Voluntary export restraint is a term that is used in the context of international trade, in the case of voluntary export restraint the exporting nation sets a limit beyond which it does not allow the exports to happen. In case of voluntary export restraint, the exporting nation at the request of the importing country decides to voluntarily impose export restrictions on itself so that it does not face any retaliation from importing country in the form of tariffs, sanctions, and other restrictions. In order to get a better idea about this concept, one should look at some of the advantages and disadvantages of voluntary export restraint –
Advantages of Voluntary Export Restraint
Domestic Producers Gain
The first and foremost advantage of voluntary export restraint is that it helps the domestic producers because due to restraint by exporting countries the local demand will have to be met by the produce from domestic producers and hence domestic producers can be assured about their sales which in turn will lead them producing without any fear of competition from exporting countries.
No Risk of Tariffs
Another benefit of voluntary export restraint is that since exporting nation itself has put voluntary restraint it reduces the risk of tariffs from importing nation as in the absence of any restraint exporting nations will be aggressive in exporting which in turn will leave no option to importing nation other than putting tariffs and sanctions on exporting nation. In simple words when you are driving a car at a manageable speed on highways by putting brakes as and when required then there is less risk of accident, in the same way, exporting nation by having voluntary export restraint ensures that there is less risk of tariffs from importing nation.
Cordial Relations
Voluntary export restraint has another benefit which is the development of cordial trade relations between two countries because when exporting nation on the request of importing nation puts restriction on exports beyond a particular limit then it automatically goes in the good books of importing nation which in turn will ensure that importing nation adopts policy keeping in mind the favor of exporting nation and can go a long way in the development of long-lasting trade relations between the two countries.
Disadvantages of Voluntary Export Restraint
Loss to Exporting Nation
The biggest disadvantage of voluntary export restraint is that it results in loss to exporting nations because due to putting voluntary restraint the exporting nation is not able to utilize the opportunity to sell its products to other nations. In simple words, if in an exam paper you know the answers for all questions but you are able to attempt only half paper then imagine the frustration same thing applies to voluntary export restraint where a country knows that it can export more but it is unable to do so which results in frustration for exporting nation.
Consumer Loss
The reason why a country imports from other nations is due to scarcity and lower quality products in the domestic market and if there is a curb on exports due to voluntary export restraint then it will lead to a loss for the consumer because the consumer would be forced to buy products from the domestic producer which may be of inferior quality or pay a higher price for the product and hence a loss-making proposition as far as consumers are concerned.
No Risk Mitigation
Voluntary export restraint is primarily done to ensure that importing country does not levy tariffs or sanctions but there is no guarantee that importing country won’t put any tariffs or sanctions as it is entirely possible that even after the exporting country has adopted voluntary export restraint the importing nation can still levy tariffs as well as sanctions on exporting country thus making the whole idea of voluntary export restraint a failed idea as far as exporting nation is concerned.
As one can see from the pros and cons of voluntary export restraint that it is a tricky decision and that is the reason why countries deciding to go with this strategy while deciding their international trade policies should carefully read the above points and then only should take any decision.