The system of import quotas may be classified into five major groups: (1) The tariff or custom quota, (2) The unilateral quota, (3) The bilateral quota, (4) The mixing quota, and (5) Import licensing.
The Tariff Quota :
The tariff or customs quota is a widely acclaimed measure. Under this system, imports of a commodity upto a specified quantity are allowed to be imported duty-free or at a special low rate of duty. But imports in excess of this fixed limit are charged a higher rate of duty. The tariff quota thus combines the features of a tariff with those of a quota.Flexibility is another advantage of this system.
However, the system has the following drawbacks:
(i) When imports tend to be more than the fixed limit assigned under low duty rate, the entire gains from the low rate are shared by the exporting country.
(ii) It brings a rush of imports in the beginning of each new tariff quota, which may disturb domestic price levels of the importing country.
The Unilateral Quota :
Under this system, a country places an absolute limit on the importation of a commodity during a given period. It is imposed without prior negotiation with foreign governments.
The quota so fixed may be either global or allocated. Under a global quota, the commodity can be imported from any country upto the full amount of the quota. Under an allocated quota system however, the total of the quota is distributed among specified supplying countries.
The global quota system, however, cannot be treated as a very satisfactory device, as it invariably tends to favour nearby supplier countries as against the distant ones. It also tends to operate against.
The smaller or less-organised supplier countries. It may periodically cause over-supply and greater price fluctuations as it provokes a race among importers to fill up the quota. Further, it does not provide regular protection to domestic producers.
The system of allocated quota tries to overcome these defects of global quota. But, it has other defects like: (i) it imposes an undesirable rigidity as to source of supply, (ii) it does not consider costs and other aspects of supply conditions abroad, (iii) it gives rise to monopoly-like action among those exporters who are assured of a specific share of the quota, and (iv) it involves large economic and administrative difficulties in allocating quotas.
The Bilateral Quota :
Under this system, quotas are set through negotiation between the importing country and the exporting country (or foreign export groups).’It has the following merits:
(i) Quotas are decided by mutual agreement;
(ii) It minimises the suspicion in imports;
(iii) It avoids excessive fluctuations in imports;
(iv) It excludes export monopolies by agreement;
(v) It is less arbitrary, and therefore, arouses less or no opposition from the exporting countries. Thus, it provokes no retaliation activity.
However, the principal objections raised against the system are:
1. It tends to fall into the clutches of existing international cartels.
2. It also opens the way to corruption on a large scale.
3. It has a tendency to raise prices in the exporting country, so that, the importing country may lose.
4. It is a device for an open invitation to monopoly in the exporting country.
The Mixing Quota:
It is a type of regulation which requires producers to utilise a certain proportion of domestic raw materials along with imported parts to produce finished goods domestically. It thus, sets limits on the proportion of foreign made raw materials to be (imported and) used in domestic production. In Brazil, for instance, there is a stipulation that a certain percentage of bread weight must consist of domestic mandioca flour.
Such mixing regulations have two broad objectives: (i) to assist domestic producers of raw materials, and (ii) to save scarce foreign exchange.
Mixing quota system is, however, criticised on the ground that it contributes to a poorer utilisation of the world resources and causes high domestic prices or low quality of products as it inhibits the optimal allocation of resources in terms of comparative advantages.
Import Licensing :
The mechanism of import licensing has been evolved as a system devised to administer quota regulations. Under this, prospective importers are required to obtain a licence from the proper authorities for importing any quantity within the specified quotas. Licences arc generally distributed among established importers keeping in view their share in the country’s import trade.
Import licensing has become a leading type of quantitative restriction during the post-war period, thanks to its following merit:
(i) It provides much closer control over the volume of imports.
(ii) It tends to minimise speculative activity.
(iii) It reduces excessive fluctuations in prices produced by the scramble to import before the quota is filled (in the absence of licensing system).
(iv) It ensures an even supply, which leads to continuity in availability of resources at reasonable prices so that, internal prices may be stabilised.
(v) It allows a high degree of flexibility in the restriction of imports.
(vi) It permits a country to control the demand of its nationals for foreign exchange.
The system, however, has the following drawbacks:
(i) It may introduce rigidity in the sense that it favours only established importers and prevents newcomers.
(ii) It may lead to bureaucratic administration, nepotism and corruption.
(iii) It eliminates competition among importers in the domestic market and encourages the formation of monopolies with all their evils.
(iv) It creates a premium market for licences (a sort of ‘Pugree’ system). A licence-holder may sell his licence to some other importer at a premium, which is sometimes 200 to 300 per cent or more than the licence value. This leads to inflation of prices of imported goods in the domestic market and causes inflation in the internal price structure.