Tariffs and quotas

Posted: 14 December 2007

Developed countries often import raw materials from developing countries free of tariffs - a tax by the importing country on the product as it enters their market - or at a very low tariff. If the material is semi-manufactured it will normally attract a tariff. If fully manufactured then an even higher tariff will apply. Under quotas, only a certain volume of a product is allowed entry.

  • Tariffs on raw materials average under 1 per cent, on semi-manufactures about 4 per cent, and 6.5 per cent on fully manufactured goods.

  • This tariff escalation often means that developing countries are denied the possibility of adding value to their primary commodities and so creating jobs that could stimulate the economy.

  • Quotas can be even more restrictive for a developing country as they place a ceiling on how much it can export and therefore on growth. A 30 year-old international agreement on textiles and clothing was based on a quota system. It was phased out in 2005. But this could prove a mixed blessing. "The phase out of textiles and clothing quotas is likely to accentuate underlying trends towards the replacement of domestic production in high-income countries by suppliers from lower-income countries, in particular China". (Source: WTO)