CORMSIS Seminar - Global Agricultural Supply Chains under Tariff-Rate Quotas Event

Event details

"The tariff rate quota (TRQ) is a widely utilized market access instrument in global agricultural trade that allows a predetermined quantity of a product to be imported at a lower tariff rate than the usual rate. This study examines the design and administration of TRQ systems from an operations management perspective and analyzes their impact on market access, fill-rates, and expected revenue for policy makers. Using a non-cooperative game framework, we investigate the two most common TRQ administration methods, namely, licensing and first-come, first-served (FCFS) systems. We characterize the Nash equilibria of importers' strategies and observe that, at equilibrium, information delays and long lead times can result in under-utilization (i.e., total imports being less than the quota limit) in licensing and over-utilization (i.e., total imports exceeding the quota limit) in FCFS TRQ systems. To address these issues, we introduce a dual TRQ system and demonstrate its superiority over licensing and FCFS systems. We also study the effects of stock-keeping options through customs-bonded warehouses and the choice of logistics channels on importers' decision-making behavior, arrival patterns, and tariff quota fill-rates. To validate our analytical findings, we conduct a case study of the UK and the EU imported beef market using customs data. Our analysis provides insights into the patterns of import arrival and mixture of goods imported through FCFS and licensing systems. Drawing upon the analytical findings, our numerical study provides an explanation for the sub-optimality of the current TRQ systems. We propose feasible modifications to transform the existing parallel systems into dual TRQ systems. This would enhance the policy makers' expected revenue while maintaining the functionality of the TRQ systems. Our findings offer practical directions for agricultural traders to reassess their supply chain strategies by considering the logistical implications of TRQ systems and understanding their competition. This study also urges policy makers to adopt an integrative approach in (re)designing and administrating TRQ systems, recognizing the pivotal role of supply chains in optimizing the global agricultural trade."