What is a voluntary export restraint (VER)?

A voluntary export restraint is a trade limitation on the amount of a product an exporting nation may export to another country (VER). The exporting nation sets this cap on its own.

In the 1980s, VERs acquired prominence as Japan utilized one to restrict vehicle exports to the United States. They first appeared in the 1930s. World Trade Organization (WTO) members decided in 1994 to phase down existing VERs and refrain from implementing new ones.

The Operation of a Voluntary Export Restriction (VER)

The general class of restrictive trade barriers known as non-tariff barriers, which include quotas, sanctions, levies, embargoes, and other restrictions, includes voluntary export restraints (VERs). VERs are usually the consequence of demands made by the importing nation to safeguard its own companies that manufacture rival products. Nonetheless, these agreements may also be made at the industry level.

VERs are often established because exporting nations would rather set their limitations than take the chance of having to deal with harsher conditions from tariffs or quotas. They have been used since the 1930s, when significant, developed economies began applying them to various items, including steel, cars, textiles, footwear, and steel. In the 1980s, they gained popularity as a type of protectionism.

WTO members committed, subject to unavoidable circumstances, to refraining from enacting any new VERs and to phase down those that were already in place within a year after the Uruguay Round and the 1994 update to the General Agreement on Tariffs and Trade (GATT).

Constraints on a Voluntary Export Restriction (VER)

There are methods by which a business may stay clear of a VER. For instance, the exporting nation’s business may always construct a production facility in the nation to which exports are intended. The business won’t have to export products; the nation’s VER shouldn’t limit it.

One of the primary reasons VERs have traditionally been required to be more successful in safeguarding local businesses is their ability to construct manufacturing operations abroad and circumvent exporting regulations.

Comparing voluntary import expansion (VIE) with voluntary export restraint (VER)

Voluntary import expansion (VIE), a shift in a nation’s trade and economic policies to permit more significant imports by decreasing tariffs or removing quotas, is related to voluntary export restriction (VER). VIEs often result from international pressure or a component of trade agreements with another nation.

Benefits and Drawbacks of an Optional Export Limitation (VER)

With working VERs, producers in the importing nation gain well-being since there is lower competition, which should result in more excellent prices, profits, and employment.

Several significant limitations are associated with these advantages for labor markets and manufacturers. By causing negative trade impacts, detrimental consumption patterns, and production distortions, VERs lower national welfare.

An illustration of a VER (voluntary export restriction)

The most famous instance is when, in response to American pressure, Japan placed a VER on its car exports into the United States in the 1980s. They later shielded the U.S. car sector from an influx of international competition.

This respite was fleeting, however, since it eventually led to an increase in the export of more expensive Japanese automobiles and the spread of Japanese assembly factories across North America.

Conclusion

• A self-imposed limit on the amount of commodities an exporting nation may export is a voluntary export restriction (VER).
• VERs, which include embargoes and quotas, are classified as restrictive trade obstacles that are not tariffed.
• They have to do with voluntary import expansion (VIE), which permits more imports and may include the removal of restrictions or taxes.