Tariff-rate quota

A tariff-rate quota (TRQ) is a two-tiered international trade tariff that combines two policy instruments used historically to protect domestic production by restricting imports−Import quotas and tariffs. The quotas set a quantitative threshold for a designated time period for imports of a protected domestic products. Under that threshold, tariffs applied to imports are either very low or nonexistent.[1]:254 Over that threshold, imports are subject to a significantly higher tariff that is intentionally prohibitive.[1]:254 TRQs have been required by the World Trade Organization (WTO) since the 1995 Uruguay Round Agreement 123 contract party nations engaged in international trade.[1]:254

Tariff mechanisms

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]:254 The Q units are called the quota volume, and this volume serves as the cut off between the ITQR and the OTQR.

Background

Prior to the 1995 Uruguay Round Agreement signed by 123 countries, countries used import controls the 1983 World Trade Organization's Agreement on Agriculture (AoA), to the system of tariff-rate quotas (TRQs) required by WTO which came into effect in 1995.[2] Under WTO authorized TRQs, rates of duty or tariffs up to a predetermined limit, are lower. Once the limit is reached, imported products can be subject a significantly higher tariff.[1]:254[2] ]]By 2018, about 41 countries, including Canada and the U.S., had WTO approved tariff-rate quotas.[3]

Tariff-rate quota by country

United States

According to the United States Department of Agriculture (USDA)'s Foreign Agricultural Service (FAS), the dairy products tariff-rate quota (TRQ) system is administered through import licensing through lower and higher tier tariff-rates. Importers of dairy products that are identified as eligible for the low-tier tariff rate must apply annually to the FAS for a license.[4]

South Africa

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.[5]

There are several different ways in which quotas can be administered by governments:[6]

Quota administration methodExplanation
First-come, first-servedNo 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 demandImporters' 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.
AuctioningImporters' shares are allocated, or licenses issued, largely on the basis of an auctioning or competitive bid system.
Historical importersImporters' shares are allocated, or licenses issued, principally in relation to past imports of the product concerned.
Imports undertaken by state trading entitiesImport 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 associationsImport 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.[7]

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.[8]

European Union

For Brexit, the paragraph 13 of the EU's negotiating guidelines consider that the UK and the EU have to agree to manage the TRQ.

China

The World Trade Organization (WTO)'s Dispute Settlement System agreed in September 2017 to create a panel to rule on the United States' complaint against China's TRQs on agricultural products.[9]

References

  1. 1 2 3 4 5 6 Womach, Jasper (June 2005). Report for Congress: Agriculture: A Glossary of Terms, Programs, and Laws Agriculture: A Glossary of Terms, Programs, and Laws, 2005 Edition (PDF) (Report). p. 282. Tariff-rate quota — A trade policy tool used to protect a domestically-produced commodity or product from competitive imports. A tariff-rate quota (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. Imports entering during a specific time period under the quota portion of a TRQ are usually subject to a lower, or sometimes a zero, tariff rate. Imports above the quota's quantitative threshold face a much higher (usually prohibitive) tariff. [By 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.
  2. 1 2 "Tariff Rate Quotas : Agricultural Products". Government of Canada. September 26, 2013. Retrieved June 25, 2018.
  3. ↑ "American dairy farmers depend on government subsidies". Grey, Clark, Shih and Associates Limited. February 8, 2018. Retrieved June 25, 2018. he study, which focuses on changes introduced by the 2014 Farm Bill, shows that in 2015, the American government doled out approximately $22.2 billion dollars in direct and indirect subsidies to the U.S dairy sector.
  4. ↑ "Dairy Import Licensing Program". United States Department of Agriculture (USDA) Foreign Agricultural Service (FAS). nd. Retrieved July 11, 2018.
  5. ↑ (ITC), International Trade Centre. "Market Access Map - Improving transparency in international trade and market access". www.macmap.org.
  6. ↑ International Trade Centre (ITC), Market Analysis & Research section, 2014
  7. ↑ "AoA Issues Series: Tariff-Rate Quota Administration". USDA. Retrieved 2009-07-22.
  8. ↑ "Tariff Rate Quotas on U.S. Steel Imports: The Implications on Global Trade and Relative Competitiveness of Industries" (PDF). Purdue University. Retrieved 2009-07-26.
  9. ↑ Trade Policy Review Report by the Secretariat China (PDF). World Trade Organization (WTO) (Report). Trade Policy Review Body. June 6, 2018. p. 193. Retrieved July 26, 2018.
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