QUOTAS? Is Essential For Your Success. Read This To Find Out Why

Quotas are a quantity control on imported goods. 

Generally, they are specific provisions limiting the amount of foreign products imported in order to protect local firms and to conserve foreign currency. 

Quotas can be used for export control as well. An export quota is sometimes required by national planning to preserve scarce resources. 

From a policy standpoint, a quota is not as desirable as a tariff since a quota generates no revenues for a country. 

Two kinds of voluntary quotas can be legally distinguished: VER (voluntary export restraint) and OMA (orderly marketing agreement). 

Whereas an OMA involves a negotiation between two governments to specify export management rules, the monitoring of trade volumes, and consultation rights, a VER is a direct agreement between an importing nation's government and a foreign exporting industry (i.e., a quota with industry participation). 

Both enable the importing country to circumvent the GATT's rules (Article XIX) that require the country to reciprocate for the quota received and to impose that market safeguard on a most-favourednation basis. 

Because this is a gray area, the OMA and VER can be applied in a discriminatory manner to a certain country. 

In the case of a VER involving private industries, a public disclosure is not necessary. 

The largest voluntary quota is the Multi-Fibre Arrangement (MFA) for forty one export and import countries. 

This more than two-decade-old international agreement on textiles allows Western governments to set quotas on imports of low-priced textiles from the Third World. 

The treaty has been criticized because advanced nations are able to force the agreement on poorer countries. 

As implied, a country may negotiate to limit voluntarily its export to a particular market. 

This may sound peculiar because the country appears to be acting against its own self-interest. 

But a country's unwillingness to accept these unfavourable terms will eventually invite trade 24 retaliation and tougher terms in the form of forced quotas. 

It is thus voluntary only in the sense that the exporting country tries to avoid alternative trade barriers that are even less desirable. 

For instance, Japan agreed to restrict and reprise some exports within Great Britain. 

Quotas are still quotas regardless of what they are called. They always inhibit free trade, and frequently they fail to achieve the desired goal. 

The example set by u.s. automakers is instructive. 

After arguing for quotas and price increases to gain extra monies to improve productivity and competitiveness, the automakers ended up using record profits to pay big bonuses to their executives. 

FINANCIAL CONTROL 

Financial regulations can also function to restrict international trade. 

These restrictive monetary policies are designed to control capital flow so that currencies can be defended or imports controlled. 

For example, to defend the weak Italian lira, Italy imposed a 7 percent tax on the purchase of foreign currencies. 

There are several forms that financial restrictions can take. 

Exchange controls also limit the length of time and amount of money an exporter can hold for the goods sold. 

French exporter, for example, must exchange the foreign currencies for francs within one month. 

By regulating all types of the capital outflows in foreign currencies, the government either makes it difficult to get imported products or makes such items available only at higher prices. 

Multiple Exchange Rates Multiple exchange rates are another form of exchange regulation or barrier. 

The objectives of multiple exchange rates are twofold: to encourage exports and imports of certain goods and to discourage exports and imports of others. 

This means that there is no single rate for all products or industries. 

But with the application of multiple exchange rates, some products and industries will benefit and some will not. 

Spain once used low exchange rates for goods designated for export and high rates for those it desired to retain at home. 

Multiple exchange rates may also apply to imports. The high rates may be used for imports of particular goods with the government's approval, whereas low rates may be used for other imports. 

Because multiple exchange rates are used to bring in hard currencies (through exports) as well as to restrict imports, this system is condemned by the International Monetary Fund (IMF). 

According to the IMF, any unapproved multiple currency practices are a breach of obligations, and the member may become ineligible to use the Fund's resources. 

South Africa, trying to stem capital outflows, started in 1985 to require non-residents to transact capital transactions at a separately freely floating exchange rate (i.e., the financial rand). 

The financial rand was much more depreciated than the commercial rand exchange rate. 

In 1995, as political uncertainty declined, South Africa unified the two exchange rates. 

Prior Import Deposits and Credit Restrictions  

Financial barriers can also include specific limitations or import restraints, such as prior import deposits and credit re-strictions. 

Both of these barriers operate by imposing--certain financial restrictions on importers. 

A government can require prior import deposits (forced deposits) that make imports difficult by tying up an importer's capital. 

In effect the importer is paying interest for money borrowed without being able to use the money or get interest 25 earnings on the money from the government. 

Importers in Brazil and Italy must deposit a large sum of money with their central banks if they intend to buy foreign goods. 

To help initiate an aircraft industry, the Brazilian government has required an importer of "flyaway" planes to deposit the full price of the imported aircraft for one year with no interest. 

Credit restrictions apply only to imports; that is, exporters may be able to get loans from the government, usually at very favourable rates, but importers will not be able to receive any credit or financing from the government. 

Importers must look for loans in the private sectorvery likely at significantly higher rates, if such loans are available at all.

Profit Remittance Restrictions Another form of exchange barrier is the profit re-mittance restriction. 

ASEAN countries share a common philosophy in allowing un-restricted repatriation of profits earned by foreign companies. 

Singapore, in particular, allows the unrestricted movement of capital. 

But many countries regulate the remittance of profits earned in local operations and sent to a parent organization located abroad. 

Brazil uses progressive rates in taxing all profits remitted to a parent company abroad, with such rates going up to 60 percent. 

Other countries practice a form of profit remittance restriction by simply having long delays in permission for profit expatriation. 

To overcome these practices, MNCs have looked to legal loopholes. 

Many employ the various tactics such as counter trading, currency swaps, and other parallel schemes. 

For example, a multinational firm wanting to repatriate a currency may swap it with another firm that needs that currency. Or these firms may lend to each other in the currency desired by each party.