INTRODUCING TARIFF RATE QUOTAS IN

INDONESIAN FOOD COMMODITIES

The World Bank

Supported by
The proposal

Introduce TRQs in 4 commodities (rice, sugar, beef and corn)

replacing current cumbersome import regimes with hopefully
more transparent system

The objective is to stabilize and possibly reduce the retail price

of these commodities without undermining the farming sector

While TRQs if managed well can probably help, this is only a

small part of a broader food policy that could deliver a
competitive agricultural sector and the conditions for a balanced
diet for the consumers
Five key questions around TRQs

Is TRQ the right instrument?

Can Indonesia introduce TRQ and how?
What will the volume of the quotas be?
What will the in-quota tariff rate be?
What will the allocation mechanism of the quotas be?
Is TRQ the right instrument?
Potential benefits
Avoid some of the most
egregious distortions of murky
import restrictions (e.g. rice)
Potential costs
Possible costs of implementation
(to government, traders and
consumers)

Higher flexibility in Potential for rent-seeking

compensating domestic demand- (domestic importers and intl
supply gap than current systems suppliers) if the administration
procedure is non transparent
Stepping stone to a more
transparent import system? Risk of WTO disputes for the
administration of the quotas
More certainty may lead to more (e.g.: US vs. China on wheat; EU
strategic outward and inward TRQs on bananas; US vs. Turkey
investments on rice import quotas)
 Can Indonesia introduce TRQ and how?
Disclaimer: This is not a legal opinion

Indonesias commitments only list 2 commodities (rice and milk

and cream products) subject to TRQs but others can be added
without resorting to Article XXVIII as long as the measure is
liberalizing (which in this case it may be)

Hence it only needs notification to the WTO along with quota

volume and in-quota and out of quota tariffs

Seasonal quotas may be possible but complicated to administer

and may be less flexible to fill supply gaps (e.g. need to import
earlier due to bad domestic harvest)
 Volume of the quota

Quota should be set at a level that can easily accommodate the

expected peak of domestic supply-demand gap subject to
changes in demand and externalities associated with commodity
production and consumption

Different types of commodities have different rules of thumb in

setting the quota (illustration)

Administering TRQs that change quotas during the year would

be almost impossible to administer (i.e. continuous calculation of
quotas, changes in notification, administration issues) and hence
would most likely be ineffective
 Setting the in-quota import tariff

Depends on the objective the policy wants to achieve: e.g. price

stability vs. level of price vs. protection of domestic farmers

TRQs likely effective for price stability for a large range of tariffs

Trade-off in setting tariff between the need to maintain low

price levels vs. protecting domestic producers

Countries have often set the tariff higher than the actual applied
tariff thus ending up not using the TRQ at all
 Allocation mechanism

Perhaps the most important decision to ensure TRQ is effective

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

2002 2011
Others

First-Come,
First-Served
Licences On
Demand

Mixed Allocation
Methods

Historical
Importers
Auctioning
Figures and Tables
Source: World Bank (2016) A modern food policy for all Indonesians
 Back
Source: World Bank (2016) A modern food policy for all Indonesians
 Uncertainty of imports +
thinning rice stocks

Back
Source: Bank Indonesia and Pink Sheet
Indonesia is among the lowest user of TRQs
(Number of products subject to TRQs in countrys schedule)

Back
Source: WTO
Volume of the quota: general principles

Demand growth
Stable growth High growth
Rice (highest import last 5 Corn (historic imports +
Low
Externalities

years) projected demand increase)

Beef (historic imports +

Sugar (highest import
projected demand growth +
High adjusted for negative
extra quota for
externalities)
environmental externality)

Back
TRQ schedules do not change over time
Keeping prices low

Low or zero tariff

Tariff = gap production

cost with most efficient
intl producer

Protecting farmers

Back Back
Almost half of TRQs are not used by WTO members
(Number of products subject to TRQs in countrys schedule, overall)

Back
Source: WTO