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INTRODUCING TARIFF RATE QUOTAS IN

INDONESIAN FOOD COMMODITIES

The World Bank

Supported by

beef and corn) replacing current cumbersome import regimes with – hopefully – more transparent system  The objective is to stabilize and possibly reduce the retail price of these commodities without undermining the farming sector  While TRQs – if managed well – can probably help. sugar. this is only a small part of a broader food policy that could deliver a competitive agricultural sector and the conditions for a balanced diet for the consumers .The proposal  Introduce TRQs in 4 commodities (rice.

Five key questions around TRQs  Is TRQ the right instrument?  Can Indonesia introduce TRQ and how?  What will the volume of the quotas be?  What will the in-quota tariff rate be?  What will the allocation mechanism of the quotas be? .

EU strategic outward and inward TRQs on bananas.: US vs.g. US vs. traders and import restrictions (e.Is TRQ the right instrument? Potential benefits Potential costs Avoid some of the most Possible costs of implementation egregious distortions of murky (to government. Turkey investments on rice import quotas) .(domestic importers and intl supply gap than current systems suppliers) if the administration procedure is non transparent Stepping stone to a more transparent import system? Risk of WTO disputes for the administration of the quotas More certainty may lead to more (e. China on wheat. rice) consumers) Higher flexibility in Potential for rent-seeking compensating domestic demand.g.

g. need to import earlier due to bad domestic harvest) . Can Indonesia introduce TRQ and how?  Disclaimer: This is not a legal opinion  Indonesia’s commitments only list 2 commodities (rice and milk and cream products) subject to TRQs but others can be added without resorting to Article XXVIII as long as the measure is liberalizing (which in this case it may be)  Hence it only needs notification to the WTO along with quota volume and in-quota and out of quota tariffs  Seasonal quotas may be possible but complicated to administer and may be less flexible to fill supply gaps (e.

Volume of the quota  Quota should be set at a level that can easily accommodate the expected peak of domestic supply-demand gap subject to changes in demand and externalities associated with commodity production and consumption  Different types of commodities have different rules of thumb in setting the quota (illustration)  Administering TRQs that change quotas during the year would be almost impossible to administer (i.e. changes in notification. administration issues) and hence would most likely be ineffective . continuous calculation of quotas.

Setting the in-quota import tariff  Depends on the objective the policy wants to achieve: e. protection of domestic farmers  TRQs likely effective for price stability for a large range of tariffs  Trade-off in setting tariff between the need to maintain low price levels vs.g. protecting domestic producers  Countries have often set the tariff higher than the actual applied tariff thus ending up not using the TRQ at all . level of price vs. price stability vs.

there is potential for abuse. .g. as it creates incentive to import as much as possible at the early stage of the quota and stockpile. EU Bananas cases)  Auctioning: while efficient in theory its administration in practice is complex.  Imports Undertaken by State Trading Entities: most discriminatory and potential for under-fill of quotas. Allocation mechanism  Perhaps the most important decision to ensure TRQ is effective at achieving its goal  First-come first-served: transparent but potentially inefficient. Transaction costs likely high where there are thin markets – again.  Historical importers: potentially open to WTO challenge as may discriminate among trading partners (e.  Licenses on demand: Unless done automatically are open to abuse given the discretion involved.

TRQs by mechanisms utilized 2002 2011 Others First-Come. First-Served Licences On Demand Mixed Allocation Methods Historical Importers Auctioning .

Figures and Tables .

Source: World Bank (2016) “A modern food policy for all Indonesians” .

Back Source: World Bank (2016) “A modern food policy for all Indonesians” .

Uncertainty of imports + thinning rice stocks Back Source: Bank Indonesia and Pink Sheet .

Indonesia is among the lowest user of TRQs (Number of products subject to TRQs in country’s schedule) Back Source: WTO .

Volume of the quota: general principles Demand growth Stable growth High growth Rice (highest import last 5 Corn (historic imports + Low Externalities years) projected demand increase) Beef (historic imports + Sugar (highest import projected demand growth + High adjusted for negative extra quota for externalities) environmental externality) Back .

TRQ schedules do not change over time Keeping prices low Low or zero tariff Tariff = gap production cost with most efficient intl producer Protecting farmers Back Back .

Almost half of TRQs are not used by WTO members (Number of products subject to TRQs in country’s schedule. overall) Back Source: WTO .