Voluntary export restraint

In some countries, especially in the United States, structured marketing arrangements are legally different from strictly defined voluntary export restrictions.

As a result of the Uruguay round of the GATT, completed in 1994, World Trade Organization (WTO) members agreed not to implement any new VERs, and to phase out any existing ones over a four-year period, with exceptions grantable for one sector in each importing country.

Restrict the export of relevant commodities, and the importing country shall conduct supervision and inspection based on customs statistics.

[1] VERs were usually implemented for the second reason and compared to the other protectionist policies they offered several advantages, at least from the viewpoint of the protecting country.

This was because VERs already incorporated built-in compensation in the form of rents (i.e., higher earnings arising from the scarcity of a product).

[1] Another reason for the introduction of VERs was that imposing tariff or quotas on foreign goods may be politically risky since the costs of such measures can be recognized by the public.

[1] A VER could also have been attractive to the exporting country, since it made the imported good scarcer, therefore a producer was enabled to raise its price.

The option to build manufacturing facilities overseas, and in this way, bypass exporting rules is one of the main reasons why VERs have historically been ineffective in protecting domestic producers.

[7] With functioning VERs, producers in the importing country experience an increase in well-being as there is decreased competition, which should result in higher prices, profits, and employment.

During the Eisenhower administration, the United States government negotiated a voluntary export restraint with Japanese textile manufacturers to limit the amount of imports of Japanese produced cotton products, including velveteen, cotton fabrics, and blouses which had reached an all-time high in exports in 1955.

[9] The legacy of the bilateral voluntary export restraint and resulting losses in the US market for Japanese textile manufacturers contributed to a period of strained trade relations between Japan and the United States.

Textile producers in Europe faced in the 1950s and the 1960s similar problems to their US counterparts, and as a result negotiated voluntary export restraints as well.

Vehicles produced by Japanese manufacturers like Mitsubishi or Suzuki for United States brands like Chrysler and General Motors were counted in the export restraint limitations.

However, with a growing deficit in trade with Japan, and under pressure from domestic manufacturers, the US government extended the quotas for an additional year.

GM established NUMMI which was initially a joint venture with Toyota which later expanded to include a Canadian subsidiary (CAMI)) - a GM/Suzuki which were consolidated that evolved into the Geo division in the U.S. (its Canadian counterparts Passport and Asuna were short lived - Isuzu automobiles manufactured during this era were sold as captive imports).

The Japanese Big Three (Honda, Toyota, and Nissan) also began exporting bigger, more expensive cars (soon under their newly formed luxury brands like Acura, Lexus, and Infiniti - the luxury marques distanced themselves from its parent brand which was mass marketed) in order to make more money from a limited number of cars.

The effect of the voluntary export restraint was, that it raised the prices of the cars imported from Japan for about $1200, while reducing their sales.

After the initial institution of the voluntary export restraint in 1981, prices of Japanese imported vehicles did not raise significantly.

However, significant increases in price of Japanese cars from 1986 onward can be attributed as an effect of the initial voluntary export restraint.