What’s Wrong with Volunteering? The Futility of the WTO’s Ban on Voluntary Export Restraints

By:

Prior to the Uruguay Round and the creation of the WTO in 1994, countries would often settle international trade disputes informally by agreeing to have the exporting country voluntarily limit exports to set levels. These voluntary export restraint agreements (VRAs) were heavily criticized at the time for, inter alia, distorting trade flows, creating economic inefficiency and undermining the rules-based international trading system. Responding in part to these criticisms, the WTO’s Safeguards Agreement banned the use of informal measures like VRAs, hoping to encourage aggrieved countries in trade disputes to resort to formal trade remedies like safeguards. If creating greater adherence to a rules-based system and minimizing economic distortions was the goal of the VRA ban, then the ban has failed to achieve its purpose. This article makes the argument for legalizing VRAs under the supervision of the WTO. First, safeguards cause economic distortions on at least the same scale as VRAs. Second, safeguards have failed to emerge as the favored remedy in trade disputes. Instead, countries still tend to resort to antidumping duties, which cause far greater economic inefficiencies than either VRAs or safeguards. Third, because the WTO agreements are intergovernmental agreements, they are not binding on private parties, leaving room open for private companies to negotiate private VRAs outside the realm of public scrutiny. Finally, unlike the currently available trade remedies, VRAs can provide temporary protection to countries facing import surges while compensating exporting countries directly for lost opportunities.