vers and the story of japanese cars in the us
TRANSCRIPT
Voluntary Export Restraint and the story of Japanese cars in the
US
A1 – External Economics –
Course 48
Voluntary Export Restraint and the story of Japanese cars in the US
Part 1 - Theory of VERs
Part 2 - Why did the US use VERs in the
Japanese cars case?
Part 3 - Why did the US have to stop
VERs after that?
Conclusion
Part 1: Theory of VERs
1. Definition
• A voluntary export restraint (VER) or
voluntary export restriction is a trade
restriction on the quantity of a good
that an exporting country is allowed to
export to another country.
• This limit is self-imposed by the
exporting country.
Part 1: Theory of VERs
2.1. Causes
• VERs arise when the import-competing
industries seek protection from a surge of
imports from particular exporting countries.
• VERs are then offered by the exporter to
appease the importing country and to deter
the other party from imposing even more
explicit (and less flexible) trade barriers.
Part 1: Theory of VERs 2.1. Effects • Figure 1.1. Welfare Effects of a VER: Large Country
Case
Table 1.2. Welfare Effects of a Voluntary
Export Restraint
Importing
Country
Exporting
Country
Consumer
Surplus
− (A + B + C +
D)
+ e
Producer
Surplus
+ A
− (e + f + g +
h)
Quota Rents
0
+ (c + g)
National
Welfare
− (B + C + D)
c − (f + h)
World Welfare
− (B + D) − (f + h)
Part 1: Theory of VERs
Key points
• A VER raises consumer surplus in the export market and lowers it in the import country market.
• A VER lowers producer surplus in the export market and raises it in the import country market.
• National welfare may rise or fall when a large exporting country implements a VER.
• National welfare in the importing country rises when a large exporting country implements a VER.
• A VER of any size will reduce world production and consumption efficiency and thus cause world welfare to fall.
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