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Voluntary export restrictions (VERs) are decisions by one nation to limit the export of a product to another nation, often to avoid economic retribution. VERs emerged after WWII to reduce international economic tensions and level the playing field. Japan’s VER on auto exports to the US in the 1980s is a well-known example. Exporting nations can circumvent VERs by investing in foreign factories or finding new markets.
A voluntary export restriction is a decision by one nation to restrict the export of a product to another nation. The emergence of voluntary export restrictions came after World War II to avoid international economic tensions and perhaps level the playing field. A somewhat more recent example is Japan’s voluntary restriction on auto exports to the United States in the early 1980s. A nation that initiates voluntary export restrictions does so in hopes of avoiding economic retribution from the importing nation. Exporting nations can get around these restrictions by investing in foreign factories and/or finding new markets.
Nations raised tariffs and prohibited foreign imports as a way to strengthen their domestic industries before 1945. Harsh repayment schedules and lending policies established by Allied nations after World War I contributed to the onset of the World War II according to some historians. The end of World War II emboldened world leaders to encourage world trade by reducing formal economic barriers. This market boost would come from voluntary agreements among nations on minimizing the effects of foreign competition. These agreements would then allow nations to develop their own industries without interference from similar imported products which could undermine the domestic industry.
An often cited example of voluntary export restrictions is that which emerged between Japan and the United States in the 1980s. Japanese automakers had exported cars and trucks to the United States which were cheaper and more popular than American vehicles. U.S. auto industry executives lobbied President Ronald Reagan to establish import quotas on Japanese cars. These American automakers were concerned that Japanese automobiles would permanently alienate consumers from US-made vehicles. The Reagan administration managed to convince the Japanese government to temporarily halt auto exports to the United States in 1981.
In general, an exporting nation in this situation may agree to comply voluntarily because it may want to avoid damaging its relationship with a foreign government and the country’s consumers. For example, imported goods could significantly cost jobs and hurt the recipient country’s economy; basically, jobless people have less money to spend on cars or other imported goods. Another reason a nation might curb exports is that requesting nations can pursue punishment ranging from raising tariffs, taxes, or quotas on imported goods to outright bans on foreign products, among other things.
An exporting nation could avoid voluntary export restrictions by producing goods within the foreign market itself. This approach would require buying factories, hiring local workers and moving machinery from domestic facilities to those abroad. For example, some Japanese automakers now produce cars in US plants. Every product from these factories would be delivered directly to the consumer rather than through a more complicated import process. Another option to circumvent voluntary export restrictions is to locate another foreign market to offset potential losses in a current market.
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