Nontariff Barriers: Quantity Controls
Nontariff Barriers: Quantity Controls
Quotas The most common type of import or export restriction from a quantity basis is the quota. From the standpoint of imports, a quota most frequently limits the quantitative amount of a product allowed to be imported in a given year. The amount frequently reflects a guarantee that domestic producers will have access to a certain percentage of the domestic market in that year. For many years, the sugar-import quota of the United States was set so that U.S. producers would have about half the home market. In this case the quotas were allocated further by country on the basis of political considerations rather than price. Consumer prices of imported sugar equaled the price of more expensive domestically produced sugar, since lowering the consumer price on imports could not increase the quantity of imports sold. This sort of restriction of supply will usually increase consumer prices because there is little incentive to use price as a means of increasing sales. In the case of import tariffs the gains from price increases to consumers are received in the form of government revenue in the importing country. In the case of quotas, however, the gains are most likely to accrue to producers or exporters in the producing country as added per unit profits.24 Windfall gains could accrue to middlemen in the importing country if they bought at a lower world-market price and then sold at the higher protected domestic price. Further problems arise when quotas are allocated among countries, because officials must ensure that goods from one country are not transshipped through a second country's quota. Such a situation occurred when the United States claimed that Chinese-made garments had illegally reached U.S. customs as Macao-made garments.25
Import quotas are not necessarily intended to protect domestic producers. Japan, for example, maintains quotas on many agricultural products not produced in Japan. Imports are allocated as a means of bargaining for sales of Japanese exports as well as to avoid excess dependence on any one country for essential food needs, which could be cut off in case of adverse climatic or political conditions.
Export quotas may be established to assure that domestic consumers will have a sufficient supply of goods at a low price, to prevent depletion of natural resources, or to attempt to raise an export price by restricting supply in foreign markets. To restrict supply, some countries have banded together in various commodity agreements, whereby they have restricted and allocated exports by producing countries of such commodities as coffee and oil so that prices are raised to importing countries.
A specific type of quota that prohibits all trade is known as an embargo. Like quotas, embargoes may be placed on either imports or exports, on whole categories of products regardless of destination, on specific products to specific countries, or on all products to given countries. Although embargoes are generally imposed for political purposes, the effects may be economic in nature. For example, the United States imposed an embargo on Nicaragua between
1984 and 1990 because of political animosity with the Sandinista party in power. But the effects on Nicaragua were economic: Nicaragua had difficulty getting supplies, particularly replacement parts for machinery that had been made in the United States, and Nicaragua could not easily sell its banana crop that previously went primarily to the United States.
"Buy-Local" Legislation
If governmental purchases are a large portion of
totai expenditures within a country, the determination of where governmen-
tal agencies will make their purchases is of added importance in international
competitiveness. Most national governments give preference to their own
producers in the purchase of goods, sometimes in the form of content restric-
tion and sometimes through price mechanisms. For example, a governmental agency may be able to buy a foreign-made product only if the
price of the foreign product is some predetermined margin below that of a domestic competitor. Sometimes the preference for local products is more subtle: For example, the Nippon Telegraph and Telephone Public Corp. (NTT), a Japanese quasi-government telecommunications monopoly in the world's second-largest telecommunications market, purchases only a very small portion of its equipment from foreign sources. Foreign firms claim that they have superior technology and prices, but in practice they have been excluded from the market.26
There is an abundance of legislation worldwide that simply prescribes a minimum percentage of domestic value that must be encompassed in a given product for it to be sold legally within the country. In the introductory case on automobile imports, the local content proposed for cars sold in the United States would be, if implemented, such a type of legislated protection. Among those implemented already in other countries are Mexico's requirement on automobile components and Brazil's requirement on electronics.
Standards
Countries commonly have set classifications, labeling, and testing standards in a manner that allows the sale of domestic products but inhibits the sale of foreign-made products. These standards are sometimes ostensibly for the purpose of protecting the safety or health of the domestic populace. However, the Big Three automobile producers have recently pushed for fuel-economy legislation that would require each automaker to boost economy, averaged across all models, by the same percentage. Such a proposal, if passed, would be burdensome for Japanese producers, whose fuel-economy averages already far exceed those of the Big Three.
Specific Permission Requirements
Many countries require that potential importers or exporters secure permission from governmental authorities before conducting trade transactions, a procedure known as a licensing arrangement. To gain a license, a company may have to send samples abroad in advance. The requirement for licenses not only may restrict imports or exports directly by denial of permission, but also may result in further deterrence of trade because of the cost, time, and uncertainty involved in the process. Similar to a licensing arrangement is a foreign-exchange control. For instance, in order to import a given product an importer in an exchange-control country must apply to governmental authorities to secure foreign exchange to pay for the product. Once again, the failure to grant the exchange, coupled with the time and expense of completing forms and awaiting replies, constitutes an obstacle to the conduct of foreign trade.
Administrative Delays
Closely akin to specific permission requirements are intentional administrative delays on entry, which raise uncertainty and the cost of carrying inventory. For example, France required that all imported videotape recorders arrive through a small customs entry point that was both remote and inadequately staffed. The resultant delays effectively kept Japanese recorders out of the market until there was a negotiated "voluntary export quota" whereby Japan limited its penetration of the French market.28 Peruvian customs officials routinely take months to clear merchandise and then charge customs storage fees that amount to a high portion of the import's value.
Reciprocal Requirements
In recent years there has been an upsurge in requirements that exporters effectively take merchandise in lieu of money. Colombia, for example, paid for buses from Spain's ENESA with coffee, and China purchased railroad engineering services from Italy's Tecnotrade with coal.29 Since these transactions often require exporters to find markets for goods outside their lines of expertise, many firms avoid this type business. These barter transactions are often referred to as countertrade, or offsets.
Restrictions on Services
Trade restrictions are usually associated with governmental interference in the international movement of goods. In addition to earnings from the sale of goods abroad, many countries depend substantially on revenue from the foreign sale of such services as transportation, insurance, consulting, and banking. These services account for about 30 percent of the value of all international trade.30 There have been reports of widespread discrimination by countries favoring their own firms. Among the complaints have been that Japanese airlines get cargo cleared more quickly in Tokyo than do foreign carriers; that Argentina requires automobile imports to be insured en route with Argentine firms; that Germany requires models for advertisements in German magazines to be hired through a German agency (even if the advertisement is made abroad); that Spain restricts the dubbing of foreign films, forcing people to read subtitles; and that Germany prohibits its insurance brokers from helping German clients to arrange insurance abroad.
Quotas The most common type of import or export restriction from a quantity basis is the quota. From the standpoint of imports, a quota most frequently limits the quantitative amount of a product allowed to be imported in a given year. The amount frequently reflects a guarantee that domestic producers will have access to a certain percentage of the domestic market in that year. For many years, the sugar-import quota of the United States was set so that U.S. producers would have about half the home market. In this case the quotas were allocated further by country on the basis of political considerations rather than price. Consumer prices of imported sugar equaled the price of more expensive domestically produced sugar, since lowering the consumer price on imports could not increase the quantity of imports sold. This sort of restriction of supply will usually increase consumer prices because there is little incentive to use price as a means of increasing sales. In the case of import tariffs the gains from price increases to consumers are received in the form of government revenue in the importing country. In the case of quotas, however, the gains are most likely to accrue to producers or exporters in the producing country as added per unit profits.24 Windfall gains could accrue to middlemen in the importing country if they bought at a lower world-market price and then sold at the higher protected domestic price. Further problems arise when quotas are allocated among countries, because officials must ensure that goods from one country are not transshipped through a second country's quota. Such a situation occurred when the United States claimed that Chinese-made garments had illegally reached U.S. customs as Macao-made garments.25
Import quotas are not necessarily intended to protect domestic producers. Japan, for example, maintains quotas on many agricultural products not produced in Japan. Imports are allocated as a means of bargaining for sales of Japanese exports as well as to avoid excess dependence on any one country for essential food needs, which could be cut off in case of adverse climatic or political conditions.
Export quotas may be established to assure that domestic consumers will have a sufficient supply of goods at a low price, to prevent depletion of natural resources, or to attempt to raise an export price by restricting supply in foreign markets. To restrict supply, some countries have banded together in various commodity agreements, whereby they have restricted and allocated exports by producing countries of such commodities as coffee and oil so that prices are raised to importing countries.
A specific type of quota that prohibits all trade is known as an embargo. Like quotas, embargoes may be placed on either imports or exports, on whole categories of products regardless of destination, on specific products to specific countries, or on all products to given countries. Although embargoes are generally imposed for political purposes, the effects may be economic in nature. For example, the United States imposed an embargo on Nicaragua between
1984 and 1990 because of political animosity with the Sandinista party in power. But the effects on Nicaragua were economic: Nicaragua had difficulty getting supplies, particularly replacement parts for machinery that had been made in the United States, and Nicaragua could not easily sell its banana crop that previously went primarily to the United States.
"Buy-Local" Legislation
If governmental purchases are a large portion of
totai expenditures within a country, the determination of where governmen-
tal agencies will make their purchases is of added importance in international
competitiveness. Most national governments give preference to their own
producers in the purchase of goods, sometimes in the form of content restric-
tion and sometimes through price mechanisms. For example, a governmental agency may be able to buy a foreign-made product only if the
price of the foreign product is some predetermined margin below that of a domestic competitor. Sometimes the preference for local products is more subtle: For example, the Nippon Telegraph and Telephone Public Corp. (NTT), a Japanese quasi-government telecommunications monopoly in the world's second-largest telecommunications market, purchases only a very small portion of its equipment from foreign sources. Foreign firms claim that they have superior technology and prices, but in practice they have been excluded from the market.26
There is an abundance of legislation worldwide that simply prescribes a minimum percentage of domestic value that must be encompassed in a given product for it to be sold legally within the country. In the introductory case on automobile imports, the local content proposed for cars sold in the United States would be, if implemented, such a type of legislated protection. Among those implemented already in other countries are Mexico's requirement on automobile components and Brazil's requirement on electronics.
Standards
Countries commonly have set classifications, labeling, and testing standards in a manner that allows the sale of domestic products but inhibits the sale of foreign-made products. These standards are sometimes ostensibly for the purpose of protecting the safety or health of the domestic populace. However, the Big Three automobile producers have recently pushed for fuel-economy legislation that would require each automaker to boost economy, averaged across all models, by the same percentage. Such a proposal, if passed, would be burdensome for Japanese producers, whose fuel-economy averages already far exceed those of the Big Three.
Specific Permission Requirements
Many countries require that potential importers or exporters secure permission from governmental authorities before conducting trade transactions, a procedure known as a licensing arrangement. To gain a license, a company may have to send samples abroad in advance. The requirement for licenses not only may restrict imports or exports directly by denial of permission, but also may result in further deterrence of trade because of the cost, time, and uncertainty involved in the process. Similar to a licensing arrangement is a foreign-exchange control. For instance, in order to import a given product an importer in an exchange-control country must apply to governmental authorities to secure foreign exchange to pay for the product. Once again, the failure to grant the exchange, coupled with the time and expense of completing forms and awaiting replies, constitutes an obstacle to the conduct of foreign trade.
Administrative Delays
Closely akin to specific permission requirements are intentional administrative delays on entry, which raise uncertainty and the cost of carrying inventory. For example, France required that all imported videotape recorders arrive through a small customs entry point that was both remote and inadequately staffed. The resultant delays effectively kept Japanese recorders out of the market until there was a negotiated "voluntary export quota" whereby Japan limited its penetration of the French market.28 Peruvian customs officials routinely take months to clear merchandise and then charge customs storage fees that amount to a high portion of the import's value.
Reciprocal Requirements
In recent years there has been an upsurge in requirements that exporters effectively take merchandise in lieu of money. Colombia, for example, paid for buses from Spain's ENESA with coffee, and China purchased railroad engineering services from Italy's Tecnotrade with coal.29 Since these transactions often require exporters to find markets for goods outside their lines of expertise, many firms avoid this type business. These barter transactions are often referred to as countertrade, or offsets.
Restrictions on Services
Trade restrictions are usually associated with governmental interference in the international movement of goods. In addition to earnings from the sale of goods abroad, many countries depend substantially on revenue from the foreign sale of such services as transportation, insurance, consulting, and banking. These services account for about 30 percent of the value of all international trade.30 There have been reports of widespread discrimination by countries favoring their own firms. Among the complaints have been that Japanese airlines get cargo cleared more quickly in Tokyo than do foreign carriers; that Argentina requires automobile imports to be insured en route with Argentine firms; that Germany requires models for advertisements in German magazines to be hired through a German agency (even if the advertisement is made abroad); that Spain restricts the dubbing of foreign films, forcing people to read subtitles; and that Germany prohibits its insurance brokers from helping German clients to arrange insurance abroad.
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