Tariff rate quotas (TRQs) are a key trade policy instrument combining two tariff levels: a lower "in-quota" tariff for imports up to a specified volume, and a higher "out-of-quota" tariff for quantities beyond that limit. A critical question is who gets to import at the low in-quota tariff, which offers a profitable import opportunity. Major administration methods include auctions, historical allocation, and “first-come, first served” systems. This report examines two questions: how different TRQ administration methods in Switzerland compare in theory and practice, and what happens when the administration method changes. The analysis combines a conceptual review of TRQ economics with two empirical case studies: one on high-quality beef and sirloin strips (TRQ no. 5.7) and another on table potato imports (TRQ no. 14.3). In 2015, the TRQ administration for beef shifted from a mostly auction-based system to more historical allocation. In contrast, new auctions were introduced for table potatoes in 2018, replacing some of the former historical allocation methods. Data from three years before and after the respective change were analyzed using comparative metrics such as quota fill rates, importer and country concentration, and price levels, as well as a Parity Bounds Model to assess market efficiency and rents. The findings show that all TRQ administration methods aim to ration limited in-quota rights. Auctions are theoretically the most efficient because they capture willingness to pay, reduce distortions and generate government revenues, while historical allocation tends to favor incumbents. However, auctions involve also administrative costs and may not always outperform simpler “first-come, first-served” systems. Empirical evidence from the beef and potato market indicates that the shift in the allocation methods did not significantly change market outcomes. Quotas remained binding and fully utilized, importer concentration and country concentration changed marginally, possibly due to external factors unrelated to TRQ administration. TRQs consistently create rents for quota holders. Auctions reduce these rents and transform them partly into government revenue, but do not eliminate them completely.
In conclusion, TRQs effectively protect domestic markets in a WTO-compliant way, regardless of the administration methods. While theory favors auctions, empirical evidence suggests limited impact of method changes on market outcomes. Policy implications include the need for pragmatic solutions, fiscal arguments, administrative simplicity, and transparency. Auctions are an effective tool for preventing monopolies and collusion. They should be the preferred method for products with high import values because the fiscal benefit of bid revenues likely outweighs the administrative costs. For large quotas, quotas with low demand and/or low turnover, a first-come, first-served system could be a better alternative thanks to its simple administration. There are no strong arguments in favor of historical allocation. In fact, particularly for historic domestic purchasing, calculating the correct historical shares can be difficult, resulting in high administrative costs for the regulator. Furthermore, this system disadvantages new entrants, necessitating additional remedies, such as mixed systems or newcomer quotas.