What Is a Voluntary Export Restraint - VER?
A voluntary export restraint (VER) is a trade restriction on the quantity of a good that an exporting country is allowed to export to another country. This limit is self-imposed by the exporting country.
How a Voluntary Export Restraint - VER Works
Voluntary export restraints (VERs) fall under the broad category of non-tariff barriers, which are restrictive trade barriers like quotas, embargoes, sanctions levies, and other restrictions. Typically, VERs are a result of requests made by the importing country to provide a measure of protection for its domestic businesses that produce competing goods, though these agreements can be reached at the industry level, as well.
VERs are often created because the exporting countries would prefer to impose their own restrictions than risk sustaining worse terms from tariffs or quotas. They have been used by large, developed economies. They've been in use since the 1930s, and have been applied to a wide range of products, from textiles to footwear, steel, and automobiles. They became a popular form of protectionism in the 1980s.
After the Uruguay Round, updating the General Agreement on Tariffs and Trade (GATT) in 1994, World Trade Organization (WTO) members agreed not to implement any new VERs, and to phase out any existing ones within one year, with some exceptions.
There are ways in which a company can avoid a VER. For example, the exporting country's company can always build a manufacturing plant in the country to which exports would be directed. By doing so, the company will no longer need to export goods, and should not be bound by the country's VER.
[Important: In 1994, WTO members agreed not to implement any new VERs and to phase out existing ones].
- A voluntary export restraint (VER) is a self-imposed limit on the quantity of a good that an exporting country is allowed to export.
- VERs are considered non-tariff barriers, which are restrictive trade barriers—such as quotas and embargoes.
- Related to a voluntary import expansion, which is meant to allow for more imports, and can include lowering tariffs or dropping quotas.
Voluntary Export Restraint - VER vs. Voluntary Import Expansion - VIE
Related to voluntary export restraint (VER) is a voluntary import expansion (VIE), which is a change in a country's economic and trade policy to allow for more imports, by lowering tariffs or dropping quotas. Often VIEs are part of trade agreements with another country or the result of international pressure.
Advantages and Disadvantages of a Voluntary Export Restraint - VER
Producers in the importing country experience an increase in well-being, though, as there is decreased competition, increased price, profits, and employment. In spite of these benefits to producers, VERs reduce national welfare, by creating negative trade effects, negative consumption distortions, and negative production distortions.
Example of a Voluntary Export Restraint - VER
The most notable example of VERs is when Japan imposed a VER on its auto exports into the U.S. as a result of American pressure in the 1980s. The VER subsequently gave the U.S. auto industry some protection against a flood of foreign competition. This relief was short-lived though, as it ultimately resulted in a rise in exports of higher-priced Japanese vehicles and a proliferation of Japanese assembly plants in North America.
[Fast Fact: VERs came about in the 1930s, gaining a lot of popularity in the 1980s when Japan used one to limit auto exports to the U.S.].