QUOTAS

Quotas, a form of trade barrier, are limits on the quantity of a commodity that can be imported or exported. Import quotas limit the amount of particular foreign goods that can be brought or imported into the country. Import quotas protect domestic production of those goods and keep prices high. Export quotas limit the production of certain primary goods in short supply in the rest of the world. Restricting production limits the amount that can be exported and keeps prices high. Export quotas stabilize export earnings. A prime example of the use of export quotas are oil producing nations agreeing to limit oil production, thus keeping world prices high.

Import quotas specify the maximum amount of a foreign good that can be imported. They may be legislated or negotiated with the foreign country. Import quotas are generally more effective at reducing imports than are protective tariffs, another form of trade barrier which is a tax on imports. Tariffs only interfere with trade. If a foreign producer can lower his cost of production he could lower prices and increase imports into the country despite the tariff. Quotas either eliminate import of the product altogether or allow only so much in, after which consumers must buy the domestic product.

Major arguments for import quotas are: (1) protection of infant or emerging domestic industries allowing them to gain strength before having to compete against foreign firms; (2) protection of U.S. jobs against foreign firms; (3) stabilizing the balance of payments, the difference between money paid to and received from other nations; and (4) protection of national security by not allowing the United States to become too reliant on another country for a certain product, the supply of which could be cut off in time of war. On the other hand those opposed to trade barriers point out that a relatively small number of individuals, those domestically making the product, reap large benefits from quota restrictions while all individuals purchasing the item incur higher prices.

Goods for which the United States has enforced import quotas include sugar, meat, textiles, motorcycles, and color television sets. A classic example of restraints was applied to Japanese auto imports. In 1981 the United States negotiated with Japan to limit its auto imports to 7.7 percent below the 1980 level. The agreement saved approximately 44,000 U.S. auto industry jobs, but the price of U.S. cars rose by an average of $660.