Import quota

An import quota is a direct temporal import quantity restrictions for import goods. It belongs to the group of non -tariff barriers to trade and to cause a protection effect for certain domestic sectors. A country sets this instrument in its foreign trade policy in order to gain an advantage at the expense of another country. The synonymous term employed import quota (composed of import [lat ], import and quota [Lat ], the proportion; contrary export ratio ) is a loan translation of the English term import quota.

Characteristics

In a fixed rate quota imports will be limited directly to the importers on the basis of imports of the previous year, for example by setting weights, quantities and dimensions, etc. The implementation of the import quota is typically done through the granting of licenses under a certain set of criteria, both free of charge as well as a fee or in the form of an auction to the companies or individuals. Basically, the auction of marktkonformere way since the emergence of black markets is likely in the fee award. Rights holders may be from the domestic as well as abroad come. The award to foreign countries is practiced. The import quota may or extend generally to all countries on the foreign trade with certain countries. A quota of "0" is called the embargo; A recent example can be found for produced in the U.S. and treated with chlorine chicken legs, which may not be imported into the European Union.

The license holder to buy a goods on the international market at the world price and sell it on the domestic market to the higher domestic price further. This difference is referred to as the quota rent (license revenue).

The most common cases of protectionism in the world are found in the agricultural sector. Well-known and often quoted in textbooks and examined import quotas are about the odds for:

• Sugar and cheese in the United States,
• Banana and textile and clothing products in the European Union,
• Meat imports to Russia,
• Round - treaded tires from Paraguay to Brazil etc.

The monitoring and licensing in the Federal Republic of Germany by the Federal Office of Economics and Export Control ( BAFA).

Objectives and justifications

The primary objective of the countries that use an import quota, is to protect the domestic producers against low prices that would be set as a result of import competition.

The use of an import quota is justified by the practicing states, among other things with the

• Protection of established or even declining economic sectors against competition from mostly developing and transition countries (see also: Rent- Seeking )
• Protection for the development of young industries in the form of an infant industry argument by Friedrich List, since the structure of these new industries to reduce dependence on imports (see also: Rent- Shifting and Rent- Creation )
• Self-sufficiency argument because one country wants to protect its import substitutes in terms of future supply crises,
• Security argument for the protection of key industries, such as the arms industry,
• Argument for preventing or slowing down of structural change, as resulting from a necessary structural change out mostly short-term negative consequences reduced to be temporally stretched or cushioned socially or
• Protection against unfair competition by the threat of cheap competition from mostly developing and emerging countries.

The establishment of import quotas is considered by many experts to be counterproductive. In a survey of economists, who worked in companies, the state and universities, 93 percent of respondents agreed with the proposition that tariffs and import quotas reduce general economic welfare. The reason for a negative attitude led, among other things, that an import quota - as well as the other non- tariff barriers - Although quite a short-term protection effect for the sectors causing, but medium to long term important structural adjustment processes of domestic industry would be postponed. The discrimination of foreign suppliers can also be retaliatory respectively. Lead retaliatory measures in the countries concerned. Even the abolition by an arbitration procedure under the GATT can force the disadvantaged countries.

Historical Background

End of the 19th century enacted the major industrial nations in Europe and the U.S. tariff barriers in the form of import duties on certain industrial products from new industrial sectors. Also raised many countries at that time no income tax, so that the duties in some states were the only source of income for the state.

(: , Abbreviated General Agreement on Tariffs and Trade GATT English) ratified after the plan for an International Trade Organization ( ITO) In order to promote international trade and the world economy, the General Agreement on Tariffs and Trade Agreement was signed on 30 October 1947 of first 23 States could not be realized. The Multilateral Agreement entered into force on 1 January 1948. Under this contract, the undersigned states have committed in lockstep to reduce trade barriers and eliminate them.

Because to this day still regularly authorized by the GATT tariffs hardly allow scope for the protection of domestic industry, you went to to create over so-called non -tariff barriers. This is due to the fact that, despite the agreement a requirement of Member States signed for protectionism still was and is. The GATT has listed about 600 different forms of such non-tariff barriers to trade. Among the most important are as import quotas, voluntary export restrictions, local content clauses etc.

Comparison with other trade instruments

Both the import quota and the other non-tariff barriers to trade include many advantages in comparison to the duties. You protect reliable, precise and direct. For example. are to apply flexible, possess great freedom to act, subject only to low transparency, legitimacy own ways with the connection of specific national interests etc. Also with them can be certain effects, similar to the duties, achieve. It is also possible to connect an import quota with a tariff by a certain amount, which is not subject to an inch, may be introduced, beyond this, however, imports are subject to a customs charge.

The objectives of an import quota can be specified protectionist of the country both directly and laid open volume quota, as well as indirectly ( for example, as a direct result of economic policies and legislation, in the form of the German Reinheitsgebot, or the GS mark ).

Theoretical modeling

Basic assumptions

The model to describe the effect of an import quota is based on the following simplifying assumptions:

Due to the model-like representation of the explanation of the effect of an imposed import quota can only be a fundamental clue.

Graphic representation of an import quota

Use the following chart shows the situation of a free trade an import goods between two countries with a market situation after the introduction of a trade restriction is to be faced by quota imports. ( Here, the capital letters refer to regions of the diagram. )

The supply curve PW is here completely elastic and thus horizontal. PA represents the autarky price in the event of a complete partitioning of the domestic market to imports dar. PIQ is now, after the imposition of an import quota, the new equilibrium price. As can be seen in the graph, PIQ club will therefore closer to the equilibrium without foreign trade ( autarky ) approach. This is due to the fact that the import quota, the domestic consumer keeps them from acquiring as much quantities of goods abroad, as they want. The result is that the supply to the world market price is not completely elastic. If the domestic price that is now above the world market price, the license holder to try as many products as possible to import in order to pocket the profit rate. The offer of the goods corresponds then the domestic supply plus the quota from the import quota. That is, the supply curve is shifted above the world market price by the amount of quota to the right. The supply curve below the world price does not shift because, in this case, the import of the licensee is not economical.

Result

Due to the shortage of supply of the import ratio always increases the internal market price of the import good from PW on PIQ ( price effect ) and leads to a decline in demand for the good of QD1 to QD2 ( demand or consumption effect). The equilibrium amount of domestic supply increases from QS1 to QS2 (production effect). The total consumption in the importing country goes back despite rising production. This leads to redistributive effects of the consumer ( purchasing power losses) on the domestic and foreign producers ( price increases ). The immediate result of an import restriction is to increase the demand for the original price on the domestic supply including imports. The price rises to the level at which the market is only just vacated.

Due to the allocation of imports to domestic consumers lose consumer surplus C D E ' E '' F. In contrast, growing the total surplus of domestic producers by the additional producer surplus C. Furthermore, be a transfer of pensions E' E'' of the consumer to the import license holder. The total pension taker goes back to the two triangles D F. If the rights are not auctioned, comprises the entire economic efficiency loss, respectively. Deadweight loss triangles D F and the quota rent E ' E''. Thus, the terms of trade deteriorate between the two countries to the detriment of the country, which has introduced the import quota. The effect on the welfare of the nation is uneven; it decreases for small countries that do not affect the world price of the good. Tariffs and import quotas can only use large countries that are able to push world prices.

Since the quota rent accrues to the license holders, can - depending on the lending practices of the state - run an import quota to the fact that they, as opposed to an import tariff, the state brought no direct additional revenue. This is the case when the rights to domestic importers are issued free of charge. A levy of rate income by the importing country is not given if the country protects its vulnerable sectors compared to a single country or interested foreign party in the form of a quota and also against all countries or to all interested foreign party with the help of global quotas. This can also be done through voluntary restraint agreements. Such bilateral trade agreements are generally enforced at the request of the importing country. As a result, the countries which import licenses auctioned in turn to the domestic companies further and thus draw from the quota rent. If the import quotas, as already mentioned above, directly to interested foreign producers delivered, realize in this case the foreign supplier the difference between world market prices and domestic price. Also, this type of allocation succeeds the State not to skim the quota rent of foreign suppliers. This is only possible if import quotas are auctioned by government agencies in the form of public auctions.

Example of an import quota

Assumptions:

Calculation:

In the case of free trade, the domestic equilibrium price equals the world price of 20 GE / ME.

Result:

The introduction of the import restriction implies an increase of 10 GE / ME to the new equilibrium price of 30 GE / ME.