A quota is a threshold quantity, used as either a minimum required (such as in a sales quota) or a maximum permitted (such as an import quota), depending on the context. The purpose of a quota is to control the degree of variation in a factor. A sales quota properly met ensures a certain amount of profit over the period of the quota; an import quota that is sufficiently less than the domestic demand for an item ensures a certain amount of domestic sales in that industry. A quota is not the same thing as a goal; a country imposing an import quota would probably be much happier with even fewer imports of that item, and a business requiring a sales quota certainly would like to see sales exceed them. Quotas are baselines.
Import quotas are devices used by protectionist governments—national governments that restrict trade with other nations, especially import trade, in order to “protect” domestic businesses, workers, and profits. Protectionism has been condemned for as long as capitalism has held sway; it was one of the foundations of the mercantilism criticized by Adam Smith, and nearly every economic school of thought in the two centuries since has said that the problems of protectionist policies outweigh their benefits. Nevertheless, in a struggling economy, they can appear necessary, or offer short-term gains (or stops to short-term losses) that are politically attractive.
Import quotas and administrative barriers are the most common protectionist actions after tariffs. They limit the amount of a particular good that can be imported into the country, by each foreign country, in order to reduce the impact that foreign goods have on the equilibrium point where the domestic supply curve and the demand curve intersect. Foreign goods may be significantly cheaper, more plentiful, or more desirable, their presence thus hurting domestic competitors. Import quotas clearly benefit domestic producers, not consumers, but the underlying theory when they are put in place is that the economy itself is being protected, which benefits consumers in a less direct way.
Such quotas are kept in place by requiring importers to seek licenses, permits, or other official permission for the goods they send to the country, which represents another problem: rarely is the government agency in charge of such paperwork capable of, or necessarily interested in, making sure that the quota is distributed principally to the best or most efficient producers. There is a “deadweight loss” to the global economy inflicted by such trade circumstances, as the presence of import quotas and the potential of rewarding any but the best producer interferes with the natural mechanics of the economy under free trade, artificially shifting circumstances away from those of the equilibrium that unrestricted market forces would naturally seek out.
On the other hand, import quotas are not used only to protect inefficient domestic producers from competing with better and more efficient foreign producers. Such quotas are often defended, in industry and country-specific contexts, in order to prevent foreign producers from flooding the market with underpriced shoddily made goods, or from “dumping”—an act in international trade in which goods are sold for less than fair value. Many international trade agreements that otherwise strongly support free trade, such as the General Agreement on Tariffs and Trade and the World Trade Organization, allow restrictive actions such as quotas to be taken in order to prevent dumping.
A special type of import quota is the voluntary export restraint, which is voluntary only in the sense that it is adopted by the exporting country at the strong urging of the importing country. VERs were permitted under GATT and bilateral VER agreements were common, in which two countries would agree to restrict their trade of two types of goods—one import and one export—in an arrangement that theoretically benefited the economies of both countries.
- Robin Anson, World Textile and Clothing Trade and Capacity: Impact of Quota Elimination (Textiles Intelligence, 2007);
- Kala Krishna and Ling H. Tan, Trade Policy With Heterogeneous Traders: Do Quotas Get a Bum Rap? (National Bureau of Economic Research, 2007);
- Hong Song, “Global Quota System and China’s Textile and Clothing Industry,” China and World Economy (v.14/5, 2006);
- Robin Stryker, “Disparate Impact and the Quota Debates: Law, Labor Market Sociology, and Equal Employment,” Sociological Quarterly (v.42/1, 2001);
- Technopak Advisors Pvt. Ltd., Strategies for Textile and Apparel Manufacturers in the Post-Quota Era: Prospects to 2015 (Textiles Intelligence, 2007);
- David Vanzetti, Santiago Fernández de Córdoba, and Veronica Chau, Banana Split: How EU Policies Divide Global Producers (United Nations, 2005).
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