Voluntary Export Restraint (VER): Definition, Uses, Example

What Is a Voluntary Export Restraint (VER)?

A voluntary export restraint (VER) 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.

VERs came about in the 1930s and gained a lot of popularity in the 1980s when Japan used one to limit auto exports to the U.S. In 1994, World Trade Organization (WTO) members agreed not to implement any new VERs and to phase out existing ones.

How a Voluntary Export Restraint (VER) Works

Voluntary export restraints (VERs) fall under the broad category of non-tariff barriers, which are restrictive trade barriers, such as quotas, sanctions, levies, embargoes, and other restrictions. Typically, VERs are a result of requests made by the importing country to provide a measure of protection for its domestic businesses that produce competing goods, though these agreements can be reached at the industry level, as well.

VERs are often created because the exporting countries would prefer to impose their own restrictions than risk sustaining worse terms from tariffs or quotas. They've been in use since the 1930s, applied by large, developed economies to a wide range of products, from textiles to footwear, steel, and automobiles, and became a popular form of protectionism in the 1980s.

After the Uruguay Round and the updating of the General Agreement on Tariffs and Trade (GATT) in 1994, WTO members agreed not to implement any new VERs, and to phase out any existing ones within one year, with some exceptions.

Limitations of a Voluntary Export Restraint (VER)

There are ways in which a company can avoid a VER. For example, the exporting country's company can always build a manufacturing plant in the country to which exports would be directed. By doing so, the company will no longer need to export goods, and should not be bound by the country's VER.

Voluntary Export Restraint (VER) vs. Voluntary Import Expansion (VIE)

Related to voluntary export restraint (VER) is a voluntary import expansion (VIE), which is a change in a country's economic and trade policy to allow for more imports by lowering tariffs or dropping quotas. Often VIEs are part of trade agreements with another country or the result of international pressure.

Advantages and Disadvantages of a Voluntary Export Restraint (VER)

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.

These benefits to producers and the labor market, however, come with some notable caveats. VERs reduce national welfare by creating negative trade effects, negative consumption distortions, and negative production distortions.

Example of a Voluntary Export Restraint (VER)

The most notable example is when Japan imposed a VER on its auto exports into the U.S. as a result of American pressure in the 1980s. The VER subsequently gave the U.S. auto industry some protection against a flood of foreign competition.

This relief was short-lived though, as it ultimately resulted in a rise in exports of higher-priced Japanese vehicles and a proliferation of Japanese assembly plants in North America.