The Dynamics of Voluntary Export Restraints (VER): Definition, Operation, and Real-world Cases

A voluntary export restraint (VER) is a mechanism employed by exporting nations to impose self-regulated limitations on the quantity of goods they export to another country. This strategic measure originated in the 1930s and gained significance, particularly in the 1980s, exemplified by Japan’s restriction on auto exports to the U.S. The World Trade Organization (WTO) members collectively agreed in 1994 to refrain from implementing new VERs and gradually phase out existing ones.

Voluntary export restraints (VERs) fall under the broader category of non-tariff barriers, including quotas, sanctions, levies, embargoes, and other restrictions. Typically initiated at the request of the importing country, VERs aim to protect domestic industries from foreign competition. These agreements may be reached at both national and industry levels.

VERs are often a calculated move by exporting nations to control their own restrictions rather than risk unfavorable terms through tariffs or quotas. This strategy has historical roots dating back to the 1930s but saw widespread adoption across industries in the 1980s.

After the Uruguay Round and the subsequent update of the General Agreement on Tariffs and Trade (GATT) in 1994, WTO members committed to not introducing new VERs and gradually phasing out existing ones within one year, with some exceptions.

While VERs serve as protective measures, there are strategic ways for companies to avoid them. For instance, an exporting country’s company can establish manufacturing plants in the importing country, eliminating the need for direct exports and circumventing VER restrictions.

This option to build manufacturing facilities overseas and bypass exporting rules has historically rendered VERs less effective in protecting domestic producers.

A related concept is voluntary import expansion (VIE), representing a shift in a country’s economic and trade policy to facilitate more imports. This often involves reducing tariffs or eliminating quotas. VIEs are typically part of trade agreements with other nations or a response to international pressure.

As of the 1994 agreement, WTO members committed to phasing out existing VERs. While they may not be prevalent, exceptions may still exist depending on specific trade dynamics.

VERs can lead to a reduction in national welfare due to negative trade effects, consumption distortions, and production distortions. While they may benefit domestic producers, the overall impact on the economy requires careful consideration.

Yes, companies can strategically circumvent VERs by establishing manufacturing plants in the importing country. This approach eliminates the need for direct exports and provides an avenue for companies to navigate around the imposed restrictions.