What is a Voluntary Export Restraint (VER)?
A voluntary export restraint (VER) is a self-imposed trade restriction where the government of a country limits the amount of a certain good or category of goods that are allowed to be exported to a different country. The restraint could be a reduction in the exported amount or a complete restriction.
Except for the fact that it is imposed by the exporting country rather than the importing one, a VER essentially functions as an import quota or an import tariff.
- A voluntary export restraint (VER) is a self-imposed trade restriction whereby an exporting country limits the number of goods of a particular nature that it can export to a specific country or region.
- VERs are imposed by the exporting country at the request of the importing country.
- The establishment of VERs allows the exporting country to avoid import tariffs or quotas, and hence, enables them to have a certain level of control over the restriction.
- VERs gained popularity in the 1980s as a way of abiding by the GATT but are not used extensively today.
Motivations Behind Voluntary Export Restraints
Typically, a country imposes a voluntary export restraint at the request of an importing country that seeks protection for its domestic producers. The exporting country establishes a VER to avoid facing trade restrictions from the importing country.
Through the use of a voluntary export restraint, the exporting country is able to exercise some degree of control over the restriction, which would otherwise be lost if it faced trade restrictions from the importing country. Hence, despite what the name suggests, VERs are rarely voluntary.
History of VERs
Voluntary export restraints have been historically used on a wide variety of traded products and have been used since the 1930s. The popularity of this particular trade restraint increased in the 1980s since it abided by the terms agreed to under the GATT (General Agreement on Trades and Tariffs). However, members of the WTO in 1994 agreed not to impose any new voluntary export restraints (VERs) and gradually ended the use of any existing ones.
Effectiveness of VERs
Studies conducted on the effectiveness of VERs suggest that they are not effective over a longer term. An example is the voluntary export restraint imposed by Japan on the export of Japanese manufactured cars into the U.S. The U.S. government wanted to protect its automobile manufacturers since the domestic industry was threatened by the cheaper and more fuel-efficient Japanese automobiles.
The restraint proved to be ineffective since Japanese automotive producers established transplant facilities in the United States. Additionally, the Japanese car manufacturers started exporting more luxurious cars in order to generate adequate funds while still adhering to the export limitation set by its government.
VERs on Textiles
U.S.-based producers of textiles faced increasing competition from Southeast Asian countries in the 1950s and the 1960s. The U.S. government requested VERs to be established by many of the Southeast Asian countries and was successful in doing so. Textile producers in Europe faced similarly stiff competition as their U.S. counterparts, and as a result, negotiated voluntary export restraints as well.
Eventually, an agreement was reached between the exporting and importing parties within the textile industry that led to the formation of the Multi-Fiber Agreement in the 1970s. The agreement was essentially an arrangement of multilateral voluntary export restraints. The agreement is no longer in effect and was terminated in 2005 after the expiry of a ten-year transition period since the 1994 GATT.
Voluntary Export Restraints vs. Voluntary Import Expansion
A voluntary import expansion occurs when a country agrees to increase the number of imports into its country. It is implemented by reducing restrictions such as import tariffs. A voluntary import expansion, much like a VER, is enacted voluntarily at the request of another country and negatively affects the trade balance of the country that volunteers to set up the arrangement.
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