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© 1988 International Bank for Reconstruction and Development / The World Bank

research-article

Export Quota Allocations, Export Earnings, and Market Diversification

Taeho Bark and Jaime de Melo

Taeho Bark is at the Korea Development Institute; Jaime de Melo at the World Bank. A first draft of this paper was completed while de Melo was a visiting fellow at the IIES in Stockholm. Partial support was provided from World Bank research funds. The authors are grateful to members of the workshop on European Trade Policy, particularly Wendy Takacs, for helpful comments on an earlier version.

Countries facing voluntary export restraints (VERS) often adopt a two-tier allocation system for export licenses to the restricted market; (1) a "basic" allocation related to export shares to the restricted market; and (2) an "open" allocation based on export shares to the nonrestricted market. Such a two-tier allocation system increases exports to the nonrestricted market beyond the levels which would exist under a single-quota allocation system and has an efficiency cost as it results in some sales being made at less than marginal cost. The history of VER negotiations provides a rationale for such a policy and suggests that the recent increase in antidumping cases may be partly associated with the adoption of two-tier quota allocation systems.


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