Supply Management and Import Concessions

Abstract

Countries such as Canada, which manage domestic supply by regulating both production and imports, have come under pressure in recent years to liberalize their trade policy. This paper examines the effect of import concessions on the distribution of rents in supply-managed industries. Although import concessions decrease producer welfare, it is shown that rather sizable concessions may occur before producers are worse off under supply management than free trade. This is especially true in industries characterized by a low free-trade import share and inelastic demand. With regard to net social welfare, policies that are designed to transfer market rents to producers through supply management incur larger deadweight losses when they also incorporate import concessions.

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