A quota is a government-imposed trade restriction that limits the number or monetary value of goods that a country can import or export during a particular period. Countries use quotas in international trade to help regulate the volume of trade between them and other countries. Countries sometimes impose quotas on specific products to reduce imports and increase domestic production. In theory, quotas boost domestic production by restricting foreign competition. Government programs that implement quotas are often referred to as protectionism policies. Additionally, governments can enact these policies if they have concerns over the quality or safety of products arriving from other countries. In business, a quota can refer to a sales target that a company wants a salesperson or sales team to achieve for a specific period. Sales quotas are often monthly, quarterly, and yearly. Management can also set sales quotas by region or business unit. The most common type of sales quota is based on revenue.
Quotas are different from tariffs or customs, which place taxes on imports or exports. Governments impose both quotas and tariffs as protective measures to try to control trade between countries, but there are distinct differences between them. Quotas focus on limiting the quantities (or, in some cases, cumulative value) of a particular good that a country imports or exports for a specific period, whereas tariffs impose specific fees on those goods. Governments design tariffs (also known as customs duties) to raise the overall cost to the producer or supplier seeking to sell products within a country. Tariffs provide a country with extra revenue and they offer protection to domestic producers by causing imported items to become more expensive.
Quotas are a type of nontariff barrier governments enact to restrict trade. Other kinds of trade barriers include embargoes, levies, and sanctions. Quotas are more effective in restricting trade than tariffs, especially if domestic demand for something is not price-sensitive. Quotas may also be more disruptive to international trade than tariffs. Applied selectively to various countries, they can be utilized as a coercive economic weapon. The U.S. Customs and Border Protection Agency, a federal law-enforcement agency of the U.S. Department of Homeland Security, oversees the regulation of international trade, collecting customs, and enforcing U.S. trade regulations. Within the United States, the three forms of quotas are absolute, tariff-rate, and tariff-preference level:
Various commodities are subject to tariff-rate quotas when entering the United States. These eligible commodities include, but are not limited to, milk and cream, cotton fabric, blended syrups, Canadian cheese, cocoa powder, infant formula, peanuts, sugar, and tobacco. Highly restrictive quotas coupled with high tariffs can lead to trade disputes, trade wars, and other problems between nations. For example, in January 2018, President Trump imposed 30% tariffs on imported solar panels from China. This move signaled a more aggressive approach toward China's political and economic stance. It was also a blow to the U.S. solar industry, which was responsible for generating $18.7 billion of investment in the American economy and which at the time imported 80% to 90% of its solar panel products.
A nontariff barrier is a way to restrict trade using trade barriers in a form other than a tariff. Nontariff barriers include quotas, embargoes, sanctions, and levies. As part of their political or economic strategy, some countries frequently use nontariff barriers to restrict the amount of trade they conduct with other countries.
Countries commonly use nontariff barriers in international trade. Decisions about when to impose nontariff barriers are influenced by the political alliances of a country and the overall availability of goods and services. In general, any barrier to international trade–including tariffs and non-tariff barriers–influences the global economy because it limits the functions of the free market. The lost revenue that some companies may experience from these barriers to trade may be considered an economic loss, especially for proponents of laissez-faire capitalism. Advocates of laissez-faire capitalism believe that governments should abstain from interfering in the workings of the free market. Countries can use nontariff barriers in place of, or in conjunction with, conventional tariff barriers, which are taxes that an exporting country pays to an importing country for goods or services. Tariffs are the most common type of trade barrier, and they increase the cost of products and services in an importing country. Often times countries pursue alternatives to standard tariffs because they release countries from paying added tax on imported goods. Alternatives to standard tariffs can have a meaningful impact on the level of trade (while creating a different monetary impact than standard tariffs). Countries may use licenses to limit imported goods to specific businesses. If a business is granted a trade license, it is permitted to import goods that would otherwise be restricted for trade in the country. Countries often issue quotas for importing and exporting both goods and services. With quotas, countries agree on specified limits for products and services allowed for importation to a country. In most cases, there are no restrictions on importing these goods and services until a country reaches its quota, which it can set for a specific timeframe. Additionally, quotas are often used in international trade licensing agreements. Embargoes are when a country–or several countries–officially ban the trade of specified goods and services with another country. Governments may take this measure to support their specific political or economic goals. Countries impose sanctions on other countries to limit their trade activity. Sanctions can include increased administrative actions–or additional customs and trade procedures–that slow or limit a country’s ability to trade. Exporting countries sometimes use voluntary export restraints. Voluntary export restraints set limits on the number of goods and services a country can export to specified countries. These restraints are typically based on availability and political alliances. In December 2017, the United Nations adopted a round of nontariff barriers against North Korea and the Kim Jong Un regime. The nontariff barriers included sanctions that cut exports of gasoline, diesel, and other refined oil products to the nation. They also prohibited the export of industrial equipment, machinery, transport vehicles, and industrial metals to North Korea. The intention of these nontariff barriers was to put economic pressure on the nation to stop its nuclear arms and military exercises. |