Tariffication with Supply Management: The Case of the U.S.-Canadian Chicken Trade

This paper considers the conversion of import quotas into tariffs, as may arise in the current round of General Agreement on Tariffs and Trade (GATT) negotiations, when the internal market of the country imposing the quota is not perfectly competitive. This case is illustrated by the chicken market in Canada, where producers exercise market power by restricting supply. In this setting, tariffs and import quotas are not equivalent. If a tariff reflecting current price differences between Canada and the United States replaced the import quota system, the price in Canada would be unchanged but chicken imports would be driven to zero. On the other hand, the tariff that would preserve chicken imports at their current levels upon abolition of the import quota is much lower, and would result in a considerable decline in the Canadian chicken price.