Who Wins and Who Loses from Voluntary Export Restraints? The Case of Footwear

Voluntary export restraints have been a popular resort of industrial countries faced with increasing competition from exports of developing countries. As a strategy for circumventing the rules of the GATT (whose regulations preclude increases in tariffs), these nontariff barriers have been rather successful; whether they have been as successful in their aim of protecting and stimulating the industry concerned is another matter. This article looks at what happened when industrial countries imposed¿and then removed¿voluntary export restraints on the footwear industry during the 1970s and 1980s. Why did protectionism spread so fast and then dissipate almost as rapidly, and what effects did this coming and going have on the exporting countries We suggest that industrial countries removed the restraints because they found ?them either superfluous (the expected employment effect failed to materialize) or ineffective (the principal exporters maintained their market share during the height of the restrictions), or else because the industry was able to adjust by importing footwear at a profit. Predicting the effect of VERs, and determining how best to manage them, are critical questions for developing countries struggling to improve their export performance in the 1990s. The results of detailed study of a representative industry, summarized here, may assist in the prediction and determination.