Quantitative Restrictions under GATT, 1994
Quantitative restrictions (QRs) are the measures taken by countries, across the globe, to restrict or prohibit the quantity of a product, that may be used for import purposes. There are non-tariff-based measures, that act as a barrier to free trade. The General Agreement on Tariffs and Trade (GATT), under its article XI, prohibits such quantitative restrictions on the importation or exportation of any product. The reason behind this is that QRs are considered to have a greater protective impact on trade rather than the tariff measures and are thus, of a more trade distortive nature. Whenever a trading partner uses tariffs to restrict the imports, the situation seems still under control for the export side as long as foreign products become competitive enough over the prices, to overcome the barriers created by tariff measures. However, when QRs are used for such purposes, the possibility of export exceeding the given quota becomes negligible even if the product remains price competitive. Therefore, this is the reason prohibition on QRs remains as one of the fundamental principles of the GATT, 1994.
Types of QRs
- Prohibition: It simply implies whenever a country bans any product, in an absolute or conditional sense.
- Quota: It is a measure that indicates the quantity up to which a particular product may be exported or imported.
- Automatic or non-automatic licensing
- Certain QRs take effect through a) state trading operations, b) voluntary export restraint, c) minimum price that triggers a QR or d) a mixing regulation.
Quota Vs. Tariff
As far as quotas are concerned, it doesnt amount to any kind of gain in revenues for the importing country, and due to the nature of no fixed rate of protection, the element of predictability goes amiss. This results in making the consumption of a dutiable good, almost impossible when quotas are applied. Apart from this, the lack of predictability gives rise to ambiguity and problems in administration issues as the value of removing quotas, can have a catastrophic effect on trade negotiations and therefore, is usually difficult to measure. Therefore, it can be said that with quotas, the protected domestic producers get an upper hand in exercising greater power of monopoly on their products. Moreover, these measures pave the path of rent-seeking by creating opportunities for bribing governments to gain market access.
On the other hand, the tariff measure doesn’t qualify as a QR because, with a fixed rate of protection and predictability, it charges varying duties on a good after a certain quantity has entered the concerned market. For example, a duty levied on 10000 automobile engines would be 10 percent ad valorem and beyond that, it will be 25 percent ad valorem. Moreover, these quotas do not restrict the entry of a good, directly in terms of, an absolute prohibition or a restriction on the number of imports and thus generates revenues for the importing country, thereby maintaining transparency and restricting all kinds of rent-seeking opportunities.