Export Restraints Research Articles

The Dynamics of Negotiated Protectionism

Recent protectionism by the United States has principally taken the form of negotiated barriers to trade, such as voluntary export restraints. These barriers tend to evolve over time and to display three patterns, which we label institutionalized, temporary, and sporadic protectionism. Cartel theory and studies of the politics of protection suggest that the dynamics of negotiated protectionism will depend on three variables: the barriers to entry into an industry, the size of the domestic industry, and the exit barriers for domestic firms. Low barriers to entry will lead to institutionalized protectionism when the domestic industry is large and exit difficult; temporary protectionism results when the domestic industry is small and exit easy; and sporadic protectionism is likely when barriers to entry are high. Brief studies of U.S. protectionism in textiles and apparel, steel, footwear, televisions, and automobiles illustrate the value of this framework.

Nuclear proliferation: who's next?

Unsettling developments in the past 18 months could lead to nuclear competition and terrorism in the world's least-stable regions. US efforts to stop the proliferation of nuclear weapons seem ineffective in view of such unsettling developments, especially among the states whose programs are most advanced. The task is more difficult than it was a decade ago. Then the policy of export restraint on the part of nuclear supplier countries formed the basis for a unified strategy that helped retard proliferation across the board. Today each country on the nuclear threshold must be addressed individually, taking into account its unique regional concerns and its particular relations with the US. If there is a unifying thread to US efforts to stop proliferation, it is that these have become increasingly political and diplomatic. In such a setting it is all the more important to make nonproliferation a top priority on the US foreign policy agenda. Unfortunately, other concerns have eclipsed nonproliferation in the recent past. The effect of that neglect is increasingly evident. 9 references, 1 figure, 1 table.

The Quality of Export Products and Optimal Trade Policy

This paper demonstrates that voluntary export restraints may be socially desirable to upgrade the quality of export products. When informational externalities in the recognition of quality result in suboptimal production of quality by competitive firms and the enforcement of socially desirable quality is very costly, optimal trade policy calls for export restrictions. These restrictions apply to both size and number of firms in the export industry. Export licenses combined with a specific production tax cum subsidy represent a suitable pair of instruments. Copyright 1987 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

GATT Law, Agricultural Trade, and Developing Countries: Lessons from Two Case Studies

This article examines the relevance and applicability of the law of the General Agreement on Tariffs and Trade (GATT) to two specific problems faced by Thailand: the negotiations of a voluntary export restraint agreement on cassava with the European Economic Community and the increased subsidies on rice given by the United States under the Food Security Act of 1985. In the case of cassava, Thailand appears to have had parts of GATT law on its side, but the government was very reluctant to use the law to its own advantage. This reluctance was due to unclear procedures under GATT as to how to make effective use of these legal advantages. On the rice subsidy issue, conversely, the substantive law is unclear and provides limited protection for competing exporters. The wider lesson drawn from the two cases is that GATT's law should be modified and its role reevaluated so that both developed and developing countries can participate more fully in the GATT system. This will be necessary if the GATT's laws are to become useful instruments in the hands of developing countries in their bilateral negotiations with contracting parties which are the more powerful economically.

Textiles and Clothing in a New Round of Trade Negotiations

Because developing countries generally have a comparative advantage in the production of labor-intensive textiles and clothing, the liberalization of trade in these products is critical to their prospects for increasing foreign exchange earnings. The new round of trade negotiations is likely to be less important for trade in textiles and clothing, however, than were the recent renegotiations of the fourth Multifibre Arrangement (MFA). As the MFA remains in effect until July 1991, this limits the range of measures which can be altered in the interim. Nonetheless, textile trade will influence the process and outcome of the current negotiations because of the overlap of textile trade disputes with other broader trade issues. These include tariffs, the rollback of tariffs and quotas, voluntary export restraints, and other nontariff barriers, all of which have been applied to textiles trade at various times. Each of these measures has an influence on trade flows and a cost to both the importing and exporting countries. Any proponents of liberalization of trade in textiles and clothing must not only be familiar with these costs but also must be knowledgeable about the economic and political forces which have initiated and sustained the protective measures. The following discussion suggests that there are groups and transitional approaches which may favor some progress in textile trade liberalization in the current round of negotiations. The Multifibre Arrangement (MFA), the international rules which govern much

The Effects of U.S. Trade Protection for Autos and Steel

THE ROUGHLY 60 percent appreciation in the real value of the U. S. dollar between 1979 and 1985 created an environment that was increasingly conducive to protectionist politics in the United States. Automobile and steel quotas were imposed. A textile quota bill was passed in the House of Representatives. Motorcycles were subjected to quotas and tariffs. And pressures mounted for protection of the semiconductor and telecommunications equipment markets. The 1981 voluntary export restraint agreement with Japan on automobiles marked the first overt attempt to protect the U.S. automobile industry from imports since World War II. The 1984 steel voluntary restraint agreements, on the other hand, represent the third episode in protection for the U.S. steel industry in two decades. The first steel restraints began in 1969 and lasted until 1974. Triggerprices were imposed in 1978 and extended, erratically, into 1982. The current steel restraints have been implemented with twenty-five major steel exporting countries. ' Each of these exercises in trade restraint has been advanced as temporary, designed to provide the U.S. producers with breathing room to adjust to the changes in world market conditions.2 But have

BOOK REVIEWS: What Britain Pays for Voluntary Export Restraints, by David Greenway and Brian Hindley

BOOK REVIEWS: What Britain Pays for Voluntary Export Restraints, by David Greenway and Brian Hindley

GATT Safeguards and Voluntary Export Restraints: What Are the Interests of Developing Countries?

Exports from developing countries are frequently the targets of trade protection to offset injury to domestic producers. A safeguard clause of the General Agreement on Tariffs and Trade (GATT), Article XIX, authorizes such protection, but voluntary export restraints (VERS), which are not authorized or controlled by the GATT, are often used in its place. A call for a “comprehensive agreement on safeguards” was one outcome of the 1986 Punta del Este ministerial meeting. The spread of VERS is often taken to be a threat to the interests of developing countries. The costs of VERS to developing country exporters may have been overestimated, however, and as a consequence, developing countries may be at risk of conceding too much, perhaps in terms of a relaxation of the conditions of application of Article XIX, in an attempt to ban or directly control VERS. The central issue is the extent to which VERS are adopted to avoid invocation of Article XIX. If so, there is no valid case for developing countries to pay anything for a ban on VERS. A better course for them would be to press for more rigor in GATT articles used as threat, which would enhance their bargaining position in setting the conditions for VERS.

More on the non-equivalence of voluntary export restraints

This note demonstrates that VERs limiting exporters to a percentage of the domestic market are not equivalent to other trade restrictions, and that they can be inferior to equivalent import quotas even when the quota rents accrue to foreign exporters.

Estimating the welfare effects of voluntary export restraints and tariffs: an application to nonleather footwear in the UK

(1986). Estimating the welfare effects of voluntary export restraints and tariffs: an application to nonleather footwear in the UK. Applied Economics: Vol. 18, No. 10, pp. 1065-1083.

The New Protectionism: U.S. Trade Policy in Historical Perspective

Until quite recently, cheerful accounts charting the postwar liberalization of American international trade policy were convincing. It was correct to stress the historic shift toward free trade that began with the series of bilateral accords reached under the Reciprocal Trade Agreements Act of 1934 (RTAA), accelerated with instatement of the General Agreement on Tariffs and Trade (GATT) in 1947 and the Kennedy Round of tariff reductions in the 1960s, and seemed to progress more or less consistently thereafter. But upbeat descriptions appear increasingly inappropriate today, considering the extent to which new trade regulations -orderly marketing agreements (OMAs), voluntary export restraints (VERs), selective procurement, product standards, and buy-American requirements, to name a few have replaced the old tariffs. For the most part, since the disastrous Smoot-Hawley Act of 1930, Congress has stopped short of enacting patently protectionist statutes. But a welter of restrictive devices has accumulated nonetheless, through a political process more circuitous than in the past. The scope of today's defenses against imports is narrower than the all-embracing tariff in effect a half-century ago. Nevertheless, by 1983 they covered nearly onethird of the U.S. market in manufactured goods at an estimated cost of about $70 billion to American consumers.' And the coverage and cost threaten to in-

An Assessment of Voluntary Restraints on Hong Kong Exports to Europe and the USA

Estimates of import tariff equivalents (MTEs), 1981-84, of European and US voluntary export restraints on Hong Kong are presented with estimates of rent incomes transferred. MTE rates varied sharply over time and inversely with European tariffs, as predicted by the model making national restrictions pointless as protection for small European countries. The model points to, and uses, a new way of estimating non-tariff barriers (NTBs) through derived estimates; in principle, once one has measured the restrictiveness of country l's NTBs, one can derive an estimate of the restrictiveness of country 2's NTBs.

The economic impact of the Japanese automobile export restraint

The economic impact of the Japanese automobile export restraint

Import penetration and barriers to trade: the case of the UK television set market

The article considers the determinants of import penetration in the UK television (TV) set market 1968–1981. In particular, it examines the impact of tariff and non-tariff barriers to trade, the latter consisting of the phase alternating line (PAL) colour system patent licence, vertical integration of domestic TV producers into TV renting, quotas and voluntary export restraints (VERs). A qualitative examination is found to be more strongly influenced by non-tariff barriers to trade than by tariffs, and hence is related to the product cycle via the effects of renting. Product specific variables and supply side factors emerge as important in determining import penetration.

The upgrading effect of voluntary export restraints

Given that a volume-defined VER is introduced on two differently priced varieties of a good,(i) the transfer of the VER-rent to the exporting country will cause imports of both varieties to fall,(ii) the relative price change in favour of the high cost variety counteracts this import fall and could in fact outweigh it,(iii) an ad valorem tariff restoring the original relative price of the two varieties would increase welfare and that welfare increase could in fact outweigh the welfare loss due to the VER-transfer to the exporting country.

Trade policy with several goods and ‘market linkages’

In this paper we demonstrate a substantial role for trade policy in a competitive model, finding that: (a) an export subsidy may benefit the exporting country; (b) a ‘voluntary’ export restraint may benefit the importing country; and (c) a countervailing duty may benefit the importing country even if it has no effect on the foreign price of that good. These results are in sharp contrast to the conventional wisdom from two-good or partial equilibrium models, and are derived in a framework of several goods. The pattern of substitution and complementarity across goods - or ‘market linkages’ - determines the role for trade policy.

The (Non‐) Equivalence of Quantitative Restrictions

Research on country‐specific import quotas (CSQs), whereby an aggregate quota quantity is allocated to specific exporting nations, has been overlooked despite the fact that they are empirically relevant. This article demonstrates that the economic effects of CSQs may differ markedly from those of voluntary export restraints (VERs) and aggregate import quotas (AQs). For example, CSQs may result in higher domestic prices and lower import quantities than AQs. Moreover, profits of foreign exporters under CSQs may actually increase relative to free trade. Recognition of these differences by policy makers is of particular importance in the light of the fact that these particular quantitative restrictions are viewed as policy substitutes.

The Japanese Automotive Voluntary Export Restraint Agreements and International Law

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Tariffs, quotas and domestic-content protection: some political economy considerations

In this paper we have focused our attention on the relation between the configuration of protection-seeking and of rent-seeking interests and the choice of the protection instruments. In doing so, we have abstracted from the problem of nonequivalence of tariffs and quotas. Recent writings on product differentiation (Rodriguez, 1979, Donnenfeld, 1984) have thrown new light on this old issue; it may well be that the discussion is of key importance to the understanding of industry's predilection for quantitative restraints. We also failed to deal with the question on nonequivalence of restrictive measures under conditions of uncertainty. Finally, we touched only peripherally on the interaction among state. It is, perhaps, more realistic to regard trade-barrier formation as a game among nations as in Baldwin and Clarke (1985). Every "player" seeks at once to protect its import-substituting industries, and to promote its exports, by putting up barriers and by demanding that others lower theirs. This approach is more suited, however, to explain the severity of restraints than it is to explain the nature of restraints, which is the problem at hand. Trade restrictions have a "protective" and a "revenue" effect. In less-developed countries, with ineffectual internal revenue-collecting systems, revenue-seeking governments may ally themselves with protection-seeking, emergent industries and institute high tariffs. Tariffs and quotas may coexist if the trade-restriction-seeking alliance includes traders. Voluntary export restraints, the newest of the protective devices, may be popular because they circumvent international treaties and short-circuit cumbersome procedures associated with changes in tariffs or quotas, but they also have the virtue of inviting foreign exporters to act like price-setters. The harm to the foreign exporters is thereby mitigated — in fact, exporters may be gainers. Hence the danger of retaliatory action on the part of foreign governments is lessened. Domestic-content legislation is a unique device in that the same domestic factor benefits from protection and also collects the protection-created revenue. We show the formal identity between the "South African" situation, in which the maximum black/white-worker ratio is a binding constraint, and regulations requiring that a given percentage of the value of the product be domestically produced. We also derive formally the maximum permissible foreign-content ratio which is optimal from the point of view of the protected interests. In our analysis we have said virtually nothing about the victims of protectionism. A discussion of the impact of the various measures on those who bear the cost of protection would, doubtless, deepen our understanding of the problem. We should thus consider the magnitude of the deadweight loss and of the income transfer, and the concentration or dispersion of the losers. Last, but not least, we should consider the question of awareness. Thus the cost impact of a tariff is easier to perceive than that of a quota, with the cost of a VER or of domestic-import content rule the most difficult to calculate of all. It may be that the principle of the hiding hand is as important to the new political economy as the Benthamite principles were to the old.

Shorter Papers Automobile Quotas Revisited: The Costs of Continued Protection

This paper examines the loss to the U. S. economy and consumers from the third year of the Voluntary Export Restraint (VER) for Japanese automobiles. Losses due to product differentiation were estimated separately for the domestic car market and Japanese car market. Consideration was given to profit taking as well as product upgrading. The welfare loss ranged from $1.8 billion to $2.8 billion which is higher than loss estimates reported for the first year of the VER. The higher welfare loss reflects the impact of improved economic conditions which resulted in higher prices for manufacturers and dealers and the emergence of product upgrading due to quantity restraints. The total loss to consumers ranged from $2.6 billion to $5.3 billion with more than 80 percent of the loss representing transfers from consumers to producers (domestic and foreign). The high cost of the VER has not been offset by employment gains since Detroit responded to the VER by making fewer cars and increasing its reliance on off ‐ shore production.