Study No. 6.-The Quantitative Restrictions in the Major
Trading Countries

1. Definition of Quantitative Restrictions

For the purpose of this paper, quantitative restrictions (QRs) are those restrictions which limit the quantity of merchandise permitted to enter or leave a country. They are imposed by means of quotas or licensing systems. QRS can be applied to both imports and exports. They may affect trade in one or more commodities or with one or more countries.

The most stringent form of QR is a complete embargo (zero level quota). The United States, for example, prohibits imports of goods known to be of Cuban or North Korean origin and maintains an embargo on exports to those areas. Trade in most narcotics and obscene literature is almost universally prohibited. The examples need not be so extreme. Less developed countries are prone to protect their industries or their balance of payments positions through the use of QRs. Within the recent past, Mexico, in order to protect a new producer, refused to license imports of printing plates. Some QRs on manufactured goods are also found in industrialized nations. Restraints on computer imports into Japan, and used cars and used aircraft into Canada are examples of this.

One kind of quota is often mistakenly included with QRs-that is the tariff quota. The United States quota on stainless steel table flatware is such a tariff quota. It does not imply complete prohibition once its limit is reached, but only that it requires any further imports to enter on less advantageous duty terms. Thus, when total imports of flatware during a fixed period reach a prescribed level, a higher import duty rate becomes effective for the remainder of the quota period.

In the more industrialized countries QRs on imports for protective purposes are now largely confined to agricultural products. The United States, for example, maintains import restrictions on a small group of agricultural commodities as an adjunct to a price support system which is intended to stabilize or strengthen prices received by farmers for their commodities. Other countries maintaining significant agricultural quotas include Japan, the United Kingdom and France.

Blending or mixing requirements, particularly on agricultural products, often are as effective as QRS on imports. Under such systems firms are required to consume a specified minimum of a domestic product in relation to the same imported product. A typical example of such a "mixing" regulation is the requirement in some countries that a specified percentage of domestic wheat be used in milling flour,

thus effectively cutting down the market potential for imported wheat. The use of QRs to control imports requires the use of some means of record-keeping to operate and enforce the controls. Records can be kept by requiring formal licenses. These may be required for items for which no QRs are specified. Refusal or approval of license applications allows a government to tailor imports to its requirements. Occasionally, licenses are used to discourage sales which would be paid for with currencies in short supply.

There are similar but less widespread controls on exports. As with imports, QRs on exports may or may not require a formal separate license. U.S. export licensing controls are an example. Under GATT provisions, countries may apply QRS on the export of goods for purposes of national security or for products in short supply. Export controls are also used to bolster world market prices by limiting supply, usually in support of an international commodity agreement.

These restrictions have the same effect as exchange controls although they control movements of merchandise rather than capital. In this context one should note that the United Kingdom 1estricts imports from the so-called dollar area of certain fresh and preserved citrus, rum, and cigars. Originally they were part of the United Kingdom's post World War II exchange controls. It is now maintained that these are necessary to assist economic development of Commonwealth suppliers in the Caribbean.

II. GATT Provisions

Article X1 of the General Agreement on Tariffs and Trade (GATT) provides for the general elimination of QRs. It is applicable to QRs on all of a country's trade with the other Contracting Parties, not merely to tariff concessions bound under GATT. There are, however, a number of exceptions to the general requirement to eliminate QRs. They may be used, on a nondiscriminatory basis, to restrict imports of agricultural and fishery products but only when internal limitations are placed on the production or distribution of like products and when certain other conditions are observed.

QRS are also permitted when necessary to safeguard a country's foreign exchange reserves. Trade restrictions imposed for balance of payments reasons must be designed so that they do not unnecessarily damage the interests of the other GATT members. It is also incumbent on the country applying the restrictions to consult with the other GATT members concerning those restrictions so as to insure their progressive relaxation as conditions improve.

The GATT recognizes special trade problems of developing countries by providing that countries "in the early stages of development” may impose restrictions for balance of payments reasons and take certain other restrictive actions on a temporary basis to meet the

special problems of their development programs. Other exceptions relate for example to national security, and public health and safety. A formal waiver of the restriction against QRs may be obtained by application to, and approval of, the other Contracting Parties to the GATT. The first major use of this procedure was the U.S. waiver for import restrictions on agricultural products.

111. History of the QR Problem

In the period immediately after World War II, most countries maintained rigid import controls that had been erected during the war. With few exceptions these were continued in order to protect their limited supplies of foreign exchange. This was a period of exceptional demand for imports, reduced production capacity and disrupted trade channels. It was the period of the dollar gap when foreign holdings of dollars were released sparingly and only for essential purchases. Most of our trading partners in Europe maintained total governmental control over imports until late in the 1950's.

So long as these countries were recognized by the International Monetary Fund (IMF) to be still in balance of payments difficulties, the use of QRs was permitted under the GATT. Nevertheless, the United States maintained constant pressure bilaterally and in the GATT and the Organization for European Economic Cooperation (now the OECD), for the liberalization of these restrictions as rapidly as the improvement in a country's reserve position permitted.

General recovery of the world economy during the decade of the 1950's culminated in late 1958 when the major trading nations of Western Europe established external currency convertibility. Early in 1960, seven additional countries, including such major trading nations as the United Kingdom, France, Sweden and Australia, announced they were no longer justifying restrictions on balance of payments grounds. Japan maintained controls under a balance of payments justification until 1963.

With the termination of international balance of payments difficulties the situation changed, since the use of QRS was no longer legal under the GATT. Two considerations, however, created difficulty in removing those restrictions that remained. First, most affected politically sensitive agricultural products (e.g. the United States still maintained quotas on various agricultural products under a special provision of the GATT (Article XI, c(1)) and under a waiver it had obtained to permit import restrictions under section 22 of the Agricultural Adjustment Act which might have been inconsistent with the GATT). Second, in the industrial sector, the prolonged period of import restrictions had fostered the survival and growth of a number of uneconomic industries. Governments were under

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extreme pressure to continue to protect these industries, at least until they could adjust to the new circumstances.

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During the 1960's, much of the U.S. effort in the GATT and in bilateral contacts was devoted to obtaining the liberalization of this "hard core" of restrictions and obtaining nondiscriminatory treatment for items continuing temporarily under control. For example, at the initiative of the United States the Contracting Parties required West Germany to submit a schedule for the removal of its remaining restrictions and to undergo an annual review of progress. Similar multilateral pressure was applied to Italy. In 1962, the United States submitted a formal complaint in the GATT against the remaining French import restrictions. The Contracting Parties found that these were illegal. France, in consultation with the United States, established a timetable for the accelerated liberalization of many of them.

By pressure of this kind, residual import restrictions had been reduced by 1968 in almost all developed countries to a relatively small list of products, mostly agricultural. The most serious nonagricultural QRs remaining are those of Japan, which still maintains QRs for certain industrial products.

In late 1967, the member countries of the GATT agreed upon a future work program to lay the groundwork for further trade liberalization and expansion. To carry out this work, the GATT members created two new committees, one of which, the Committee on Trade in Industrial Products (CTIP), was directed to draw up an inventory of all important nontariff barriers affecting international trade, including QRs. The CTIP has completed the factual examination of some 800 notifications submitted by individual countries concerning nontariff barriers of GATT member countries. Following the initial review, in October 1969 the Committee agreed to move to its next stage of work-to search for possible solutions to the major barriers. For this purpose it established five subgroups on different barriers, one of which is now addressing itself to specific limitations on imports and exports, such as QRs.

Japan-Following the 1963 IMF finding that Japan was no longer entitled to maintain import restrictions for balance of payments reasons, Japan lost its GATT right to impose them. Several items were liberalized through April 1964, but very few were removed from the restriction list during the following four years.

Since 1968, the United States has concentrated on accelerating the reduction and removal of Japan's restrictions on trade. In the ensuing consultations between the two countries, the United States has made clear to Japan that if complete liberalization is not achieved within a reasonable time the United States will have to consider appropriate countermeasures. This recognition has resulted in significant quota

and license liberalization. Since April 1969, items in 86 Brussels Tariff Nomenclature categories have been liberalized, leaving 33 items currently under restriction. The 11 industrial items remaining under QRs include digital computers, accessories, and components; integrated circuits (with 100 elements or more); leather and leather footwear; coal; and ethyl alcohol. The 22 agricultural items remaining under quota restrictions include beef, pulses, oranges, citrus juices (except lemon), edible peanuts, and certain tomato products. Quotas on most of these products have been increased in recent years. IV. Summary of Important QRs for U.S. Exports

The following QRS remaining in effect in countries other than Japan have been selected for their importance to U.S. trade: France-Certain canned and dried fruits and vegetables, certain fruit juices, and semiconductors.

Germany Certain canned fruits and vegetables.

Italy-Orange juice, essential orange oil.

Denmark, Ireland and the United Kingdom-QRs formerly applied to many agricultural products are being replaced by the protection of the EC Common Agricultural Policy. (These are in addition to the UK dollar area quotas described earlier.)

Canada-Dairy products and grains.
Sweden-Fresh apples and pears.

Switzerland-Meats, grains, fresh fruits and vegetables, and oil

seeds.