Table of Contents
- What Is a Voluntary Export Restraint (VER)?
- How a Voluntary Export Restraint (VER) Works
- Limitations of a Voluntary Export Restraint (VER)
- Voluntary Export Restraint (VER) vs. Voluntary Import Expansion (VIE)
- Advantages and Disadvantages of a Voluntary Export Restraint (VER)
- Example of a Voluntary Export Restraint (VER)
What Is a Voluntary Export Restraint (VER)?
Let me explain what a voluntary export restraint, or VER, really is. It's a trade restriction that limits the quantity of a good an exporting country can send to another country, and here's the key part: this limit is self-imposed by the exporting country itself.
These VERs first appeared in the 1930s and became quite popular in the 1980s, like when Japan used one to cap its auto exports to the U.S. But in 1994, members of the World Trade Organization (WTO) agreed to stop implementing new VERs and to phase out the existing ones.
Key Takeaways
- A voluntary export restraint (VER) is a self-imposed limit on the quantity of a good that an exporting country is allowed to export.
- VERs are considered non-tariff barriers, which are restrictive trade barriers—such as quotas and embargoes.
- They are related to a voluntary import expansion (VIE), which is meant to allow for more imports, and can include lowering tariffs or dropping quotas.
How a Voluntary Export Restraint (VER) Works
You should know that voluntary export restraints fall under non-tariff barriers, which include things like quotas, sanctions, levies, embargoes, and other restrictions. Typically, a VER comes about because the importing country requests it to protect its domestic businesses that make competing goods, though sometimes these agreements happen at the industry level.
Exporting countries often choose to impose their own VERs because they'd rather do that than face worse options like tariffs or quotas from the importing side. These have been around since the 1930s, used by large developed economies on products from textiles to footwear, steel, and automobiles, and they were a go-to form of protectionism in the 1980s.
After the Uruguay Round and the update to the General Agreement on Tariffs and Trade (GATT) in 1994, WTO members committed to not creating any new VERs and to eliminate existing ones within a year, with a few exceptions.
Limitations of a Voluntary Export Restraint (VER)
There are clear ways companies can get around a VER. For instance, a company from the exporting country can just build a manufacturing plant in the importing country. That way, they're not exporting goods anymore, so the VER doesn't apply.
This option to set up factories overseas and skip the export rules is a big reason why VERs have historically failed to protect domestic producers effectively.
Voluntary Export Restraint (VER) vs. Voluntary Import Expansion (VIE)
Related to the VER is something called a voluntary import expansion, or VIE. This involves a country changing its economic and trade policies to allow more imports, often by lowering tariffs or dropping quotas. VIEs usually come from trade agreements with other countries or from international pressure.
Advantages and Disadvantages of a Voluntary Export Restraint (VER)
When a VER is in place and working, producers in the importing country see benefits because there's less competition, leading to higher prices, profits, and employment.
But these gains for producers and workers come with significant downsides. VERs harm national welfare through negative trade effects, distortions in consumption, and distortions in production.
Example of a Voluntary Export Restraint (VER)
The most well-known example is Japan's VER on auto exports to the U.S. in the 1980s, imposed due to pressure from America. This gave the U.S. auto industry some temporary protection from a surge of foreign competition.
However, the relief didn't last long. It led to more exports of higher-priced Japanese vehicles and a boom in Japanese assembly plants across North America.
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