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 the importing country. This strategy is often used by exporting countries to avoid harsher trade restrictions like tariffs or quotas imposed by the importing nation. By voluntarily limiting exports, exporting countries can maintain access to markets while protecting their domestic industries from overwhelming competition.

5 Must Know Facts For Your Next Test

1. VERs are typically negotiated between governments and often focus on specific industries such as automobiles or textiles.
2. Although VERs are labeled 'voluntary,' they can arise from pressure exerted by the importing country to protect its own markets.
3. One of the main consequences of VERs is that they can lead to higher prices for consumers in the importing country due to reduced supply.
4. VERs can sometimes benefit exporters by maintaining a stable market and reducing uncertainty about trade regulations.
5. While they serve as a temporary solution, VERs may lead to retaliatory measures or encourage exporting countries to seek other markets.

Review Questions

• How do voluntary export restraints differ from tariffs and quotas in terms of implementation and impact on trade?
  • Voluntary export restraints differ from tariffs and quotas as they are not government-mandated but rather negotiated agreements between countries. While tariffs impose additional costs on imports, making them more expensive for consumers, and quotas set specific limits on quantities, VERs voluntarily restrict exports to prevent more severe trade barriers. The impact of VERs can still lead to higher prices for consumers, similar to tariffs, as supply is limited, but they also aim to maintain a cooperative trading relationship between countries.
• What motivations might lead an exporting country to agree to implement voluntary export restraints?
  • Exporting countries may agree to implement voluntary export restraints as a strategy to prevent more stringent trade barriers such as heavy tariffs or strict quotas imposed by importing nations. By limiting their exports voluntarily, they can protect their market access and maintain good diplomatic relations with the importing country. Additionally, VERs can help stabilize prices for their goods in foreign markets, ensuring that they do not face rapid price drops due to oversupply while still securing profits.
• Evaluate the long-term implications of relying on voluntary export restraints for both exporting and importing countries in global trade.
  • Relying on voluntary export restraints can create a short-term shield against more aggressive trade policies, but in the long run, it might lead to market distortions. For exporting countries, while they gain initial benefits from stable pricing and continued access, they may hinder innovation and competitiveness if they grow reliant on these restrictions. Importing countries may experience higher prices and limited product availability, leading consumers to seek alternatives. Additionally, this reliance could spark retaliatory actions or a cycle of protectionism that ultimately disrupts global trade dynamics.

Related terms

Tariffs: Taxes imposed on imported goods that increase their price in the domestic market, aiming to protect local industries.

Quotas: Limits set by governments on the quantity of a particular good that can be imported or exported during a given timeframe.

Non-Tariff Barriers: Trade restrictions that do not involve direct taxes or quotas but can include regulations and standards that make it harder for foreign goods to enter a market.