Voluntary export restraint

Voluntary Export Restraint

Voluntary Export Restraint (VER) is a trade policy measure in which a country voluntarily limits its exports of a particular product to another country. This measure is usually implemented in response to the importing country's concerns about the negative impact of excessive imports on its domestic industries.

Background

The concept of Voluntary Export Restraint emerged as a response to the growing concerns of importing countries regarding the adverse effects of unrestricted imports on their domestic industries. It is often used as an alternative to more restrictive trade measures, such as tariffs or quotas, which can lead to trade disputes and retaliation.

Implementation

When a country decides to implement a Voluntary Export Restraint, it typically negotiates an agreement with the exporting country. The agreement sets a specific limit on the quantity of the product that can be exported to the importing country within a given time period. This limit is usually based on historical trade patterns and the importing country's domestic market needs.

Rationale

The rationale behind implementing a Voluntary Export Restraint is to protect domestic industries from the negative effects of excessive imports. By limiting the quantity of imports, the importing country aims to prevent a surge in foreign products that could harm its domestic producers. This measure is often used in industries that are considered strategically important or sensitive to the importing country's economy.

Advantages

There are several advantages associated with the implementation of Voluntary Export Restraints. Firstly, it allows the importing country to protect its domestic industries without resorting to more restrictive trade measures, which could lead to trade disputes and retaliation. Secondly, it provides a temporary solution to address the concerns of the importing country while allowing the exporting country to continue exporting its products.

Criticisms

Despite its advantages, Voluntary Export Restraints have been subject to criticism. Critics argue that such restraints distort international trade and can lead to inefficiencies. They argue that by limiting competition, domestic industries may become complacent and less competitive in the long run. Additionally, Voluntary Export Restraints can lead to higher prices for consumers in the importing country, as the limited supply may result in increased prices.

Examples

One notable example of Voluntary Export Restraint is the agreement between Japan and the United States in the 1980s. The United States, concerned about the rapid growth of Japanese automobile exports, negotiated an agreement with Japan to limit the number of cars exported to the United States. This agreement aimed to protect the domestic automobile industry in the United States.

Conclusion

Voluntary Export Restraint is a trade policy measure that allows countries to limit their exports voluntarily. It is often used as a temporary solution to address the concerns of importing countries regarding the negative impact of excessive imports on their domestic industries. While it has its advantages, it is not without criticism. The effectiveness and long-term implications of Voluntary Export Restraints continue to be debated among economists and policymakers.

See Also

• Trade Policy
• Tariffs
• Quotas