Description

A tariff quota is a combination of an import tariff and an import quota. It allows a limited quantity of a product to be imported at a reduced tariff rate or even no duty at all, with higher rates for imports exceeding the quota. Tariff quotas protect markets while permitting certain volumes of imports, thus helping to balance the interests of farmers and processors. They require transparent administration as they entail an increased risk of corruption.

Most tariff quotas are defined in agreements such as the WTO Agreement on Agriculture. In the case of an autonomous tariff quota, countries voluntarily set a lower tariff rate for a certain volume of imports, for example because the product is needed as an input good. Like regular import quotas, tariff quotas have to be allocated. This can be done through auctions, allocating licences on a first-come, first-serve basis, based on historical trade flows, or in preferential agreements, for example.

The WTO Agreement on Agriculture stipulates that all trade barriers must be converted into tariffs or tariff quotas. Tariff quotas were introduced to prevent the conversion formula from causing tariffs to rise to a prohibitively high level. Currently, 24 developing countries have registered tariff quotas with the WTO. This does not include autonomous tariff quotas. Because tariffs on products outside the quota are often prohibitively high, ways of modifying tariff quotas are being discussed in the current Doha round.

In bilateral and regional trade agreements, tariff quotas can be allocated to partner countries to strengthen regional integration. This enables regional partners to export on better terms than other countries. However, this must be done within the context of WTO rules.

Another alternative are import tariffs or the duty drawback system, which can be used when certain products need to be imported more cheaply, for example because they are needed by the processing industry.

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
• Clear responsibilities in public authorities
• Compatible regional and world trade law (WTO conformity)
• Constant market surveying and forecasting
• Efficient customs administration
• Regulatory framework
• Market price information systems

Possible Negative Effects

• Higher prices for consumers and processors
• Lack of efficiency and transparency and corruption in issuing licences