access commitments, which ensure that a minimum amount of imports will always be brought in under supply management, the import share would erode since a dollar taken away from importers would translate into $1.59 for producers.
This chapter proposes two alternative hypotheses as to why import shares in Canadian supply-managed industries have remained relatively low. The first is that producers and importers have equal and effective say in the political process, implying that production and import levels that are currently observed reflect the equilibrium outcome of an unconstrained quantity-setting game between producers and importers. Using both the Cournot-Nash and Stackleberg behavioral specifications and alternative assumptions about the competitive supply and demand elasticities, it is shown that for relatively low competitive import shares of less than 20%, the equilibrium level of imports without competition would exceed the competitive level of imports. Since this outcome appears highly unlikely for the case of Canadian supply management, this hypothesis is rejected.
The second hypothesis is that import levels have remained low because the political cost of transferring rents to importers at the expense of producers is too high. This hypothesis seems much more credible because it is calculated that a dollar of rents transferred to importers by increasing the import quota results in a $1.59 loss for producers. Clearly, one has to treat this result with caution because a number of rather strong assumptions were made during the derivation of this number. Nevertheless, the basic idea that producers stand to lose considerably at the margin when import quotas are increased is probably a reasonable explanation as to why importers have not been more successful at achieving higher rents in the Canadian supply-managed industries.