Trade and Welfare Impacts of Partial Liberalization of U.S. Sugar TRQs: The Application of a PE/GE Modeling Approach

The sugar sector is one of the most heavily protected commodities in agriculture using a system of tariff rate quotas (TRQs) with a complex set of administration procedures. General equilibrium models are not suitable to analyze trade liberalization scenarios that involve numerous tariff-rate quotas across narrowly defined product lines. We use the Rutherford/Grant/Hertel modeling approach by embedding a detailed, partial equilibrium (PE) model into a standard, global general equilibrium (GE) framework. We use this PE/GE model to compare trade and welfare outcomes of two liberalization scenarios: Increasing quota levels by 25% and cutting over tariffs by 50%, versus increasing quota levels by 50% and cutting over-quota tariffs by 25%. We find that lowering over-quota tariffs relatively more has more positive welfare effects than increasing quota levels relatively more.