duck meat, and

squids.

3

They are peanuts, oriental pears, sugar, garlic bulbs, betel nuts, chicken meat, liquid milk, animal offal,

mackerel, adzuki beans, dried shiitake mushroom, pomelos, dried logans and logan pulps, young coconuts,

bananas, pineapples, mangoes, persimmons, carangid, sardine, dried day lily, and pork belly.

The World Economy (2013)

doi: 10.1111/twec.12048

Ó2013 John Wiley & Sons Ltd 899

The World Economy