Effective administration of agricultural tariff quotas

Transcription

1 Effective administration of agricultural tariff quotas NOVEMBER 2013 RIRDC Publication No. 13/120

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3 Effective administration of agricultural tariff quotas by David Harris November 2013 RIRDC Publication No. 13/120 RIRDC Project No. PRJ

4 2013 Rural Industries Research and Development Corporation. All rights reserved. ISBN ISSN Effective administration of agricultural tariff quotas Publication No. 13/120 Project No. PRJ The information contained in this publication is intended for general use to assist public knowledge and discussion and to help improve the development of sustainable regions. You must not rely on any information contained in this publication without taking specialist advice relevant to your particular circumstances. While reasonable care has been taken in preparing this publication to ensure that information is true and correct, the Commonwealth of Australia gives no assurance as to the accuracy of any information in this publication. The Commonwealth of Australia, the Rural Industries Research and Development Corporation (RIRDC), the authors or contributors expressly disclaim, to the maximum extent permitted by law, all responsibility and liability to any person, arising directly or indirectly from any act or omission, or for any consequences of any such act or omission, made in reliance on the contents of this publication, whether or not caused by any negligence on the part of the Commonwealth of Australia, RIRDC, the authors or contributors. The Commonwealth of Australia does not necessarily endorse the views in this publication. This publication is copyright. Apart from any use as permitted under the Copyright Act 1968, all other rights are reserved. However, wide dissemination is encouraged. Requests and inquiries concerning reproduction and rights should be addressed to RIRDC Communications on phone Researcher Contact Details Mr David Harris D. N. Harris & Associates 8 Irvine Street Glen Iris Victoria dnharris@hotkey.net.au In submitting this report, the researcher has agreed to RIRDC publishing this material in its edited form. RIRDC Contact Details Rural Industries Research and Development Corporation Level 2, 15 National Circuit BARTON ACT 2600 PO Box 4776 KINGSTON ACT 2604 Phone: Fax: rirdc@rirdc.gov.au. Web: Electronically published by RIRDC in November 2013 Print-on-demand by Union Offset Printing, Canberra at or phone ii

5 Foreword Administration of market access arrangements is an important issue for trade in agricultural products and a major point of discussion in negotiations on trade agreements. There is often a reluctance by importing nations to lower tariff barriers for highly protected product markets because of concerns about industry adjustment pressures. This is a source for frustration for importers and exporters seeking greater trade liberalisation. The impasse is partially resolved by providing concessionary access opportunities for imports. Tariff quotas (TQs) have become a more prominent feature of the global trading system since the Uruguay round of multilateral trade negotiations were completed. TQs have also become a common feature of free trade agreements (FTAs). The intention and spirit behind establishing TQs is to provide opportunities for increased trade. It is a concession and a recognition of the economic welfare gains for both importing and exporting countries from expanding trade. WTO commitments for many members include provision for TQ concessions on selected products. In general there has been an expectation the TQs would be close to fully utilised in markets with high tariff barriers if trading conditions were suitable. But in many cases this has not occurred. There are numerous examples of persistent under-utilisation of active TQs over an extended period of time. Concerns have been raised about the way the tariff quotas are managed. Exporters, importers and consumers in importing markets have an interest in the effective use of TQs. There is a widely held view that many of the TQs are not operating as they were originally intended. Questions have been raised about conditions of use and management systems for distributing access. TQ administration may be unintentionally impeding opportunities to fully utilise the concessions. Unilateral reforms may be necessary to maximise the prospects for fully utilising the TQs. This will occur if the access is made widely available to potential users and market requirements are allowed to determine the best use of the access. This study was undertaken to assess the way TQs are managed and to identify areas where reforms may be necessary. The results could be used to provide guidance for unilateral reform efforts and for the development of new TQs The project was funded from RIRDC core funds provided by the Australian Government. The project was funded through the Global Challenges R&D Program. This program addresses impediments and opportunities to the Australian agricultural sector. An important area of research for the program is international and domestic trade policy. This report is an addition to RIRDC s diverse range of over 1800 research publications. Most of our publications are available for viewing, downloading or purchasing online through our website: Craig Burns Managing Director Rural Industries Research and Development Corporation iii

6 Acknowledgements The author has been involved in economic research on the effects of trade related policy reforms on rural industries for many years. He has an extensive background in quantitative analysis of the impact of trade restrictions on global commodity markets. His professional experience was developed during periods of employment at the Australian Bureau of Agricultural and Resource Economics (ABARE), the Centre for International Economics (CIE), Bonlac Foods Ltd and the OECD Secretariat in Paris. Australia has management rights for some agricultural tariff quota (TQ) concessions to overseas markets. There is considerable interest in the administration of these TQs by industry and government. The Department of Agriculture, Fisheries and Forestry (DAFF) reviews the management of TQs from time to time. The author was involved in two recent reviews that covered the EU High Quality (HQ) beef access and dairy TQs for the US and EU markets. Participation in these reviews enhanced the author s understanding of TQ administration for exporter managed TQs. A range of issues were investigated that provided some insights on the effectiveness of management rules and the response of users. The information provided by DAFF officials, industry representatives and a range of exporters during the course of the reviews contributed indirectly to this study and is gratefully acknowledged. The two reports Review of Administration Arrangements for the Tariff-Quota on EU High Quality Beef (2011) and Report of the 2008 Dairy Quota Review Panel on Administrative Arrangements for EU and USA Dairy Quotas Managed by Australia (2008) may be of interest to the reader. They are available on the DAFF web site. This report examines an issue of interest to the Doha Round of WTO trade negotiations. In recent times the author has prepared reports on other issues associated with multilateral trade negotiations that may be of interest to the reader. These studies were funded and published by the Rural Industries Research and Development Corporation (RIRDC). They include reports on Special Safeguards and Agricultural Trade Liberalisation, Food Aid and Agricultural Trade Reform and a recent study on Agricultural Industry Support and Structural Adjustment. Copies of the reports are available on the RIRDC web site. Financial support for this project was provided by RIRDC and is gratefully acknowledged. The advice and comments of several individuals contributed to the preparation of this report. The contributions of Chris Philips (Dairy Australia Ltd), Andrew McCallum (Meat and Livestock Australia), Warren Males (Canegrowers), Elizabeth Phillips (DAFF) and Rob McKenzie (Department of Foreign Affairs and Trade) were greatly appreciated. Various people from industry organisations assisted the author in collecting data for the analysis and their efforts are gratefully acknowledged. iv

7 Contents Foreword... iii Acknowledgements... iv Executive summary... ix 1. Introduction... 1 Project aim and objectives Incidence of WTO tariff quotas... 3 Markets and products with TQs... 3 Fill rates and distribution meat products... 7 Fill rates and distribution dairy products... 8 Fill rates and distribution sugar products... 9 Market conditions and fill rates Tariff quota administration Choice of management system Eligibility to use TQ access Access distribution systems Usage rules for TQ access Management of voluntary quota returns TQ size and product elgibility In-quota tariff rates Performance of TQs with low fill rates Conclsuions and recommendations Principles for effective management of TQs Appendix A: Access conditions for WTO tariff quotas Appendix B: Fill rates for WTO tariff quotas Appendix C: Distribution systems for WTO tariff quotas Appendix D: In-quota tariffs for WTO tariff quotas References v

8 Charts A World prices of beef and sheep meat B World prices of pig and chicken meat C World price of WMP and SMP D World prices of cheese and butter E World price of sugar Tables 1 Active WTO tariff-quotas for agricultural commodities Utilisation of WTO import TQs Administration of WTO import TQs Management systems for import TQs Performance of importer allocated TQs Eligibility requirements Performance of importer allocated TQs New entrant opportunities Performance of importer allocated TQs Access distribution Product eligibility conditions and TQ performance In-quota tariffs and TQ performance In-quota tariffs for under-utilised TQs Management features for under-utilised TQs Access conditions for WTO tariff quotas Beef Access conditions for WTO tariff quotas Sheep and pig meat Access conditions for WTO tariff quotas Poultry meat Access conditions for WTO tariff quotas Cheese Access conditions for WTO tariff quotas Butter products Access conditions for WTO tariff quotas Milk and whey powders Access conditions for WTO tariff quotas Other dairy products Access conditions for WTO tariff quotas Sugar Fill rates for WTO tariff quotas Beef Fill rates for WTO tariff quotas Sheep and pig meat Fill rates for WTO tariff quotas Poultry meat Fill rates for WTO tariff quotas Cheese Fill rates for WTO tariff quotas Butter products Fill rates for WTO tariff quotas Milk and whey powders Fill rates for WTO tariff quotas Other dairy products Fill rates for WTO tariff quotas Sugar Distribution systems for WTO tariff quotas Beef Distribution systems for WTO tariff quotas Sheep and pig meat Distribution systems for WTO tariff quotas Poultry meat Distribution systems for WTO tariff quotas Cheese Distribution systems for WTO tariff quotas Butter products Distribution systems for WTO tariff quotas Milk and whey powders Distribution systems for WTO tariff quotas Other dairy products Distribution systems for WTO tariff quotas Sugar Tariffs for WTO tariff quotas Beef Tariffs for WTO tariff quotas Sheep and pig meat Tariffs for WTO tariff quotas Poultry meat Tariffs for WTO tariff quotas Cheese Tariffs for WTO tariff quotas Butter products Tariffs for WTO tariff quotas Milk and whey powders Tariffs for WTO tariff quotas Other dairy products Tariffs for WTO tariff quotas Sugar vi

9 Executive summary What the report is about This report is about concerns with the administration of agricultural tariff quotas (TQs). Market access concessions through TQs are an important feature of the global trading environment for meat, dairy and sugar products. A range of major importing markets have substantial barriers to trade from high tariffs and TQs provide the only viable means of market entry. TQs are used extensively in World Trade Organisation (WTO) commitments and often incorporated in free trade agreements (FTAs). Concerns have been raised about the way these access concessions are managed. Persistent under-utilisation for some TQs in the WTO commitments and the limited number that are close to fully utilised suggests many are not be operating as they were originally intended TQs are established as a trade liberalising concession to compensate for high tariff barriers. Exporters, importers and consumers in importing markets have an interest in the effective use of TQs. Issues are often raised about conditions of use and management rules that determine who can use the TQ access, how it s distributed and what it can be used for. In-quota tariffs have been another source of concern in some cases. TQ management of allocated quotas involves a set of policy interventions that affect trading activities. Some conditions may have unintended consequences for TQ utilisation. It is often suggested market conditions are the primary cause of under utilisation. But the relevance of this factor tends to be exaggerated, especially for allocated TQs. For many TQs performance has not been particularly sensitive to changes in market conditions and the value of quota rights. This suggests management conditions may be affecting TQ performance. An assessment of TQ management was undertaken to identify issues that should be a focus for unilateral reform efforts. Who is the report targeted at? This report investigates concerns about TQ management raised by the users of access concessions in importing and exporting markets. It was undertaken to see if the concerns have merit and to identify areas of management that may be contributing to low usage rates. A set of principles for effective TQ management were developed. They could be used as a basis for reviewing management conditions and for guidance on unilateral reform efforts. They could also be used in the development of management conditions for new access concessions. The study was aimed at trade policy advisers and TQ administrators in both developed and developing economies. Results and recommendations for reform apply equally to importer managed TQs and the bilateral concessions managed by export suppliers. The Doha trade negotiations may ultimately lead to changes in the management of WTO concessions specific proposals have been developed. This report offers advice to guide unilateral reform efforts that would compliment changes that may emerge from a successful conclusion of the Doha Round. Background The intention and spirit in establishing TQs is to create an incentive for trade to generate economic welfare gains for both the importing and exporting countries. It s a trade liberalising concession for markets with high tariff barriers. In essence TQs are a product focused initiative based on a relatively straight forward concept. Favourable market access conditions are established for a limited quantity of a product. A lower tariff rate should encourage high rates of utilisation and an expansion in trade. vii

10 Application of the TQ concept has not been as trade liberalising as expected. This is surprising as TQ tariffs are often highly favourable when compared with standard market entry conditions. There are many examples of consistently low fill rates for TQs in WTO commitments. Administration may be contributing to the low fill rates. Commercial considerations could be another factor. The factors contributing to low fill rates will vary between products and importing markets. It has been suggested that persistent low fill rates reflects a lack of demand for the TQ product. If this is the case it weakens the case for TQ policy reforms and new market access concessions. It is important to establish the underlying causes of low usage rate for the development of effective reforms. Aims/Objectives The aim of the project was to investigate the effects of TQ administration on quota use and develop a set of principles for effective TQ management. Administration rules should be designed to maximise commercial opportunities for trade. A set of principles on TQ management would provide guidance for policy advisers on how to achieve this outcome. The specific objectives of the project were: to review the performance of a selection of TQ concessions in the WTO commitments; to assess the administration rules associated with the commitments; and develop a set of principles for effective TQ administration to provide guidance on policy reforms for existing TQs and the establishment of new TQs. Methods used TQs under WTO commitments were used as the basis for the analysis. A sizeable sample of active TQs for meat, dairy and sugar products was developed. It included TQs for the major developed economies and a selection of other economies. WTO notifications provided comparable information on administration and performance. This was supplemented by information on TQ management from some member country sources. Fill rates were examined in the context of world price developments. Key issues for TQ administration were identified and management conditions for the TQs were reviewed. TQ performance was assessed against the issues. The results were used to establish areas of focus for reform efforts. Administration areas covered in the assessment included high level conditions of access (i.e. product eligibility and tariff rates) and key aspects of the management systems used to distribute the access. Key findings The three product groups provided a sample of 153 active TQs for review. Average annual fill rates since the year 2000 shows significant under-utilisation for a large number of the TQs. Only a quarter of the TQs were close to fully utilised. About half had an average fill rate of less than 75% more than a third had fill rates of less 50%. Most TQs are distributed through allocation systems administered by the importer. There were 14 TQs using a first-come-first-served (FCFS) distribution system. Around 10% were either fully or partially managed by export suppliers. The analysis focused on importer allocated TQs because management information was available and allocated distribution systems are the major source of concern: there were 122 importer allocated TQs in the sample; and average fill rates indicate around two thirds of these TQs were under-utilised. viii

11 It s often suggested management conditions are a major cause of under-utilisation for allocated TQs. An alternative view is that it reflects market conditions. Commercial interest is limited because of insufficient value in the quota rents. A related explanation is that supply or demand conditions don t support a full utilisation of the TQ. It s suggested export suppliers have availability constraints or there s stronger demand from other import markets. A further explanation is that demand in the importing market is not strong enough to fully utilise the TQ. These explanations may apply to some very large TQs or in some situations where the divergence between domestic and world prices is very small. But it s not a plausible explanation for persistent low fill rates. It suggests importers and exporters are not responsive to the availability of quota rents and there s no supply response in exporting markets. It also implies there are no impediments from TQ management that limit the collective capacity of market participants to fully use the access. Quota rents create a commercial incentive to use the access. Changes in market conditions will be reflected in the value of the rents and the major source of variability will be changes in landed prices. World prices for commodities relevant to the analysis show significant variability since the year There were periods of large price falls and there was a surge in prices late in the decade. If market conditions have been a major contributing factor to low fill rates there should be significant changes in fill rates given the movements in world prices. In general this has not been evident in TQ performance. For many TQs there were modest or no declines in fill rates during the periods of rising world prices. This confirms the quota rents are significant and the recent rises in commodity prices did not erode the commercial incentive to make use of the access concessions. Higher world prices reduce the value of quota rents if other factors are unchanged. The assessment suggests that for most TQs the current users are not especially sensitive to changes in the value of the quota rent. This is consistent with the characteristics of a market for allocated quota that is regulated by management conditions. Fill rates are likely to be more responsive for an FCFS systems. But for an allocated system the response will be muted by management rules. This effect will depend on the restrictiveness of the management conditions. The review of prices and fill rates suggested other factors such as TQ management conditions are a significant factor in usage rates. TQ performance was assessed against particular aspects of quota management that could be impediments to maximising trade opportunities. The aim of the assessment was to obtain an indication of the contribution of particular issues. An initial consideration for some access concessions is importer or exporter management. The TQs managed by export suppliers achieve a better fill rate performance than importer managed TQs. About 40% of the exporter managed TQs were close to fully utilised compared with 24% for the importer managed TQs. It suggests TQ country reserves should be managed by export suppliers wherever it s possible to maximise the prospects of fully using the access. Exporters have a strong self-interest in making the TQ reserves work effectively. In most cases the level of interest and commitment is unlikely to be matched by importers, especially if other options exist. This is reflected in the relative efforts devoted to developing effective management systems. It suggests new TQs with bilateral reserves should pass the management rights to exporters: the average fill rate for all supplier managed TQs was around 83% which was significantly higher than the average of 59% for importer allocated TQs. Other considerations were assessed in the context of importer managed TQs. Access distribution can affect the prospects for maximising performance. The choice is FCFS or an allocation system. FCFS has the advantage of minimal administration costs and it will maximise commercial interest if there are no eligibility restrictions. Access is distributed upon request and usage reflects market conditions. ix

12 There can be disadvantages with FCFS, especially for small or moderate sized TQs. The TQ can be rapidly exhausted which encourages strategic behaviour. It limits opportunities for long term market development and uncertainty in product availability may discourage interest. The TQ may be viewed as an opportunistic trade opportunity and there is a higher risk quota rights could lapse. There is often a need to share the access for equity reasons because of the availability of quota rents. FCFS is generally the most effective option for large TQs. But allocation may generate better usage rates in other situations. About two thirds of the TQs using FCFS were under-utilised. Several were small which may indicate a lack of interest because of the limitations for market development. Eligibility for quota allocations is a key issue for TQ usage. Allocation systems often use eligibility rules to direct the access towards particular users. Restricting the number of potential users limits trade opportunities and the prospects for fully utilising the access. There were 122 allocated TQs managed by importing markets and only 19 can be classified as unrestricted. Persistent under utilisation of a TQ with a restricted pool of users does not indicate import demand is fully satisfied. The performance is only reflecting the trading activities of eligible users. Some may have a limited physical capacity to expand their use of imports there may be production, distribution or sales constraints. A portion of access may lapse simply because other potential users are excluded. The extent of the trade impediment will depend on the nature of the eligibility conditions: limiting quota use to historical users is the most restrictive eligibility condition 40% of the importer allocated TQs have this restriction; other TQs have eligibility tied to specific industry activities 44% of the importer allocated TQs has this restriction; and about two thirds of these TQs were under-utilised. An alternative to less restrictive eligibility rules is to provide an opportunity for other users through a specific reserve for new entrants. Two thirds of the TQs with restricted eligibility did not provide a specific reserve. Some provided ad hoc opportunities that were dependant on residual access after the primary distribution. But interest in this form of reserve is likely to be limited there s no opportunity for market development. Residual access may lapse even though other users are interested in regular TQ participation: 60 of the importer allocated TQs had no effective reserve for new entrants 70% of these TQs were under-utilised. For allocated TQs the quota rights can be either distributed or sold. Distribution of the rights provides a strong commercial incentive to use the TQ the applicants capture the quota rents. There were 13 TQs using an auction or competitive tendering system and only one was close to fully utilised. Three quarters of the TQs were distributed using a variable performance criteria: 27% of the TQs with a variable performance criteria were close to fully utilised. Some TQs use a fixed performance criteria for allocation. This approach does not allow for changes in commercial activity and can lead to lower fill rates. In the absence of effective usage rules some TQ rights may lapse. Most TQs with a fixed performance criteria were under-utilised. It suggests TQ performance may be improved if a variable performance criteria is used for distribution. The timing of allocations is another factor that may affect fill rates. Some TQs have the entire access distributed at the start of the year with a 12 month import licence. Some use progressive distributions with a short term import licence. This approach may lead to lapsed quota rights if there is no process for the subsequent re-allocation of unused progressive distributions. In general there is no indication of how this situation is managed for TQs with progressive distributions. x

13 The lapsing of quota rights is a key issue for all allocated TQs. TQ performance is maximised if there is an enforced obligation for quota holders to use their entire allocation. Access rights not required should be returned for re-distribution to other users. Effective minimum usage rules and a process to re-claim surplus allocations for re-distribution is essential for effective TQ management. Some quota recipients are committed users of a TQ as the imports are an integral part of their business activities. Others may take a discretionary approach to quota usage as the imports are an ad hoc or speculative trading activity. There is a higher risk of these users allowing quota rights to lapse. More generally, a discretionary approach to quota usage may emerge towards the end of a quota year as the users are aware they will receive a new allocation in the near future. Minimum usage rules appear to be a neglected aspect of TQ management. For many allocated TQs there is no rule on usage. There is also no indication that a supplementary distribution system is used to encourage the use of voluntary returns. An effective minimum use rule requires a high threshold supported by significant penalties for non-compliance that apply at the next allocation. Pro-active management of quota returns appears to be another neglected aspect of TQ management. In most cases there is no specified closing date for voluntary returns to facilitate re-distributions that are commercially viable (e.g. 3-4 months before the end of the year). There is also no process to promote the availability of quota returns and no provision for supplementary allocations. Management of quota returns appears to be a passive process which increases the potential for lapsed quota rights. Product eligibility is an aspect of TQ management that receives very little attention. Many TQs have restrictions on the form and/or type of product that can enter the market. They are impediments on how quota holders can make use of the access rights. The access is not treated as a product concession and it limits the commercial flexibility of quota holders. About half the TQs had no product eligibility restrictions and around 30% were close to fully utilised. Some product eligibility conditions are more restrictive than others. Over a third of the TQs have product type restrictions which are likely to be more limiting than form restrictions. They generally impose particular specifications that constrain the competitive positioning of imports. Around 80% of the TQs with product type restrictions were under-utilised. The average fill rate for type restricted TQs was 56% it was for 65% for unrestricted TQs. Tariff rates are another factor that can affect performance in some cases. The tariff reduces the value of quota rights which may diminish commercial interest in a TQ. In some cases it may not be a major issue. Moderately sized tariffs and large price differentials would suggest the effect on performance will be limited in most trading conditions. A review of commodity prices and fill rates also suggests quota holders are not especially sensitive to changes in the value of quota rents in many cases. However, some TQs have sizeable tariffs and persistent low fill rates. This suggests the tariff could be a significant issue in some cases. A high tariff can diminish quota rents to a point where eligible users are more inclined to use domestic product. Lower tariffs could improve performance if there are no other trade impediments imposed by the TQ management conditions. About a third of the TQs had tariffs of less than 10% and more than a third were fully utilised. Tariffs of this size are relatively modest and in most trading conditions the effect on quota use is likely to be minimal. There were 39 TQs with tariffs of between 10 and 20%. The average fill rate was 65% and many were under-utilised. Tariffs of this size are more significant and in cases where product market protection is relatively modest it might be enough to affect performance. There are 57 TQs with high tariff rates. Some were close to fully utilised but about three quarters were under-utilised. The average fill rate for these TQs was 53%. There is a greater likelihood that the tariff has been a significant factor in the under-performance of some of these TQs. xi

14 Implications for relevant stakeholders Concerns have been raised that TQ concessions are not operating as they were originally intended. There are numerous examples of persistent low fill rates for TQs in the WTO commitments. The focus of concern has been on TQ management (i.e. conditions of use and access distribution systems) and tariff rates. The analysis indicates that administration is a legitimate area of concern for the under-performance of TQs. Suggestions that low fill rates simply reflect market supply and demand conditions are not plausible. It ignores the fact that management of allocated TQs involves a set of policy interventions that impact on commercial trading activities. There are restrictions on who can use the TQ access, what it can be used for, how it can be used and when it can be used. The analysis has identified some aspects of TQ administration that play a critical role in performance. For the importer allocated TQs that are under-utilised reform efforts should focus on these issues. The development of new TQs should give appropriate consideration to these issues. They include: eligibility to use the TQ and the availability of a specific reserve for new entrants; the timing of allocations and expiry dates on import licences; application of effective minimum usage rules; management of quota returns and quota use near the end of the year; product eligibility conditions; and in-quota tariff rates. Recommendations Exporters, importers and consumers in importing markets have an interest in the effective use of TQs. The assessment has confirmed that in many cases reforms are needed for the TQs to operate as they were originally intended. More effective management will improve the prospects for maximising fill rates and enhancing the economic welfare gains for both importing and exporting countries from expanding trade. The required reforms will depend on the restrictiveness of TQ management conditions. The analysis suggests there may not be a single, specific policy reform solution. On its own, changing one element of the management system or reducing the TQ tariff rate may not be enough. A case by case approach is needed for each TQ and a combination of reforms may be required. Administration rules should be designed to maximise commercial opportunities for trade: the principles for effective TQ management that were developed from the analysis should be used to provide a reference point for reviewing TQ management and for guidance on the required reform efforts. xii

15 1. Introduction Tariff quotas (TQs) are an important feature of the market access conditions for trade in agricultural products. They are used extensively in WTO access commitments and often incorporated in free trade agreements (FTAs). Current WTO commitments show 48 Members with a total of 1,094 TQs (WTO 2012l). It suggests TQs are widely utilised even if it s not a measure of current usage. Some TQs are inactive as standard trading conditions provide equivalent or more favourable terms of access. The intention of tariff quotas is to provide opportunities for trade at tariff rates that are lower than the applied or bound rates levied on other trade. It s a product focused initiative and a straight forward concept. TQ access is made available for a limited quantity of a product. A lower tariff rate should encourage high rates of utilisation and facilitate an expansion in trade. A number of TQs were established in the Uruguay Round of multilateral trade negotiations. In general there was an expectation that many of the access concessions would be close to fully utilised. TQ fill rates might vary occasionally with fluctuations in market conditions. But over time a high average usage rate was anticipated, especially for imports facing high rates of border protection. Application of the TQ concept has not been as trade liberalising as expected. This is surprising as TQ tariffs are often highly favourable relative to standard market entry conditions. Administration of the TQs is often suggested as a major reason for the limited trade growth. TQ management systems and the conditions of access are cited as a regulatory interference that frustrates trade. Concerns have been raised about the effectiveness of TQs to provide concessionary opportunities for trade. The effectiveness of some TQs in FTAs have also been questioned. But most of the concern has focused on the TQs included in WTO commitments. Persistent low fill rates in markets with high rates of border protection suggest the TQ concessions are not working as they were intended. There are numerous examples of consistently low fill rates for TQs in WTO commitments. Persistent low fill rates over time would suggest market conditions are not causing under-utilisation. Exporters point to TQ administration as a major issue along with in-quota tariffs. Rules on eligibility, usage and distribution are some of the administration conditions seen to be impediments to TQ use. Administration may be contributing to low fill rates for some TQs. Commercial considerations may be another factor. The level of interest in TQ access may be affected by the in-quota tariff rate as well as supply and demand conditions for the product being traded. Fill rates for some TQs may be sensitive to price movements which reduce the size of the TQ rent additional return from utilising the access rights. At particular times this could weaken the demand for quota rights. The factors contributing to low fill rates will vary between products and importing markets. It is also possible that a combination of factors may be contributing to the under-utilisation (i.e. administration, tariff rate and market conditions) and their effect may vary over time. Policy reforms to improve TQ performance may not be effective if the underlying cause is not correctly identified. TQ administration has been a discussion point in the Doha trade negotiations. It has been suggested that persistent low fill rates reflects a lack of demand for the TQ product. This would weaken the case for TQ policy reforms and new market access concessions. Therefore it is important to establish if TQ administration has been an underlying cause of low usage rates. Exporters, importers and consumers in importing markets have an interest in the effective use of TQs. Administrative reforms may be required for the TQs to operate as they were intended. If reforms are necessary a unilateral, case specific approach is generally the most effective way to proceed. 1

16 An evaluation of the administration and performance of the TQs in the WTO commitments is a useful way to establish if reforms are needed. It can identify areas of administration that should be the focus of attention for effective TQ management. This would provide guidance for unilateral reform efforts to existing TQs and the establishment of new TQs in FTAs. It may also identify some areas of reform that might be pursued in WTO and regional trade agreement (RTA) forums. Project aim and objectives TQs are a mechanism for a partial liberalisation of trade within a restrictive border protection regime. The intention and spirit in establishing TQs is to provide an incentive for increased trade. There are economic welfare gains for both importing and exporting countries from increased international trade. The TQs will operate as intended if the access concession is made widely available to potential users and market requirements are allowed to determine the best use of the access. Administration rules and conditions of use can negate the intended incentive for trade in a TQ product. A TQ management system with minimal regulatory interference will not guarantee the access is fully utilised. Commercial considerations in response to price changes may affect the fill rate. But quota use will be maximised if the management system is not unduly restrictive. The aim of the project was to investigate the effects of TQ administration on quota use and develop a set of principles for effective TQ management. Administration rules should be designed to maximise commercial opportunities for trade. A set of principles on effective TQ administration would provide best practise guidance for policy advisers on how to achieve this outcome. The specific objectives of the project were: to review the performance of a selection of TQ concessions in the WTO commitments; to assess the administration rules associated with these commitments; and develop a set of principles for effective TQ administration that may be used for guidance on policy reforms to existing TQs and the establishment of new TQs. TQs under WTO commitments have been used as the basis for the analysis. WTO notifications on TQ outcomes have been available since They provide a complete source of comparable information on administration and performance. It was beyond the scope of the project to review all active WTO commitments. A sizeable sample of markets and products was used instead. The sample was confined to three commodities that have numerous TQs operating in world trade meat, dairy and sugar. There were two levels to the evaluation. A primarily focus was the type of management system and user access rules such as eligibility and distribution. But TQ administration and fill rate performance cannot be examined in isolation from the higher level conditions of access. A secondary focus was product eligibility and in-quota tariffs. 2

17 2. Incidence of WTO tariff quotas WTO trade commitments from the Uruguay Round include TQs for historical concessionary access and new minimum access concessions. Since 1995 there has been a substantial rise in FTAs and some of these agreements have included tariff-quotas for specific products. Administration arrangements for the FTA tariff-quotas have generally followed the approach used for WTO tariff-quotas. Markets and products with TQs Current WTO commitments indicate 48 members are using or have used TQs. The number of TQ commitments is not a measure of usage. Some TQs are inactive because applied or bound tariffs have negated any trading advantage. In a few cases TQs have been replaced by more favourable tariff arrangements for all imports. A sample of 22 markets were used to generate a set of active TQs for evaluation. The selection of markets focused on the major developed economies with high rates of protection for particular commodities. Several other economies were included to obtain a wider perspective on TQ performance and management. The 22 markets included in the analysis had 432 active TQs (table 1). This assessment was based on a review of WTO notifications since It reflects the most recently available information. In most cases notifications were available up 2011 with more recent information available in some cases. A number of other markets were reviewed in developing the sample. They were excluded for various reasons. In some cases there was insufficient notification information. In other cases the commitments were not consistently active. Some markets such as Indonesia and several South American countries had TQ commitments that were either not activated or mostly dormant since Most of the TQ commitments by the selected markets are active concessions. This assessment is based on reviews of WTO notifications on TQ usage. Some exceptions worth noting include: Mexico has 1 active TQ from 11 commitments; Norway has 20 active TQs from 232 commitments; South Africa has 25 active TQs from 53 commitments; the US has 43 active TQs from 54 commitments; and China has 6 active TQs from 10 commitments. The use of TQs is common across each of the major commodity groups. There are 168 TQs for meat and dairy products 39% of the total number of active TQs. Most of these access concessions have been established by the major developed economies. There are also a large number of TQs for cereal and horticulture products. Sugar is highly protected industry in many countries but there are only 14 TQs in the sample of markets. The EU is the largest user of TQs and they have been established across all the major commodity groups. There are 28 separate TQs for meat products in the EU and 24 for both crop and horticulture products. The US has 23 separate TQs for dairy products. Other major users of TQs include Republic of Korea, South Africa, Thailand, Canada and Norway. It is also worth noting that: Asian markets account for more than a third of the total number of active TQs; and four major developed economies (the EU, US, Canada, Japan) account for 43% of the TQs. 3

18 1. Active WTO tariff-quotas for agricultural commodities # Meat * Dairy Sugar Crops ** Horticulture Other Total North America US Canada Mexico Europe EU Norway East Asia Japan South Korea Taiwan China Thailand Philippines Malaysia Vietnam Central & Southern America Chile Costa Rica Dominican Republic El Salvador Other countries Australia New Zealand India Israel Morocco Tunisia South Africa Total % 22% 3% 19% 20% 19% # Activated import TQs for a sample of markets based on WTO notifications. Source: WTO notifications Includes active TQs where in-quota imports exceeded concessionary access commitment. * Includes TQs for livestock. ** Includes TQs for cereals, rice, oilseeds & associated processed products (e.g. meal, bran, starch, oil, etc). TQs for field crops such as cotton, tobacco, hay & animal feed are included in other. 4

19 2. Utilisation of WTO import TQs # Number Average annual fill rate since 2000: of TQs 95% 75-94% 50-74% < 50% Meat TQs Beef Sheep meat Pig meat Poultry meat Sugar TQs Dairy product TQs Cheese Butter products SMP & WMP Other milk powders Other dairy products Total % 21% 15% 38% # Active TQs based on most recent WTO notifications. Source: WTO notifications. Calculation period for average annual fill rate varies because of incomplete availability of notifications. In most cases notifications were available up to 2011 with a sample of 12 annual observations. TQs were excluded if WTO notification data was unavailable for the sample period. For the purposes of the analysis the TQ evaluations were confined to three product groups meat, dairy and sugar. These three product groups provided a sample of 153 active TQs. In a few cases TQs were excluded because there was insufficient WTO notification data available. Average annual fill rates for the three product groups shows significant under-utilisation for a large number of TQs (table 2). A sample period from the year 2000 was used for illustrative purposes. It provides sufficient time series data to allow for the effect of changes in world prices. Fill rates for most of the TQs were similar in the period. The review of fill rates shows: more than half the TQs had an average fill rate of less than 75% more than a third had fill rates of less 50%; and about a quarter of the TQs had a fill rate of 95% or more. An average fill rate of 95% or more is a reasonable indicator of a TQ that is close to fully utilised. It can be difficult to consistently achieve a 100% fill rate. Administration problems can occur from time to time and there may be periods when unexpected market conditions disrupt quota usage. However, it is acknowledged that a constant pattern of 95% annual fill rates may reflect a management issue: there were 17 TQs with a 100% fill rate 6 meat, 10 dairy and 1 sugar; another 23 TQs were close to fully utilised in most years of the sample period. 5

20 3. Administration of WTO import TQs # Number TQs with Managed by importer: Managed of TQs supplier Allocated ** FCFS by allocations * exporter Meat TQs Beef Sheep meat Pig meat Poultry meat Sugar TQs Dairy product TQs Cheese Butter products SMP & WMP Other milk powders Other dairy products Total % 80% 9% 11% # Active TQs based on most recent WTO notifications. Source: WTO notifications. Primary system used by import market to distribute TQ access. Allocated = eligibility conditions & allocation formula. FCFS = First Come First Serve. * Importing market allocates some or all of the TQ to specific export suppliers. ** Includes TQs distributed through importers purchasing access rights in open auction system. The incidence of under-utilisation was evident in both meat and dairy TQs. Almost two thirds of the meat TQs had fill rates of less than 75%. About half the dairy TQs had fill rates of less than 75%. Under-utilisation was less prevalent for the sugar TQs. Administration of tariff quotas revolves around decisions on the method of distributing access rights to commercial users. TQs are either allocated or un-allocated. A management system with allocation rules is generally used if there is strong demand for the access rights. The alternative is a first-come first serve (FCFS) system where import approvals are issued as requested until the TQ is filled. Allocation systems managed by the importing market are used for 80% of the TQs (table 3). Only 14 TQs are distributed to importers on an FCFS basis. For some TQs the importing market has passed some or all of the access rights to export suppliers. There are 17 TQs where this is the case. Exporting markets have to manage the market access and face the same decision allocation or FCFS. There are no major differences in the choice of TQ management decisions across the three product groups. Most TQs are managed through allocation systems administered by the importer. There are no FCFS distribution systems used for butter, cheese and other milk powders. Sugar and other dairy products are the main users of FCFS distribution. 6

21 A summary of the main features of the TQ management systems for meat, dairy and sugar products is presented in appendix A. It shows the type of distribution system and the high level conditions of access. An assessment of TQ administration needs to consider restrictions on the use of a TQ. Some TQs have country specific allocation reserves and some have product specification restrictions. These high level conditions of access can be a contributing factor in low fill rates for some TQs. Fill rates and distribution meat products Restrictions on the form and/or type of product are a common feature of the meat product TQs. There are TQs restricted to frozen product and others that limit TQ usage to a particular sub-set of products. For example, some TQs specify particular tariff line details that exclude bone-in cuts or boneless products. Other examples include requirements for a particular grade of product and requirements that specify a particular livestock feeding regime. These sorts of restrictions can be described as product eligibility conditions. They are restrictions on how the concessionary access for a product can be used. Commercial interest in using a TQ can be diminished if market requirements are not allowed to determine the best use of the access: more than two thirds of the 54 meat TQs have some form of product eligibility condition; these conditions have probably been a contributing factor in the under-utilisation of several meat TQs. The size of the TQ is a another factor that can influence the fill rate. In general small TQs should be close to fully utilised provided there is a significant quota rent available. This may not be the case with large TQs. The capacity of exporting markets to make full use of any TQ access may be limited by product availability and competition from other importing markets: the relative returns from TQ markets will vary because of differences in internal prices; export suppliers will sell product to the highest earning markets and this may limit the long term utilisation of TQ access in some cases. There are four relatively large beef TQs ranging from 697 kt in the US to 53 kt in the EU. There is one large sheep meat TQ of 284 kt in the EU and one large pig meat TQ of 53 kt in the Philippines. Only one of the TQs achieved a fill rate of more than 95% (see appendix A). Market trading conditions have affected the fill rates at certain times: on occasions some of these TQs may have been under-utilised due to supply constraints in some exporting countries. The fill rate performance of other TQs is of some interest for the issue of TQ administration. Most of the TQs are relatively small which would suggest good prospects for being fully utilised. Some are close to fully utilised but others have low fill rates. The effect of TQ tariffs on quota rents and market returns may be a issue in some cases but it suggests administration conditions could be a significant factor in the under utilisation of access concessions. A small number of TQs have country allocations 5 beef TQs and 6 poultry TQs have reserves for specific suppling markets. Fixed reserves may affect TQ use in some situations but temporary reallocations can off-set this constraint. Most of the meat TQs are either fully allocated or have a partial allocation to global suppliers. Other features of the meat TQs include: the EU has several TQs for beef, pig and poultry meat with product eligibility restrictions; there is substantial under utilisation of pig meat TQs the fill rates for the EU pig meat TQs are very low; only 3 meat TQs use an FCFS management system; 7

22 access rights for several beef TQs are either fully or partially managed by export suppliers; fill rates for TQs managed by export suppliers compare favourably with those managed by the importing market; and there are no pig or poultry meat TQs with export supplier management. Fill rates and distribution dairy products A general feature of the dairy product TQs is the provision of access concessions for particular subsets of products. There is concessionary access for cheese, butter, milk powders and a range of other dairy products. The alternative end uses for dairy products and the technical characteristics of different milk components requires access concessions that distinguish between several product categories. But within these categories many of the TQs have specific product eligibility conditions. For example, the EU and US have TQ concessions for several different types of cheese. In a number of markets TQs for milk powders have specified particular types of powder (e.g. SMP, WMP, BMP) with particular technical requirements. In some cases there are restrictions on using additives (e.g. sweeteners) and in other cases there are end-use restrictions (e.g. whey powder for feed use or infant formulas). TQs for other dairy products are often restricted to a specific product with fat or protein content thresholds. Product eligibility conditions appear to be a contributing factor in the under-utilisation of TQ access for dairy products. A large number of TQs with low fill rates have product eligibility conditions (see appendix A). These conditions limit the capacity of commercial players to maximise the use of access concessions for a product category. For example, some markets provide TQ access for milk powders which can be used SMP or WMP. Other markets restrict the TQ to one type of milk powder: the division of US and EU cheese access into different varieties reduces the prospects for fully utilising the available access on a product basis; commercial opportunities are restricted in comparison to an access concession such as the Canadian cheese TQ which has no product eligibility conditions. In general the TQ access levels for dairy product are relatively small. But there are exceptions: the US has two cheese TQs of 49 kt (other NSPF) and 34 kt (Swiss & Emmenthal); the EU has 75 kt of access for butter and 69 kt for SMP; Japan has a TQ for 86 kt of SMP and a TQ for 45 kt of whey powder (feed use) as well as dairy ingredient TQs for 134 kt (other dairy products) and 137 kt (designated products); Korea has a whey powder TQ for 43 kt, Mexico has a milk powder TQ for 120kt and Thailand has a TQ for 55 kt of SMP. Four of these large TQs had a fill rate of more than 95%. Japan s dairy ingredient TQs, the Mexican milk powder TQ and the Thai SMP TQ were all close to fully utilised. The EU butter TQ had a high fill rate but the other TQs were under-utilised. The SMP and whey powder TQs in Japan and the EU SMP access were substantially under-utilised. Market trading conditions may have affected the fill rates for some of these TQs at certain times: for example, EU access for SMP was substantially under-utilised in recent years because of exceptionally high world prices and adjustments to changes in internal support measures. The fill rate performance for other TQs are particularly relevant for the issue of TQ administration. Access varies between TQs of a moderate size and several where the TQ is less than 1,000 tonnes. There are high rates of protection in most of the markets. This should generate a strong incentive to fully use the access concessions. 8

23 Some of the smaller TQs are close to fully utilised but a sizeable number have low fill rates. There are 31 smaller dairy TQs with an average fill rate of less than 50%. In some cases the effect of TQ tariffs on quota rents and market returns may be a issue. But the outcomes suggest administration conditions could be a significant factor in the under-utilisation of access concessions. Allocations of TQ access to specific export suppliers are more prominent in dairy product TQs. There are 29 TQs with country reserves. All US cheese TQs and three of the EU cheese quotas have country specific allocations. The US, EU, Canada and Japan also have supplier reserves in some TQs for milk powders, butter and other dairy products. Fill rates for individual supplier reserves were not available and it was not possible to assess their contribution to TQ performance. Other features of the dairy product TQs include: only two cheese TQs and one butter TQ achieved a fill rate of 100%; there are five EU cheese TQs with a fill rate of less than 50%; seven TQs use an FCFS management system; and there is substantial under-utilisation of a sizeable number of TQs for other dairy products. Fill rates and distribution sugar products Product eligibility restrictions are less prominent in the TQs for sugar products. In some there is a distinction between raw and refined sugar but in general the access can be used for either product form. The US has a TQ for raw sugar and its restricted to cane sugar. The EU sugar access has no product eligibility conditions. In contrast to the meat and dairy access most of the sugar TQs are large. There is substantial access for raw sugar in the US (1,117 kt) and the EU (1,305 kt) as well as sizeable TQs for refined and processed sugar products. China has a large TQ (1,945 kt) that can be used for raw or refined sugar. Vietnam, Morocco, Tunisia, Chile and the Philippines also have relatively large TQs. The large sugar TQs available in the EU, Philippines and Morocco were close to fully utilised (i.e. fill rates of more than 95%). TQ access for sugar mixtures in the US was also fully utilised. Several other large TQs had relatively high fill rates. and the other US sugar TQs had high fill rates. The sugar TQs for China, Chile and Vietnam was under-utilised. There are two small TQs in Thailand and the Dominican Republic which may have some significance for the issue of TQ administration. Both markets have high rates of border protection which suggests a reasonably firm incentive to utilise the access. In both cases the TQs were under-utilised. The Thai sugar TQ had an average fill rate of less than 20% but the access is available on an FCFS basis. Fill rates are relatively high for many of the TQs although there are some exceptions. TQ tariffs and their effect on market returns may be a contributing factor in the under-utilisation of access in some cases. Administration conditions may also be an issue for the performance of some TQs. Export supplier allocations are less prominent in the sugar TQs. The US and EU distribute TQ access to specific export suppliers but most of the other TQs are available to any supplier. There have been occasions when the US has used temporary re-allocations to cover supplier shortfalls. At other times the US has raised access levels if markets conditions required extra imports. In general the allocation of exporter reserves does not appear to be a major factor affecting TQ utilisation. Other features of the sugar product TQs include: two TQs achieved a fill rate of 100%; and four TQs use an FCFS management system. 9

24 Market conditions and fill rates An alternative perspective on low TQ fill rates is that it simply reflects market conditions. It s often suggested that commercial interest is limited because there is insufficient value in the quota rents due to pricing conditions. The limited interest is claimed to be reflective of strong world prices and/or a domestic prices in the importing market that are close to market entry price. Another closely related explanation is that supply or demand conditions don t support a full utilisation of the TQ. It is suggested that export suppliers have product availability constraints or there is stronger demand from other import markets. A further explanation is that demand in the importing market is not strong enough to fully utilise the TQ. These explanations for low fill rates may be applicable to some very large TQs for products that are widely traded on world markets. But it is unlikely to be the case for small or moderately sized TQs. The explanation of inadequate quota rents may apply in some situations where the divergence between the domestic and world price is very small. But it s unlikely to be the case for TQs in highly protected markets which have small to moderate TQ tariff rates: most of the TQs reviewed are in highly protected markets and small or moderate in size. A market conditions perspective is not a plausible explanation for persistent low fill rates. It suggests importers and exporters are not responsive to the availability of quota rents and there is no supply response in exporting markets. It also implies there are no impediments from TQ management that limit the collective capacity of market participants to fully utilise the access concession. Annual fill rates are presented in appendix B. It shows some variability for some TQs but for the vast majority there is very little change. It also shows a persistence of under utilisation for numerous TQs. Persistent under-fill suggests factors other than market conditions may be affecting quota usage. Quota rents passed on to importers or exporters create a commercial incentive to use the access. If TQ participation is unrestricted the fill rate should vary over time as pricing conditions fluctuate. A rise (fall) in the value of quota rents should increase (reduce) the interest in the TQ. But it s rare to see a major shift in fill rates and participation in allocated TQs is generally restricted. This suggests that for most TQs the current users are not especially sensitive to changes in the value of the quota rent. Changes in market conditions will be reflected in the value of quota rents. The rent is valued by the differential between internal prices in the importing market and landed prices for the traded product. TQ tariffs are fixed and internal price variability tends to be limited in highly protected markets. This is a common situation for beef, sugar and dairy products in the markets that were reviewed. The major source of variability in the value of quota rents is changes in the landed price for traded products. World indicator prices for the major commodities provide a suitable perspective on changes in market conditions. In general landed prices for specialised TQ products will largely move in line with associated prices for the standard product. For example, prices for different types of beef cuts or cheese varieties will generally move in line with the indicator price for beef and cheddar cheese. World prices for the commodities relevant to the analysis show significant variability since the year Notable observations on price trends include: beef and sheep meat prices were relatively flat for much of the time period until a significant rise from around 2010 (chart A); a similar trend was evident in pig and poultry meat prices except the strengthening in prices began around 2008 (chart B); 10

25 8 000 A. World prices of beef & lamb - US$/t Source: FAO Australian beef, cif US ports NZ lamb carcase, cif Smithfield UK B. World prices of pig & chicken meat - US$/t Pig meat cuts, cif Japan ports Chicken meat cuts, cif Japan ports C. World prices of WMP & SMP - US$/t Source: USDA WMP, fob Western Europe SMP, fob Western Europe 11

26 6 000 D. World prices of cheese & butter - US$/t Butter, fob Western Europe Cheese, fob Oceania 600 E. World price of sugar - US$/t Source: FAO Sugar, fob Caribbean ports milk powder prices were relatively stable until a sharp rise in 2007 followed by a substantial decline and a renewed price rise towards the end of the time period (chart C); butter prices followed a similar trend to milk powder prices while cheese prices showed a sustained upward trend between 2003 and 2008 followed by a period of relative stability after a recovering from a decline in 2009 (chart D); and world sugar prices were flat initially followed by a sustained strengthening trend from around 2005 (chart E). If market conditions have been a major contributing factor to low fill rates there should be significant changes in TQ usage given the movements in world prices. In general this has not been evident in TQ performance. For many TQs there were modest or no declines in fill rates during the periods of rising world prices. Higher world prices reduces the value of quota rents if other factors are unchanged. For TQs with a small quota rent the fill rate could move between 0% and 100% with a sizeable change in world prices. There are examples of this type of change. But the vast majority of TQs do not behave this way. This suggests the quota rents are substantial and it confirms the recent rises in commodity prices did not erode the commercial incentive to make use of the access concessions. 12

27 The long term persistence of under-fill for numerous TQs is worth noting. Lower world prices means higher valued quota rents if other pricing conditions are unchanged. Commercial demand for quota access should be stronger with greater prospects for fully utilising the a TQ. But for several TQs there were similarly low fill rates in the first half of the time period. This would support the view that TQ usage by the current users is not especially sensitive to changes in market conditions. The review of world prices and fill rates suggests other factors such as TQ management conditions are a significant factor in usage rates. In general TQ management has been unchanged recent changes to the management of some EU pig meat TQs are an exception. Supply constraints in exporting markets are unlikely to be an issue because most of the TQ are for relatively small volumes. Another possible explanation is insufficient demand in the importing market. This explanation implies market requirements are fully satisfied which may be the case for some TQs with highly specialised products. It may also be the case for some very large TQs. Several of the sugar TQs are for sizeable quantities But most of the meat and dairy TQs are relatively small in comparison to consumption levels in the importing market. An over-supply of TQ access does not seem a plausible explanation for most of the TQs with low fill rates in highly protected markets. There are sizeable quota rents as fill rates did not fall to 0% during the recent period of high world prices. The analysis suggests other factors may be impeding the use of the TQ. Persistent low fill rates are not necessarily a reflection that import demand for the TQ product is fully satisfied and the un-used access is not required; The assessment suggests that for most TQs the current users are not especially sensitive to changes in the value of the quota rent. This is consistent with the characteristics of a market for allocated quota that is regulated by management conditions. The market is prevented from operating in the normal competitive sense of changes in marginal costs or revenues causing changes in price and quantity outcomes. Eligibility conditions can limit the number of quota users. Allocation systems can limit the ability of individual users to change their quota usage. Large changes in the value of quota rights may enhance the responsiveness of quota use in allocated quota in some situations. For example, a large rise in the value of quota rights could attract more eligible users or encourage the pursuit of more quota within the constraints of the distribution rules (e.g. usage of voluntary returns). Stronger prices in the importing market, lower TQ tariff rates or large declines in world prices could be the catalyst for this development. The apparent lack of sensitivity of fill rates to changes in the value of quota rents will not apply in all cases. Quota use will be more responsive in FCFS systems with no eligibility conditions. But for an allocated system the response will be muted by management rules. This effect will depend on the restrictiveness of the management conditions: this may have implications for policy reform efforts to improve TQ performance; it suggests there may not be a single, specific policy reform solution on its own, changing one element of the management rules or a lower applied TQ tariff may not be enough; a case by case approach is needed for each TQ and a combination of reforms may be required. 13

28 3. Tariff quota administration The aim of the study is to establish if TQ administration is a legitimate source of concern for fill rates and to identify the issues that may be relevant. The role of high order conditions of access has been considered. Management systems for the distribution of access rights is the other key issue. Choice of management system The choice for distributing access is either a rules based allocation system or an FCFS (un-allocated) system. This decision has implications for fill rates and trade development. An FCFS system has the advantage of simplicity and minimal administration costs. There are no eligibility conditions and the access is automatically distributed upon request until the TQ is filled. There can be disadvantages with an FCFS system. If the demand for quota is strong the access could be rapidly exhausted. This can lead to strategic commercial behaviour that erodes the value of quota rents. It could disrupt normal trading activities in supplier and importing markets. It can also limit the opportunity for longer term market development. Access uncertainties or truncated product availability in the latter part of a quota year may discourage interest in a TQ distributed as FCFS. The access may become viewed as an opportunistic or ad hoc trade opportunity. This is especially the case for small TQs, those with highly restrictive product eligibility conditions and those with small TQ rents: low fill rates for a sizeable FCFS tariff quota will most likely indicate import demand has been fully satisfied for example the Thai sugar TQ of 15 kt had a 12% fill rate; but this may not be the case for a small TQ with FCFS management for example, the US TQ for dried cream had an access level of 100 tonnes and a fill rate 21%. A further issue that arises with FCFS distribution is equity or fairness. TQ rents are a windfall gain generally passed on to commercial users. There may be a need to provide for an equitable sharing of the TQ trading rights. For these reasons TQs are often allocated through a rules based distribution system which may lead to slightly higher administration costs: an FCFS system was used for 14 TQs and 9 had a fill rate of less than 95% (table 4). The choice between allocation and FCFS can affect quota use. Allocation can generate better usage outcomes if the distribution system is appropriately designed. This is likely to be the case for a small TQ where uncertainties about access availability during the quota year affects the level of interest. For example, allocating a TQ for 500 tonnes of product to a single user or a limited number of users may achieve a higher fill rate in comparison to an FCFS approach. In general TQ management should be based on an allocation system with an initial call for quantity requests to assess quota demand. But an option to trigger an FCFS system should be available if demand is well below the available access. For example, Australia uses this approach to manage its TQ reserve for beef access to the US market. An FCFS system is used with shipments monitored to determine if an allocation system is required to manage residual access during the quota year. Allocations should not exceed requested amounts. There may be situations where demand is strong but the TQ is not fully distributed because of the size of the initial requests. An allocation system should still operate. It provides certainty for the applicants and prevents strategic behaviour. Residual access can be available on an FCFS basis or used for a supplementary allocation. 14

29 4. Management systems for import TQs # Number of Managed by exporters * FCFS distribution to importer Allocated to importer ** TQs Fill rate Other Fill rate Other Fill rate Other 95% fill rates 95% fill rates 95% fill rates Meat TQs Beef Sheep meat Pig meat Poultry meat Sugar TQs Dairy product TQs Cheese Butter products SMP & WMP Other milk powders Other dairy products Total % 7% 3% 6% 18% 61% # Active TQs based on most recent WTO notifications. Source: WTO notifications. Management system used for primary distribution of TQ access. For TQs divided between different groups of applicants that use different management systems the approach used for the group with the largest share was used for classification purposes. * Some or all of the access rights passed to export suppliers for management. ** Includes TQs distributed through importers purchasing access rights in open auction system. Many of the concerns about TQ administration are related to the allocation systems used by importing markets. Importer allocated TQs accounted for 61% of the under-utilised access concessions. The TQs managed by export suppliers achieve better fill rates than importer allocated TQs: a fill rate of more than 95% was achieved by 40% of the supplier managed TQs; less than a quarter of the allocated TQs managed by importers achieved this level of performance; the average fill rate for all supplier managed TQs was around 83% which was significantly higher than the average of 59% for importer allocated TQs. Most supplier managed TQs are based on country allocations from historical bilateral understandings. In general there is strong interest in exporting countries to maximise the use of concessionary access. The country reserves in TQs are unlikely to be globalised for political reasons. Exporter management of these reserves where it currently exists should continue because of the strong self-interest in making the TQs work effectively. 15

30 Importers also have an interest in the effective use of TQs. But the level of interest and commitment is unlikely to match that of export suppliers, especially if there other options exist. Utilisation rates may be lower if the exporter managed reserves were managed by importing markets: performance of TQs with importer managed supplier reserves may improve if management rights were passed to the export suppliers; if TQs with country reserves are established under an FTA the management rights should be passed to the export suppliers it will maximise the prospects of fully utilising the access concession as intended. Using an allocation approach to TQ management as the starting point may lead to slightly higher administration costs for importing markets. However, allocation will maximise the opportunity for the TQs to be fully utilised and ensure the concessionary access is operating as intended. Concerns about the effectiveness of importer managed TQ concessions cover a number of areas of administration. Questions are raised about issues such as eligibility, the distribution mechanisms and quota use requirements. Management systems for the sample of TQs were assessed to determine if any design features may be contributing to lower fill rates. The main features of the TQ distributions systems are summarised in appendix C. The analysis has focused on the allocated TQs managed by importers because of a lack of information on management systems for exporter managed TQs. The principles for effective administration that emerge from the analysis will be equally applicable to the TQs managed by export suppliers. Areas of administration that were examined include: eligibility to share in the TQ access; the system for distributing TQ access among the applicants; usage rules for allocated TQ access; management of un-allocated access and quota returns; TQ size and product eligibility; and in-quota tariff rates. Eligibility to use TQ access Eligibility for quota allocations is a key issue for TQ performance. A standard FCFS system with no eligibility conditions will maximise the number of potential users. Allocation systems often have rules to direct the access towards particular users. Restricting the number of potential users will limit the opportunities for trade and the prospects of fully utilising the access. There were 122 allocated TQs managed by importing markets and only 19 (15%) can be classified as unrestricted (table 5). These quotas were widely available to industry participants or processed food users. In most cases the only requirement was to be currently active in the industry. The remaining TQs had specific eligibility requirements. Some of the TQs with restrictive eligibility conditions have limited allocations to past users of the TQ. In some cases they establish a pool of users for a primary or priority allocation. Eligibility tests require previous TQ imports often for specific time periods. The TQ is a closed shop unless provision is made to set aside a specific amount for allocating to new entrants or non-historical users: limiting quota use to past users is the most restrictive eligibility condition 49 of the TQs (40%) were restricted to historical users; a sizeable number of these TQs (30%) were under-utilised. 16

31 5. Performance of importer allocated TQs Eligibility conditions # Importer allocated No restriction ** Specified industry activity *** Historical TQ user TQs * Fill rate Other Fill rate Other Fill rate Other 95% fill rates 95% fill rates 95% fill rates Meat TQs Beef Sheep meat Pig meat Poultry meat Sugar TQs Dairy product TQs Cheese Butter products SMP & WMP Other milk powders Other dairy products Total % 13% 10% 34% 10% 30% # Active TQs based on most recent WTO notifications. Source: WTO notifications. Eligibility conditions for participation in primary or priority distribution of TQ access rights. Different eligibility rules will apply for new entrants or secondary distributions. For TQs divided between different groups of applicants the eligibility requirement for the group with the largest share was used for classification purposes. * Excludes the 31 FCFS & supplier managed TQs. ** Eligibility open to active food manufacturers, processors, traders & other industry participants. *** Eligibility restricted to a specific type of industry participant. May include eligibility tests involving minimum production, trade or sales activity for specified time periods. Directing access to past users provides a strong commercial base for the use of a TQ. The access goes to committed users. Some will have established relationships with export suppliers and imports are an integral part of marketing plans. But exclusive use of a TQ by past users limits the pool of applicants: Under-utilisation of a TQ with a restricted pool of users is not evidence that import demand is fully satisfied; the fill rate is only reflecting the market requirements of the eligible users. From some TQs historical user eligibility conditions are highly restrictive. Some or all of the access is only available to previous users from a fixed time period. For example, the US cheese quotas define historical users as holders of an import licence in 1996 (USDA 2005). These users get preferential treatment import licences for set quantities are renewed automatically (USDA 2008). Canada uses a similar approach for some TQs but the allocations are not fixed (FAITC 2012). 17

32 Another group of TQs have eligibility tied to specific industry related activities. For example, a TQ may only be available to companies engaged in foreign trade or to producers of specific outputs. Other types of industry participants are excluded. In many cases eligibility is further restricted by rules on performance requirements (e.g. minimum production levels) over specified time periods: there were 54 TQs with eligibility conditions based on specific industry activities; many of these TQs (78%) had fill rates of less than 95%. Examples of activity based eligibility restrictions include EU cheese and pig meat quotas that specify trade in previous years domestic processors and end users are excluded. India restricts eligibility for their milk powder TQ to members of specific industry organisations. Other potential users including non-members are excluded. Limiting the pool of eligible applicants is a regulatory constraint on the demand for quota. There are a large number of allocated TQs with restricted eligibility. Almost two thirds of these TQs have a fill rate of less than 95%. The under-utilisation may reflect the desired commercial requirements of the quota recipients. It could also reflect other administration impediments that restrict their ability to use more of the TQ access: in some cases allocations may not fully exhaust the available access and in other cases some allocated access rights may be allowed to lapse for commercial reasons; a lack of effective rules on quota usage rules and the lapsing of some allocated quota rights can be factor contributing to the under-utilisation of a TQ. There are likely to be other potential users of these TQs that were excluded on eligibility grounds. Relaxing eligibility requirements would probably improve usage rates for some of the TQs. There is no compelling reason for excluding non-historical users or end-users further down the marketing chain from making use of an access concession. The alternative to relaxing eligibility conditions is to provide an avenue for other potential users to participate. A specific set-aside for new entrants or a secondary group of applicants can be established. This can be an effective way of extending the pool of applicants while retaining a priority allocation for a particular group of users. Minimal eligibility requirements to use the set-aside and an opportunity for graduation to the primary pool of applicants would extend interest in the TQ. Opportunities for new entrants (NEs) in TQs with restrictive eligibility conditions were not provided in many cases. There were 32 TQs with a specific set aside reserved for NEs (table 6). Another 60 importer allocated TQs (almost 50%) had no NE provision or the opportunity was uncertain. Several TQs had NE provisions based on residual TQ access after the primary allocation. But these are ad hoc opportunities which is not conducive to attracting committed new users and maximising the fill rate: about 70% of the TQs with no effective set aside had fill rates of less than 95%. Eligibility conditions that give exclusive rights to quota use (e.g. historical TQ users) can reduce the prospects of maximising the fill rate. There are a large number of TQs with eligibility restrictions and inadequate NE provisions that are under-utilised. It suggests this aspect of TQ administration is a key issue and reforms in this area are likely to improve performance. It also suggests a need for TQ usage rules to prevent quota hording in cases where a preferential allocation is seen to be necessary. In general eligibility rules for allocated quotas should not be unduly restrictive. TQs with eligibility tied to a specific industry activity should have a new entrant provision for other industry participants. Processors, traders, distributors and end-users should be given the opportunity to participate. TQs restricted to historical users should have a provision for non-historical users. To prevent speculative behaviour which could disrupt quota usage the TQ rights for NEs should be non-tradable. 18

33 6. Performance of importer allocated TQs New entrant opportunities # Importer allocated Not required ** Specific set aside for allocation *** Uncertain or no allocation **** TQs * Fill rate Other Fill rate Other Fill rate Other 95% fill rates 95% fill rates 95% fill rates Meat TQs Beef Sheep meat Pig meat Poultry meat Sugar TQs Dairy product TQs Cheese Butter products SMP & WMP Other milk powders Other dairy products Total % 19% 3% 23% 15% 34% # Active TQs based on most recent WTO notifications. Source: WTO notifications. Opportunities for participation in distribution of TQ access rights by applicants that do not meet the eligibility criteria for a primary or priority allocation. Eligibility rules apply for new entrants or secondary distributions in some TQs. * Excludes the 31 FCFS & supplier managed TQs. ** Provision for new entrants not necessary as eligibility for allocations not restrictive - for example, eligibility may be open to industry participants engaged in processing, foreign trade or food manufacturing. *** Provision of specific reserve of TQ access to be shared amongst eligible new entrants. **** No provision for new entrants or opportunities limited to residual TQ access after primary or priority allocation - new entrants excluded if TQ access fully allocated to primary pr priority applicants. A set aside reserved for new entrants is an effective way to extend TQ eligibility. It can accommodate a preferential allocation to priority users (e.g. historical users) and provides opportunities to secondary users. If there is limited interest in the NE reserve any residual quota should be made available for a subsequent allocation to the primary applicants. Fill rate performance will be maximised if eligibility for new entrants to use the set aside is not restrictive. There may be sound practical reasons for giving a particular group of users preferential treatment for the bulk of the TQ access. A new entrant set-aside could encourage ad hoc or speculative users which may increase the potential for a lapsing of quota rights. Therefore the size of the set-aside should be limited. A reserve of 5-10 % of the access would seem appropriate unless there is persistent underutilisation. A larger set-aside should be used if the fill rate is persistently below 75%. 19

34 Priority allocations can be accommodated if particular groups of users are key contributors to quota usage. But a specific provision for new entrants should be a standard management feature of TQs with allocations to historical users or users from a tightly defined industry activity. An application process at the start of the quota year should be used to assess interest. If the interest of either group is limited any residual access should be offered to the other group of applicants. The assessment of TQ performance suggests policy reforms in this area of administration should be a focus of attention for TQs with persistent under-utilisation. Eligibility and performance requirements should be made less restrictive. They should be extended to include any other commercial activities where the TQ product is used and active traders in imports of related products. Access distribution systems In allocated TQs the distribution of access among the eligible applicants is essentially a question of equity or fairness. The quota rights can be either sold to the applicants through an auction process or distributed. With an auction process most of the quota rents are captured by the TQ administrator and the applicants have to make judgements about the value of the rights. Distributing the quota rights free of charge provides a strong commercial base for the use of a TQ as the applicants capture the quota rents. It generates stronger interest in using the TQ. There is greater certainty for users in having on-going access to imports in comparison to an auction process. This can facilitate longer term trading relationships and improve TQ performance. Key features of the TQ distribution systems for primary allocations are provided in appendix C. Most of the TQs are distributed as allocations based on a performance criteria. There were 13 TQs using an auction or competitive tendering system (table 7). Only one of these TQs was close to fully utilised. Three quarters of the TQs were distributed by a variable performance mechanism: allocations were based on activity market shares or import usage and varied over time; more than 70% of these TQs had fill rates of less than 95%. Some TQs used a fixed performance criteria for allocations. It generally involved a fixed quantity that was established in a specific time period. For example, US cheese access is partially distributed by renewable historical licences. Fixed allocations do not allow for changes in commercial activity as TQ rights are handed to a select group of users in perpetuity. If there are no effective rules on quota usage it can affect TQ performance because some users may allow some access rights to lapse: most of the TQs with fixed allocation shares had fill rates of less than 95% The assessment suggests TQs with a performance based distribution system generates the best results. The allocation mechanism generally has a time dimension. Some use performance in the previous year and some use a two or three year average. Provided the criteria allows for changes in activity the time dimension is not a major issue for TQ administration. However, there are some other considerations for the sharing mechanism. To maximise performance it is important that allocations do not exceed requested amounts it could lead to a lapsing of some TQ rights. The process of distribution should require applications at the start of a quota year. Applicants receive their requests unless they collectively exceed the available access. If this occurs allocations should revert to a performance criteria to fully distribute the access. Another consideration is the timing of allocations. Some TQs are fully distributed at the start of the quota year with import licences valid for 12 months. Others have progressive distributions with a short term expiry date on the import licence. 20

35 7. Performance of importer allocated TQs Access distribution # Importer allocated Competitive bids or auction ** Performance share *** Allocation shares fixed **** TQs * Fill rate Other Fill rate Other Fill rate Other 95% fill rates 95% fill rates 95% fill rates Meat TQs Beef Sheep meat Pig meat Poultry meat Sugar TQs Dairy product TQs Cheese Butter products SMP & WMP Other milk powders Other dairy products Total % 10% 20% 56% 2% 11% # Active TQs based on most recent WTO notifications. Source: WTO notifications. Approach used for primary distribution of TQ access - different methods often used for secondary or new entrant allocations. Allocation rules are those that apply if requests < available TQ access. * Excludes the 31 FCFS & supplier managed TQs. ** Access rights purchased by eligible applicants. TQ rents mostly retained by administrator of purchasing system - diminished TQ rents for users of access. Administrators are generally government agencies or industry organisations given responsibility for TQ distribution. *** Distribution based on even shares or performance tests for specified time periods. Examples of performance include shares based on imports, production & sales. Includes distribution based on lottery. **** Include renewable licences for fixed amounts of TQ access or fixed allocations shares for available access. Progressive distributions with a short term licence can affect TQ performance if appropriate rules are not developed. A mechanism to retrieve and carry over un-used access between allocation periods is required. Unallocated access from a progressive distribution needs to roll forward to the next period. Quota rights that lapse because an import licence expires needs to be recovered for the next allocation period. A lapsed licence with no subsequent re-allocation means a loss of access. A disadvantage of the progressive distribution approach is the timing of allocations. Access released towards the end of the quota year may not be commercially attractive. The timing issue is especially important for TQ performance if eligibility conditions are restrictive and there are no rules on quota usage. Distributing all the access at the start of a quota year is generally the preferable approach as it gives recipients the flexibility of using the access when trade conditions are optimal. 21

36 The assessment of TQ performance suggests progressive distributions may be a contributing factor in low fill rates for some TQs. Some examples worth noting include: the EU has quarterly distributions for 7 pig meat TQs the average fill rate was 11%; Japan distributes 2 TQs for SMP and 3 for whey powder up to six times a year the average fill rate was 40%; and South Africa has half yearly distributions for several dairy product TQs the average fill rate for the butter, cheese and milk powder TQs was 67%. The issue of lapsed quota rights is a more general consideration for allocated TQs. Some users may have requested more quota than they can use. Market circumstances can change during the quota year and some recipients may not be able to use all their allocation. There may be others users or ineligible applicants interested in the surplus quota: rules on TQ usage and a process to re-claim surplus quota allocations for re-distribution is essential for effective TQ management. A further consideration for TQ performance is the size of individual allocations. For small TQs with many applicants the allocated shares may not commercially viable. This can reduce interest in the TQ. It can also increase the potential for lapsed quota rights as small allocations may be accepted but not fully used. Therefore, minimum allocations may be appropriate in some cases a smaller number of users could improve fill rates for small TQs. The assessment of TQ performance suggests access should be fully distributed at the start of the year with a 12 month expiry date on import licences. An application process requiring a requested amount should be part of the distribution system to ensure applicants do not receive more than they can use. This approach allows commercial considerations to determine when the access is best utilised: in general TQ allocation systems should not dictate the timing of access usage; progressive distributions may impede marketing activities and affect performance. An initial distribution of all the access at the start of a quota year provides maximum flexibility for the users of the TQ. The distribution may not fully exhausted the available access. In this situation the residual access should be available on a FCFS basis or used for a supplementary allocation later in the quota year. Performance criteria for sharing access should reflect changes in commercial activity. A two or three year moving average reduces the potential for strategic behaviour and rewards commercial growth. In some cases TQ performance may be improved by the use of minimum allocations increasing the size of the allocations may strengthen the commercial attraction of quota use. Usage rules for TQ access Commercial efforts to use quota allocations is another important aspect of TQ management. Quota rights must not be allowed to lapse in the hands of recipients. A use it or lose it approach is required to maximise performance. This principle should apply to all distribution systems including those that auction the quota rights. Rules on quota usage are needed to effectively apply this principle. At face value it may seem unnecessary to have rules on quota usage. Allocation recipients have the opportunity to earn a quota rent. This would seem a sufficient incentive to make use of an allocation. Recipients using imports as an integral part of their business activities are likely to be responsive to this incentive. These recipients could be described as committed users of the TQ. 22

37 However, there will be other quota recipients that are ad hoc or speculative users of the TQ. Imports may not be an integral part of their business activities. Commercial activity may not be sufficient to encourage the full use of an allocation. These users take a more discretionary approach to quota usage and may not be concerned about allowing some rights to lapse. A discretionary or less committed approach to quota usage can emerge towards the end of the quota year. Holders of quota rights will be aware they will receive a new allocation is a short period of time. They may become less committed to using their allocation especially if the quota rents are relatively small the incentive to use an allocation is stronger for high valued access rights. It is important to remember the quota rents are a windfall gain that vary in value. The opportunity to realise the gain is renewed every 12 months. If world prices are high and the value of the quota right is low the incentive to use an allocation weakens as the end of the year approaches. This is especially the case if quota holders have requested and received allocations that exceed normal business activity. The inclusion of rules on quota use are essential for maximising performance. Distributions should be viewed as conditional. They are loaned for the duration of the quota year with a return requirement if they are not going to be used. It is important to recognise that commercial circumstances can change after allocations are received. New opportunities may arise for some quota users and for others the opportunities may be diminished: experiences with quota management in Australia indicate that the lapsing of quota rights is a contributing factor in the under utilisation of TQs. Effective usage rules require the potential for penalties to apply to future allocations. But if the penalty structure is not well balanced it can be a deterrent to quota use. A strong test may discourage interest and result in unallocated quota. A weak test increases the potential for lapsed quota: a minimum usage rule can be used to strike the appropriate balance recipients have to meet a test threshold to avoid penalties; a high threshold is required for the rule to be effective for example, a 75% minimum usage rate would mean a quarter of the access could potentially lapse; a threshold of 100% may be commercially difficult to achieve but a 95% threshold would be too lenient. To maximise TQ performance usage rules need to include a provision for re-distributions and should be activated well before the end of the quota year. Quota holders should have the option of retaining their remaining allocation or returning it to avoid penalties. This provides a mechanism to consolidate surplus quota for re-distribution and reduce the potential for lapsed quota: an effective deterrence against the lapsing of quota rights requires an allocation penalty in the following year of 1 for 1 or higher; it is important to ensure quota holders who choose to retain their remaining allocation make every effort to utilise the access before the end of the quota year. Timing is an important consideration in developing effective rules on quota usage. Voluntary returns need to be available with sufficient time to be commercially attractive. A trigger date for applying the rules of 3 to 4 months before the end of the quota year is generally sufficient to achieve this objective. A call for expressions of interest in surplus quota should be made before the rules are activated to facilitate a supplementary distribution: experiences with quota management in Australia indicate that recovery of surplus quota rights and a supplementary distribution improves the effectiveness of TQ administration. 23

38 A review of administration for the sample of TQs indicates the application of minimum usage rules is a neglected aspect of quota management. For many importer allocated TQs there are no rules. There is also no indication that supplementary distribution systems are used to promote the use of voluntary returns. If usage rules are applied it appears the returns are held by the administrator and presumably made available on an FCFS basis it is a passive approach to the use of unallocated quota. Minimum usage rules with penalties for inactivity are used in some cases. Several of the Canadian dairy TQs have usage rules and apply 1 for 1 allocation penalties for non-compliance (FAITC 2012). The Philippines has usage rules and penalties for some TQs. US allocated dairy TQs have a minimum use rule with a penalty of exclusion from allocations in the following year (USDA 2005): there is no indication that minimum use rules are applied to EU tariff-quotas for (OJEU 2003, 2006, 2007a, 2007b, 2007c, 2007d, 2007e, 2007f, 2009); Japan, Korea, China, South Africa, Norway have several allocated TQs that are under-utilised and there is no indication that minimum usage rules are part of the management systems. Minimum usage rules with supplementary distributions of voluntary returns are used by Australia and New Zealand in managing TQ access rights to some markets. Usage rules have provisions to impose penalties for non-compliance. Australia uses these requirements for TQs in dairy products and the HQ beef access to the EU (DAFF 2009a, 2012). New Zealand has similar requirements for HQ beef access to the EU (NZMB 2006). The thresholds for minimum use and timing of activation vary. For example, Canada has thresholds of between 90% and 95% (FAITC 2012). The US has a standard usage threshold of 85% (USDA 2005). This apply to both historical licences and allocations to non-historical users of the dairy TQs. The US historical licences are subjected to an additional rule of permanently reducing fixed allocations if voluntary returns are greater than 50% in 3 of the 5 previous years: in most of these cases the usage thresholds are relatively lenient and are probably contributing to the under-utilisation of some TQs; given the relatively high value of the quota rents it is likely that tighter thresholds would achieve higher fill rates. The timing for activating the usage rules varies. Canada accepts returns to avoid penalties for only 3 of the 9 dairy TQs the closing date is 4 or 5 months before the quota year ends. In the US voluntary returns are required by early October which is 3 months before the end of the quota year. The assessment suggests the lack of minimum usage rules has contributed to the under-utilisation of some TQs. It is likely that some of the users have taken a discretionary or speculative approach to quota use. In some cases where usage rules are applied the test thresholds are too lenient. An 85% threshold effectively means up to 15% of the TQ can be used at the discretion of recipients: minimum use rules and the redistribution of quota returns is an area of TQ management that should be a focus for reform efforts in allocated TQs; they should be a standard feature of the management systems for new allocated TQs. Management of voluntary quota returns The process for managing un-allocated access is another factor that affects TQ performance. There may be voluntary returns during the quota year or residual access after the initial allocation at the start of the year. It is important the TQ management system facilitates the use of un-allocated access. 24

39 Efforts should be made to promote the use of the access by advising eligible users of its availability. This can be achieved by a call for expressions of interest at the time of activating minimum usage rules. A lack of awareness of the availability of unallocated quota can affect TQ performance. If there is strong demand the residual access can be distributed as a supplementary allocation based on requested amounts. It is an equitable approach and provides commercial certainty. If total requests do not exhaust the available supply of quota the residual should be made available on an FCFS basis. An alternative approach is to simply advise users of the availability of extra quota on an FCFS basis. There is greater commercial uncertainty with this approach which could discourage interest. But if interested is limited it can be an efficient distribution method. Importers may prefer this approach if a minimum use rule is operating. A third approach is to remove any eligibility conditions and allow FCFS distributions to any applicant. For TQs with persistent low fill rates this is an effective way to manage un-allocated access. It widens the pool of users in the 3-4 months before the end of the quota year. TQ management systems should incorporate a rule to trigger a shift to an unrestricted FCFS distribution for un-allocated quota after the minimum use rules are activated. The review of TQ administration suggests pro-active management of quota returns is not a standard feature of importer allocated TQs. This may have affected TQ performance in some cases. Acceptance of voluntary returns is standard practise. Some TQs specify closing dates US and Canadian dairy TQs are examples but in general there is no indication of how returns are handled. An exception is Japan where quota returns are included in future progressive allocations. Effective management of allocated TQs requires a process to promote the use of quota returns. A call for expressions of interest is needed with provision for an allocated or FCFS distribution. The process should be tied to the activation date for minimum use rules to ensure the quota has some commercial attraction 3 to 4 months before the end of the year would be appropriate. TQ size and product eligibility Conditions of access are another aspect of TQ administration that can affect performance. These high order conditions can influence the level of commercial interest in the quota. There are two issues that need to be considered size of the TQ and product eligibility. The relative importance of these issues for TQ performance will vary. The assessment suggests the level of access may have affected the performance of some TQs. Very small TQs can attract little interest if likely allocations have limited commercial viability. An FCFS distribution may further limit commercial interest availability is uncertain. Several dairy TQs are small and some are very small. Fill rates show substantial under utilisation in several cases where the access level is especially small. Examples include: Canadian TQs for concentrated milk and other dairy products (less than 100 tonnes each) have an average fill rate of 37 % (see appendix A); the average fill rate for US dried cream and infant formula TQs (100 tonnes each) is 31%; Korea s TQ for evaporated milk (130 tonnes) has a fill rate of 10 %; and the average fill rate for Costa Rica s TQs on cheese (375 tonnes), milk powder (344 tonnes) and butter (45 tonnes) is 21%. Under-utilisation of relatively small TQs is not confirmation of fully satisfied import demand. In some cases a moderate expansion in the TQ would probably enhance the fill rate. Trade in the TQ product would be more commercially attractive if the allocations offered a reasonable continuity of supply. 25

40 8. Product eligibility conditions and TQ performance # Number of No restriction * Product form restrictions ** Product type restrictions *** TQs Fill rate Other Other Fill rate Other 95% fill rates 95% fill rates 95% fill rates Meat TQs Beef Sheep meat Pig meat Poultry meat Sugar TQs Dairy product TQs Cheese Butter products SMP & WMP Other milk powders Other dairy products Total % 35% 3% 8% 7% 31% # Active TQs based on most recent WTO notifications. Source: WTO notifications. Product restrictions on use of TQ access. * TQ can be used for any type or form of product in standard product categories - beef, pig meat, poultry meat, sugar, cheese, butter, SMP, WMP, milk, etc ** Restrictions on shipment size (ie bulk or retail lots) & product form - for example, chilled or frozen meat, blocks or pieces of cheese, solid or oils of butter, liquid or powder dairy ingredients, raw or refined sugar. *** Restrictions on product characteristics & type of product - for example, type of meat cuts (ie carcase, bone-in cuts, boneless), pasture or grain fed beef, livestock age & grade for meat products, milk powder additives (ie sugar, cocoa), cheese varieties (ie cheddar, gruyere, emmental, etc), cane or beet sugar. Includes TQs with both product form & type restrictions. Product eligibility conditions are another factor that can limit commercial interest in a TQ. Many TQs have restrictions on the form and/or type of product that can enter the market. They are impediments on how quota recipients can make use of the access rights. The access concession is not treated as a product category and it limits the commercial flexibility of quota holders. The assessment suggests product eligibility conditions may have affected the performance of some TQs. About half the TQs had no product eligibility restrictions (table 8). Around 30% of these TQs (24) were close to fully utilised. The remaining TQs had some form of product eligibility conditions and around 20% (16) were close to fully utilised: cheese (22) and poultry meat (10) had the most TQs with eligibility conditions. 26

41 Some eligibility conditions are more restrictive than others. There are 17 TQs that have product form restrictions. The most obvious example is restricting meat imports to frozen product chilled product is excluded. Some of these TQs had fill rates of less than 95%. Form restrictions are not necessarily a major issue for TQ fill rates but they could make a difference in some cases. Relaxing product form conditions would improve commercial flexibility in quota use. More a third of the TQs have product type restrictions. These conditions of use are likely to be more limiting because they generally impose particular specifications that constrain the competitive position of imports in market distribution. Examples include US and EU cheese access for different types of cheese and several EU meat TQs for particular types of product. There were 47 under-utilised TQs that had product type restrictions: the average fill rate for type restricted TQs was 56% it was for 65% for unrestricted TQs. The spirit and intention of establishing tariff quotas is to provide concessionary access for agricultural products. Conditions that specify a type of product limits the marketing options for importers. In cases where the TQ is under-utilised there is no opportunity for the residual access to be used for other types of the same product. Relaxing product type conditions is likely to improve the performance of some of these TQs by allowing greater commercial flexibility in quota use: for example, TQ access for cheddar cheese in the US and the EU is often fully utilised while the access for other cheese varieties is under-utilised removing the product type conditions and amalgamating the TQs is likely to improve the utilisation of cheese access. There is scope for TQ access concessions to be managed on a product basis. It would provide greater commercial flexibility and improve TQ performance from a product perspective. In general there is no compelling reason for imposing product eligibility conditions. Commercial users of quota should be free to determine how to make the best use of an access concession for a product category. The assessment of TQ performance suggests policy reforms in this area of administration should be a focus of attention. It also suggests that management of new TQs should be free of product eligibility conditions. In general TQs should have no conditions on the form and type of product. Concessionary access should be available on a product basis. This would allow access concessions for each product category to operate as they were intended: managing TQs on a product basis may generate administration cost savings if it leads to the amalgamation of some access concessions; priority allocations for a particular form or type of the TQ product can be accommodated if it s considered necessary an application process at the start of the quota year can assess interest with un-allocated quota offered to the users of other product forms or types; relaxing product type restrictions would not affect export supplier reserves a similar priority allocation approach can be used to maintain bilateral concessions. In-quota tariff rates An assessment of the effects of administration on TQ performance needs to consider the issue of inquota tariff rates. It is important for establishing the causes of low usage rates. Concerns have been raised about the size of some TQ tariffs. In some cases there are large tariffs and this may be limiting commercial interest and affecting performance. In-quota tariffs reduce the value of the quota rights. In conjunction with quota usage fees it erodes some of the price differential between landed prices and product sale price in the importing market. The effect on TQ performance will depend on the size of the tariff and market conditions. 27

42 9. In-quota tariffs and TQ performance # Number of Tariff rate of 10% or less Tariff rate of 10% to 20% Tariff rate of more than 20% TQs Fill rate Other Fill rate Other Fill rate Other 95% fill rates 95% fill rates 95% fill rates Meat TQs Beef Sheep meat Pig meat Poultry meat Sugar TQs Dairy product TQs Cheese Butter products SMP & WMP Other milk powders Other dairy products Total % 25% 5% 20% 8% 29% # Active TQs based on most recent WTO notifications. Source: WTO notifications. For TQs with in-quota tariffs in per unit value terms an indicative tariff equivalent effect was derived. The tariff equivalent was based on 2012 world indicator prices. In-quota tariffs may not be a major issue for some TQs. The demand for quota may not be adversely affected by moderately sized tariffs in most trading conditions. Large price differentials would also suggest a limited effect on TQ performance. If a sizeable quota rent exists the level of interest may not alter appreciably with changes in trade conditions. The rents from using quota rights for a TQ market are a windfall gain and interested, eligible users will generally seek as much quota access as they can commercially use. The assessment of fill rates and world price developments suggests sizeable quota rents exist for many TQs despite the imposition of tariffs. Major declines in fill rates were not evident when commodity prices surged in the late 2000s. A rise (fall) in world prices is equivalent to a rise (fall) in the tariff rate. It suggests current users are not especially sensitive to changes in the value of quota rights and it could indicate the tariff in not a major factor in TQ performance. However, persistent low fill rates could indicate the tariff is a more significant issue. A high tariff may diminish the value of the TQ rents to a point where the potential eligible users are more inclined to use domestic product. Internal prices in the importing market are potentially a key factor. For example, a 50% tariff might be enough to largely extinguish the concessionary benefit in most trading conditions if it s near to the point of ad valorem equivalence with market price differentials. 28

43 Performance effects will depend on the relative size of the tariff and the price differential. A lower tariff will make TQ access more commercially attractive. It could improve the performance of TQs with very high tariffs and small rents although there s no guarantee this will occur. There may be restricted eligibility and/or some of the current eligible users may have a limited physical capacity to expand their use of imports there may be production, distribution or sales constraints. In some cases TQ tariff reform can have a positive effect on TQ performance. The increased value of the access rights could increase the pool of eligible applicants seeking an allocation. This is especially the case when TQs have a specific new entrant reserve. It may also enhance the incentive for quota holders to fully use their allocations the potential for lapsed quota rights would decline. TQ tariffs are summarised in appendix D. It shows there are some TQs with no tariff and others with relatively modest tariffs. As most TQ product markets have high levels of protection it s unlikely the tariff has a major effect on the performance of these TQs in most trading conditions. But there are others with large tariffs which could be affecting performance in some cases. The assessment suggests tariffs may be a factor in the under-performance of some TQs. About a third the TQs had a tariff of less than 10% and over a third were fully utilised (table 9). Tariffs of this size are relatively modest and in most trading conditions the effect on quota use is likely to be minimal. A further 39 TQs have tariffs of between 10 and 20%. Tariffs of this size are more significant. In cases where product market protection is relatively modest it might be enough to affect performance. The average fill rate for these TQs was 65% and many are under-utilised. Lower tariffs may improve performance in some cases provided other management conditions are not impeding utilisation. There are 57 TQs with high tariff rates. The average fill rate was 53%. Some are close to fully utilised but about three quarters were under-utilised. There is a greater likelihood that the in-quota tariff has been a significant factor in the under-performance of some of these TQs. Some notable examples of high tariffs include: Korea has in-quota tariffs of 40% for several dairy TQs (WTO 2012m); Costa Rica has tariffs of 50% or more for poultry meat and some dairy products; Morocco has tariffs of more than 75% for some meat TQs; and Norway has tariff effects exceeding 100% for several TQs. There are 57 TQs with modest or no tariffs and 21 with higher tariffs that are close to fully utilised. The effect of tariff rates on performance is likely to be minimal for these TQs. For the remaining 75 TQs the assessment suggests tariff rates should be another focus of attention for reform efforts. Performance gains from tariff reform may depend on the restrictiveness of other TQ management conditions. Eligibility restrictions, inadequate new entrant provisions and a lack of usage rules could limit the response of current and potential new users. This would suggest that tariff reform may need to be accompanied by other management reforms to maximise the improvement in performance. Performance of TQs with low fill rates The assessment of management issues affecting TQ performance has highlighted several areas that could be used to guide reform efforts. It also provides guidance for the establishment of new TQs. It is worthwhile to collectively examine the management features for TQs with low fill rates. In the WTO negotiations a fill rate of less than 65% is used as an indicator of under-performance (WTO 2008b). There are 68 TQs that meet this criteria. Tariffs may be a relevant issue for these TQs but it depends how close the tariff rate is to the point of equivalence with market price differentials. 29

44 10. In-quota tariffs for under-utilised TQs # TQs with TQ tariff rate of fill rate of 10% 10% 20% More than 65% or less or less to 20% to 30% 30% Meat TQs Beef Sheep meat Pig meat Poultry meat Sugar TQs Dairy product TQs Cheese Butter products SMP & WMP Other milk powders Other dairy products Total % 29% 24% 16% 31% # Active TQs based on most recent WTO notifications. Source: WTO notifications. For TQs with in-quota tariffs in per unit value terms an indicative tariff equivalent effect was derived. The tariff equivalent was based on 2012 world indicator prices. Some of the under-performing TQs (20) have relatively modest tariff rates (table 10). The effect of the tariff rate on the use of these TQs is likely to be minimal in most trading conditions. It suggests TQ management conditions are likely to be the more significant factor in under-performance. High tariffs may be a more important issue for performance of the other 48 TQs especially in cases where market price differentials indicate product protection is relatively modest. About 70% of the under-performing TQs have tariffs of more than 10%. Just under a third have tariffs exceeding 30%. Tariffs of this magnitude are substantial for an access concession and may be limiting commercial interest. A lower applied tariff rate could generate significant performance gains in some cases provided there are no other trade impediments imposed by the TQ management conditions. Tariff reform would be a worthwhile initiative to encourage more interest in the 32 TQs with tariffs of more than 20%. But the performance gains will depend on how close the current tariff is to the point of ad valorem equivalence with market price differentials. It will also depend on the size of the tariff reduction and the effect of TQ management conditions that could restrict the trade response. An assessment of management for the under-performing TQs suggests other factors are contributing to low fill rates (table 11). Over half of the TQs have product eligibility conditions. Most are allocated by the importing market. More than half have restricted eligibility. Eligibility, the availability of a new entrant reserve and quota usage rules are key issues for the performance of allocated TQs. 30

45 11. Management features for under-utilised TQs # TQs with TQ tariff Product Allocation system fill rate of more than eligibility Allocated Restricted 65% or less 20% restrictions * TQs ** eligibility Meat TQs Beef Sheep meat Pig meat Poultry meat Sugar TQs Dairy product TQs Cheese Butter products SMP & WMP Other milk powders Other dairy products Total % 53% 87% 53% # Active TQs based on most recent WTO notifications. For TQs with in-quota tariffs in per unit value terms an indicative tariff equivalent effect was derived. The tariff equivalent was based on 2012 world indicator prices. * Restrictions on form & type of product. ** Excludes FCFS & supplier managed TQs. The assessment suggests the management systems for these TQs should be reviewed for other trade impediments before initiating any reforms. Administration reforms on their own may not be effective if a high tariff has eroded the value of the quota rights to the point where users are more inclined to use domestic product. Similarly, the effect of tariff cuts may be limited if the management system is restricting quota use: it suggests there may not be a single, specific policy reform solution on its own, changing one element of the management rules or a lower applied TQ tariff may not be enough; a case by case approach is needed for each TQ and a combination of reforms may be required to maximise the improvement in performance 31

46 4. Conclusions and recommendations Concerns have been raised that tariff-quota market access concessions are not operating as they were intended. There are numerous examples of persistent low fill rates for WTO tariff quota concessions. The concerns have focused on tariff rates and the role of TQ administration conditions of use and access management systems. An alternative view on low fill rates is that it simply reflects supply and demand conditions. This view suggests interest is weak because of product pricing conditions and limited value in the access rights. This implies there are no distortions to the market outcomes from the way the access is managed. This perspective ignores the fact that the management of allocated TQs is a set of policy interventions that impact on commercial trading activities. There are restrictions on who can use the TQ access, what it can be used for, how it can be used and when it can be used. Some rules can have unintended consequences. Others are deliberate measures to direct or restrict commercial outcomes. The assessment suggests TQ management is a legitimate area of concern for performance along with TQ tariff rates. Low fill rates can t be solely attributed to market conditions. Persistent under-use over an extended period of fluctuating world prices suggests other factors are involved. This is consistent with an evaluation of how different elements of TQ management can affect fill rates. The analysis has identified some aspects of TQ administration that play a critical role in performance. For the importer allocated TQs that are under-utilised reform efforts should focus on these issues. The development of new TQs should give appropriate consideration to these issues. They include: eligibility to use the TQ and the availability of a specific reserve for new entrants; the timing of allocations and expiry dates on import licences; application of effective minimum usage rules; management of quota returns and quota use near the end of the year; product eligibility conditions; and in-quota tariff rates. The lack of an effective minimum usage rule and a process to promote the use of voluntary returns are key issues. These two aspects of management can be a major cause of under-utilisation. It is important to enforce the obligation for using an allocation. It is equally critical to accept voluntary returns and have a process that allows committed users to gain extra quota when it becomes available. Eligibility restrictions and the availability of a specific reserve for new entrants are also critical issues. The assessment suggests limitations on the pool of potential applicants is a key factor in low usage rates. A restricted group of users (e.g. historical users) means the fill rate is reliant on the commercial activities of selected businesses. These users may have a limited physical capacity to expand their use of imports there may be production, distribution or sales constraints. The assessment suggests product eligibility conditions are an issue for under-utilised TQs. There are constraints on the form and type of product which are not consistent with the spirit and intent of TQs. The conditions reduce the flexibility and commercial attraction of some TQs. There is no compelling reason why TQs can t be managed on a product basis there are potential cost savings for TQ administration from collective management and amalgamation: requirements for particular product items or bilateral concessions can be managed as a reserve in a product pool with unallocated residual access made available to other users. 32

47 Some under-utilised TQs have high tariff rates. This may have diminished the quota rents to a point where the eligible users are more inclined to use domestic product. In some cases lower tariffs may improve performance. But other impediments imposed by the management system could still be a constraining factor. The assessment suggests tariffs should be a focus of attention for TQ reform in conjunction with other management reforms. The assessment has confirmed that unilateral reforms are needed to improve TQ performance in many cases. The required reforms will depend on the restrictiveness of management conditions. The analysis suggests there may not be a single, specific policy reform solution on its own, changing one element of the management rules or a lower applied TQ tariff may not be enough. A case by case approach is needed for each TQ and a combination of reforms may be required: the analysis provides guidance for reform efforts and the establishment of new TQs; it may also be useful for identifying issues that might be pursued in WTO or RTA forums. Principles for effective management of TQs The analysis has examined the main elements of TQ management that can affect performance. Some general principles for effective TQ management can be developed from the analysis. Application of these principles would ensure TQs are managed in way that maximises the opportunities to fully use the access concessions. They may be used as a reference point for unilateral or co-operative reviews of the management of TQ commitments: these principles have been developed from the analysis of importer managed TQs; but they can and should also be applied to exporter managed access concessions (i.e. export supplier reserves in TQ access). The key principles for effective TQ management are as follows. Choice of management system TQ management should be based on an allocation system with an initial call for requests to assess quota demand at the start of a quota year; a rule should be developed to trigger an FCFS distribution system among eligible users if quota requests are less than a specified threshold (e.g. 80% of the available access); in an FCFS system is not triggered an allocation system should operate but user allocations should not exceed requested amounts; if residual access is available after the initial allocation process is completed it should remain available to eligible users on an FCFS basis quota that remains unallocated during the quota year should be included in a supplementary distribution process for the management of voluntary returns near the end of the quota year; exporter management of TQ country reserves should continue where they currently exist and management rights for new TQ country reserves should be passed to exporter countries. Eligibility to use TQ access eligibility rules for allocated quotas should not be unduly restrictive all potential users of the TQ product associated with processing, distribution, food service activities and retail sales should be given the opportunity to participate; TQs with eligibility tied to a defined industry activity should have a fixed other users reserve established for other types of industry participants (e.g. traders, distributors, end-users); TQs with eligibility tied to historical use should have a fixed other users reserve established for non-historical users; 33

48 eligibility to use the reserves should not be unduly restrictive participation in any industry related activity should be the only requirement; minimum performance requirements for eligibility that use activity levels (e.g. production, sales, etc) and time periods should not be unduly restrictive; for TQs using an allocation system a summary of quota user activity should be published at the end of the quota year summary to cover initial allocations, quota usage, voluntary returns and supplementary allocations by each individual user; for TQs using an FCFS distribution system a summary of quota user activity should be published at the end of a quota year summary to cover quota usage by each individual user; eligibility rules should be permanently relaxed for TQs with persistent under-utilisation with performance requirements made less restrictive and eligibility definitions extended; a rule should be developed to trigger a review of eligibility conditions, quota usage rules and the other users reserve if a fill rate is persistently falls below a specified threshold (e.g. 80% of the available access) the rule should be activated if the fill rate threshold is breached in 2 consecutive years or 3 times in a 5 year period; the review should consider the effect of market conditions and be required to develop and implement management reforms to improve TQ performance; TQ rights should be non-tradable to eliminate an incentive for speculative behaviour TQ rights not required should be voluntarily returned to the administrator for re-distribution. TQ distribution systems a specific quota reserve for other users should be mandatory for TQs that have a priority allocation for historical users or users engaged in a defined industry activity; the reserve should be limited to a small share the TQ if there is a consistently high fill rate (e.g. 5% of the available access); a larger reserve (e.g. 20% of the available access) should be permanently implemented if a fill rate persistently falls below a specified threshold (e.g. 80% of the available access) the rule should be activated if this occurs in 2 consecutive years or 3 times in a 5 year period; provision should be made for users of a reserve to graduate to primary allocations; all quota distributions should be based on applications at the start of a quota year that require requests to be specified; if the level of interest by the primary or reserve applicants is less than the supply of quota, the residual access should be transferred to the other group of applicants for allocation; requested amounts should be distributed unless they collectively exceed the available quota access allocations should revert to a performance share criteria if this occurs; the TQ access should be fully distributed at the start of a quota year with a 12 month expiry date on import licences; performance criteria for sharing access should reflect changes in activity levels through a two or three year moving average fixed, renewable allocations should not be used; fixed historical allocations that are automatically renewed should not be used all fixed allocations should be converted to variable allocations based on performance; minimum allocations should not be used - an exception may be made for very small TQs if reducing the number of users would improve the commercially viability of quota use. Usage rules for TQ access rights minimum usage rules should be developed and applied to all allocated TQs this includes TQs distributed by lottery or through an auction system; the rule should have a have minimum usage threshold to avoid penalties (e.g. 98% of quota allocations); there should be a minimum penalty for non-compliance of a 1 for 1 reduction in allocations in the following year; 34

49 provision should be made for the acceptance of voluntary returns to avoid penalties; a rule should be developed to penalise users that continually return quota to avoid penalties the rule should be activated if this occurs in 2 consecutive years or 3 times in a 5 year period; a rule should be developed to exclude the users of a reserve that continually return quota to avoid penalties the rule should be activated if this occurs in 2 consecutive years; the closing date for voluntary returns should be no later than 3 months before the end of the quota year to provide sufficient opportunity for other users to make use of the access. Management of quota returns all allocation systems should include a requirement to advise eligible users of the availability of un-allocated quota through a call for expressions of interest prior to closing date for voluntary returns; expressions of interest should include a quantity request; a time limit of no more than 2 weeks for expressions of interest should be imposed; requested amounts should be distributed unless they collectively exceed the available quota; provision should be made for a supplementary distribution system to allocate quota returns if total requests exceed the available quota a suitable sharing mechanism should be used; activation of the distribution system should be tied to the closing date for voluntary returns; any unallocated quota should be available on an FCFS basis to eligible users subject to the following condition a rule should be developed to trigger an unrestricted FCFS distribution of any unallocated quota (i.e. no eligibility conditions) if the fill rate falls below a specified threshold (e.g. 80% of the available access) in the previous quota year and on the closing date for voluntary returns. TQ product eligibility TQs should have no product eligibility restrictions and concessionary access should be available on a product basis at the four digit tariff code level; existing restrictions on product form and the type of product should be removed TQs should be managed on a product basis provided export suppliers are consulted and give their consent to the collective management of separate TQ concessions as a product category; collectively managed product concessions may include reserves for particular types of product within the overall access level if necessary if quota requests do not exhaust the reserve the residual access should be made available for allocation to imports of any other type of product at the start of the quota year. In-quota tariff rates TQ imports are an access concession that should not be subject to tariffs duty free access is consistent with the spirit of the trade concession that was originally intended; tariffs of 20% or less on existing TQs should be eliminated; if in-quota tariffs are considered necessary for other existing TQs they should be specified on an ad valorem basis and bound at a maximum rate of 10%; TQs that impose a tariff should include a rule that triggers an applied tariff of 0% in the new quota year if the fill rate for the current year is expected to fall below a specified threshold (e.g. 80% of the available access) the applied rate should remain at 0% for as long as the subsequent annual fill rate is less than the specified threshold; special safeguard duties should not be applied to TQ imports. 35

50 Appendix A: Access conditions for WTO tariff quotas 12. Access conditions for WTO tariff quotas Beef # Annual Country Global TQ Average access allocations access management fill rate level in TQ in TQ * system ** since 2000 tonnes % EU - HQ pasture fed *** EM 72 - frozen pasture fed Allocated frozen buffalo boneless EM 0 - frozen forequarters & cuts Allocated 83 - frozen whole thin skirt Allocated 64 - chilled HQ boneless *** EM 87 - HQ boneless (A) *** EM 73 - HQ boneless (B) *** EM beef cuts *** EM 97 Canada Allocated 74 US EM 71 Norway - frozen Open Auction 88 Sth Africa Allocated 84 Tunisia Allocated 39 Morocco FCFS 99 # Active TQs based on most recent WTO notifications. Source: WTO notifications. Calculation period for average annual fill rate varies because of differences in notification availability. * Includes TQs with country specific allocations that provide for 'other' and/or 'any' country allocations. ** Primary system used by import market to distribute TQ access. If two systems are used the TQ is classified by the management system for the largest portion of the TQ. Allocated = eligibility conditions with or without allocation formula for applicants. FCFS = First Come First Serve with no eligibility conditions. EM = access rights managed by export supplying countries. Open Auction = purchase TQ rights with no eligibility conditions on auction participation. *** TQs for pasture fed beef with different livestock age, weight & grade specifications. HQ = high quality product. 36

51 13. Access conditions for WTO tariff quotas Sheep and pig meat # Annual Country Global TQ Average access allocations access management fill rate level in TQ in TQ * system ** since 2000 tonnes % Sheep meat TQs Norway - chilled lamb carcase Open Auction 79 - chilled lamb carcase EM 63 EU *** EM 86 Philippines *** Allocated 24 Sth Africa *** Allocated 97 Israel *** Allocated 100 Tunisia Allocated 67 Morocco FCFS 19 Pig meat TQs EU - chilled loin & frozen bellies Allocated **** 4 - carcase Allocated **** 0 - assorted cuts (no tenderloin) Allocated **** 5 - boneless loins & hams Allocated 24 - boneless loins Allocated 24 - tenderloins Allocated **** 21 - sausages Allocated **** 4 - preserved Allocated **** 0 Malaysia - carcase FCFS na - smoked ham & cuts FCFS na - bellies & bacon FCFS na Philippines Allocated 24 Norway - frozen carcase Open Auction 37 # Active TQs based on most recent WTO notifications. Source: WTO notifications. Calculation period for average annual fill rate varies because of differences in notification availability. * Includes TQs with country specific allocations that provide for 'other' and/or 'any' country allocations. ** Primary system used by import market to distribute TQ access. If two systems are used the TQ is classified by the management system for the largest portion of the TQ. Allocated = eligibility conditions with or without allocation formula for applicants. FCFS = First Come First Serve with no eligibility conditions. EM = access rights managed by export supplying countries. Open Auction = purchase TQ rights with no eligibility conditions on auction participation. *** Includes goat meat. **** Management system changed from allocated to FCFS in (2010) for financial (calendar) year TQs. Pig meat assorted cuts TQ retained an allocation system for 4,624 tonnes reserved for Canada. An allocation classification was retained for these TQs as the period of analysis for fill rate performance (2000 to 2011) reflected an allocation management system. 37

52 14. Access conditions for WTO tariff quotas Poultry meat # Annual Country Global TQ Average access allocations access management fill rate level in TQ in TQ * system ** since 2000 tonnes % Canada - chicken products *** Allocated turkey products **** Allocated 98 EU - chicken frozen cuts Allocated 86 - turkey frozen cuts Allocated chicken whole carcase Allocated 65 - chicken cuts Allocated 41 - chicken frozen boneless Allocated cooked chicken meat Allocated 96 - poultry meat & offal Allocated 0 - salted poultry meat Allocated 70 - turkey meat Allocated 75 - turkey prepared meat Allocated 82 Norway - chicken frozen carcase Open Auction 24 - turkey frozen carcase Open Auction 3 - duck frozen carcase Open Auction 28 - turkey roll 20.. Allocated 55 Malaysia - chicken meat FCFS na - chicken chilled wings FCFS na - poultry chilled cuts FCFS na Costa Rica - poultry cuts & offal Allocated 6 - poultry preserved Allocated 28 Philippines - poultry products Allocated 80 Morocco - poultry meat FCFS 30 Dominican Rep - chicken meat Allocated 7 # Active TQs based on most recent WTO notifications. Source: WTO notifications. Calculation period for average annual fill rate varies because of differences in notification availability. * Includes TQs with country specific allocations that provide for 'other' and/or 'any' country allocations. ** Primary system used by import market to distribute TQ access. If two systems are used the TQ is classified by the management system for the largest portion of the TQ. Allocated = eligibility conditions with or without allocation formula for applicants. FCFS = First Come First Serve with no eligibility conditions. EM = access rights managed by export supplying countries. Open Auction = purchase TQ rights with no eligibility conditions on auction participation. *** Fill rate estimate based on minimum access level - actual fill rate is lower. Annual access level is higher as TQ is calculated as 7.5% of domestic production in the previous year. **** Fill rate based on minimum access level. Annual TQ calculated as the higher of minimum access level or 3.5 % of domestic production in the previous year. 38

53 15. Access conditions for WTO tariff quotas Cheese # Annual Country Global TQ Average access allocations access management fill rate level in TQ in TQ * system ** since 2000 tonnes % US - other NSPF Allocated 87 - blue mould Allocated 97 - cheddar Allocated 86 - American Allocated 79 - edam & gouda Allocated 88 - Italian type Allocated 89 - gruyere processed Allocated 63 - low fat Allocated 29 - swiss & emmental Allocated 75 EU - processing cheese EM 96 - cheddar blocks *** EM 96 - cheddar not pasteurised EM 96 - emmental Allocated 7 - gruyere Allocated 9 - cheddar Allocated processing cheese Allocated 36 - frozen pizza cheese **** Allocated 11 - other cheese types Allocated 49 Israel - processed cheese 68.. Allocated other cheese Allocated 100 Canada Allocated 100 Norway EM 95 Sth Africa Allocated 47 Australia Allocated 93 Tunisia Allocated 92 Costa Rica - no cheddar Allocated 34 El Salvador - cheddar blocks Open Auction 57 # Active TQs based on most recent WTO notifications. Source: WTO notifications. Calculation period for average annual fill rate varies because of differences in notification availability. * Includes TQs with country specific allocations that provide for 'other' and/or 'any' country allocations. ** Primary system used by import market to distribute TQ access. If two systems are used the TQ is classified by the management system for the largest portion of the TQ. Allocated = eligibility conditions with or without allocation formula for applicants. FCFS = First Come First Serve with no eligibility conditions. EM = access rights managed by export supplying countries. Open Auction = purchase TQ rights with no eligibility conditions on auction participation. *** Block shape & weight specifications apply. **** Minimum fat content of 38% and container specifications apply. 39

54 16. Access conditions for WTO tariff quotas Milk & whey powders # Annual Country Global TQ Average access allocations access management fill rate level in TQ in TQ * system ** since 2000 tonnes % Canada - butter milk Allocated 73 - whey (no WPC) Allocated 98 US - SMP Allocated 23 - WMP & dried cream Allocated 77 - whey & dried butter milk 296 Allocated 15 Japan - SMP for school lunch Allocated 35 - SMP for other uses Allocated 35 - whey for feed Allocated 66 - whey for infant formula Allocated 38 - whey mineralised Allocated 26 Korea - SMP Open Auction 58 - WMP Open Auction 34 - whey Allocated 74 Sth Africa - SMP, WMP Allocated 54 - b utter milk Allocated 96 - whey Allocated 92 Israel - SMP Allocated WMP Allocated 100 Thailand - SMP Allocated 96 EU - SMP Allocated 41 Mexico - SMP, WMP Allocated 100 India - SMP, WMP Allocated 18 Tunisia - SMP WMP Allocated 26 Morocco - SMP, WMP FCFS 100 Costa Rica - SMP, WMP Allocated 19 Dominican Rep - SMP, WMP EM 93 # Active TQs based on most recent WTO notifications. Source: WTO notifications. Calculation period for average annual fill rate varies because of differences in notification availability. * Includes TQs with country specific allocations that provide for 'other' and/or 'any' country allocations. ** Primary system used by import market to distribute TQ access. If two systems are used the TQ is classified by the management system for the largest portion of the TQ. Allocated = eligibility conditions with or without allocation formula for applicants. FCFS = First Come First Serve with no eligibility conditions. EM = access rights managed by export supplying countries. Open Auction = purchase TQ rights with no eligibility conditions on auction participation. 40

55 17. Access conditions for WTO tariff quotas Butter products # Annual Country Global TQ Average access allocations access management fill rate level in TQ in TQ * system ** since 2000 tonnes % US - b utter Allocated 89 - butter oil & substitutes Allocated 93 EU - butter 80-82% fat EM 93 - butter & butter oils Allocated 67 Japan - butter & butter oil Allocated 12 - prepared edible fat Allocated 90 Canada Allocated 99 Korea Allocated 100 Norway Open Auction 52 Sth Africa Allocated 47 Tunisia Allocated 29 Costa Rica 45.. Allocated 11 # Active TQs based on most recent WTO notifications. Source: WTO notifications. Calculation period for average annual fill rate varies because of differences in notification availability. * Includes TQs with country specific allocations that provide for 'other' and/or 'any' country allocations. ** Primary system used by import market to distribute TQ access. If two systems are used the TQ is classified by the management system for the largest portion of the TQ. Allocated = eligibility conditions with or without allocation formula for applicants. FCFS = First Come First Serve with no eligibility conditions. EM = access rights managed by export supplying countries. Open Auction = purchase TQ rights with no eligibility conditions on auction participation. 41

56 18. Access conditions for WTO tariff quotas Other dairy products # Annual Country Global TQ Average access allocations access management fill rate level in TQ in TQ * system ** since 2000 tonnes % Canada - concentrated milk 12.. Allocated 45 - yoghurt Allocated milk constituents Allocated 95 - other dairy products *** 70.. Allocated 29 - special cream Allocated 96 - ice cream Allocated 91 US - cream > 6% fat (litres) FCFS 34 - evaporated & condensed milk FCFS 77 - dried milk & cream FCFS 21 - dairy ingredient mixtures FCFS 96 - infant formula FCFS 40 - ice cream (litres) FCFS 62 Japan - evaporated milk Allocated 92 - other products Allocated 98 - designated products Allocated 98 Costa Rica - milk & cream Allocated 3 - fermented products 50.. Allocated 34 - ice cream Allocated 18 Korea - evaporated milk Open Auction 10 Taiwan - milk Open Auction 37 Thailand - milk, no sugar Allocated 4 Malaysia - milk & cream (litres) FCFS na # Active TQs based on most recent WTO notifications. Source: WTO notifications. Calculation period for average annual fill rate varies because of differences in notification availability. Excludes Canadian TQ for fluid milk - established for milk purchases by residents for personal use. * Includes TQs with country specific allocations that provide for 'other' and/or 'any' country allocations. ** Primary system used by import market to distribute TQ access. If two systems are used the TQ is classified by the management system for the largest portion of the TQ. Allocated = eligibility conditions with or without allocation formula for applicants. FCFS = First Come First Serve with no eligibility conditions. EM = access rights managed by export supplying countries. Open Auction = purchase TQ rights with no eligibility conditions on auction participation. *** Food preparations with specifications on milk solids content (> 10% but < 50%). 42

57 19. Access conditions for WTO tariff quotas Sugar # Annual Country Global TQ Average access allocations access management fill rate level in TQ in TQ * system ** since 2000 tonnes % US - raw cane sugar EM 90 - other sugars & syrups *** FCFS 90 - sugar mixtures FCFS 99 EU - cane & beet sugar EM 98 - raw cane sugar for refining Allocated 99 China **** Allocated 66 Philippines **** Allocated 97 Thailand **** FCFS 12 Vietnam Allocated 84 Chile - refined sugar **** Allocated 69 Tunisia Allocated 92 Morocco FCFS 100 Dominican Rep Allocated 70 Malaysia - refined sugar FCFS na # Active TQs based on most recent WTO notifications. Source: WTO notifications. Calculation period for average annual fill rate varies because of differences in notification availability. * Includes TQs with country specific allocations that provide for 'other' and/or 'any' country allocations. ** Primary system used by import market to distribute TQ access. If two systems are used the TQ is classified by the management system for the largest portion of the TQ. Allocated = eligibility conditions with or without allocation formula for applicants. FCFS = First Come First Serve with no eligibility conditions. EM = access rights managed by export supplying countries. Open Auction = purchase TQ rights with no eligibility conditions on auction participation. *** In some years TQ access was increased & product entry periods were extended past the end of the quota year. The average fill rate calculation was based on cumulative totals to allow for carryover of product entries. **** Includes sucrose. 43

58 Appendix B: Fill rates for WTO tariff quotas 20. Fill rates for WTO tariff quotas Beef # % % % % % % % % % % % % EU - HQ pasture fed pasture fed buffalo boneless foreqtrs & cuts thin skirt chilled HQ HQ boneless (A) HQ boneless (B) beef cuts Canada US Norway - frozen Sth Africa Tunisia Morocco # Active TQs based on most recent WTO notifications. Source: WTO notifications. = shading indicates substantial rise in world indicator price = shading indicates substantial fall in world indicator price 44

59 21. Fill rates for WTO tariff quotas Sheep and pig meat # % % % % % % % % % % % % Sheep meat TQs Norway - lamb carcase lamb carcase EU Philippines Sth Africa Israel Tunisia Morocco Pig meat TQs EU - loins & bellies * carcase * assorted cuts * loins & hams boneless loins tenderloins * sausages * preserved * Philippines Norway - carcase # Active TQs based on most recent WTO notifications. Source: WTO notifications. * Management system changed from allocated to FCFS in (2010) for financial (calendar) year TQs. Pig meat assorted cuts TQ retained an allocation system for 4,624 tonnes reserved for Canada. An allocation classification was retained for these TQs as the period of analysis for fill rate performance (2000 to 2011) reflected an allocation management system. = shading indicates substantial rise in world indicator price = shading indicates substantial fall in world indicator price 45

60 22. Fill rates for WTO tariff quotas Poultry meat # % % % % % % % % % % % % Canada - chicken turkey EU - chicken frozen turkey frozen chicken carcase chicken cuts chicken boneless cooked chicken poultry meat salted poultry turkey meat turkey prepared Norway - chicken turkey duck turkey roll Costa Rica - poultry preserved Philippines - poultry Morocco - poultry Dom Rep - chicken # Active TQs based on most recent WTO notifications. Source: WTO notifications. = shading indicates substantial rise in world indicator price = shading indicates substantial fall in world indicator price 46

61 23. Fill rates for WTO tariff quotas Cheese # % % % % % % % % % % % % US - other NSPF blue mould cheddar American edam & gouda Italian type gruyere low fat swiss & emmtal EU - processing cheddar blocks cheddar not pst emmental gruyere cheddar processing pizza cheese other cheese Israel - processed other cheese Canada Norway Sth Africa Australia Tunisia Costa Rica - not ched El Salvador - cheddar # Active TQs based on most recent WTO notifications. Source: WTO notifications. = shading indicates substantial rise in world indicator price = shading indicates substantial fall in world indicator price 47

62 24. Fill rates for WTO tariff quotas Milk & whey powders # % % % % % % % % % % % % Canada - butter milk whey US - SMP WMP & cream whey & butter mlk Japan - SMP for lunch SMP for other whey for feed whey for infant whey mineral Korea - SMP WMP whey Sth Africa - SMP, WMP b utter milk whey Israel - SMP WMP Thailand - SMP EU - SMP Mexico - SMP, WMP India - SMP, WMP Tunisia - SMP, WMP Morocco - SMP, WMP Costa R - SMP, WMP Dom Rep - SMP, WMP # Active TQs based on most recent WTO notifications. Source: WTO notifications. = shading indicates substantial rise in world indicator price = shading indicates substantial fall in world indicator price 48

63 25. Fill rates for WTO tariff quotas Butter products # % % % % % % % % % % % % US - b utter butter oil butter & oil Japan - butter & oil edible fat Canada Korea Norway Sth Africa Tunisia Costa Rica # Active TQs based on most recent WTO notifications. Source: WTO notifications. = shading indicates substantial rise in world indicator price = shading indicates substantial fall in world indicator price 49

64 26. Fill rates for WTO tariff quotas Other dairy products # % % % % % % % % % % % % Canada - conc milk yoghurt constituents other prods cream ice cream US - cream > 6% fat evap & cdn milk dry milk & cream dairy mixtures infant formula ice cream Japan - evap milk other prods designated Costa Rica - milk fmt prods ice cream Korea - evap milk Taiwan - milk Thailand - milk # Active TQs based on most recent WTO notifications. Source: WTO notifications. Excludes TQs for Malaysia - notification data unavailable. = shading indicates substantial rise in world indicator price = shading indicates substantial fall in world indicator price 50

65 27. Fill rates for WTO tariff quotas Sugar # % % % % % % % % % % % % US - raw cane sugar other sugars sugar mixes EU - sugar raw cane sugar China Philippines Thailand Vietnam Chile - refined sugar Tunisia Morocco Dominican Rep # Active TQs based on most recent WTO notifications. Source: WTO notifications. Excludes TQs for Malaysia - notification data unavailable. = shading indicates substantial rise in world indicator price = shading indicates substantial fall in world indicator price 51

66 Appendix C: Distribution systems for WTO tariff quotas 28. Distribution systems for WTO tariff quotas Beef # Average TQ distribution system: Opportunity fill rate Eligibility Allocation for new since 2000 restrictions * rules ** entrants *** EU - HQ pasture fed 72% TQ management by export suppliers - pasture fed 100% Historical user - 3 yrs Proportional share Yes - buffalo boneless 0% TQ management by export suppliers - forequarters & cuts 83% Beef prod - 1 yr Proportional share Not required - thin skirt 64% Beef trade - 1 yr Proportional share No - chilled HQ boneless 87% TQ management by export suppliers - HQ boneless (A) 73% TQ management by export suppliers - HQ boneless (B) 100% TQ management by export suppliers - beef cuts 97% TQ management by export suppliers Canada (part A) 74% Beef prod - 1 yr Market share - prod Not required (part B) Beef distribution - 1 yr Market share - sales US 71% TQ management by export suppliers Norway - frozen 88% No restriction Open Auction Not required Sth Africa 84% Historical user - 2 yrs Market share - imports Yes Tunisia 39% Historical user Market share - imports No Morocco 99% No restriction FCFS Not required # Assessment of system used for the primary distribution of TQ. Source: WTO notifications. If two distributions systems are used TQ classified by management system for largest portion of TQ. * Requirements to qualify for a share of the primary TQ distribution. Some TQs allow for a secondary distribution to 'new entrants' that don't qualify. Alternative eligibility requirements may apply for 'new entrants'. ** Mechanism to share primary TQ distribution if total requests by eligible applicants > available access. *** Availability of a portion of TQ for potential users that don't qualify for a share of primary distribution. Not required = eligibility rules not restrictive. Residual TQ = opportunity only provided if residual residual TQ access available after primary distribution. = shading indicates eligibility for allocation not restrictive 52

67 29. Distribution systems for WTO tariff quotas Sheep and pig meat # Average TQ distribution system: Opportunity fill rate Eligibility Allocation for new since 2000 restrictions * rules ** entrants *** Sheep meat TQs Norway - lamb carcase 79% No restriction Open Auction Not necessary - lamb carcase 63% TQ management by export suppliers EU 86% TQ management by export suppliers Philippines 24% Historical user - 1 yr Market share - imports Residual TQ Sth Africa 97% Historical user - 2 yrs Market share - imports Yes Israel 100% No restriction Proportional share Not required Tunisia 67% Historical user Market share - imports No Morocco 19% No restriction FCFS Not required Pig meat TQs EU - loins & bellies **** 4% Trade 50 t/yr - 2 yrs Proportional share No - carcase **** 0% Trade 50 t/yr - 2 yrs Proportional share No - assorted cuts **** 5% Trade 50 t/yr - 2 yrs Proportional share No - boneless loins & hams 24% Trade 50 t/yr - 2 yrs Proportional share No - boneless loins 24% Trade 50 t/yr - 2 yrs Proportional share No - tenderloins **** 21% Trade 50 t/yr - 2 yrs Proportional share No - sausages **** 4% Trade 50 t/yr - 2 yrs Proportional share No - preserved **** 0% Trade 50 t/yr - 2 yrs Proportional share No Philippines 24% Historical user - 1 yr Market share - imports Residual TQ Norway - frozen carcase 37% No restriction Open Auction Not required # Assessment of system used for the primary distribution of TQ. Source: WTO notifications. If two distributions systems are used TQ classified by management system for latest portion of TQ. * Requirements to qualify for a share of the primary TQ distribution. Some TQs allow for a secondary distribution to 'new entrants' that don't qualify. Alternative eligibility requirements may apply for 'new entrants'. ** Mechanism to share primary TQ distribution if total requests by eligible applicants > available access. *** Availability of a portion of TQ for potential users that don't qualify for a share of primary distribution. Not required = eligibility rules not restrictive. Residual TQ = opportunity only provided if residual residual TQ access available after primary distribution. **** Management system changed from allocated to FCFS in (2010) for financial (calendar) year TQs. Pig meat assorted cuts TQ retained an allocation system for 4,624 tonnes reserved for Canada. An allocation classification was retained for these TQs as the period of analysis for fill rate performance (2000 to 2011) reflected an allocation management system. = shading indicates eligibility for allocation not restrictive 53

68 30. Distribution systems for WTO tariff quotas Poultry meat # Average TQ distribution system: Opportunity fill rate Eligibility Allocation for new since 2000 restrictions * rules ** entrants *** Canada - chicken (part A) Historical user Market share - imports No (part B) Chicken food prod - 1 yr Market share - prod (part C) 100% Chicken distribution - 1 yr Equal share Not required (part D) Food service prod - 1 yr Market share - usage (part E) FTA chicken prod - 1 yr Market share - prod Residual TQ - turkey (part A) 98% Historical user Market share - imports No (part B) FTA turkey prod - 1 yr Market share - prod Residual TQ EU - chicken frozen cuts 86% Trade 50 t/yr - 2 yrs Proportional share No - turkey frozen cuts 100% Trade 50 t/yr - 2 yrs Proportional share No - chicken carcase 65% Imports 50 t/yr - 2 yrs Proportional share No - chicken cuts 41% Imports 50 t/yr - 2 yrs Proportional share No - chicken boneless 100% Imports 50 t/yr - 2 yrs Proportional share No - cooked chicken meat 96% Trade 50 t/yr - 2 yrs Proportional share No - poultry meat & offal 0% Trade 50 t/yr - 2 yrs Proportional share No - salted poultry meat 70% Trade 50 t/yr - 2 yrs Proportional share No - turkey meat 75% Imports 50 t/yr - 2 yrs Proportional share No - turkey prepared meat 82% Trade 50 t/yr - 2 yrs Proportional share No Norway - chicken carcase 24% No restriction Open Auction Not required - turkey carcase 3% No restriction Open Auction Not required - duck carcase 28% No restriction Open Auction Not required - turkey roll 55% Historical user Proportional share Residual TQ Costa Rica - poultry cuts 6% Historical user - 1 yr Market share - imports Yes - preserved 28% Historical user - 1 yr Market share - imports Yes Philippines - poultry prods 80% Historical user - 1 yr Market share - imports Residual TQ Morocco - poultry meat 30% No restriction FCFS Not required Dominican Rep - chicken 7% Historical user Proportional share Residual TQ # Assessment of system used for the primary distribution of TQ. Source: WTO notifications. If two distributions systems are used TQ classified by management system for largest portion of TQ. * Requirements to qualify for a share of the primary TQ distribution. Some TQs allow for a secondary distribution to 'new entrants' that don't qualify. Alternative eligibility requirements may apply for 'new entrants'. ** Mechanism to share primary TQ distribution if total requests by eligible applicants > available access. *** Availability of a portion of TQ for potential users that don't qualify for a share of primary distribution. Not required = eligibility rules not restrictive. Residual TQ = opportunity only provided if residual residual TQ access available after primary distribution. = shading indicates eligibility for allocation not restrictive 54

69 31. Distribution systems for WTO tariff quotas Cheese # Fill rate TQ distribution system: Opportunity since Eligibility Allocation for new 2000 * restrictions * rules ** entrants *** US - other NSPF 87% Historical user Fixed quantity **** Lottery for NHUs - blue mould 97% Historical user Fixed quantity **** Lottery for NHUs - cheddar 86% Historical user Fixed quantity **** Lottery for NHUs - American 79% Historical user Fixed quantity **** Lottery for NHUs - edam & gouda 88% Historical user Fixed quantity **** Lottery for NHUs - Italian type 89% Historical user Fixed quantity **** Lottery for NHUs - gruyere processed 63% Historical user Fixed quantity **** Lottery for NHUs - low fat 29% Historical user Fixed quantity **** Lottery for NHUs - swiss & emmental 75% Historical user Fixed quantity **** Lottery for NHUs EU - processing cheese 96% TQ management by export suppliers - cheddar blocks 96% TQ management by export suppliers - cheddar not pst 96% TQ management by export suppliers - emmental 7% Dairy trade - 1 yr Proportional share No - gruyere 9% Dairy trade - 1 yr Proportional share No - cheddar 100% Dairy trade - 1 yr Proportional share No - processing cheese 36% Dairy trade - 1 yr Proportional share No - frozen pizza cheese 11% Dairy trade - 1 yr Proportional share No - other cheese types 49% Dairy trade - 1 yr Proportional share No Israel - processed cheese 100% Food prod & sales Requests or Lottery Not required - other cheese 100% Food prod & sales Requests or Lottery Not required Canada 100% Historical user Fixed quantity No Norway 95% TQ management by export suppliers Sth Africa 47% Historical user Proportional share Yes Australia 93% Historical user - 2 yrs Market share - imports No Tunisia 92% Historical user Market share - imports No Costa Rica - no cheddar 34% Historical user - 1 yr Market share - imports Yes El Salvador - cheddar blocks 57% No restriction Open Auction Not required # Assessment of system used for the primary distribution of TQ. Source: WTO notifications. If two distributions systems are used TQ classified by management system for latest portion of TQ. * Requirements to qualify for a share of the primary TQ distribution. Some TQs allow for a secondary distribution to 'new entrants' that don't qualify. Alternative eligibility requirements may apply for 'new entrants'. ** Mechanism to share primary TQ distribution if total requests by eligible applicants > available access. *** Availability of a portion of TQ for potential users that don't qualify for a share of primary distribution. Not required = eligibility rules not restrictive. Residual TQ = opportunity only provided if residual TQ access available after primary distribution. NHUs = non-historical users. **** Historical users have renewable licences for specific quantities subject to minimum usage conditions. TQs have specified allocations to designated importers from specified exporting countries. = shading indicates eligibility for allocation not restrictive 55

70 32. Distribution systems for WTO tariff quotas Milk and whey powders # Average TQ distribution system: Opportunity fill rate Eligibility Allocation for new since 2000 restrictions ** rules ** entrants *** Canada - butter milk 73% Historical user Allocated to 1 importer No - whey 98% Speciality dairy food prod Proportional share Residual TQ US - SMP 23% Historical user Fixed quantity **** Lottery for NHUs - WMP & dried cream 77% Historical user Fixed quantity **** Lottery for NHUs - whey & btr mlk (part A) Historical user Fixed quantity **** No 15% (part B) No restriction FCFS Not required Japan - SMP for lunch 35% School lunch supplier Market share - prod No - SMP for other (part A) Mixed feed prod Market share - prod (part B) 35% Milk prod - Okinaw a, 1 yr Market share - prod No (part C) Infant food prod - Okinaw a Market share - prod - whey for feed 66% Mixed feed prod - 1 yr Market share - usage No - whey for infant 38% Infant food prod - 1 yr Market share - prod No - whey mineralised 26% Dairy food prod - 1 yr Market share - usage Not required Korea - SMP (part A) No restriction Open Auction Not required 58% (part B) Casein prod Market share - imports No - WMP 34% No restriction Open Auction Not required - whey (part A) Dairy food prod Market share - prod Yes 74% (part B) Milk feed prod FCFS Not required Sth Africa - SMP, WMP 54% Dairy food prod Proportional share Yes - butter milk 96% Historical user - 2 yrs Market share - imports Yes - whey 92% Historical user - 2 yrs Market share - imports Yes Israel - SMP 100% Sw eets, infant food prod Proportional share Residual TQ - WMP 100% Sw eets, infant food prod Proportional share Residual TQ Thailand - SMP (part A) Condensed milk prod Shared - no details No (part B) 96% Dairy food prod Shared - no details Not required (part C) Yoghurt drink prod Shared - no details No EU - SMP 41% Dairy trade - 1 yr Proportional share No Mexico - SMP, WMP 100% Historical user Market share - imports No India - SMP, WMP 18% Industry Agency member Proportional share No Tunisia - SMP WMP 26% Historical user Market share - imports No Morocco - SMP, WMP 100% No restriction FCFS Not required Costa Rica - SMP, WMP 19% Historical user - 1 yr Market share - imports Yes Dominican Rep - SMP, WMP 93% TQ management by export suppliers # Assessment of system used for the primary distribution of TQ. Source: WTO notifications. If two distributions systems are used TQ classified by management system for latest portion of TQ. * Requirements to qualify for a share of the primary TQ distribution. Some TQs allow for a secondary distribution to 'new entrants' that don't qualify. Alternative eligibility requirements may apply for 'new entrants'. ** Mechanism to share primary TQ distribution if total requests by eligible applicants > available access. *** Availability of a portion of TQ for potential users that don't qualify for a share of primary distribution. Not required = eligibility rules not restrictive. Residual TQ = opportunity only provided if residual TQ access available after primary distribution. NHUs = non-historical users. **** Historical users have renewable licences for specific quantities subject to minimum usage conditions. = shading indicates eligibility for allocation not restrictive 56

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