North American Journal of Economics and Finance 18 (2007) 247–261 Available online at www.sciencedirect.com Should tariff-rate quotas mimic quotas? Implications for trade liberalization under a supply management policy Bruno Larue a,∗ , Jean-Philippe Gervais b , S´ ebastien Pouliot c a Canada Research Chair in International Agri-Food Trade, CR ´ EA and Department of Agri-food Economics and Consumer Sciences, Universit´ e Laval, Qu´ ebec, QC, Canada G1K 7P4 b Canada Research Chair in Agri-Industries and International Trade, CR ´ EA and Department of Agri-food Economics and Consumer Sciences, Universit´ e Laval, Qu´ ebec, QC, Canada G1K 7P4 c University of California Agricultural Issues Center and Department of Agricultural and Resource Economics, University of California, Davis, United States Received 10 April 2006; received in revised form 28 March 2007; accepted 6 July 2007 Available online 31 August 2007 Abstract This article compares price-equivalent import tariffs and quotas when domestic production is controlled by a marketing board with the power to restrict domestic supply through production quotas. Canada’s dairy industry is supply-managed and protected by TRQs to achieve a domestic price target. TRQs are currently set to mimic the import quotas they replaced. However, they could be set to mimic tariffs instead. We provide welfare rankings between (domestic) price-equivalent quotas and tariffs under various assumptions regarding the powers of the marketing board to shed new light on liberalization in the Canadian dairy industry. When the marketing board is allowed to export, quotas can never be welfare-inferior to price-equivalent tariffs when transport costs between the two markets are insignificant. Import licensing methods have important implications for the ranking of the two trade instruments and the ranges of feasible domestic prices. If the marketing board controlled all import licenses and there was no rule preventing it from sleeping on part or all of its import licenses, the quota regime would support a small range of high feasible prices. In contrast, when the quota is a minimum access commitment, there are high prices under the tariff regime that are not feasible under the quota regime. © 2007 Elsevier Inc. All rights reserved. JEL classification: F13; Q17 Keywords: Non-equivalence; Tariffs; Quotas; Tariff-rate quotas; Supply management ∗ Corresponding author. Tel.: +1 418 656 2131x5098. E-mail address: Bruno.Larue@eac.ulaval.ca (B. Larue). 1062-9408/$ – see front matter © 2007 Elsevier Inc. All rights reserved. doi:10.1016/j.najef.2007.07.002