Understanding Voluntary Export Restraint (VER)
A voluntary export restraint (VER) represents a self-imposed limit on the quantity of a specific good that an exporting nation consents to export to another nation. These constraints arise through diplomatic negotiations and aim at limiting the market saturation of goods in the importing country.
The Evolution of VERs
These agreements emerged in the 1930s and saw a significant uptick in their application during the 1980s, most notably when Japan voluntarily restricted its auto exports to the United States. However, in 1994, the World Trade Organization (WTO) headlined an agreement overshadowing the use of new VERs and phasing out existing ones.
Key Features and Takeaways
- Defining VER: It is a self-regulated export limit on a commodity from an exporting nation to a receiving nation.
- Classification: Recognized as non-tariff barriers, these could include quotas and embargoes impacting trade dynamics.
- Connection to VIE: A VER relates to Voluntary Import Expansion (VIE), involving an ease in import regulations such as reduced tariffs or lifted quotas by the importing country.
How a VER Operates
As non-tariff barriers, voluntary export restraints (VERs) serve to protect domestic markets in the importing nations while ensuring the exporting nations preempt the imposition of harsher trade barriers like tariffs or quotas. Their longevity reflects their historical use across various industries, from textiles to steel, signaling protectionist policies particularly evident in the 1980s.
Regulatory Developments
Post the Uruguay Round and consequential updates to the General Agreement on Tariffs and Trade (GATT) in 1994, WTO members pivoted away from VERs, agreeing to refrain from enforcing new ones and gradually eliminating existing measures.
Navigating the Limits of VERs
Businesses can potentially skirt around VER restrictions by establishing production facilities in the importing countries, bypassing direct export limitations. Consequently, this approach signals why VERs have shown mixed efficacy in shielding domestic industries over time.
Contrasting VER and VIE
A voluntary import expansion (VIE) serves as a counterpart to the VER, encouraging additional imports through tariff relaxation or quota removal. These steps usually come forged within broader trade agreement negotiations or as a reaction to international trade pressures.
Effective Pros and Cons of VERs
About VER efficiency, envisioned advantages include protecting domestic producers from competitive pressures, thereby stabilizing product prices, profits, and employment rates within the local economy. Nonetheless, these benefits contrast with broader economic disadvantages such as dampening overall national welfare through negative trade implications and production inefficiencies.
Case Study: The Japan-U.S. Auto VER
A noteworthy illustration traces back to the 1980s, when Japan instituted a VER restraining its auto exports following significant U.S. pressure. While initially providing a reprieve to the American auto industry from the influx of competitive alignments, the move ultimately spiked the export of costlier Japanese vehicles and prolifically seen Japanese car manufacturers establishing robust factory operations in North America.
Related Terms: Voluntary Import Expansion, Trade Barriers, Non-Tariff Barriers, Protectionism, General Agreement on Tariffs and Trade, Import Restrictions.
References
- United States International Trade Commission. “U.S. Trade Policy Since 1934”, Page 62.
- George Washington University. “The Route to Japan’s Voluntary Export Restraints on Automobiles”.
- World Trade Organization. “A Summary of the Final Act of the Uruguay Round”.
