THE PROBLEMS AND PITFALLS IN MODELING INTERNATIONAL DAIRY TRADE LIBERALIZATION

Contact for this paper: Dr. Karl Meilke, Department of Agricultural Economics and Business, Guelph, Ontario N1G 2W1, Canada. The international dairy sector is one of the most heavily protected commodity sectors in agriculture. Following the Uruguay Round of multilateral trade liberalization all nontariff barriers to trade were converted, through the process of tariffication, into tariffs. However, in the dairy sector, the border measure most commonly adopted by developed countries was a system of tariff rate quotas. Tariff rate quotas are two-tiered tariffs which allow a small quantity of the product to be imported at a low or zero tariff, while quantities above the minimum access amount are charged much higher and often prohibitive tariffs. Tariff rate quotas cause the excess supply curve facing an importing country to be discontinuous at the minimum access amount. The objective of this paper is to review key issues related to modeling trade liberalization for the international dairy economy, given the existence of tariff rate quotas and export subsidies.