What Am I Bid for This Fine Quota?

By Stephen Koepp

While Detroit's automakers have been aided by six years of quotas on imported Japanese cars, guess who else has benefited handsomely? Answer: the very rivals that the quotas sought to curb. The trade limits created a shortage of Japanese autos in U.S. showrooms, thus enabling their makers to raise prices and boost their revenues by as much as $2 billion a year. That extra profit, which came out of the pockets of U.S. consumers, gave the Japanese automakers even more money for research to improve their competitive position against Detroit.

This unsettling phenomenon is by no means unique to the auto industry. It is occurring more and more as the U.S. persuades foreign countries to accept import limits on textiles, machine tools, sugar, meat and carbon steel, among other items. As pressure for more trade legislation builds this year in Congress, a growing number of economists and legislators have concluded that there must be a better way to run a quota system.

One idea that shows particular promise is the concept of auctioned quotas. Rather than just giving away the import allowances, proponents ask, why not sell off the quotas to the highest bidders? Under the current system the U.S. leaves it to foreign governments to decide how quotas should be apportioned among their companies, which pay no money for the exporting privileges. But under an auction plan, the U.S.-based companies that import the products would bid directly to the Federal Government for a share of the quota, bringing a whole new source of income to the U.S. Treasury.

The Government could use the proceeds to put a noticeable dent in the federal budget. Quota auctions might bring in revenues as high as $7 billion a year, according to C. Fred Bergsten, director of the Institute for International Economics, a Washington research organization. Some of the money could be used to help modernize the beleaguered U.S. industries that the quotas were designed to protect, which might reduce the need for further trade limits.

The concept appears to be gaining momentum. Montana Democrat Max Baucus , plans to introduce, possibly this week, a Senate bill proposing that auctions be tried out in the next three cases in which the U.S. imposes temporary quotas. Many economists, most of whom reject protectionism in general, see quotas as sometimes inevitable and thus regard the auction system as a way for the U.S. to get maximum benefit from them.

Yet the auctioning of quotas has been put into effect by only two countries, Australia and New Zealand. It could create potential complications for a trading nation as large as the U.S. Many U.S.-based importers and retailers believe that auctions could disrupt their steady supply of foreign goods. But advocates of the idea predict that an active secondary market for so-called quota tickets would quickly develop, so that bidders who wound up with excess quota allowances could sell their tickets to others who come up short.

So far the Reagan Administration has opposed the concept of mandatory auctions. One reason: foreign governments may become less willing to agree to quotas with the U.S., since the Government would be reaping the excess profits that foreign companies once took home. But in the minds of many politicians on Capitol Hill, that windfall revenue is precisely what makes the auction idea so alluring.

With reporting by Gisela Bolte/Washington