What is a tariff rate quota?

A tariff rate quota is correctly defined as a system of reduced or free duties for a limited quantity of a good. This trade mechanism establishes two different tariff rates: one for imports that fall under a specified quantity (the quota) and a higher rate for those above that limit. The primary function of a tariff rate quota is to protect domestic industries while still allowing a certain level of foreign competition, thus supporting both import levels and market stability.

By allowing goods to enter at a lower tariff rate up to a predetermined quantity, governments can manage trade flows and protect local producers from being overwhelmed by cheaper foreign goods. Once the quota is surpassed, imports are subject to higher tariffs, which helps to ensure that local producers can compete on a more level playing field.

The other options do not accurately reflect the concept of a tariff rate quota. Seasonal import restrictions pertain to the timing of imports rather than tariff levels. An import quota without tariffs does not apply to tariff rate quotas, as they specifically involve differing tariff rates based on the quantity of goods. Lastly, export limits pertain to quantities of goods sent out of a country, not the import-focused structure of a tariff rate quota.