A nontax measure imposed by a government to favor domestic over foreign suppliers

Chapter 3: Exploring Global Business

International Business

International Business - Encompasses all business activities that involve exchanges across

national boundaries

Absolute Advantage - Ability to produce a specific product more efficiently than any other

NATION

Comparative Advantage - Ability to produce a specific product more efficiently than any

other PRODUCT (farming, Technology)

Exporting and Importing

Exporting -selling and shipping raw material or product to other nations

Importing - Purchasing raw materials or products in other nations and bringing them into

your country

Trade surplus

Trade deficit

Us International Trade in Goods in Services

Balance of Payments - Total flow of money into a country minus the total flow of money

out of that country over a period of time

Ways to Conduct International Business

Licensing - One firm permits another to produce and market its product for compensation

Exporting

Joint Venture - Partnership formed to achieve a specific goal for a period of time (at&t

-Cricket)

Totally Owned Facilities- Production and marketing facilities developed by a firm in another

country

1

What Is a Quota?

A quota is a government-imposed trade restriction that limits the number or monetary value of goods that a country can import or export during a particular period. Countries use quotas in international trade to help regulate the volume of trade between them and other countries. Countries sometimes impose quotas on specific products to reduce imports and increase domestic production. In theory, quotas boost domestic production by restricting foreign competition.

Government programs that implement quotas are often referred to as protectionism policies. Additionally, governments can enact these policies if they have concerns over the quality or safety of products arriving from other countries.

Key Takeaways

• Countries use quotas in international trade to help regulate the volume of trade between them and other countries.
• Within the United States, there are three forms of quotas: absolute, tariff-rate, and tariff-preference level.
• Tariffs are taxes one country imposes on the goods and services imported from another country.
• Because tariffs increase the cost of imported goods and services, they make them less attractive to domestic consumers.
• Highly restrictive quotas coupled with high tariffs can lead to trade disputes and other problems between nations.

Quota

How a Quota Works

Quotas are different from tariffs or customs, which place taxes on imports or exports. Governments impose both quotas and tariffs as protective measures to try to control trade between countries, but there are distinct differences between them.

Quotas focus on limiting the quantities (or, in some cases, cumulative value) of a particular good that a country imports or exports for a specific period, whereas tariffs impose specific fees on those goods. Governments design tariffs (also known as customs duties) to raise the overall cost to the producer or supplier seeking to sell products within a country. Tariffs provide a country with extra revenue and they offer protection to domestic producers by causing imported items to become more expensive.

Quotas are more effective in restricting trade than tariffs, especially if domestic demand for something is not price-sensitive. Quotas may also be more disruptive to international trade than tariffs. Applied selectively to various countries, they can be utilized as a coercive economic weapon.

Quotas are a type of nontariff barrier governments enact to restrict trade. Other kinds of trade barriers include embargoes, levies, and sanctions.

Import Quota Regulatory Agencies

The U.S. Customs and Border Protection Agency, a federal law-enforcement agency of the U.S. Department of Homeland Security, oversees the regulation of international trade, collecting customs, and enforcing U.S. trade regulations. Within the United States, the three forms of quotas are absolute, tariff-rate, and tariff-preference level:

1. An absolute quota provides a definitive restriction on the quantity of a particular good that may be imported into the United States, although this level of restriction is not always in use. Under an absolute quota, once the quantity permitted by the quota is filled, merchandise subject to the quota must be held in a bonded warehouse or entered into a foreign trade zone until the opening of the next quota period.
2. Tariff-rate quotas allow 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.
3. A separate set of negotiations create tariff-preference levels, such as those established through Free Trade Agreements (FTAs).

Goods Subject to Tariff-Rate Quotas

Various commodities are subject to tariff-rate quotas when entering the United States. These eligible commodities include, but are not limited to, milk and cream, cotton fabric, blended syrups, Canadian cheese, cocoa powder, infant formula, peanuts, sugar, and tobacco.

Other Types of Quotas

Business Quotas

In business, a quota can refer to a sales target that a company wants a salesperson or sales team to achieve for a specific period. Sales quotas are often monthly, quarterly, and yearly. Management can also set sales quotas by region or business unit. The most common type of sales quota is based on revenue.

Quotas in Politics

To have an adequate representation of women and marginalized persons in political offices, governments may establish quotas. However, in democratic societies, quotas often draw as much criticism as it does support.

Some argue that it promotes diversity, equity, and inclusion; whereas, others argue that it challenges the fabric of democracy, whereby voters elect their officials.

Real-World Example

Highly restrictive quotas coupled with high tariffs can lead to trade disputes, trade wars, and other problems between nations. For example, in January 2018, President Trump imposed 30% tariffs on imported solar panels from China. This move signaled a more aggressive approach toward China's political and economic stance. It was also a blow to the U.S. solar industry, which was responsible for generating $18.7 billion of investment in the American economy and which at the time imported 80% to 90% of its solar panel products.

What Is a Quota for People?

A quota for people refers to the limit, either minimum or maximum, on the number of people who are allowed to be included or excluded from something.

What Does Quota Mean in Economics?

Quotas in economics refer to the time-bound restrictions governments impose on trade. This is generally done to protect and encourage domestic business and balance trade. Governments implement quotas by placing limits on the value or number of goods exported or imported. For example, a nation may restrict another from importing a maximum of 100 barrels of crude oil.

What Is Quota for a Job?

A job or workplace quota refers to the number of jobs allocated to underrepresented members of certain groups. For example, a company may decide it wants a workforce that mirrors the community or customers it serves. As a result, it may institute a quota to hire a certain number of women or a certain number of persons with disabilities.

What is a tax that is levied on a foreign product entering a country?

What term is used when referring to purchasing products or materials in other nations and bringing them into one's own country?

What is a measure of the total flow of money into a country minus the flow of money out of the country over a specified period of time?

Is the total value of a nations exports less the total value of its imports over a specified period of time?