Voluntary Export Restraints Research Articles

Measurement of Nontariff Barriers

As tariffs on imports of manufactures have been reduced as a result of multi-lateral trade negotiations, interest in the extent to which existing nontariff barriers may distort and restrict international trade is growing. Accurate and reliable measures are needed in order to address the issues involving the use and impacts of nontariff barriers. This study assesses currently available methods for quantifying such barriers and makes recommendations as to those methods that can be most effectively employed. The authors focus both on the conceptual issues arising in the measurement of the different types of nontariff barriers and on the applied research that has been carried out in studies prepared by country members of the OECD Pilot Group and others seeking to quantify the barriers. Nontariff barriers include quotas, variable levies, voluntary export restraints, government procurement regulations, domestic subsidies, and antidumping and countervailing duty measures. The authors discuss the many different methods available for measuring the effects of these and other nontariff barriers. Illustrative results are presented for industrial OECD countries, including Australia, Canada, Germany, Norway, the European Union, the United Kingdom, and the United States. Finally, the authors offer guideline principles and recommend procedures for measuring different types of nontariff barriers. Economists, political scientists, government officials, and lawyers involved in international trade will find this an invaluable resource for understanding and measuring NTBs. Alan V. Deardorff and Robert M. Stern are Professors of Economics and Public Policy, University of Michigan.

Voluntary Export Restraints, Dumping and Excess Capacity

This paper is a variation on Anderson (“Domino Dumping, I: Competitive Exporters”, American Economic Review, Vol. 82, March 1992, pp. 65–83), who asserts that the prospect of voluntary export restraint (VER) protection, inducing firms to dump, can create further protection. Anderson's model, however, seems unable to explain some stylized facts concerning the VER‐regulated trade in textiles and clothing. Our aim is to account for such stylized facts through the introduction of a cost of excess productive capacity attributed to dumping actions. This allows us to describe a new chain of effects related to dumping and VERs: the incentive to dump, induced by the expectation of a VER, can generate the creation of productive excess capacity in the present period, which in turn can increase the incentive to dump in the future.

Is A Protectionist Reputation Worth The Protection?: Extending Jans, Wall and Hariharan

Recently, Jans, Wall and Hariharan demonstrated that there may exist an incentive for a welfare-maximizing government that normally prefers free trade to maintain a protectionist reputation by imposing a voluntary export restraint, We show in the context of their model, which postulates a small supplying industry, that a welfare-maximizing government (their assumption) which is also distributionally indifferent (our assumption) will never wish to maintain a protectionist reputation by imposing a VER. Moreover, even if the supplying industries are large, imposing a VER will immiserize the importing country unless the demand or supply curve is non-linear.

The (Non-)Equivalence of Tariffs and Quantity Restraints as 'Rent-Shifting' Policies

In a differentiated oligopoly with quantity as the strategic variable, an optimal tariff can lead to a welfare gain. When a quantity restraint is used instead, this gain can be offset, since the quota induces anticompetitive effects. However, alternative quantity restraints, such as import quotas or voluntary export restraints, whether specified in volume or ratio form, will influence the strength of the anticompetitive effect. In this paper, the authors evaluate empirically the degree of nonequivalence between alternative trade instruments and the factors that likely influence it.

Voluntary Export Restraints and Economic Welfare

In this paper, we explore welfare implications of a voluntary export restraint (VER) agreement within a simple model of duopoly with product differentiation and conjectural variations. We assume that the foreign exporter does not sell its product in its own market and that the imposition of a VER makes the domestic firm into a Stackelberg leader. Under these assumptions, it is shown that a VER introduced at the free-trade equilibrium level of export is welfare-improving for the importing country if and only if the foreign exporter is forced to comply with the restraint involuntarily. In other words, it is impossible to benefit home country and foreign country simultaneously by a VER agreement within the class of models we are envisaging. This result holds irrespective of whether firms compete in terms of quantities or prices.

Voluntary Export Restraints and Economic Welfare: A General Equilibrium Analysis

We derive some sufficient conditions for the Suzumura-Ishikawa proposition on voluntary export restraints to hold when their model is extended to a general equilibrium framework. The sufficient conditions are concerned with the magnitude of income effects which play no role in the partial-equilibrium analysis of Suzumura and Ishikawa.

The Effects of Import Quotas on National Welfare: Does Money Matter?

Recent evidence shows that there is an increasing use of non-tariff barriers to trade (NTBs), and especially of quantitative restrictions, such as import quotas, in the world economy to protect import-competing industries (see Table I).1 International trade theory, however, has traditionally focused on the welfare effects of tariffs as well as on the equivalence between tariffs and quotas, with little attention paid to the welfare implications of quotas. The latter have basically been restricted within the traditional Heckscher-Ohlin trade model, where, for the case of a small open economy, import quotas always reduce welfare. A few recent studies have attempted to fill in this gap in the literature. For instance, Young [19] compares optimal tariffs and quotas for a large country in a stochastic environment. Neary [14], on the other hand, investigates the welfare implications of tariffs, quotas and voluntary export restraints under different assumptions on capital mobility. Finally, Chao, Hwang and Yu [3; 4] examine the welfare effects of import quotas under variable returns to scale. Although the existing literature has generated important policy implications, most of the analysis has been conducted within a barter-exchange framework. It is well known, however, that the introduction of money can alter results obtained within a non-monetary environment.2 Accordingly, this paper attempts to re-examine the welfare effects of import quotas for a small monetary economy. We develop a two-sector trade model in which money enters the economy

Nontariff Trade Controls and Leader-Follower Relations in International Competition

A simple duopoly model is constructed in which leader-follower relations arise as part of a subgame-perfect equilibrium in a game of endogenous timing. The author shows that, in the absence of policy intervention, cost asymmetries between firms can help sustain collusive hierarchical organization of markets. On the basis of this model, he then analyzes the effects of voluntary export restraints and import quotas in the presence of foreign and international duopolies. The author's analysis reveals that, in contrast to the existing literature, these nontariff trade controls can break the stability of leader-follower relations and thereby raise an importing country's welfare. Copyright 1996 by The London School of Economics and Political Science.

The investment decision of a Multinational Firm under uncertain quantity restrictions

In this paper we analyze the allocative investment decisions of a Multinational Firm (MNF) when it faces uncertain quantity restrictions such as a voluntary export restraint or a quota imposed by the host government. The model with uncertain quantity restrictions is analyzed further by introducing additional uncertainties such as a foreign tax rate, transfer prices, foreign exchange rates and foreign demand. The MNF invests more in the host country due to uncertain quantity restrictions. The risk averse MNF invests more in the host country despite its uncertain tax rate if the transfer price is less than the expected marginal revenue loss due to the uncertain quantity restriction. The uncertain transfer price leads the MNF to invest more in the foreign country if the tax rates are dissimilar between the two countries. Foreign demand uncertainty and foreign exchange rates uncertainty have the same effects on capital allocation between the host country and home country. In particular, we derive the condition under which the direction of investment is unambiguous.

Voluntary export restraints and strategic technology transfers

This paper investigates the effects of voluntary export restraints (VERs) in the presence of potential entrants and technology transfers. It builds a model of a licensing game in a Cournot oligopoly market, and examines conditions under which VERs induce restrained foreign firms to transfer technologies to potential suppliers. I show that a VER can decrease the profit and output of the domestic incumbent by perturbing the no-licensing equilibrium reached under free trade and inducing the market to move to a licensing equilibrium.

On Pareto-improving voluntary export restraints

This paper develops the argument that binding voluntary export restraints (VERs) may raise the profits of all firms and the welfare of all trading partners. This possibility is shown to arise in a model of Cournot oligopoly and is consistent with the theory of the second best. VERs benefit unconstrained firms. If the favorable effect due to the increase in domestic import price outweighs the adverse effect due to a loss in market share, then VERs will also benefit constrained firms. VERs will improve the importing country's welfare if they raise the profits of domestic firms more than they reduce domestic consumer surplus. The paper synthesizes these findings and derives conditions for VERs to be Pareto-improving.

Product differentiation, voluntary export restraints, and profits

Product differentiation, voluntary export restraints, and profits

Product differentiation, voluntary export restraints, and profits

Using a duopoly model of product differentiation with consistent conjectures, we show that, compared with the free-trade equilibrium, voluntary export restraints improve the profits of both the foreign firm and the home firm in both quantity and price competition. The changes in profits of the foreign firm depend on the degree of product differentiation and the nature of competition.

Deciphering the impact of voluntary export restraints (VERs): A view through two analytic lenses

The economic and political components of trade issues are usually analyzed separately. The “success” of a particular trade policy is then analyzed through a particular lens. In this paper, the effect that Voluntary Export Restraints (VERs) had on the textile and steel industries will be examined from both an instrumental framework (ARIMA Time Series Intervention Analysis) and expressive framework (Stakeholder Analysis) in order to capture the economic and political aspects of this policy.

Why can't countervailing duties deter export subsidization?

This paper shows that in a duopoly model of international market competition, threatened imposition of countervailing duties by a domestic country generally deters a foreign country from subsidizing its exports to the former. To explain the coexistence of export subsidization and the GATT-conform countervailing duty measures, factors such as delay in retaliation, the GATT constraint on the amount of countervailing duties, and voluntary export restraints must be considered. We find that these factors lessen the efficacy of countervailing duty retaliation and therefore fail to deter export subsidization.

Tariffs, quotas, and voluntary export restraints with endogenous labor supply

This paper develops a two-good, small-country, general equilibrium trade model with endogenous labor supply and wage taxes, and where trade is restricted by a tariff, or an import quota, or VERs. Within this framework we derive (i) the employment and welfare effects of the three types of trade restrictions, (ii) the price effect of an import quota and VERs, and (iii) the shadow price of foreign exchange under each type of trade restriction. The present results are compared to those where (i) factor supplies are fixed, and (ii) perfect international capital mobility exists.

Protectionist Reputations and the Threat of Voluntary Export Restraint*

AbstractVoluntary export restraints are often administered in such a way that each firm's post‐VER output allocation is positively related to its output under free trade. When this is true, a credible threat of a future VER will induce foreign firms to dump in the current period, decreasing the domestic price (the Yano effect), and possibly increasing welfare. We show that if an importing government's preferences are private information and if the government makes a series of VER decisions, there may exist an incentive for a welfare‐maximizing government that normally prefers free trade to maintain a protectionist reputation by imposing a VER.

Market Disruption and the Incidence of VERs Under the MFA

Market disruption or the threat thereof constitutes grounds for restraining countries under the U.S. Multifibre Arrangement (MFA). Since 1980, however, countries accounting for very small shares of U.S. imports have been restrained. This study estimates the determinants of U.S. voluntary export restraints under MFA I and MFA II-III using a bivariate probit model with sample selection. Results show a shift from targeting large developing country exporters to targeting those that are small but have rapidly growing sales. This raises the cost of the MFA to the United States. It also suggests that expansion of exports by developing countries will be met by restrictions on market access. Copyright 1995 by MIT Press.

Nontariff Measures and Developing Countries: Has the Uruguay Round Leveled, the Playing Field?

In the policy environment prevailing before implementation of the Uruguay Round results, exports from developing countries face significant nontariff measures in industrial countries. Based on 1992 trade flows, the import coverage ratio of nontariff measures on this trade was more than 18 percent, compared with less than 11 percent for trade among industrial countries. Trade liberalization measures agreed to in the Uruguay Round will dramatically reduce the incidence of nontariff measures on developing country exports: the coverage ratio will drop to less than 4 percent on nonoil exports. This change has the dual effect of increasing export market opportunities for developing countries and of substantially reducing - if not eradicating - the relatively negative bias against developing country exports. These impressive results from the Uruguay Round are attributed to"tariffication"in agriculture, the abolition of the Multi-Fibre Arrangement (MFA), and the elimination of voluntary export restraints (VERs) under the safeguards agreement. But all these aspects of liberalization will not happen instantaneously when the Uruguay Round results come into force. Agricultural tariffication will occur immediately, but the MFA will be phased out over ten years and VERs will be eliminated over four years. Considering the extent of the liberalization presaged by these policy changes, the authors speculate about likely sources of pressure for measures to mitigate the effects of removing nontariff measures. They conclude that the greatest risks will probably come from safeguards and antidumping. The new safeguards agreement permits the use of quantitative restrictions to stem the flow of injurious imports, and although the agreement tightens existing GATT rules in some respects, it loosens them in others. The antidumping instrument has been used with increasing frequency by an increasing number of countries in the past two decades or more. The efforts of several governments in the Uruguay Round to impose additional controls on antidumping met with little success, and antidumping continues to offer considerable scope for imposing protectionist trade measures.

International trade and the U.S. automobile industry: Current research, issues, and questions

This paper has dual goals. On the one hand, it attempts a review of recent econometric work on the U.S. automobile industry. Three studies of this industry are reviewed, compared, and contrasted. These are studies by Koujianou Goldberg [Koujianou Goldberg, P., 1993, U.S. trade policy implications of a new approach to modelling the demand for automobiles, mimeo (Princeton University)], Feenstra and Levinsohn [Feenstra, R. and J. Levinsohn, 1994, Estimating markups and market conduct with multidimensional product attributes, Review of Economic Studies, forthcoming] and Berry et al. [Berry, S., J. Levinsohn and A. Pakes, 1994, Automobile prices in market equilibrium, Econometrica, forthcoming]. On the other hand, a number of current policy issues facing the industry are also reviewed. These issues include the Voluntary Export Restraint applying to exports from Japan, the NAFTA, anti-dumping law, and industry globalization. The paper provides a broad overview, then, of econometric and policy issues as they relate to the U.S. automobile industry.