Voluntary Export Restraints VER

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Voluntary Export Restraints(VER)

• Alex Way
• Jarryd Bray
• Venita Ross

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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.

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VER Situations

• VERs arise when import-competing industries
  seek protection from a surge of imports from
  specific exporting countries. VERs 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.

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VER Situations

• VERs 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

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Common Examples of VER

• 1980s Japan (Automobile Industry)
• 1950s Textile Industry

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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.

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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.

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Price Effect Graph
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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.

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Welfare Effects Graph
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Importing Country Welfare Effects

• Consumer Surplus - (A B C D)
• Producer Surplus A
• Quota Rents 0
• National Welfare - (B C D)

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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)

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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.

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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.

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Impact Of VER

• Intense competition from Japanese Brands
  generated calls for trade protection
• Applied in 1980s 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.

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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.

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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.

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VER and the Auto Industry
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References

• Suranovic, Steven M. International Trade Theory
  and Policy. lthttp//internationalecon.com/Trade/
  Tch90/T90-17.phpgt