Replacing quantitative trade restrictions with tariffs

The evidence strongly suggests that a shift from quotas to tariffs as a form of protection is highly beneficial. Not only does the economy's growth often speed up following such shifts, but even in the sectors whose protection had been lowered, production increases as firms began to operate in a less restrictive and more transparent regime. This suggests that in an economy in which trade is regulated largely by quantitative restrictions - and this is true for most economies in which trade is severely restricted - a liberalization policy should start with a shift from the use of quotas to the use of tariffs, even if it means very high tariffs.

In many cases a shift from quotas to tariffs has been a key element in the early stages of trade policy reform. Sometimes it has been the only element. For example, Israel's first and second phases of reform focused on imports and consisted of the gradual removal of quotas and their replacement with tariffs. Greece's first reforms removed almost all quotas and replaced them with tariffs which were for the most part lower than the tariff equivalent of the quotas.

It is probably not useful to attempt to calculate the level of tariffs needed to replace any given quantitative restriction because, in practice, it is difficult to measure the protection from quantitative restrictions, and because the switch to tariffs brings about such large changes in the way protection works. Some countries have sought to replace quantitative restrictions with more or less equivalent tariffs. For example, Sri Lanka replaced quantitative restrictions with high tariffs in 1977, and the Philippines did this in an [ad hoc] process from 1957 to the mid-l960s (and ended up unintentionally reducing average protection). In Argentina, however, the tariffs used to replace most of the quantitative restrictions in 1976-78 were on average so high that they shut out imports just as effectively.