Economics
Voluntary Export Restraints
Voluntary Export Restraints (VERs) are agreements between countries where the exporting country agrees to limit the quantity of a particular product that it will export to the importing country. VERs are often used to avoid the imposition of more restrictive trade barriers, such as tariffs or quotas, by the importing country. VERs are controversial as they can lead to higher prices for consumers and reduced competition.
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4 Key excerpts on "Voluntary Export Restraints"
- Robert E. Baldwin, Anne O. Krueger, Robert E. Baldwin, Anne O. Krueger(Authors)
- 2008(Publication Date)
- University of Chicago Press(Publisher)
61 Voluntary Export Restraint sectors). Similarly, if a VER cuts back on import spending, there are negative employment effects in exportables to be considered in conjunc- tion with any employment gains in the protected sectors. Net employ- ment effects depend both on a comparison of labor intensities in various sectors of the economy as well as on the issue raised by Feenstra as to the expansionary or contractionary effect in the import-competing sector. In any case Feenstra’s conclusion that the employment effects of the VER are less obvious than the welfare effects seem supported at the econ- omy-wide level as well as in the U.S. auto industry. References Alchian, A., and W. Allen. 1972. University economics, 3d ed. Belmont, Calif.: Wadsworth. Falvey , R. 1979. The composition of trade within import-restricted prod- uct categories. Journal of Political Economy 87: 1105-14. Rodriguez, C. 1979. The quality of imports and the differential welfare effects of tariffs, quotas, and quality controls as protective devices. Canadian Journal of Economics 12:43949. Comment Mordechai E. Kreinin This is an excellent paper, employing an imaginative approach to an important problem. At issue is the effect of the Japanese Voluntary Export Restraint in autos on U.S. welfare and employment. Product upgrading is a well-known outcome of any quantitative import restriction (import quotas, VERs) limiting the importation of a product to a specified number of units without distinction between brands, grades, or other product attributes. Because such quantitative limitations are equivalent to a specific tariff, they raise the price of cheap brands proportionately more than the price of expensive brands. This constitutes an incentive on the part of buyers and of exporters to upgrade the product. Upgrading occurs in all cases where product differentiation exists.
eBook - PDF- Akira Takayama, Michihiro Ohyama, Hiroshi Ohta, Akira Takayama, Michihiro Ohyama, Hiroshi Ohta(Authors)
- 2013(Publication Date)
- Academic Press(Publisher)
During the most recent two decades these arrangements have become perhaps the most prominent means by which protectionist initiatives have been implemented in the industrial world. This chapter focuses on three questions. What distinguishes those industries in which Voluntary Export Restraints (VERs) can be expected to emerge? If, as seems to be the case, government policy were motivated to a significant degree by concern for industry welfare, what would be the effect of VERs on national welfare? How is the behavior of an economy affected if the government is apt to attempt to negotiate VERs when import-com-peting industries run into trouble? More accurately, the restraint may violate international agreements, but all interested parties accept the restraint, so there is no one to object. 3 TRADE, POLICY, AND INTERNATIONAL ADJUSTMENTS Copyright © 1991 by Academic Press, Inc. All rights of reproduction in any form reserved. 4 ETHIER 1. THE MODEL Consider an imperfectly competitive domestic market in which n home firms and n* foreign firms sell a homogeneous product. The same firms may compete in foreign markets as well, but the home market supposedly is segmented, and attention solely will be confined to the home market here. Furthermore, assume that n and «* are each at least as large as two, so that each firm faces competition from firms in both countries. Cost functions are given by C(y) =F + cy for each home firm and by C*(x) = F * + c*x for each foreign firm. Here y denotes the domestic sales by each home firm and x the sales of each foreign firm. These cost functions generate the following profit functions for the representative foreign and home firms: π*(χ; y) = p(z)x - F* - c*x 7r(y;x) =p(z)y - F - cy where z = ny + n*x (total sales in the home market) and p(z) is the inverse demand function. The following focuses exclusively on Cournot-Nash equilibria.
eBook - PDFLaw and Politics on Export Restrictions
WTO and Beyond
- Chien-Huei Wu(Author)
- 2021(Publication Date)
- Cambridge University Press(Publisher)
116 Given that grey-area measures escaped the discipline of the GATT rules, they turned out to be a preferable instrument to limit the quantity of imports in response to the protectionist pressure of domestic industry. The major reason why the exporting country is willing to ‘voluntarily’ restrain its exports to the importing countries stems from the fear of suffering from more severe penalties, most likely, trade defence measures or other congressional legislation from the importing country. However, the exporting country may also benefit from grey-area measures resulting from the segmentation of the market of importing countries by import or export cartels and from the shift of the quota-rent from the government of the importing country to the government of the exporting country or the exporting industries themselves. 117 As Richard Pomfret, using both perfect competition and imperfect competition models, explains, exporting industries and domestic indus- tries may reap the benefits arising from VERs. In the perfect competition model with no uncertainty, a VER has the same effect as a tariff on 115 Frank Wolfram, ‘Agreeement on Safeguard, Article 11 SA’ in Rüdiger Wolfrum, Peter- Tobias Stoll and Michael Koebele (eds), WTO-Trade Remedies (Martinus Nijhoff Publishers 2008) 378. 116 Pomfret, ‘The Economics of Voluntary Export Restraint Agreements’ (n. 2) 199. 117 Alan Sykes, The WTO Agreement on Safeguards: A Commentary (Oxford University Press 2006) 23. . domestic price and output. Nonetheless, the revenue of a tariff accrues to the importing countries while the quota rent arising from the VER goes to the government of the reporting country or exporting industries. The transfer of quota rent helps to explain the popularity of VERs.
eBook - ePubInternational Trade Policy
A Contemporary Analysis
- Nigel Grimwade(Author)
- 2006(Publication Date)
- Routledge(Publisher)
covered by VERs (Kostecki, 1987). However, this does not tell us how much trade is affected by VERs since there is clearly some unknown quantum of trade which would have taken place had these VERs not existed. It follows that the amount of trade affected is much greater. Moreover, for certain sectors, the proportion of trade covered by VERs is much higher. Kostecki estimated that 80 per cent of world trade in textiles and clothing is regulated by the MFA, with part of the remainder covered by bilateral export restraints involving non-MFA countries. An estimated 20 per cent of world trade in steel and steel products is subject to VERs (Kostecki, 1987). The 1986 US-Japan semiconductor agreement meant that 90 per cent of world trade in semiconductors was subject to a single VER. Finally, the proportion of trade covered by VERs is higher than average for certain countries. Kostecki puts the import-weighted coverage of VERs at 38 per cent for EC imports from Japan and not much less than 33 per cent for US imports from Japan.The economic analysis of VERs
Hamilton (1984c, 1985b) has analysed the economic effects of VERs in partial equilibrium terms using two models: one for the case of a nondiscriminatory VER involving an importing country and all foreign suppliers of the product; and the other the case of a discriminating VER involving an importing country and one source of supply. The case of a nondiscriminatory VER is set out in Figure 3.2.Figure 3.2 The effects of a voluntary export restraint on the importing CountrySource: Hamilton (1984a)DD DD is the demand curve for the product in the importing country and SD SD the domestic supply curve. SW SW is the combined domestic plus foreign supply curve which Quantity is more elastic than the domestic supply curve. OP0 is the equilibrium price under free trade with domestic consumption equal to OQ4 , domestic production equal to OQ1 and imports equal to Q1 Q4 . The importing country wishes to reduce the level of imports to Q2 Q3 . To do this, it enters into a VER with foreign suppliers. We can imagine either that it enters into a VER with all foreign suppliers simultaneously or that the only foreign producer is the one with whom it negotiates a VER. The effect of the VER is identical to that of an import quota: the equilibrium price rises to OP1 , domestic consumption falls to OQ3 , domestic production rises to OQ2 and imports fall to Q2 Q3 . However, although the market price in the importing country has risen to OP1 , the foreign supply price has fallen to OP2 . The logic behind this is that a nondiscriminatory VER applied to all suppliers will create excess capacity in the world industry, resulting in lower short-run marginal costs. This means that foreign suppliers can enjoy a windfall profit of P2 P1
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