Voluntary Export Restraint (VER)

A voluntary export restraint (VER) is a self-imposed limit by an exporting country (or firms within it) on the quantity of a particular good shipped to an importing country. VERs are a form of non‑tariff barrier used to reduce foreign competition in an importing country without imposing formal tariffs or quotas on that country’s side.

Key takeaways
* VERs are self-imposed export limits agreed between exporting and importing parties to restrict the flow of specific goods.
* They function as non‑tariff barriers and were widely used in the 20th century, especially in the 1970s–1980s.
* VERs tend to protect domestic producers but reduce overall national welfare through price increases and market distortions.
* The World Trade Organization (WTO) proscribes new VERs following the 1994 Uruguay Round; existing ones were to be phased out.

How VERs work
* Typically initiated at the request of the importing country or under pressure from its domestic industries seeking protection.
* Exporting countries or exporting firms agree to cap shipments to avoid facing harsher measures such as punitive tariffs or mandatory quotas imposed by the importer.
* VERs can be negotiated at the government level or arranged by industries and often target sensitive sectors (e.g., autos, textiles, steel).

Limitations and common evasions
* Firms can bypass VERs by establishing production or assembly plants inside the importing country, which changes the trade flow from exports to local production.
* Such relocation undermines the protection intended for import-competing firms and is a main reason VERs have limited long-term effectiveness.
* Other evasions include rerouting through third countries or classifying products differently to avoid restrictions.

VER vs. Voluntary Import Expansion (VIE)
* VER: exporting country limits exports outward.
* VIE: importing country agrees to expand imports, commonly by lowering tariffs or removing quotas, often as part of trade negotiations.
* Both are cooperative, negotiated trade measures but move in opposite directions—restricting exports versus increasing imports.

Advantages and disadvantages
Advantages (for domestic producers in the importing country)
* Reduced foreign competition can lead to higher domestic prices, increased profits for protected firms, and short‑term gains in employment in the sheltered sector.

Disadvantages (for overall economy and consumers)
* Higher consumer prices and reduced choice.
* Consumption distortions: consumers pay more or buy less than they otherwise would.
* Production distortions: resources are diverted to less efficient domestic industries.
* Net reduction in national welfare due to the above distortions and potential retaliation or inefficiencies.

Historic example
* 1980s Japan–U.S. autos: Under U.S. pressure, Japan agreed to limit auto exports to the United States. The VER temporarily shielded U.S. automakers but led to higher-priced Japanese models reaching the U.S. market and encouraged Japanese automakers to establish assembly plants in North America—reducing the long‑term protective effect.

Current status
* After the Uruguay Round (1994), WTO members agreed not to establish new VERs and to phase out existing ones. As a result, VERs are now rare and largely replaced by other trade remedies and formal multilateral dispute mechanisms.