Voluntary Export Restraints -- an idea that didn't work before -- are back
Remember the so-called Voluntary Export Restraints? They're back, but with new players. And once again, U.S. and other automakers and suppliers should ponder what unintended consequences will arise.
The United States negotiated that, ahem, voluntary agreement with Japan as a way to hold down exports from Japan in the late 1970s and during most of the 1980s. The agreement may have held down Japanese market-share gains temporarily, but it was hardly a successful barrier to Japanese cars here.
The consequences, mostly unintended, were a rise in exports of higher-priced Japanese vehicles to the United States and a proliferation of Japanese assembly plants in North America.
Now Brazil has imposed what amount to voluntary export restraints on shipments of vehicles from Mexico to Brazil. The two countries have a decade-old free trade agreement, but a surge in vehicles heading to Brazil from Mexico prompted Brasilia to raise its protectionist walls. Mexico has agreed to quotas on Brazil-bound vehicle exports for the next three years.
The U.S.-Japan Voluntary Export Restraints originally were supposed to be a short-term measure, too. Who knows how long the Brazil-Mexican pact will last.
Why does this matter? A number of global automakers have expanded or plan to expand production in Mexico, largely to use the nation as an export base to South America, particularly Brazil. The list includes Nissan, Mazda, GM and, perhaps, Volkswagen.
Take away the potential of unlimited exports to Brazil, and maybe those plants would be better located in the United States. On the face of it, then, this might be good news for U.S. suppliers and employment.
But if there's one thing we learned from the U.S.-Japan pact restraining trade, it's that the ultimate consequences are not always what the politicians wanted, or what we journalists expected.
You can reach James B. Treece at email@example.com.