Voluntary Export Restraints

Definition

Voluntary export restraints (VERs) are trade restrictions that an exporting country imposes on itself to limit the quantity of goods exported to another country. This self-imposed limitation is usually enacted to avoid more severe trade barriers, like tariffs or quotas, imposed by the importing country, often in response to trade disputes or concerns about domestic industries. VERs can lead to higher prices for consumers in the importing country and may affect the competition among domestic producers.

5 Must Know Facts For Your Next Test

1. VERs are often negotiated between exporting and importing countries to mitigate the impact of trade disputes and protect domestic industries from foreign competition.
2. The use of voluntary export restraints can lead to higher prices for consumers as limited supply creates upward pressure on prices in the importing market.
3. VERs can shift the competitive landscape, allowing domestic producers in the importing country to benefit from reduced foreign competition, potentially leading to increased market share.
4. Countries may resort to VERs in sectors where they face significant pressure from foreign imports, such as textiles, automobiles, or steel.
5. While VERs can help exporters maintain access to a market, they can also hinder their growth potential by capping the volume of goods that can be sold abroad.

Review Questions

• How do voluntary export restraints serve as a strategic tool for exporting countries in international trade negotiations?
  • Voluntary export restraints act as a strategic tool for exporting countries by allowing them to preemptively limit their exports to avoid harsher trade restrictions like tariffs or quotas imposed by importing countries. By voluntarily agreeing to restrict exports, exporters can maintain their market access while negotiating terms that are favorable for both parties. This approach helps mitigate tensions in trade relationships and demonstrates a willingness to cooperate without sacrificing too much market share.
• Discuss the economic implications of implementing voluntary export restraints for both exporting and importing countries.
  • Implementing voluntary export restraints has significant economic implications for both exporting and importing countries. For exporting countries, VERs can protect their domestic industries from trade barriers while maintaining market access but may limit their growth potential. On the other hand, importing countries might see higher prices due to restricted supply, benefiting local producers but disadvantaging consumers. The overall effect could lead to inefficiencies in the market and disrupt the balance of international trade.
• Evaluate how voluntary export restraints impact long-term trade relations between countries, considering both economic and political dimensions.
  • Voluntary export restraints can have complex long-term effects on trade relations between countries. Economically, while they may provide short-term relief for domestic industries in the importing country, they can also create dependency on protective measures that inhibit competition and innovation. Politically, VERs can foster goodwill between trading partners by demonstrating a commitment to resolving disputes amicably; however, they might also breed resentment if seen as a means of manipulating trade flows. Over time, these factors can either strengthen or weaken bilateral relationships based on how each country perceives fairness and equity in trade practices.

Related terms

Tariffs: Taxes imposed by a government on imported goods, making them more expensive and less competitive compared to domestic products.

Quotas: Limits set by a government on the amount of a specific product that can be imported or exported during a given time period.

Trade Agreements: Contracts between countries that determine the rules of trade between them, often aimed at reducing barriers and promoting economic cooperation.