VOLUNTARY EXPORT

RESTRAINTS
(VER)
Alex Way
Jarryd Bray
Venita Ross
Definition:
 A restriction set by a government on the quantity of
goods that can be exported out of a country during
a specified period of time. These restraints are
typically implemented upon the insistence of the
importing nations. This action is implemented to
protect specific importing industries.
VER Situations
VER’s arise when import-competing industries
seek protection from a surge of imports from
specific exporting countries. VER’s are typically
offered by the exporter to appease the importing
country and to avoid the effects of possible trade
restraints on the part of the importer.
VER Situations
 VER’s are also typically enforced on a bilateral
basis. One country will limit exports to another to
limit imports on a specific industry in a specific
country. This bilateral situation protects the
members of specific industries within a country
Common Examples of VER
 1980’s Japan (Automobile Industry)
 1950’s Textile Industry
Price Effect of VER
 Example: Wheat industry
 US: Wheat exporter that imposes a VER.
 Mexico: Wheat importer.
 Prices
 Mexican wheat and US wheat import price rise.
 Reduce Demand.
 Increase domestic supply, causing reduced US
export supply.
Price Effect of VER
 In the US market:
 Excess supply.
 Lead to reduction in price.
 Lower price will:
 Reduce US supply.
 Raise US demand.
 Reduction in US export supply.
Price Effect Graph
VER Welfare Effects
 PFT is free trade equilibrium price.

 Importing country price will rise

 Demand equal to quota level.

 Exporting country price will fall

 Export supply equal quota level.
Welfare Effects Graph
Importing Country Welfare Effects
 Consumer Surplus = - (A + B + C + D)
 Producer Surplus = + A
 Quota Rents = 0
 National Welfare = - (B + C + D)
Exporting Country Welfare Effects
 Consumer Surplus = + e
 Producer Surplus = -(e + f + g + h)
 Quota Rents = +(c + g)
 National Welfare = c - (f + h)
 World Welfare = -(B + D) - (f + h)
Voluntary Export Restraints (VER)
Significance
 They Do not Violate countries agreement under the
GATT (General Agreement on Tariffs and Trade)
whose aim is to reduce barriers on International
Trade.
 Countries enjoy the benefits of protectionism while
not in violation of International Trade rules by
implementing tariffs
 They encourage good diplomatic relations while
promoting an openness of trade records.
Reasons for VER in Japan
 Japanese vehicles were more fuel efficient due to
oil prices and gave Japanese models an advantage
over domestic producers.
 Imported Sales were 17-22 percent of overall sales
in US.
 Japanese enjoyed substantial cost advantage. Cars
were sold at a much lower price.
Impact Of VER

 Intense competition from Japanese Brands

generated calls for trade protection
 Applied in 1980’s Japan auto makers under
pressure from US competitors
voluntarily limit exports
to US market.
 VER allowed 1.68m Japanese cars into the US each
year in 1981.
Effects of VER on Free Trade
 Increase price for Japanese cars.
 Increased in US producers profits.
 US producers sold more cars.
 American Auto consumers suffered.
 Americans as a whole were worse off due to export
restraint. Prices were $1200 or 14% more than
would have been without restraints.
Other Developments
 Automakers shift production to the US which were
excluded from limits.
 Exchange rates :
 The pass through effect: This promoted a stronger
Yen which increases both the models produced in
Japan and the landed cost of vehicle.
 The competing good Effect: This increases the
landed cost of Japanese models which leads to an
increases in demand and prices of domestic
substitutes.
VER and the Auto Industry
References
 Suranovic, Steven M. “International Trade Theory and Policy.”
<http://internationalecon.com/Trade/Tch90/T90-17.php>