Why Have They Remained Low?
J. A. Vercammen and A. Schmitz
In this chapter we use a game theoretic framework to help explain why imports of supply-managed commodities remain low. This outcome can be explained where producers are more politically powerful relative to other interest groups, such as importers. The political cost of transferring rents to importers at the cost of producers is too high.
In Canadian supply-managed industries, production control schemes exist in conjunction with import quotas. Empirical studies have found that these arrangements are noncompetitive in nature and often result in a large transfer of rents from consumers to producers ( Schmitz, 1983; Veeman, 1987; Barichello, 1981). However, sizable rents also accrue to those holding the license to import the restricted commodity because, in many cases, the wedge between the Canadian domestic price and the world price is large. Even under the new General Agreement on Tariffs and Trade (GATT) struck in December, 1993, tariffication does not eliminate import quota rents because of Canadian minimum access commitments ( Schmitz, de Gorter and Schmitz, 1994).
Imports have never made up a large share of Canada's domestic consumption of supply-managed commodities. 1 Moreover, any increases in these shares have typically been in response to external pressures, for example, the Canada-United States Free Trade Agreement (CUSTA) and GATT, rather than domestic pressures. Of interest in this chapter is understanding why Canadian importers have not been more successful in increasing their share of the lucrative Canadian market. If both parties