Voluntary Export Restraint Agreements Definition
VERs are generally created when industries seek refuge from competing imports from certain countries. The exporting country then proposes veRs to appease the importing country and prevent it from imposing explicit (and less flexible) trade barriers. VERs are often created because exporting countries prefer to impose their own restrictions rather than risk obtaining less favourable terms through tariffs or quotas. They have been used by major developed economies. They have been in use since the 1930s and are applied to a wide range of products, from textiles to footwear, steel and automotive. They became a popular form of protectionism in the 1980s. The most notable example of VERs is that, in the 1980s, due to American pressure, Japan imposed a VER for its car exports to the United States. Subsequently, the VER granted the U.S. auto industry some protection against a wave of foreign competition. This relief was short-lived, however, as it eventually led to an increase in exports of japanese vehicles at higher prices and a spread of Japanese assembly plants in North America.
A voluntary export restriction is a limit on the amount of goods that can be exported from a country for a certain period of time, set by a government. Often the word is voluntarily put in quotation marks, as these restrictions are usually implemented at the request of importing countries. Voluntary export restrictions (VERs) are now a common form of non-tariff barrier that has expanded and extended in recent years from textiles, clothing, steel and agriculture to automobiles, electronics and machine tools. This article discusses the fundamentals of VERs, why they are used, and their economic consequences. VERs tend to create rents that can be important to foreign producers. The OECD estimates that the annual transfer of OECD countries to textile and clothing exporters in emerging Asian countries, under bilateral export restraint agreements for macro-financial assistance, amounts to at least $2 billion. The above-VER study of Japanese car exports to the United States calculated that Japanese exporters “earned” $1 billion in rents just because of pure price effects in 1984; The total transfer to foreign suppliers amounted to $1.67 billion, indicating that third-country exporters who were not retained by the VER were able to benefit. Mr. Kostecki estimated, using a VER rate equivalency method, that rent transfers resulting from VERs in 1984 could reach $27 billion. An AGREEMENT between the government and the government is normally referred to as an orderly marketing agreement and often sets out rules for export management, consultation rights and control of trade flows. In some countries, such as the United States, ordered marketing agreements differ legally from a VER, as strictly defined. Agreements involving industry are often referred to as voluntary self-limitation agreements.
The distinction between these forms is largely legal and terminology and has little influence on the economic impact of VERs. The application of a voluntary export restriction allows the exporting country to exercise some degree of control over the restriction that would otherwise be lost if it were subject to trade restrictions from the importing country.