Voluntary Export Restraints

Definition

Voluntary Export Restraints (VERs) are a type of non-tariff trade barrier where an exporting country agrees to limit or restrict the quantity of a specific product that it exports to an importing country, typically in response to the importing country's threat of imposing trade restrictions. This is done voluntarily by the exporting country, often to avoid more damaging trade actions by the importing country.

5 Must Know Facts For Your Next Test

1. Voluntary Export Restraints are often used to address trade imbalances and protect domestic industries from foreign competition.
2. VERs are typically negotiated between the exporting and importing countries, with the exporting country agreeing to limit exports in exchange for avoiding more severe trade barriers.
3. VERs are considered a form of managed trade, as the exporting country retains some control over the export levels rather than having an outright ban or quota imposed by the importing country.
4. The use of VERs has declined in recent decades due to the increasing focus on multilateral trade agreements and the World Trade Organization's rules against such measures.
5. VERs can have unintended consequences, such as leading to higher prices for consumers in the importing country and creating opportunities for black markets and smuggling.

Review Questions

• Explain how Voluntary Export Restraints (VERs) function as a barrier to trade.
  • Voluntary Export Restraints (VERs) function as a barrier to trade by limiting the quantity or value of a specific product that an exporting country can sell to an importing country. This is done voluntarily by the exporting country, often in response to the importing country's threat of imposing more severe trade restrictions. VERs allow the exporting country to maintain some control over the export levels, but they still restrict the free flow of goods and services between countries, which is the essence of a trade barrier.
• Analyze the potential impacts of Voluntary Export Restraints on the economies of both the exporting and importing countries.
  • Voluntary Export Restraints can have significant impacts on the economies of both the exporting and importing countries. For the exporting country, VERs can lead to reduced export revenue, loss of market share, and potential job losses in the affected industries. For the importing country, VERs can result in higher prices for consumers, reduced competition, and potentially less access to a wider range of products. Additionally, VERs can create opportunities for black markets and smuggling, further distorting the intended effects of the trade restriction. The overall economic impact of VERs depends on factors such as the specific industries involved, the relative bargaining power of the countries, and the availability of alternative suppliers or products.
• Evaluate the effectiveness of Voluntary Export Restraints as a tool for trade protectionism, considering both the advantages and disadvantages of this policy.
  • Voluntary Export Restraints (VERs) can be an effective tool for trade protectionism in the short term, as they allow an importing country to limit foreign competition and support domestic industries. However, VERs also have significant drawbacks that limit their long-term effectiveness. On the positive side, VERs can help preserve jobs and maintain market share for domestic producers, and they can be negotiated in a way that gives the exporting country some control over the export levels. On the negative side, VERs can lead to higher prices for consumers, create opportunities for black markets and smuggling, and distort the efficient allocation of resources. Additionally, VERs are considered a form of managed trade and are increasingly frowned upon by multilateral trade organizations like the WTO. Overall, the effectiveness of VERs as a trade protectionist measure depends on the specific circumstances and must be weighed against the potential unintended consequences.

Related terms

Non-Tariff Barriers: Non-tariff barriers are trade restrictions that do not take the form of tariffs, such as quotas, regulations, or licensing requirements.

Quota: A quota is a limit on the quantity or value of a good that can be imported or exported during a specific time period.

Trade Protectionism: Trade protectionism refers to government policies that restrict or regulate international trade to protect domestic industries from foreign competition.