Voluntary Export Restraints

Definition

Voluntary export restraints (VERs) are trade agreements between exporting and importing countries where the exporter agrees to limit the quantity of goods exported to a specific market. This type of trade barrier is often used to avoid more severe restrictions or tariffs that could be imposed by the importing country. VERs can help protect domestic industries while still allowing for some level of international trade.

5 Must Know Facts For Your Next Test

1. VERs are typically negotiated voluntarily between countries to prevent potential trade disputes or retaliatory actions.
2. While VERs can benefit exporting countries by maintaining access to important markets, they can also raise prices for consumers in the importing country due to limited supply.
3. The use of VERs has declined over time as global trade agreements have become more common, promoting free trade over restrictive practices.
4. VERs are often applied in industries sensitive to import competition, such as textiles, automobiles, and steel.
5. Governments may prefer VERs over tariffs as they can appear less aggressive while still protecting domestic industries from foreign competition.

Review Questions

• How do voluntary export restraints function as a tool for protecting domestic industries?
  • Voluntary export restraints function as a protective tool by limiting the amount of goods that can be exported to a certain country, thereby reducing competition for domestic producers. This helps domestic industries maintain market share and stabilize prices by ensuring that foreign suppliers cannot flood the market with lower-priced imports. By agreeing to these restraints voluntarily, exporting countries may avoid more severe measures like tariffs or quotas, creating a mutually beneficial agreement.
• Evaluate the impact of voluntary export restraints on consumers and the economy in the importing country.
  • Voluntary export restraints can lead to higher prices for consumers in the importing country because they restrict the availability of foreign goods. This limited supply means consumers may face fewer choices and pay more for certain products. Economically, while domestic industries may benefit from reduced competition, long-term reliance on VERs can hinder innovation and efficiency since protected industries might not feel the pressure to improve or lower prices.
• Critically assess the reasons behind the decline of voluntary export restraints in international trade practices over recent decades.
  • The decline of voluntary export restraints in international trade practices can be attributed to several factors, including the rise of global trade agreements promoting free trade and reducing reliance on restrictive measures. The establishment of organizations like the World Trade Organization has fostered an environment where countries are encouraged to eliminate trade barriers rather than create new ones. Additionally, advancements in logistics and technology have made it easier for companies to compete internationally without the need for VERs, ultimately leading to greater market efficiency and consumer benefits.

Related terms

Import Quota: A government-imposed limit on the quantity of a specific good that can be imported into a country during a given time period.

Tariff: A tax levied by a government on imported goods, making them more expensive compared to domestic products.

Trade Agreement: A treaty between two or more countries that outlines the terms of trade and the exchange of goods and services, often reducing or eliminating tariffs and other trade barriers.