Economic Issues in Tariffication: An Overview

Tariffication is an effort to convert all existing agricultural nontariff barriers (NTBs) to trade into bound tariffs and to reduce these tariffs over time. The main economic issues that arise with tariffication stem from the nonequivalence of tariffs in NTBs in a number of scenarios. This paper analyzes nonequivalence arising from the existence of imperfect competition in importing countries, price instability in importing and exporting countries, and inefficient allocation of quantitative restrictions. It is shown that in all these cases the definition of an appropriate "equivalent tariff" to be used in tariffication is not straightforward, and that in general this equivalent tariff cannot be computed on the basis of only observed price differences between countries. Tariff-rate quotas, which are meant to be the main tool in implement tariffication according to the existing proposal, are analyzed in some detail. Concerning the relationship between tariffication and the other elements of the trade liberalization package, it is shown that tariffication would limit the scope of export subsidy policies, and that the existence of production and export subsidies makes observed price gaps between countries of questionable value in setting equivalent tariff levels. Finally, it is argued that the main focus on tariffication should be the conversion of NTBs to acceptable long-run (bound) tariffs rates, and considerable flexibility in the conversion process could be exercised during the transition period.