A quota is a government action which restricts trade and puts limits on the amount or monetary value of commodities or products that can be imported or exported by a country within a certain part of time. In global trade a quota is utilized to balance the volume of trade among countries. Setting quotas of particular foreign products can possibly grow sales of products made in a country and decrease imported products.
Sometimes the governments use protectionism policies, which are special programs that imply quotas. In case governments have doubts that foreign goods quality standards aren't high enough they are able to apply such policies.
The above term in a business field describes a target to be achieved by a salesperson or a whole group of salespeople within a certain period of time. Sales quota have variable accomplishment periods, usually it is month, quarter and year.
Difference between a Quota and other trade restrictions
Quotas and tariffs are two measures that a country uses to give a boost to domestic goods in the internal market. Even though both are measures, they work in distinct ways.
Tariffs put taxes on imported goods whereas quotas restrict the number (or sometimes cumulative value) of a certain imported or exported item within a particular period. In order to increase overall expenses to suppliers and producers searching for a place to sell in a country, governments elaborate tariffs (also called custom duties). Due to the above tariffs foreign goods turn out to be rather expensive than domestic, thus tariffs create more revenue and also protection for home produced goods.
Nontariff barriers. There are different types of nontariff barriers that governments apply to put some limits on trade, for example levies, sanctions or embargoes. Quotas are also one of these restricting kinds, but rather more powerful and destructive than tariffs mostly towards international trade.
Classification of Quotas in the U. S.
Quotas in the USA can be divided into 3 types:
- Absolute. This quota defines the number of a particular item that can be brought into the country, nevertheless it isn’t necessarily used. As soon as a quota number of goods is met, other goods must be stored in a bonded warehouse and wait till the next quota period is opened.
- Tariff-rate. This kind of quota permits importing a definite number of specific goods, unlike the above quota a tariff-rate kind permits import goods at a decreased duty rate. The rest of goods (these which are brought after a quota is filled) are charged at a rather bigger rate of duty.
- Tariff-preference level. This type is created via negotiations, for example Free Trade Agreement (FTAs).
Example of a Quota
Exceedingly strict quotas in combination with big high tariffs may ruin relations between countries and even cause trade wars etc. One of the brightest examples happened in the beginning of 2018 when American leader Trump put 30% tariffs on Chinese solar panels. Thus deteriorating its own solar industry since that year approximately 85% of American products powered by sunlight were imported.