A tariff-rate quota (TRQ) is a trade policy tool used to protect a domestically-produced commodity or product from competitive imports.
A TRQ combines two policy instruments that nations historically have used to restrict such imports: quotas and tariffs. In a TRQ, the quota component works together with a specified tariff level to provide the desired degree of import protection. Essentially, a TRQ is a two-tiered tariff. The first Q imports entering within the quota portion of a TRQ are usually subject to a lower, tariff rate called the Inside tariff quota rate or ITQR. Imports above the quota's quantitative threshold (Q) face a much higher (usually prohibitive) Outside tariff quota rate or OTQR. The Q units are called the quota volume, and this volume serves as the cut off between the ITQR and the OTQR.
For example, in 2013, South Africa applied the following TRQ on imports of "Frozen cuts and edible offal of fowls of the species Gallus domesticus", a type of chicken (HS code 02071420) originating from the United States of America:
In 2013, the cut-off for this quota rate was 29,033 tonnes of imported offal / year.
There are several different ways in which quotas can be administered by governments:
As part of the 1995 Uruguay Round Agreement on Agriculture, the World Trade Organization prohibited agricultural trade quotas among its member nations. TRQs, however, were permitted as a form of transition to simple tariffs.
As of 2005, TRQs apply to U.S. imports of certain dairy products, beef, cotton, green olives, peanuts, peanut butter, sugar, certain sugar-containing products, and tobacco. A TRQ was applied to US steel imports in 2002.