Tariff-rate quota

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A tariff-rate quota (TRQ) is a trade policy tool used to protect a domestically-produced commodity or product from competitive imports.[1]

A TRQ combines two policy instruments that nations historically have used to restrict such imports: quotas and tariffs. In a TRQ, the quota component works together with a specified tariff level to provide the desired degree of import protection. Essentially, a TRQ is a two-tiered tariff. The first Q imports entering within the quota portion of a TRQ are usually subject to a lower, tariff rate called the Inside tariff quota rate or ITQR. Imports above the quota's quantitative threshold (Q) face a much higher (usually prohibitive) Outside tariff quota rate or OTQR.[1] The Q units are called the quota volume, and this volume serves as the cut off between the ITQR and the OTQR.

For example, in 2013, South Africa applied the following TRQ on imports of "Frozen cuts and edible offal of fowls of the species Gallus domesticus", a type of chicken (HS code 02071420) originating from the United States of America:

  • Inside tariff quota rate (ITQR): 16.4%
  • Outside tariff quota rate (OTQR): 27.0%

In 2013, the cut-off for this quota rate was 29,033 tonnes of imported offal / year.[2]

There are several different ways in which quotas can be administered by governments:[3]

Quota administration method Explanation
First-come, first-served No shares are allocated to importers. Imports are permitted entry at the in-quota tariff rates until such a time as the tariff quota is filled; then the higher tariff automatically applies. The physical importation of the good determines the order and hence the applicable tariff.
Licenses on demand Importers' shares are generally allocated, or licenses issued, in relation to quantities demanded and often prior to the commencement of the period during which the physical importation is to take place. This includes methods involving licenses issued on a first-come, first-served basis and those systems where license requests are reduced pro rata where they exceed available quantities.
Auctioning Importers' shares are allocated, or licenses issued, largely on the basis of an auctioning or competitive bid system.
Historical importers Importers' shares are allocated, or licenses issued, principally in relation to past imports of the product concerned.
Imports undertaken by state trading entities Import shares are allocated entirely or mainly to a state trading entity which imports (or has direct control of imports undertaken by intermediaries) the product concerned.
Producer groups or associations Import shares are allocated entirely or mainly to a producer group or association which imports (or has direct control of imports undertaken by the relevant Member) the product concerned.

As part of the 1995 Uruguay Round Agreement on Agriculture, the World Trade Organization prohibited agricultural trade quotas among its member nations. TRQs, however, were permitted as a form of transition to simple tariffs.[4]

As of 2005, TRQs apply to U.S. imports of certain dairy products, beef, cotton, green olives, peanuts, peanut butter, sugar, certain sugar-containing products, and tobacco.[1] A TRQ was applied to US steel imports in 2002.[5]

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