Economics
Import Quotas
Import quotas are restrictions on the quantity of a specific good that can be imported into a country. They are typically set by the government and are used to protect domestic industries from foreign competition, control the balance of trade, and ensure national security. Import quotas can lead to higher prices for consumers and may also result in reduced product variety.
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9 Key excerpts on "Import Quotas"
eBook - PDFInternational Trade and Agriculture
Theories and Practices
- Won W. Koo, P. Lynn Kennedy(Authors)
- 2008(Publication Date)
- Wiley-Blackwell(Publisher)
Quotas have been banned by the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO). The organizations have supported the principle that quantitative restrictions, such as quotas, should be converted into tariffs. This has been encouraged because import and export quotas are more trade distorting than tariffs. Since quotas are more effective than tariffs in insulating the domestic market from the world market, they result in inefficient use of resources in production, and inefficient consumption of goods in the protected industry. Given this, it is important to provide a description of quota systems and their welfare and economic effects. To accomplish this, an overview of import and ex- port quotas, and their impacts on trade and the domestic market, is provided. Special emphasis is placed on the comparison of Import Quotas and import tariffs. A descrip- tion of the tariff rate quota (TRQ), a tool used under various trade agreements to increase market access, is also presented. Import Quotas Import Quotas are quantitative trade restrictions used primarily to protect domestic producers and/or to alter the balance of payments. For example, to protect domestic sugar beet and cane growers, the US government limits sugar imports to approxim- ately 1.25 million tons annually. For an import quota to be effective, the limit must be below what would be imported under free market conditions. Two major types of Import Quotas used throughout the world are unilateral quotas and bilateral (or multilateral) quotas. All of these impose absolute limits in value or quantity of imports of a commodity during a given period of time. The unilateral quota is a fixed amount of imports that the importing country deter- mines without prior consultation or negotiation with other countries. Hence, this type of quota often faces complaints and retaliation from trading partners.
eBook - PDF- Dominick Salvatore(Author)
- 2020(Publication Date)
- Wiley(Publisher)
In Section 9.4, the various arguments for protection are presented, from the clearly fallacious ones to those that seem to make some economic sense. Section 9.5 examines strategic trade and industrial policies. Section 9.6 briefly sur-veys the history of U.S. commercial or trade policy from 1934 to the present. Finally, Sec-tion 9.7 summarizes the outcome of the Uruguay Round of trade negotiations, discusses the launching of the Doha Round, and identifies the outstanding trade problems facing the world today. The appendix analyzes graphically the operation of centralized cartels, inter-national price discrimination, and the use of taxes and subsidies instead of tariffs to correct domestic distortions. 9.2 Import Quotas A quota is the most important nontariff trade barrier. It is a direct quantitative restric-tion on the amount of a commodity allowed to be imported or exported. In this section, we examine Import Quotas. Export quotas (in the form of voluntary export restraints) are examined in Section 9.3A. An import quota is examined in this section with the same type of partial equilibrium analysis used in Section 8.2 to analyze the effects of an import tariff. The similarities between an import quota and an equivalent import tariff are also noted. 9.2 Import Quotas 227 9.2A Effects of an Import Quota Import Quotas can be used to protect a domestic industry, to protect domestic agriculture, and/or for balance-of-payments reasons. Import Quotas were very common in Western Europe immediately after World War II. Since then, Import Quotas have been used by prac-tically all industrial nations to protect their agriculture and by developing nations to stimu-late import substitution of manufactured products and for balance-of-payments reasons. The partial equilibrium effects of an import quota can be illustrated with Figure 9.1, which is almost identical to Figure 8.1. In Figure 9.1, D X is the demand curve and S X is the supply curve of commodity X for the nation.
eBook - PDF- Dominick Salvatore(Author)
- 2019(Publication Date)
- Wiley(Publisher)
In Section 9.4, the various arguments for protection are presented, from the clearly fallacious ones to those that seem to make some economic sense. Section 9.5 examines strategic trade and industrial policies. Section 9.6 briefly sur- veys the history of U.S. commercial or trade policy from 1934 to the present. Finally, Sec- tion 9.7 summarizes the outcome of the Uruguay Round of trade negotiations, discusses the launching of the Doha Round, and identifies the outstanding trade problems facing the world today. The appendix analyzes graphically the operation of centralized cartels, inter- national price discrimination, and the use of taxes and subsidies instead of tariffs to correct domestic distortions. 9.2 Import Quotas A quota is the most important nontariff trade barrier. It is a direct quantitative restric- tion on the amount of a commodity allowed to be imported or exported. In this section, we examine Import Quotas. Export quotas (in the form of voluntary export restraints) are examined in Section 9.3A. An import quota is examined in this section with the same type of partial equilibrium analysis used in Section 8.2 to analyze the effects of an import tariff. The similarities between an import quota and an equivalent import tariff are also noted. 9.2 Import Quotas 227 9.2A Effects of an Import Quota Import Quotas can be used to protect a domestic industry, to protect domestic agriculture, and/or for balance-of-payments reasons. Import Quotas were very common in Western Europe immediately after World War II. Since then, Import Quotas have been used by prac- tically all industrial nations to protect their agriculture and by developing nations to stimu- late import substitution of manufactured products and for balance-of-payments reasons. The partial equilibrium effects of an import quota can be illustrated with Figure 9.1, which is almost identical to Figure 8.1. In Figure 9.1, D X is the demand curve and S X is the supply curve of commodity X for the nation.
eBook - PDFThe Economics Of Export Restrictions
Free Access To Commodity Markets As An Element Of The New International Economic Order
- Jimmy Weinblatt(Author)
- 2019(Publication Date)
- Routledge(Publisher)
A quota imposes physical limits beyond which no additional exports are permitted, while an export tax does not directly restrict the volume exported. In the short-term an export quota will lead to higher prices per unit, the same effect generated by an export tax. The feasibility of the measure depends on the position and shape of domestic and foreign demand and supply curves. Brazil, for example, imposed in 1973 quotas on the export of green coffee in order to maintain prices on foreign markets. The measure was, to a large degree, successful since Brazil supplied then 23 percent of world coffee exports (see Appendix B), and the impact on the world market was great, although other coffee producers could have provided the necessary supply. Obviously, if the measure is coordinated among all or most producing countries the effect on prices is immediate. Quotas have also been imposed, inter alia, by Canada on wheat, by the US on sugar, and by Japan on nickel, rice, and wheat. Not only developing countries impose export restricting measures. For example, Canada -a net exporter of raw materials -amended its Export-Import Permits Act in May 1974 explicitly to authorize export controls, and made clear its intention to use such controls, if necessary, as part of Canada's overall economic policy. The export embargo is the extreme form of the export quota. In this case the quantitative limit on exports is total and causes a direct reduction in the export receipts of the country adopting the embargo. In many cases, the embargo imposed on the exports of commodities in their raw form, while the sale of goods processed from such commodities is left unrestricted. For example, almost every country forbids the export of ferrous scrap or at least imposes quantitative restrictions on such exports, in order to guarantee domestic supply (for recycling processes) at prices below those prevailing on international markets.
eBook - PDFThe Reciprocal Trade Policy of the United States
A Study in Trade Philosophy
- Henry J. Tasca(Author)
- 2016(Publication Date)
315. 198 QUOTAS UNDER BARGAINING and sharply restricted. 4 Moreover, quotas made a direct limita-tion of imports possible. U n d e r increased tariffs the extent to which imports will be shut out is unpredictable since the elastici-ties of supply and demand may be such that a higher duty may fall far short of its anticipated restrictive effect. Furthermore, the subsidization of exports directly through export bounties and indirectly through currency depreciation tended to make im-port duties even less effective. 5 U n d e r quantitative restrictions, however, the forces of the market are rudely interrupted and the price mechanism barred from effecting any readjustments f r o m the side of supply or demand. Imports of a commodity are definitely limited to a specified value or quantity by executive decree. T h i s apparent predictability of effect was undoubtedly an attraction to many countries. 6 W h e n quotas were first re-adopted in 1 9 3 1 , the attempt was made to treat all countries equitably. 7 But it was not long be-fore they were utilized as weapons of discrimination partly for retaliatory purposes and partly to redress the trade balance and relieve the existing pressures on the balance of payments. 8 4 League of Nations, Evolution of Commercial Policy since the Economic Crisis, II Economic and Financial, 1934, II. B. 1, p. 9. This was the important factor in the adoption of the quota system by France in 1931. E. Dietrich, French Import Quotas, Journal of Political Economy, December 1933, p. 663. Seventy-two percent of the French tariff structure had been bound against increases in various tariff treaties previously entered into. 5 League of Nations, World Economic Survey, 1935-36, II. Economic and Financial 1936. II. A. 15, p. 183; U. S. Senate, World Trade Barriers in Relation to Agriculture, Document No. 70, 73d Congress, 1st Session, Wash-ington, 1933, pp. 79-86. * For a view questioning the extent to which the effects are predictable, see U.
eBook - PDFThe Law and Policy of the World Trade Organization
Text, Cases and Materials
- Peter Van den Bossche, Werner Zdouc(Authors)
- 2017(Publication Date)
- Cambridge University Press(Publisher)
Under this system of tariff quotas, lower tariffs applied to specified quantities (in-quota quanti- ties), while higher (often prohibitive) tariffs applied to quantities that exceed the quota (over-quota quantities). 69 At the Bali Ministerial Conference in December 2013, the WTO adopted an understanding on the administration of tariff quotas for agricultural products. 70 The Understanding stipulates that tariff quota administration shall be deemed to be an instance of import licensing to which the provisions of the Agreement on Import Licensing Procedures apply in full, subject to the Agreement on Agriculture and the more specific and additional obligations set out in the Understanding. 71 The Understanding addresses in particular the problem of under-filling the tariff quota. 72 With respect to the relationship between Article 4.2 of the Agreement on Agriculture and Article XI of the GATT 1994, the panel in Korea – Various Measures on Beef (2001) stated that: when dealing with measures relating to agricultural products which should have been con- verted into tariffs or tariff-quotas, a violation of Article XI of GATT … would necessarily constitute a violation of Article 4.2 of the Agreement on Agriculture and its footnote. 73 As mentioned above, trade in textiles and clothing also largely ‘escaped’ from the GATT 1947 rules and disciplines, and in particular the prohibition of Article XI on quantitative restrictions. Under the Multifibre Arrangement (MFA), in effect from 1974, developed and developing countries, respectively importing and export- ing textiles, entered into bilateral agreements requiring the exporting developing countries to limit their exports of certain categories of textiles and clothing. In 1995, the main importing countries had eighty-one such restraint agree- ments with exporting countries, comprising over a thousand individual quotas. 74 491 Quantitative Restrictions on Trade in Goods 75 Ibid., 165.
eBook - PDFThe Law and Policy of the World Trade Organization
Text, Cases, and Materials
- Peter Van den Bossche, Werner Zdouc(Authors)
- 2021(Publication Date)
- Cambridge University Press(Publisher)
Second, and related to the first reason, it is considered easier to negotiate, in successive rounds of negotiations, the gradual reduction of customs duties than it is to negotiate the elimination (or liberalisation) of quantitative restrictions. Third, while the price increase resulting from customs duties goes to the gov- ernment as revenue, the price increase resulting from quantitative restrictions ordinarily benefits the importers. The importers will be able to sell at higher prices because of the limits on the supply of the product. This ‘extra profit’ is commonly referred to as the ‘quota rent’ and, unless a quota is auctioned (which is seldom done), no part of this quota rent goes to the government. Fourth, the administration of quantitative restrictions is more open to cor- ruption than the administration of customs duties. This is because quantita- tive restrictions and, in particular quotas, are usually administered through an import-licensing system; import-licensing procedures are often not transparent, and decisions by government officials to award an import licence are not neces- sarily based on general interest. 64 Finally, and arguably most importantly, quantitative restrictions impose abso- lute limits on imports, while customs duties do not. While customs duties are surmountable (at least, if they are not set at prohibitively high levels), quantita- tive restrictions cannot be surmounted. If a foreign producer is sufficiently more efficient than a domestic producer, the customs duty will not prevent imported products from competing with domestic products. By contrast, once the limit of a quantitative restriction is reached, no more products can be imported. Even the most efficient foreign producer cannot ‘overcome’ the quantitative restric- tion. Above the quota, domestic products have no competition from imported products.
eBook - PDF- John McLaren(Author)
- 2012(Publication Date)
- Wiley(Publisher)
7.2.3 The Effects of a Quota It is now easy to see that the same conclusion follows if we approximate the policy with a quota instead of a tariff. Suppose that the U.S. government charges no tariff on imported sugar, but instead declares that no one can import sugar into the United States without a license. It then prints up licenses, each of which entitles the bearer to import a given quantity of sugar into the United States, and whose quantities all together add up to 3.4 billion pounds. This is the same level of imports as came in under the equilibrium with the tariff, and it is also the actual historical level of imports in 2000. 5 Suppose the government then distributes these licenses to private-sector traders somehow (we will shortly discuss how these are dis- tributed) and instructs the customs service to inspect incoming shipments to be sure that each sugar shipment has its required license. This changes the world equilibrium, as shown in Figure 7.9. Once again, it is useful to think of the vertical axis as measuring the world price. The U.S. import demand curve takes the form of the blue curve MD US, Quota , which is the same as the free-trade import demand curve for high prices but then hits a brick wall at the quota quantity of 3.4 billion pounds. No matter how low the world price goes, U.S. imports under the quota cannot exceed this value. 5 The alert reader may notice that the actual quantity imported in 2000 exceeds the TRQ quota, despite the fact that the difference between the domestic U.S. price and the world price was less than the out-of- quota tariff. This is explained by the fact that the sugar TRQ is more complicated than described here, with different quotas for different types of sugar, while we have lumped all types together for simplicity. The GAO (2000) model takes account of heterogeneous sugar types, along with other complications we are ignoring in this chapter. FIGURE 7.9 The Effect of a Quota on the World Market.
eBook - ePubBritain's Place in the World
Import Controls 1945-60
- George Brennan, Alan Milward(Authors)
- 2003(Publication Date)
- Taylor & Francis(Publisher)
ad valorem. Quota restriction can be imposed either on value or on volume of imports, and in many cases the quotas or purchasing programmes were kept so secret or unheralded that their existence seems to have gone unsuspected by many excellent authors.With the widespread application of the most-favoured-nation principle it is also objected against quotas that they can more easily and less detectably discriminate. But the main accusation is that quotas distort market relationships. Once the permitted quantity has been reached the price of external goods ceases to matter; the barrier comes down and no subsequent change of external price or internal demand can affect the amount imported. Even where the size of the quota or the purchasing programme is published, the extent of the demand which it frustrates can only be indirectly estimated; the connection between domestic demand and foreign supply is cut. In principle international and domestic supply costs could continue to widen indefinitely, but there would still be no market for imports.Quotas were effective in the absence of tariffs, and where tariffs existed reduced them to revenue taxes. Even in the low-import year 1952 ad valorem tariffs transferred a tidy £84 million (none of it from the Commonwealth areas unrestricted by quotas) from importers to government. But even in a year where a few permitted quotas exceeded demand, these duties can have had little deterrent effect on the level of imports. In the absence of quotas a tariff, by contrast, even when very high, still allows import prices to serve as a measure of potential demand. In equilibrium, an ad valorem tariff ideally measures the difference between international costs and domestic costs at the margin of production. Tariffs can still be an ineffective barrier if domestic demand is initially high enough to make it so, or if the foreign supplier in response to its imposition reduces the price of a good before duty is levied. But in any case a given tariff allows imports to respond in the longer run to a genuine change of international costs or to any change of domestic demand. If price elasticities are known, an effective ad valorem
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