Must Knows

All about quota and economic restrictions through quota

[] Quota refers to trade restrictions imposed by the government to restrict the quantity or the monetary value of products that a country can import or export during a given period. Here’s all you need to know about quota. 

What is quota?

A quota is a government-imposed trade restriction to limit the quantity or the monetary value of products that a country can import or export during a given period. Countries impose quotas on specific products to reduce imports and increase domestic production. In theory, quotas boost domestic production by restricting foreign competition. 

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How does a quota work?

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An absolute quota provides a definitive restriction on the quantity of a particular good imported into the country. Under an absolute quota, once the quantity permitted by the quota is fulfilled, merchandise subject to the quota must be held in a warehouse or entered into a foreign trade zone until the opening of the next quota period.

A tariff quota allows a country to import a certain quantity of a particular good at a reduced duty rate. Once the tariff-rate quota is met, all subsequently imported goods are charged at a higher rate.

How does the world economy impact quota?

Monetary value

A quota can be based on the monetary value of the goods. Quotas can be sanctioned for a limited period over goods, depending on the industry requirements. For example, India hiked gold import duties to curb excessive import of gold and drain the foreign exchange.

To safeguard domestic economies

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India imposed sanctions on the imports of Chinese products to promote India’s home production. So, the aim of quotas is to increase the overall cost of the goods to a producer or supplier seeking to sell goods into the country. Moreover, a government may impose quotas to promote or curb trade with any other country.

How does quota influence the industry?

Quotas are the influential practice of restriction on products whose demand is not price-sensitive. There are two types of pricing: cross demand pricing and complementary demand pricing. Cross demand pricing happens when a change in the price of one product influences the demand for other products. For example, if the price of coffee increases in India, the demand for tea will automatically rise. So, to increase the demand for tea, the government can impose quotas on the import of coffee. High trade quota restrictions can cause trade disputes and escalate a global trade war.

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Category: Must Knows

Debora Berti

Università degli Studi di Firenze, IT

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