Quota Definition

What is a quota?

A quota is a government-imposed trade restriction that limits the number or monetary value of goods a country can import or export during a given period. Countries use quotas in international trade to help regulate trade volume between themselves and other countries. Countries sometimes impose quotas on specific products to reduce imports and increase domestic production. In theory, quotas stimulate domestic production by limiting foreign competition.

Government programs that apply quotas are often called protectionism Strategies. Additionally, governments may adopt these policies if they have concerns about the quality or safety of products from other countries.

In business, a quota can refer to a sales goal that a company wants a salesperson or sales team to achieve during a specific time period. Sales quotas are often monthly, quarterly and annually. Management can also set sales quotas by region or business unit. The most common type of sales quota is based on revenue.

Key points to remember

  • Countries use quotas in international trade to help regulate the volume of trade between themselves and other countries.
  • In the United States, there are three forms of quotas: absolute, tariff and preferential tariff.
  • Customs duties are taxes that a country imposes on goods and services imported from another country.
  • Since tariffs increase the cost of imported goods and services, they make them less attractive to domestic consumers.
  • Very restrictive quotas combined with high tariffs can lead to trade disputes and other problems between nations.

How a quota works

Quotas are different from prices or customs, which impose 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 aim to limit the quantities (or, in some cases, the cumulative value) of a particular good that a country imports or exports for a fixed period, while the tariffs impose specific charges on these goods. Governments set tariffs (also called customs duties) to increase the overall cost to the producer or supplier seeking to sell products in a country. Tariffs provide a country with additional revenue and they offer protection to domestic producers by causing imported items to become more expensive.

Quotas are a type of non-tariff barrier governments adopt to restrict trade. Other types of trade barriers include embargoeslevies and penalties.

Quotas are more effective in restricting trade than tariffs, especially if domestic demand for something is not price sensitive. Quotas can also be more disruptive to International exchange than the prices. Applied selectively to various countries, they can be used as a coercive economic weapon.

Import quota regulators

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, the collection of customs duties, and the enforcement of US trade regulations. In the United States, the three forms of quotas are the absolute level, the tariff rate and the tariff preference level:

  1. An absolute quota provides a definitive restriction on the amount of a particular product that can be imported into the United States, although this level of restriction is not always used. Under an absolute quota, once the quantity allowed by the quota has been reached, the goods subject to the quota must be held in a bonded warehouse or enter a free zone until the opening of the next quota period.
  2. Tariff quotas allow a country to import a certain quantity of a particular product at a reduced price. to have to assess. Once the TRQ is filled, all subsequent imported goods are subject to a higher rate.
  3. A separate round of negotiations creates tariff preference levels, such as those established by Free trade agreements (ALE).

Goods subject to tariff quotas

Various products are subject to tariff rate quotas when entering the United States. These eligible goods include, but are not limited to, milk and cream, cotton fabric, blended syrups, Canadian cheese, cocoa powder, infant formula, peanuts, sugar, and tobacco.

Real world example

Very restrictive quotas combined with high customs duties can lead to trade disputes, trade wars, and other issues between nations. For example, in January 2018, President Trump imposed 30% tariffs on solar panels imported from China.The move marked a more aggressive approach to China’s political and economic stance. It was also a blow to the US solar industry, which was responsible for generating $18.7 billion in investment in the US economy and at the time imported 80-90% of its solar panel products. 

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