Economics
Quotas
Quotas refer to government-imposed restrictions on the quantity of a specific good that can be imported or exported within a given period. They are often used to protect domestic industries by limiting foreign competition or to regulate the balance of trade. Quotas can lead to higher prices for consumers and may also result in inefficiencies in resource allocation.
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9 Key excerpts on "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)
- 2012(Publication Date)
- Wiley(Publisher)
As tariffs were negotiated down during the postwar period, the importance of nontariff trade barriers has greatly increased. In this chapter, we analyze the effect of nontariff trade barriers and the political economy of protectionism. Section 6.2 examines the effects of an import quota and compares them to those of an import tariff. Section 6.3 deals with other nontariff trade, such as voluntary export restraints and other regulations. Section 6.4 deals with dumping and export subsidies. In Section 6.5, the various arguments for protection are presented, from the clearly fallacious ones to those that seem to make some economic sense. Section 6.6 discusses outsourcing, offshoring, and fear of globalization. Section 6.7 examines strategic trade and industrial policies. Section 6.8 surveys the history of U.S. commercial or trade policy. Finally, Section 6.9 summarizes the outcome of the Uruguay Round of trade negotiations, while Section 6.10 discusses the outstanding trade problems facing the world today and the inability to conclude the Doha Round. The appendix examines strategic trade and industrial policies with game theory. 6.2 IMPORT Quotas A quota is a direct quantitative restriction on the amount of a commodity Quota A direct quantitative restriction on trade. allowed to be imported or exported in a nation. In this section, we examine import Quotas. Export Quotas (in the form of voluntary export restraints) are examined in the next section. Import Quotas can be used to protect a domestic industry or agriculture and for balance-of-payments reasons. Import Quotas were very common in Western Europe immediately after World War II. Since then they have been used by practically all industrial nations to protect their agriculture and by developing nations to stimulate the import substitution of manufactured products and for balance-of-payments reasons.
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 - ePubThe Reconstruction of World Trade
A Survey of International Economic Relations
- J. B. Condliffe(Author)
- 2023(Publication Date)
- Routledge(Publisher)
There is little practical utility, therefore, in detailed illustration of the way in which, under hypothetical conditions of free or semimonopolistic competition, Quotas differ from tariffs mainly by giving rise to quasi-monopolistic trading profits in the importing countries. It is clear that the possession of a license to import is a valuable property right that may, in certain circumstances, be sold profitably. 23 Most governments have, in fact, appropriated any quasi-monopolistic profits of this kind by the simple means of imposing license fees, which have at times been an important source of revenue, or by regulating the disposal of quota allocations. The actual incidence of quota restrictions is variable, since it depends upon such factors as the elasticity of demand in the importing country and of production in the exporting country; the proportion of the restricted imports to total consumption in the importing country and to total production in the exporting country; the possibilities of substitution, etc. There appear to have been cases where practically the whole cost of restriction has been thrown upon the consumers in the importing country and others where exporters were crippled by the loss of important markets. In general, the major effect upon the prices of commodities subject to quota has been a fragmentation of the market. Prices in different national markets began to diverge to an extent far greater than had been possible when international trade was limited only by tariffs. This did not necessarily mean a lowering of prices in the exporting countries. In the case of manufactured goods, for example, where exports to a particular market formed a relatively small fraction of the total production, the prices ruling in the exporting country continued to depend primarily upon conditions of demand and supply, including credit conditions, in the main market
eBook - PDFAdvanced International Trade
Theory and Evidence - Second Edition
- Robert C. Feenstra(Author)
- 2015(Publication Date)
- Princeton University Press(Publisher)
9 Import Quotas and Export Subsidies I n addition to import tariffs, Quotas and subsidies are widely used forms of trade policy. Quotas and subsidies can in principle be applied to either imports or exports, but we will focus here on import Quotas and export subsidies. How do these policy instruments differ from tariffs, and does this difference depend on the type of competition in the market? These are questions we shall investigate in this chapter. We begin with the result of Bhagwati (1965) on the “equivalence” of tariffs and Quotas. This means that under perfect competition, applying a quota that limits the number of units imported will have essentially the same effects as applying a certain level of tariff: for each quota, there is an “equivalent” tariff. This equivalence result no longer holds under imperfect competition, however. Bhagwati (1965) con-sidered a monopolistic home importer subject to a quota, and that analysis was later extended to duopoly with a home firm and a foreign firm that is subject to an import quota (Harris 1985; Krishna 1989). As we shall see, a quota and tariff that have comparable effects on the level of imports can then have quite different effects on the import price, and therefore on welfare in the importing country. Another reason why tariffs and Quotas differ occurs when foreign firms can choose the quality of the good that they export. In that case, a limitation on the number of units exported (as under a quota) will have quite a different impact from a tariff on the value of exports (as with an ad valorem tariff). The importance of this case became apparent with the quota applied to Japanese auto exports to the United States during the 1980s. The evidence strongly supports the hypothesis that Japanese firms changed the characteristics of the cars they sold, shifting toward higher-quality models.
eBook - PDF- John McLaren(Author)
- 2012(Publication Date)
- Wiley(Publisher)
7.4.3 Voluntary Export Restraints In the quota policy studied in Section 7.2.4, under the assumption that the quota licenses were handed to foreign traders, we arrived at a paradoxical conclusion: that the rest of the world as a whole would benefit from U.S. sugar import restrictions, provided that they were administered in that way, while the United States as a whole would be made poorer. This implies that if the U.S. government wanted to do a favor to its own sugar producers and wanted as little resistance from foreign governments as possible, this could be a way of receiving the consent of foreign sugar-exporting countries. This phenomenon, as it turns out, is not uncommon in practice and is indeed the basis of what is called a voluntary export restraint (VER). A VER is a quota restricting exports of some product from one country to a second country, agreed to by mutual consent of the two governments, in which the importing country compensates the exporting country for its terms-of-trade loss by allowing the exporting country to award the import licenses (and hence the quota rents) to its own citizens. In the 1980s, VERs were implemented between the United States and Japan on computer memory chips and cars, as we will discuss in Chapter 10, and from the 1960s to 2004, industrial countries restricted textile and apparel imports from developing-country sources with a complicated system of VERs called the Multifibre Arrangement (MFA). 7.4.4 Equivalence of Tariffs and Quotas (and How It Can Break Down) Recall that in the example we have been discussing, a tariff and a quota had exactly the same effects—the same effects on the world price, on the domestic price, on the quantities traded, on producer and consumer surplus in each country—except for the question of who captures the tariff revenues/quota rents. This principle is called the equivalence of tariffs and Quotas.
eBook - PDFLaw and Politics on Export Restrictions
WTO and Beyond
- Chien-Huei Wu(Author)
- 2021(Publication Date)
- Cambridge University Press(Publisher)
2 WTO Rules on Export Restrictions 2.1 Introduction As noted in the introductory chapter, the underlying logic of the GATT/ WTO system is the liberalisation of import barriers with a view to obtaining access to foreign markets. The first step is to transform all import barriers into tariffs, then bind and reduce them. Therefore, as early as the GATT era, there was already a general obligation to eliminate quantitative restrictions based on the logic that quantitative restrictions are normally more trade-distortive than tariffs. The tariffication of quantitative restrictions also enhances the transparency of the customs regulatory regime of an importing country. However, this general obligation to eliminate quantitative restrictions does not limit its scope to the import dimension; therefore, it has the capacity to impact the export dimension of the global trading regime. This general obligation to eliminate (export) quantitative restrictions is nonetheless subject to two exceptions: to prevent or relieve critical shortage of foodstuffs or essential products of the exporting countries; and to implement standards or regulations necessary for the classifica- tion, grading or marketing of commodities in international trade. The need to maintain sufficient foodstuffs to safeguard the food security of national populations is widely shared and recognised in the Uruguay Round negotiations. The Agreement on Agriculture (the AoA), in Article 12, reinstates this spirit but also puts forward some procedural require- ments and limited substantive requirements with which a member must comply when imposing new export prohibitions or restrictions on foodstuffs in accordance with Article XI:2(a) of GATT 1994. On the other hand, with the evolution of the trading system and the emergence of Japan as a trading power in the 1970s and 1980s, Japanese exports brought great competitive pressure to bear on the domestic industries of the United States.
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)
The fifth restriction on the general applicability of the above model stems from the fact that only export tariffs have been considered, whereas in reality quantitative restrictions are just as often used to control exports. This omission is justifiable as long as perfect competition prevails before export restrictions are introduced, since provided the hypothetical quota is set at the same level as would be reached by exports under a system of tariff restrictions, and Quotas are allocated by government auction, then an export quota would lead to exactly the same change within the cartel and outside it as would an export tax. On the basis of figure 4.1 one can say that it is irrelevant to the results of the analysis whether the restriction on export quantities from E to E 1 is brought about by the imposition of a tax t per unit 8f exports or by simply restricting the export quantity to E 1 • A difference in export quantities in the case of Quotas as opposed to taxes wi~S only occur if domestic monopolies exist in trade or production. As has already been pointed out, in neither of these instances .is the above model applicable. The foregoing discussion indicates that the empirical statements made here only provide a clue to the analysis of cartels, and that for more complete information one must turn to detailed product and country studies. ASSESSMENT OF THE POSSIBILITIES OF SUCCESS OF EXPORT CARTELS ON THE BASIS OF EMPIRICAL RESULTS For several years developing countries have been making greater efforts in international negotiations to achieve a reordering or world raw material trade. Talks to this end under the auspices of UNCTAD also deal with the question of stabilizing raw material prices and raising them above the long-term trend. The motivating force behind these potential market interventions is the desire of the developing countries to stabilize and increase their export revenues.
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