Available estimates of tariff equivalents and welfare costs of MFA quotas are based on the premise of perfect competition in both product and license markets, and the assumption that exporting countries receive all the scarcity rent. We test if US apparel imports from Hong Kong conform with this competitive model by looking at whether the license-price-inclusive Hong Kong price, adjusted for tariffs and transport costs, is equal to the US price. We deal with the homogeneous product case and correct for both aggregation and quality differences. We find that US importers seem to retain a substantial portion of the quota rents. 'We are grateful to the World Bank for research support. We would also like to thank Ronald Chan, Paula Holmes. Tom Prusa. and Yun-Wing Sung for providing us with data; Phillip Swage1 for helpful comments; and Monique Skruzny and Christopher Holmes for excellent research assistance. 0 Bawl Blrckwcll Lid 1993. IOR Cowlcy Road. Oxford OX4 IJF. U K m d 238 Mdin Strrci. CJmbndgc. .MA 02142. USA 336

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Available estimates of tariff equivalents of quotas and welfare calculations on the costs of MFA quotas for developing countries are based on the premise of perfect competition in both product and license markets. It is also assumed that the exporting countries which administer the MFA quotas receive all the scarcity rent. We argue that in the presence of market power on the buyers' side in the product market combined with concentration in the license markets, the importing countries may retain part of this rent, i.e. share it with the exporters.We analyze US imports of apparel products from Hong Kong to see if the data conform with all the relevant predictions of the competitive model. Our method essentially tests whether the license price inclusive Hong Kong price, adjusted for tariffs and transport costs, is equal to the domestic (US) price. A deviation between the two prices is taken to indicate rent sharing. We test the hypothesis with homogeneous goods, modify it to take into account compositional differences and, finally, consider differentiated goods. We find evidence that importers retain a substantial portion of the MFA quota rents.

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