Description

An export quota limits the maximum volume of permitted exports of a certain product. In the case of a voluntary export restriction, the exporting country undertakes not to export more than a maximum volume to a particular partner country.

There are several possible administrative ways for issuing export licences, including the first-come, first-serve method, via auctions, and based on historical export volumes.

The General Agreement on Tariffs and Trade (GATT 1947) Article XI prohibits all forms of export restrictions except export taxes. Export quotas imposed temporarily in order to meet critical shortages in foods or other essential products are another exception. However, expressions such as ‘temporary’, ‘critical’, and ‘shortage’ are not specifically defined. Therefore, export quotas on agricultural products are permissible provided their use can be justified to the WTO.

Export quotas may be an appropriate measure for quickly countering shortages of foodstuffs and other essential goods in crisis situations. However, the lower prices can lead to a drop in production levels in the medium and long term, which could weaken the sector concerned and possibly also jeopardise food and nutrition security. Consumers and processing companies, on the other hand, benefit from lower prices at the beginning.

Alternatively, every export quota has an equivalent export tax with an identical impact on prices and volumes. Export taxes are WTO-compliant and guarantee government revenues. Moreover, export taxes are more transparent and do not encourage rent-seeking.

Requirements

• A properly functioning country-wide administration and monitoring system with access to the relevant information and sufficient technical and human capacities for its design, implementation and monitoring
• Clear and coherent political strategy and targets for policy-makers and public authorities
• Constant market surveying and forecasting
• Close cooperation and knowledge sharing with research institutions
• Efficient customs administration
• Compatible regional and world trade law (WTO conformity)
• Market price information systems

Possible Negative Effects

• Market and trade distortion and economic losses
• Loss of income in the home country’s agricultural sector due to lower domestic prices and fewer exports
• Sales markets and trading partners may be lost and could be difficult to win back in the future
• Lower production in the sector of the product concerned due to lower prices, endangering food and nutrition security in the medium and long term
• Exporters may practise rent-seeking (attempting to obtain economic rent) because of price differences between domestic and world market prices (quota rent), potentially leading to significant economic losses. Depending on the allocation system, some exporters could benefit from the quota while most will not
• Lack of transparency and corruption during the allocation process