What are Voluntary Export Restraints?

A voluntary export restraint is a decision by one nation to reduce the export of a product to another nation. The emergence of voluntary export restraints came after World War II to stave off international economic tensions and to perhaps level the playing field. A somewhat more recent example is Japan's voluntary restraint of auto exports to the United States in the early 1980s. A nation initiating voluntary export restraints does so in the hope of avoiding economic retribution from the importing nation. Exporting nations can circumvent these restraints by investing in foreign factories and/or finding new markets.

Nations increased tariffs and forbade foreign imports as a way to strengthen their own domestic industries prior to 1945. The harsh repayment plans and lending policies set by Allied nations after World War I contributed to the start of World War II according to some historians. The end of World War II encouraged world leaders to encourage worldwide commerce by decreasing formal economic barriers. This market boost would come from voluntary agreements between nations about minimizing the effect of foreign competition. These agreements would then allow nations to develop their own industries without interference from similar imported products that might undermine domestic industry.

An oft-cited example for voluntary export restraints is the one that emerged between the Japanese and the United States in the 1980s. Japanese automakers had been exporting cars and trucks to the United States that were cheaper and more popular than American vehicles. Executives from the U.S. automaking industry lobbied President Ronald Reagan to establish import quotas on Japanese cars. These American automakers were concerned that Japanese automobiles were permanently drawing consumers away from U.S.-made vehicles. The Reagan administration was successful in convincing the Japanese government to temporarily halt auto exports to the U.S. in 1981.

In general, an exporting nation in this situation might agree to voluntarily comply because it may want to avoid damaging its relationship with a foreign government and the consumers of the country. For example, imported goods could significantly cost jobs in and damage the economy of the recipient country; as a practical matter, out-of-work persons have less money to spend on cars or other imported goods. Another reason why a nation might restrain is exports is that requesting nations may pursue retribution ranging from increased tariffs, taxes, or quotas on on imported goods to an outright ban on foreign products, among other things.

An exporting nation could avoid voluntary export restraints by producing goods within the foreign market itself. This approach would require purchasing factories, hiring local workers, and shifting machinery from domestic to overseas facilities. For example, some Japanese automakers now produce cars at United States plants. Each product from these factories would be delivered directly to the consumer rather than through the more complicated import process. Another option for getting around voluntary export restraints is to locate another foreign market to offset potential losses in a current market.