Tariff Rate Import Quotas, Domestic Market Structure And Agricultural Support Program: The Case Of Taiwanese Rice Import

After joining the WTO in 2002, Taiwan allowed rice imports for the first time by implementing an import quota subject to a special safeguard tariff. In 2003, the import quota was expanded to a two-tier tariff rate import quota system. Although Taiwan maintained land set-asides and domestic support prices for producer sales to the State Trading Enterprise, the latter was limited to importing only 65 percent of the import quota with the rest sold to private traders. This sudden transformation of the Taiwanese import regime and rice market along with the government proposal for a "strategic alliance" amongst traders highlights the importance of studying the effects of policy reforms in the framework of imperfect domestic market structure. The purpose of this paper is to analyze Taiwanese rice policy reforms using a computational partial equilibrium model. The impact of import controls, price supports, land set-aside and alternative market structures are assessed, including the potential change in regimes within the tariff quota system. Our results show that the "strategic alliance" proposed by the agricultural authority will further distort the domestic market. Elimination of the domestic support price and land set-aside improves social welfare independent of the market structure while a change in the market structure towards competition is always social welfare improving regardless of domestic policy instruments. But the policy regime of the tariff quota (the in-quota tariff versus the out-of-quota tariff versus the quota) and hence social welfare is sensitive to changes in both domestic policy instruments and market structure.