The use of non-tariff barriers (NTBs) to trade has become increasingly common. Such quantitative restrictions mean that someone, somewhere is rationed. If prices do not rise sufficiently to cut demand back, then consumers are rationed. If prices rise so as to clear any excess demand then suppliers will be rationed, since at the higher price they would like to provide more than the permitted quantity. In Discussion Paper No. 365, Paul Brenton and Programme Director L Alan Winters estimate the effects of the restrictions imposed in the 1970s to protect the UK footwear industry in the face of rising imports from Eastern Europe and the Far East. They use a methodology developed in Discussion Paper No. 283 for identifying non-price rationing and allowing for it in the estimation of demand functions and welfare effects. They distinguish four principal types of footwear men's leather, women's and children's leather, textile, and rubber and plastic and identify separately all the major constrained suppliers.
The analysis is based on `dock-side' import prices rather than consumer prices. Brenton and Winters estimate a model of footwear demand which assumes constant elasticities of substitution between different types of footwear, and use these estimates to calculate the economic effects of the various restrictions. They find evidence of rationing for all four types of footwear, though not for all suppliers. There is, for example, nothing to suggest that the demand for imports of textile and rubber and plastic footwear from Korea was ever quantity-constrained; rather, they detect a 25% increase in the prices of imported Korean footwear. There is, however, strong evidence that the allocation of expenditure on men's footwear changed in the third quarter of 1977 and that that on women's and children's leather footwear in the fourth quarter, both in the direction predicted if rationing occurred. For both the textile and rubber and plastic groups, there is some evidence that the quota on Taiwanese imports led to a binding ration.
Brenton and Winters re-estimate the demand model taking into account the presence of rationing during the restricted periods. For all the rationed suppliers they find large differences between the actual volume of sales and the volume that would have been demanded at those prices in the absence of the restrictions, and considerable differences between actual prices and the estimated virtual prices. The statistical evidence for these results is fairly strong, according to the authors, so studies which ignore rationing will be seriously biased.
The authors estimate that these NTBs inflicted large losses on UK consumers, ranging from a total of £14.6m in 1978 to £32m in 1986. The large increase reflects the restrictiveness of a constant quota at a time of rising demand. The loss to consumers is compounded if one allows for increases in price somewhere in the distribution chain. In 1986 this adds an extra £20m to the costs faced by consumers of men's leather footwear. When NTB-induced price rises by exporters are taken into account as well, the welfare costs of British non-tariff barriers to footwear imports amounted to £27m in 1978 and £58m in 1986.

Non-Tariff Barriers and Rationing: UK Footwear Imports
P A Brenton and L Alan Winters

Discussion Paper No. 365, January 1990 (IT)