Export Quota Allocations, Export Earnings, and Market Diversification

Non-tariff barriers (NTBs) present a growing threat to a liberal world-trading system and slow the reallocation of production of mature industries from developed to developing countries. Among NTBs, voluntary export restraints (VERs) are proliferating and constitute a major element of the"new protectionism". It has been repeatedly observed that export markets which are not currently part of the VER agreement often follow suit and enter into a VER agreement. Exporting countries may then wish to prepare themselves for this eventuality by actively promoting export diversification towards non-restricted countries as a precautionary measure against future restrictions. Section II of this paper briefly describes how export diversification is typically achieved. In Section III, a simple model is set up that analyzes the implications of the two tier quota allocation rule. Section IV briefly examines alternative instruments and motivations for achieving export diversification. Implications are also drawn for policy actions by nonrestricted countries and the suggestion made that the recent increase in anti-dumping cases may be linked to this two-tier quota allocation practice.