Voluntary Export Restraint (VER)
Candlefocus EditorVERs are often utilized as a response to increased international economic competition, as when a foreign country imposes tariffs to protect its own producers from foreign competition. The foreign producer also hopes to attract foreign investment and create jobs.
The objective of a VER is to limit a trading partner's exports but to also maintain the same degree of competition at home. So a VER might set the limit on exports for certain goods and services, such as textiles or automobiles, and then the home producer of those goods will be able to keep their domestic share of the market. It's meant to balance the competition from abroad.
VERs can be effective in reducing the trade deficit of a country, as they result in fewer imports of the goods subject to the VER and also allow domestic producers to benefit from the increased demand. As a result, they can be used to help protect domestic producers from potential foreign competition.
On the other hand, VERs can have a number of potential negative consequences. For one, they can reduce global efficiency by preventing some goods from reaching their most efficient buyers and sellers. They can also lead to trade diversion, where goods that would normally have been imported from one country, are instead imported from another, at a higher cost or of lower quality. Finally, VERs can reduce the number of benefits that are passed on to consumers.
In conclusion, VERs are a form of non-tariff barrier that can be used to protect domestic producers from foreign competition. While they can help reduce the trade deficit of a country, they also come with a number of potential negative consequences. As a result, these policies should be used cautiously and with caution, as to not further harm global efficiency and reduce the number of benefits that are passed on to consumers.