Tariff-rate quota

Last updated

A tariff-rate quota (TRQ) is a two-tiered tariff regime that combines two conventional policy instruments (import quota and tariff) to regulate imports. In its essence, a TRQ regime allows a lower tariff rate to be imposed on imports of a given product within a specified quantity and requires a higher tariff rate to be imposed on imports exceeding that quantity. [1] For example, a country may allow the importation of 5000 tractors at a tariff rate of 10%, and any tractor imported above this quantity will be subject to a tariff rate of 30%.


Unlike quota, a TRQ regime does not function as a quantity restriction on imported products. [2] The “in-quota commitment” is complemented by an “out-of-quota commitment”, and the latter does not set any limit on the quantity or value of a product that may be imported, but instead applies a different, normally higher, tariff rate to that specific product. Imports face this higher duty rate once the in-quota quantity or value has been reached, or if any requirement associated with the “in-quota commitment” is not fulfilled. [3]

A TRQ is generally considered as a measure to protect domestic production through restricting imports. Under that regime, the quota component combines with a specified tariff level to provide the desired level of protection. In many cases, imports above the threshold may face a prohibitive “out-of-quota” tariff rate. [4]

WTO law

The terms tariff quota and tariff-rate quota are used interchangeably in existing literature, but the former term is more legally accurate because it may include specific tariffs, and the latter term excludes them. Tariff quota is also the term officially used in Article XIII of the General Agreement on Tariffs and Trade (GATT). [5]

Customs duties and other charges are explicitly excluded from the scope of quantitative restrictions within the meaning of Article XI of the GATT. Therefore, a TRQ is not a quantitative restriction since the regime subjects imports to varying duties rather than prohibits or restricts the quantity of imports. [6] There are several dispute settlement rulings regarding the legitimacy of TRQ under WTO law. For instance, the Panel in US - Pipeline stated that a tariff quota involves the “application of a higher tariff rate to imported goods after a specific quantity of the item has entered the country at a lower prevailing rate,” while any quantity above the quota is subject to a higher duty. [7]

Particularly, in EC- Bananas III, the Appellate Body asserted:

In contrast to quantitative restrictions, tariff quotas do not fall under the prohibition in Article XI:1 and are in principle lawful under the GATT 1994, provided that quota tariffs are applied consistently with Article I. [8]

Although a TRQ is also used within the WTO for non-agricultural products, the regime is particularly important in the agriculture sector considering the attempts to eliminate non-tariff measures in this sector. As a result of the Uruguay Round, all non-tariff barriers to agricultural products had to be removed or converted to tariffs (tariffication) to ensure that the sector is protected only by tariffs. [9] In some cases, the calculated equivalent tariffs would be too high to allow for any real opportunity for imports to enter the market. [10] Therefore, a system of TRQ was introduced to maintain existing access levels, and make way for minimum access opportunities. [11]

Economic considerations

Tariff-rate quota and import demand Tariff-quota.jpg
Tariff-rate quota and import demand

In a given period (normally one year), a lower in-quota tariff (t) is applied to the first Q units of imports and a higher out-of-quota tariff (T) is applied to all subsequent imports. If an out-of-quota tariff makes imports prohibitively expensive, it yields the same import volume as a traditional quota does. If the difference between domestic and international prices exceeds T, importers still make profit despite paying high out-of-quota tariff. In contrast, if a standard quota is in place, it is not possible to expand import volume over the restricted quantity (Q). In that case, a TRQ yields a higher volume of trade than does a standard quota; therefore, it is theoretically less restrictive than the latter.

A TRQ may influence the incentive to import. The effective supply curve of exports to the import market consists of two horizontal lines. The first line represents the in-quota imports, extending from 0 to Q at the price 1 + t. The other line represents the effective supply of out-of-quota imports, extending from Q to infinity at the price 1 + T. The effect of a TRQ on trade is contingent on domestic demand for imports. The figure shows four possible demand conditions corresponding to demand curves numbered 1 to 4, which denote increasing levels of import demand.

In the first case, demand is too low to generate imports at the world price, even without the in-quota tariff, so imports are zero (M1 = 0). In the second case, demand at the price 1 + t is sufficient to result in imports at the volume of M2, but the volume is not enough to cause the quota to bind (M2 < Q). In this case, the TRQ functions as an ordinary tariff being applied at the in-quota rate (t).

In the third case, demand at the price 1 + t is sufficient to yield an import volume that exceeds Q, then the TRQ is binding as it restricts the in-quota volume to a predefined level (M3 = Q). Supposing that a TRQ does not exist and merely a tariff at the in-quota rate (t) applies, then an import volume of Q3 will be generated. If the t = 0, import volume will be F3; therefore, M3 = Q < Q3 < F3. Because the import volume yielded when a binding TRQ is in place is smaller than when an unconstrained in-quota tariff (t) applies, there will be a need to ration M3 units among Q3 units of demand.

In the fourth case, demand is sufficient to sustain imports at the out-of-quota tariff (1 + T). Since demand curve 4 represents an extremely high level of demand, the import volume is no longer constrained at Q. However, the rationing problem remains necessary for imports within the quota. [12]

Tariff-rate quota administration

Example of using ITC's Market Access Map to find information on TRQ: Vietnam's TRQ on birds' eggs Market Access Map TRQ.jpg
Example of using ITC's Market Access Map to find information on TRQ: Vietnam's TRQ on birds' eggs

TRQ administration essentially concerns the distribution of the rights to import at the in-quota tariff rate. There are two GATT criteria for quota administration: quota fill and non-discrimination. The quota fill principle prevents imports at out-of-quota tariff rates until the quotas are filled, which ensures that quota administration itself should not inhibit imports or act as trade barriers. [13] Whereas, the non-discrimination principle, as provided for by GATT Article XIII, requires that all imports from all countries be treated equally with respect to the administration of quantitative restriction. [14]

Economists find that the risk of inhibiting quota fill is relatively negligible regardless of the administration method. Although licensing methods may result in too-small consignments, which are not economically viable, that problem is often remedied at the time it emerges. Besides, domestic producer groups or administering bodies may have the capacity to inhibit quota fill, but that capacity has not been abused in reality partly because the stakeholders are closely monitored by exporters. [15]

However, a TRQ is more susceptible to discrimination, which has been addressed under a number of WTO disputes. [16] A TRQ may discriminate if imports equal or exceed the in-quota volume, rendering the price of imports in the importing country higher than the world price plus the import tariff. Such price difference is known as quota rent, and the distribution of in-quota import rights can determine not only the volume and distribution of trade but also the distribution of quota rents. [17] Although the GATT only governs how quota administration influences the volume and distribution of trade, the distribution of rents is important given its influence on the distribution of trade. [18]

In general, administration methods that are able to separate the distribution of rents from that of trade may mitigate the distorting effect posed by the former. In contrast, methods that grant quota rents to in-quota imports are blamed for encouraging a biased distribution of trade. [19] Such bias is a consequence of the fact that quota rents attract suppliers who are not otherwise competitive enough to enter the market. Trade share is no longer determined by the relative efficiency of suppliers, but rather by their access to quota rents. [20]

While some administrative methods pose a greater risk of discrimination than others, and the choice of TRQ administration methods is in many cases a political decision, economists come to the broad conclusion that: [21] [22]

Database on tariff-rate quota

The size of the quota is defined periodically by a government, for instance, on an annual basis. [23] Technical information on TRQ administration by country and by product is available on a number of global and regional databases. The WTO's Tariff Profiles database provides free-access, comprehensive information on tariffs imposed by more than 170 countries and territories, including average tariff rates, tariffs by product groups, and tariffs applied in major export markets. Whereas, its Tariff Download Facility supplies comprehensive data on applied and bound MFN tariffs for all WTO members, detailed to standard HS codes. When practicable, it also provides information at the HS sub-heading level on non-MFN tariff regimes a member applies towards its export partners.

Particularly, information on TRQ is accessible via the Market Access Map, developed by the International Trade Centre (ITC). The tool is vital for micro, small and medium-sized enterprises in developing and least developed countries, who have limited access to reliable trade information. The revamped Market Access Map now comes with new functionalities, including enhanced data visualizations and a redesigned download function. It allows traders, policymakers, negotiators, supporting institutions and researchers to better comprehend and analyze market-access conditions (including TRQ) in order to explore new markets, develop better trade policies, and negotiate more fruitful outcomes in trade agreements.

The European Union also develops a portal for Tariff Quota Consultation, where users can have full access to its TRQ publication.

Related Research Articles

Free-trade area region encompassing a trade bloc whose member countries have signed a free-trade agreement

A free-trade area is the region encompassing a trade bloc whose member countries have signed a free trade agreement (FTA). Such agreements involve cooperation between at least two countries to reduce trade barriers, import quotas and tariffs, and to increase trade of goods and services with each other. If natural persons are also free to move between the countries, in addition to a free-trade agreement, it would also be considered an open border. It can be considered the second stage of economic integration.

The General Agreement on Tariffs and Trade (GATT) is a legal agreement between many countries, whose overall purpose was to promote international trade by reducing or eliminating trade barriers such as tariffs or quotas. According to its preamble, its purpose was the "substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis."

World Trade Organization Intergovernmental trade organization

The World Trade Organization (WTO) is an intergovernmental organization that is concerned with the regulation of international trade between nations. The WTO officially commenced on 1 January 1995 under the Marrakesh Agreement, signed by 123 nations on 15 April 1994, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948. It is the largest international economic organization in the world.

A tariff is a tax on imports or exports between sovereign states. It is a form of regulation of foreign trade and a policy that taxes foreign products to encourage or safeguard domestic industry. Traditionally, states have used them as a source of income. Now, they are among the most widely used instruments of protectionism, along with import and export quotas.

National treatment is a principle in international law. Utilized in many treaty regimes involving trade and intellectual property, it requires equal treatment of foreigners and locals. Under national treatment, a state that grants particular rights, benefits or privileges to its own citizens must also grant those advantages to the citizens of other states while they are in that country. In the context of international agreements, a state must provide equal treatment to citizens of the other states participating in the agreement. Imported and locally produced goods should be treated equally — at least after the foreign goods have entered the market.

Dumping, in economics, is a kind of injuring pricing, especially in the context of international trade. It occurs when manufacturers export a product to another country at a price below the normal price with an injuring effect. The objective of dumping is to increase market share in a foreign market by driving out competition and thereby create a monopoly situation where the exporter will be able to unilaterally dictate price and quality of the product.

In international economic relations and international politics, most favoured nation (MFN) is a status or level of treatment accorded by one state to another in international trade. The term means the country which is the recipient of this treatment must nominally receive equal trade advantages as the "most favoured nation" by the country granting such treatment. In effect, a country that has been accorded MFN status may not be treated less advantageously than any other country with MFN status by the promising country. There is a debate in legal circles whether MFN clauses in bilateral investment treaties include only substantive rules or also procedural protections. The members of the World Trade Organization (WTO) agree to accord MFN status to each other. Exceptions allow for preferential treatment of developing countries, regional free trade areas and customs unions. Together with the principle of national treatment, MFN is one of the cornerstones of WTO trade law.

Non-tariff barriers to trade Type of trade barriers

Non-tariff barriers to trade (NTBs) or sometimes called "Non-Tariff Measures (NTMs)" are trade barriers that restrict imports or exports of goods or services through mechanisms other than the simple imposition of tariffs.

Trade can be a key factor in economic development. The prudent use of trade can boost a country's development and create absolute gains for the trading partners involved. Trade has been touted as an important tool in the path to development by prominent economists. However trade may not be a panacea for development as important questions surrounding how free trade really is and the harm trade can cause domestic infant industries to come into play.

Free trade agreement treaty establishing a free-trade area

A free trade agreement (FTA) or treaty is a multinational agreement according to international law to form a free-trade area between the cooperating states. FTAs, a form of trade pacts, determine the tariffs and duties that countries impose on imports and exports with the goal of reducing or eliminating trade barriers, thus encouraging international trade. Such agreements usually "center on a chapter providing for preferential tariff treatment", but they also often "include clauses on trade facilitation and rule-making in areas such as investment, intellectual property, government procurement, technical standards and sanitary and phytosanitary issues".

Market access

Market access describes the possibility of an enterprise or a country to sell their goods and services across borders and enter a foreign market. According to the World Trade Organization (WTO), "market access for goods in the WTO means the conditions, tariff and non-tariff measures, agreed by members for the entry of specific goods into their markets." Gaining market access is an indispensable step towards deepening trade relations. However, market access is not synonymous with free trade because the possibility to enter a foreign market is in most cases conditioned by certain requirements, whereas free trade implies a perfect state in which goods and services can be circulated across borders without such barriers. Indeed, tackling market access restrictions proves to be a more achievable goal for trade negotiations as compared to free trade.

The Agreement on Agriculture (AoA) is an international treaty of the World Trade Organization. It was negotiated during the Uruguay Round of the General Agreement on Tariffs and Trade, and entered into force with the establishment of the WTO on January 1, 1995.

An import license is a document issued by a national government authorizing the importation of certain goods into its territory. Import licenses are considered to be non-tariff barriers to trade when used as a way to discriminate against another country's goods in order to protect a domestic industry from foreign competition.

International Trade Centre organization

The International Trade Centre (ITC) is a multilateral agency which has a joint mandate with the World Trade Organization (WTO) and the United Nations (UN) through the United Nations Conference on Trade and Development (UNCTAD).

Rules of origin

Rules of origin are the rules to attribute a country of origin to a product in order to determine its "economic nationality". The need to establish rules of origin stems from the fact that the implementation of trade policy measures, such as tariffs, quotas, trade remedies, in various cases, depends on the country of origin of the product at hand.

Supply management (Canada)

Supply management (SM) is a national agricultural policy framework used in Canada that controls the supply of dairy, poultry and eggs through production and import controls and pricing mechanisms designed to ensure that these farms can be profitable and Canadian consumers have access to a high-quality, secure supply of these sensitive products at stable prices without shortages and surpluses.

The Bali Package is a trade agreement resulting from the Ninth Ministerial Conference of the World Trade Organization in Bali, Indonesia on 3–7 December 2013. It is aimed at lowering global trade barriers and is the first agreement reached through the WTO that is approved by all its members. The package forms part of the Doha Development Round, which started in 2001.

A “like product” describes the particular relationship in international trade law between two goods that are produced by two different trading nations. This concept is the foundation of the two central principles of the World Trade Organisation (WTO) system as outlined in the General Agreement on Tariffs and Trade 1947 (GATT): Most Favoured Nation and National Treatment. If two products cannot be differentiated under the WTO system/GATT then the non-discrimination principle stipulates that a WTO trading member shall not discriminate between like products from different trading partners and shall not discriminate between its own and like foreign products. In essence, if two products are found to be ‘like’ then the issue is whether the foreign product is treated less favourable than the domestic product or another foreign product.

Afghanistan received membership to the World Trade Organization (WTO) at the 10th WTO Ministerial Conference in Nairobi, Kenya, December 17, 2015. Afghanistan is 164th in the world and 36th among the less-developed countries that have received WTO membership.

Brooms manufactured from broomcorn became specifically subject to an increase in US import tariffs in 1996. In response to the US action, chief exporter of broomcorn brooms Mexico requested dispute settlement from an arbitration tribunal of NAFTA, which eventually decided in Mexico's favor. It was one of only three cases to be decided under the provisions of Chapter 20 of NAFTA.


  1. "Market Access Map - Glossary". ITC.
  2. "Quota". Encyclopedia Britannica.
  3. "Tariff rate quotas explained: A guide to answering consultation questions". Government of Canada.
  4. Harry de Gorter and Erika Kliauga. "Reducing Tariffs versus Expanding Tariff Rate Quotas" (PDF). World Bank.
  5. "General Agreement on Tariffs and Trade" (PDF). WTO.
  6. Van den Bossche, Peter (2018). The Law and Policy of the World Trade Organization - Text, Cases and Materials. Cambridge University Press. p. 48. ISBN   9781316662496.
  7. WT/DS202/R (2001). "United States - Definitive Safeguard Measures on Imports of Circular Welded Carbon Quality Line Pipe from Korea - Report of the Panel". WTO Panel Report.
  8. Appellate Body Reports, EC- Bananas III (Article 21.5 - Ecuador II) / EC- Bananas III (Article 21.5 - US) /. WTO. 2008. p. 335.
  9. "Glossary". WTO.
  10. "Swiss agriculture under fire at WTO". SwissInfo.
  11. "Market access: tariffs and tariff quotas". WTO.
  12. Skully, David (2001). "Economics of Tariff-Rate Quota Administration" (PDF). United States Department of Agriculture, Economic Research Service. Technical Bulletins 33576.
  13. "Market access: tariffs and tariff quotas". WTO.
  14. "General Agreement on Tariffs and Trade" (PDF). WTO.
  15. "Market Access II: Tariff Rate Quotas". FAO.
  16. "Tariff Quotas — Non-Discriminatory Administration". WTO.
  17. Hornig, Ellen (1990). "Explanation of quota rents from US cheese exports". The Australian Journal of Agricultural Economics. 34 (1). doi:10.1111/j.1467-8489.1990.tb00489.x.
  18. Suranovic, Steven (2004). International Trade Theory and Policy. International Economics Study Center.
  19. "An analysis of dairy policy reform and trade liberalization - trade and economic effects of milk quota systems" (PDF). OECD.
  20. Merlinda D. Ingco & L. Alan Winters (2004). Agriculture and the New Trade Agenda: Creating a Global Trading Environment for Development. Cambridge University Press. pp. 215–218. ISBN   0521826853.
  21. Skully, David (2001). "Economics of Tariff-Rate Quota Administration" (PDF). United States Department of Agriculture, Economic Research Service. Technical Bulletins 33576. Retrieved 20 June 2019.
  22. Shotton, Ross (2001). Case studies on the allocation of transferable quota rights in fisheries. Rome: FAO. ISBN   92-5-104675-1.
  23. "Tariff and non-tariff measures". SICE - Foreign Trade Information System.