Voluntary Export Restraint and the story of Japanese cars in the

US

A1 – External Economics –

Course 48

Voluntary Export Restraint and the story of Japanese cars in the US

Part 1 - Theory of VERs

Part 2 - Why did the US use VERs in the

Japanese cars case?

Part 3 - Why did the US have to stop

VERs after that?

Conclusion

Part 1: Theory of VERs

1. Definition

• A voluntary export restraint (VER) or

voluntary export restriction is a trade

restriction on the quantity of a good

that an exporting country is allowed to

export to another country.

• This limit is self-imposed by the

exporting country.

Part 1: Theory of VERs

2.1. Causes

• VERs arise when the import-competing

industries seek protection from a surge of

imports from particular exporting countries.

• VERs are then offered by the exporter to

appease the importing country and to deter

the other party from imposing even more

explicit (and less flexible) trade barriers.

Part 1: Theory of VERs 2.1. Effects • Figure 1.1. Welfare Effects of a VER: Large Country

Case

Table 1.2. Welfare Effects of a Voluntary

Export Restraint

Importing

Country

Exporting

Country

Consumer

Surplus

− (A + B + C +

D)

+ e

Producer

Surplus

+ A

− (e + f + g +

h)

Quota Rents

0

+ (c + g)

National

Welfare

− (B + C + D)

c − (f + h)

World Welfare

− (B + D) − (f + h)

Part 1: Theory of VERs

Key points

• A VER raises consumer surplus in the export market and lowers it in the import country market.

• A VER lowers producer surplus in the export market and raises it in the import country market.

• National welfare may rise or fall when a large exporting country implements a VER.

• National welfare in the importing country rises when a large exporting country implements a VER.

• A VER of any size will reduce world production and consumption efficiency and thus cause world welfare to fall.

Example

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