Definition of Export Quotas

Export quotas are specific restrictions or ceilings imposed by an exporting country on the value or volume of certain exports to protect domestic producers and consumers from temporary shortages of the goods affected or to bolster their prices in world markets. (Http://en.wilipedia.org/wiki/World_Trade_Organisation)Some international commodity agreements explicitly indicate when producers should apply such restraints. Export quotas are also often applied in orderly marketing agreements and voluntary restraint agreements. There mentions two words: orderly marketing arrangement and voluntary restraint arrangement. As to orderly marketing arrangement, it is a bilateral arrangement whereby an exporting country (government or industry) agrees to reduce or restrict exports without the importing country having to make use of quotas, tariffs or other controls on Imports. Here, this paper will focus on export quotas. Often the word voluntary is placed in quotes because these restraints are typically implemented upon the insistence of the importing nations.

Typically voluntary export restraint (VERs) arises when the import-competing industries seek protection from a surge of imports from particular exporting countries. VERs are then offered by the exporter to appease the importing country and to avoid the effects of possible trade restraints on the part of the importer. Thus VERs are rarely completely voluntary. Just like the “war” between America and Japan on Auto business, America adopt this way to compel Japan reduce the auto export quality to America voluntary.

There is another example, Nations in Europe have determined that in order to be more competitive, they must come together as a single market in order to pool their resources. This means unification of many trading policies within Europe. One common policy that Europe did enact in order to help their industry is the export restraint on copper scrap. This regulation was enacted in order to protect the copper and brass manufacturers in Europe. The copper scrap export restraint kept the price of this raw material low. In order to reduce the price of copper and copper-alloy scrap to their brass mills, the European Community imposed export quotas on these taw materials. These quotas were set by the European Community in 1971 during a copper and copper-alloy shortage. The United Kingdom has an added restriction to this export quota. With the help of these export quotas and other restrictions, brass mills within the European Community were able to purchase scrap at relatively lower prices. The export restraint keeps the copper and copper-alloy scrap within Europe because corporations are not able to export these materials. This causes an over abundance of copper scrap within the European Community. In order to sell these raw materials, companies must greatly reduce their prices. These restrictions have allowed the European Community to manipulate the world market to their advantage.

VERs have been used since the 1930s at least, and have been applied to products ranging from textiles and footwear to steel, machine tools and automobiles. They became a popular form of protection during the 1980s, perhaps in part because they did not violate countries’ agreements under the GATT. As a result of the Uruguay round of the GATT, completed in 1994, WTO members agreed not to implement any new VERs and to phase out any existing VERs over a four year period. Exceptions can be granted for one sector in each importing country.

The WTO’s stated goal is to improve the welfare of the peoples of its member countries, specifically by lowering trade barriers and providing a platform for negotiation of trade. Its main mission is “to ensure that trade flows as smoothly, predictably and freely as possible”. This main mission is further specified in certain core functions serving and safeguarding five fundamental principles, which are the foundation of the multilateral trading system.

Since its entry into WTO, China has become much more open and become gradually integrated into the world economy. In its most basic terms, the agreement lowers tariffs, increases access to China’s markets by foreign producers of some commodities through tariff rate quotas (TRQs), and completely removes quantitative restrictions on others. In return, China gets better access to foreign markets for its agricultural products, as well as a number of less obvious benefits.
In the past, many companies in china do textiles encountered problem: trade restrictions. They knew how they would actually get the merchandise from China to the U.S. The problem was export quotas. Anyone manufacturing overseas needs to pay close attention to the details of U.S. trade deals. And that’s especially true in the fashion business, because the U.S. government sets strict limits on foreign-made apparel. Once those quotas are established, manufacturers must obtain the rights to export certain amounts of certain items to the U.S. Acquiring those rights is critical because a manufacturer’s products cannot leave China without them.
Under the Agreement on Textiles and Clothing of the WTO, from Jan. 1, 2005, quota management on global textiles trade was relinquished.

At present, the total volume of China’s textiles export accounts for one fourth of the global textiles trade volume. According to the forecast made by the WTO, the trade volume of China’s textiles in 2005 will account for a half of that for the whole world. As indicated by the data provided by China’s customs offices, since the cancellation of quota on Jan. 1 2005, the export of some China’s textiles export lifting quota management has sharply increased in volume, but decreased in price. The export of China’s global textiles increased by a margin of about 30%, mainly to the EU and the USA. While export was increased, the price fell by 30% as a contrast.

The change also happened on China’s agricultural trade. Since China’s entry into WTO, its agricultural export has enjoyed a substantial growth.

The exported agricultural products of China are mainly composed of gardening products, livestock products, and aquatic products, which have enjoyed different growth in export. In 2004, the export volume of the gardening products was US﹩6.10 billion, with an increase of 64.3% in comparison with that of 2001, that of vegetables was US﹩2.54 billion, that of fruits was US﹩0.92billion. The export volume of livestock products increased by 18.6% compared to the year 2001, with an export volume of US﹩3.14 billion, among which the export volume of meat was US﹩0.56 billion and that of poultry was US﹩0.14 billion (with a drastic decrease in comparison with US﹩0.59 billion in 2001). The export volume of aquatic products was US﹩6.66 billion, with an increase of 65.5% compared to 2001.

The export volum of grain remained the same as that in 2001, amounted to US﹩1.56 billion.

2001 2002 2003 2004
US million % US million % US million % US million %
Total Export 15,975 100 18,019 100 21,243 100 23,030 100
Grain 1,554 9.7 2,223 12.3 3,257 15.3 1,564 6.8
Horticulture 3,712 23.2 4,239 23.5 5,148 24.2 6,097 26.4
Animal Products 2,645 16.6 2,548 14.1 2,688 12.7 3,137 13.6
Aquatic products 4,022 25.2 4,506 25 5,263 24.8 6,657 28.8
Others 4,042 25.3 4,502 25 4,887 23 5,635 24.4

However, quota cancellation does not mean that exporter will usher in a free trade era. In addition to quota, there are also other non-tariff factors affecting global textiles trade, for example, tariff and green barrier. So, the cancellation of quota will not result in fundamental and revolutionary changes to the global market.

As the exporter, it may face new forms of trade protectionism. Some developed and developing countries have joined forces, ready for setting up restriction on export. Once these countries link hands to impose barriers for export, exporter will suffer serious loss in its rights, while other related products will also be severely threatened, and even may have to exit from the international market as a whole. Therefore, some Governments has adopted a series of measures such as imposing export tariff to encourage export of products of high added values, thus further improving the structure of export, keeping improving the overall economic efficacy of the industry of export, as well as its international competitiveness. As the china’s Textiles export license for example, After Jan. 1 2005, there has been a serious increase in quantity and decrease in price for partial textiles’ exports which have been lifted quota management. If this phenomenon continues, other countries may make use of the opportunity to implement trade protection. The measures employed by the Ministry of Commerce will greatly restrict the large volume of textiles exports, thus improving the textiles’ international trade environment.

From Mar. 1 2005 on, the Interim Method for Automatic License of Textiles Export will be implemented, namely, an export license has to be applied for textiles export. The export license system employed by the Ministry of Commerce is to improve statistics, analysis and monitoring of textiles export, post precaution messages on fast-growing exported textiles to operators, and guide and standardize the orderly exports of the enterprises. At present, many developed countries have employed the method to achieve 24-hour monitoring of imported and exported commodities.

The Interim Method for Automatic License of Textiles Export is very timely and effective in promulgation, however, it will still take time and practice for check whether it is operable and conducive to alleviating enterprises’ burden.

There is also one thing we could use for reference from China that called Industry self discipline. China is actively adopting effective measures to avoid trade friction that may be triggered by quota cancellation and sharp increase in textiles export. According to the requirement by the Ministry of Commerce in enhancing industry coordination and self discipline, China Chamber of Commerce for Import and Export of Textiles has set up a coordinative commission for export of trousers, knitting shirts, men’ tatting shirts and underwear. At present, the management of the commission is under discussion. The commission will play an active role in coordinating the export of these sensible textiles, and prevent certain textiles export from growing too fast. The various coordinative commissions will work out detailed rules such as qualifications of export enterprises, and the lower limitation of export.
The industry self discipline agreement covers the following four aspects.

First, determine the categories of sensible textiles. List textiles that easily trigger trade friction and protectionism of importing countries as sensible products, and put emphasis on monitoring the export of these products.

Second, set up a coordinative system for the lowest price. It requires that the enterprises involved in the self discipline agreement do not go lower than this price when exporting such commodities.

Third, an industry access system will be set up for the self discipline agreement. Enterprises running counter to trade laws and regulations and disturbing the export order will be reported, or, their import and export rights will be suspended.

Fourth, set up a precaution system. If a red light is on for a certain type of textile, it means that a certain country has started to limit the import of the product; if a yellow light is on, it means that the export of a certain type of textile is on tremendous increase and has caught attention of importing countries, and they may employ certain measures to restrict import of the commodity. (Developments in the Textiles and Clothing Trade: Impact of Quota Elimination, is available at the www.tdctrade.com website)
After China Chamber of Commerce for Import and Export of Textiles posted its intention of setting up an industry self discipline system on the website, extensive attention has been aroused. Within one day, 415 textile enterprises expressed their willingness in joining the agreement. The export of the 415 enterprises accounts for over 50% of the total export volume to the U.S.A. and the EU.
Many countries accession to WTO seems to represent a great leap forward in liberalization, it is clear that there are still many barriers that stand between the current situation and a significantly freer trade regime. In the long-run, the final accounting of WTO’s impact on many companies will depend on how leaders, producers, and consumers respond to the new opportunities offered by WTO and how they deal with the new challenges.

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