Safeguards and voluntary export restraints under the World Trade Organization: The case of Japan's vegetable trade

Abstract

Though the WTO agreement of safeguards prohibits VERs, WTO members can still use VERs without formal intergovernmental agreements. Our theoretical analysis shows that the fear of invoking a safeguard measure by an importing country on a good can induce a disruptive exporter of the good to enforce such a VER under certain conditions (for example, if the number of exporting country is not large). Our empirical analysis, using Japan's first safeguard actions as a case study, suggests that if producers of an exporting country capture an export market and if there is a large drop in their export price, the producers seeing a growing threat of safeguards will enforce such VERs. Our results highlight the need for amendments to the WTO Agreement on Safeguards.