The Political Economy of Voluntary Export Restraint Agreements

SUMMARY Voluntary export restraint agreements ( VER s) have emerged as a popular alternative to traditional protectionist devices, whose use is severely limited by trade agreements. Aimed at ‘disruptive’ suppliers, VER s tend to shift the source of imports away from the most efficient producers. Yet such negotiated agreements are attractive to exporters because they are preferable to the alternative of unilateral import barriers, especially since they allow exporters to control the trade restriction and thereby raise the export price. In fact all effective participants gain from the VER agreement, while consumers and others hurt by it are excluded from the negotiating process. Among the inherent problems of VER s, however, is their tendency to divert exports towards third markets, spreading protectionism worldwide and destabilizing trade relations. Continuing protectionist pressure in such an environment encourages the development of more sophisticated and comprehensive methods of induced export restraint.