Import Quotas versus Import Tariffs

Import quotas have peculiar properties and problems distinguishing them from tariffs.

1. Usually, quotas fix a rigid quantitative limit on imports. Thus, they are harsh and inflexible in their operation. In case of tariffs, on the other hand, no such rigidity lies. A tariff is rather mild and flexible in its restrictive influence.

2. In their impact, generally import quotas are absolutely protective. A tariff, however, need not prove absolutely protective. Under tariffs, the commodity can freely enter on payment of duties. Thus, the superiority of a quota over a tariff lies in the certainty of its restriction of imports.

3. In its protective effect, however, the quoa system provides protection to old inefficient firms as it generally, favours established importers in giving licences. Tariffs shelter the domestic market from foreign competition.

4. Under a tariff, its probable effect upon price would be reasonably clear, but its impact on the quantity of imports will be uncertain. In the case of an import quota, its effect on the quantitative restriction would be explicit, but its impact on the prices will not be very certain.

5. Tariffs permit the market forces of supply and demand to operate freely. Quotas, however, by fixing a maximum limit on supply, inhibit the free play of market forces. As against tariffs, however, quotas introduce a wholly arbitrary new dimension in foreign trade of an imposing country. Thus, quotas involve greater consciousness in the value judgments than tariffs.

6. Under quotas, domestic price would increase more than under tariffs, because when the quantity imported is fixed under the quota, any changes in demand and supply in the domestic market or world market have to be adjusted, not through changing import quantities but rather through altered prices.

7. When tariffs are imposed, the rise in price is absorbed partly or fully by the State as revenues. Thus, the revenue effect of tariffs is favourable to the State. Most quotas, however, fail to bring any revenue to the government.

8. Further, importers under a quota system are placed in a monopoly-like position and as a result of rising prices are able to reap high profits, called quota profits.

Concluding Remarks:

From a general point of view tariffs seem to be superior to quantative (quota) restrictions. But from a rational point of view, especially in underdeveloped countries, quantitative restrictions are better than tariffs on the following counts:

1. Tariffs are not very effective in poor countries as their problems are distinct from those of advanced countries. Particularly, infant industries of poor countries need to be protected through quotas rather than look protection bounded with free competitive elements at higher price of tariffs.

2. Marginal propensity of poor countries to import is generally very high while their import demand is less elastic. Therefore, to correct the disequilibirum in the balance of payments, curbs on imports, through quantitative restriction, are absolutely essential for these countries.

3. Quotas are more effective than tariffs in various respects. They succeed where tariffs might fail. Protected home producers feel more secure under quotas than under tariffs. Quota system surely strengthens the bargaining power of the country.

4. For a planned economy, quota system is better than ariffs, as its effect on quantitative restriction is certain.

5. Quota system is generally administered by the executive authorities and so it is more flexible and adaptable whereas, tariffs prove to be a rigid and conservative system requiring the approval of the legislature.

6. Further, tariffs undoubtedly raise the domestic price of a commodity, but quotas do not rise it under price control and rationing.

Among other things, if tariffs are higher in prohibitory effect than quotas, then quotas would be preferred and vice versa.