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Voluntary Export Restraints between Britain and Japan: The Case of the UK Car Market (1971-2002)

This study examines the history and impact of Voluntary Export Restraints in the UK car market between Britain and Japan from 1971 to 2002. It analyzes the motivations behind VERs, government involvement, policy administration, FDI implications, and the strategies of UK and Japanese firms. The paper highlights the successes and challenges faced by both countries in the automotive industry during this period.

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Voluntary Export Restraints between Britain and Japan: The Case of the UK Car Market (1971-2002)

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  1. Voluntary Export Restraints between Britain and Japan: The Case of the UK Car Market (1971-2002) James Walker

  2. VOLUNTARY EXPORT RESTRAINTS • “New Trade Policy” • Quota’s not new to the post-War UK: used during post-War reconstruction (Milward and Brennan, 1996). • VERs had been applied to other industries (e.g. textiles, steel, VCRs….) and on cars in Italy (since 1960s), France (since 1977), US (1981-1994).

  3. THE BIGGER PICTURE • Post-War decline in Second Industrial Revolution industries: diverse set of industries chemicals, complex manufactures aerospace, cars, computing, and engineering. • Car industry ultimate metaphor of the ‘British Disease’. BL’s fall from dominance. • Car industry ultimate metaphor of the Japanese manufacturing excellence –1. dominance in new goods, 2. a transformation providing well equipped products, 3. dominance in process (JIT etc.)

  4. WHAT MOTIVATED VERs? • Lobbying by SMMT(representing UK manufacturers). Reflecting: 1. The rapid import penetration of Japanese manufactures; 2. A 1st hand appreciation that Japanese manufactures had a productivity lead. Government: To protect ‘nationalised’ BL (in 1975). Played active role in the early ‘industry-to-industry’ discussions.

  5. ADMINISTERING THE POLICY • 1977-1982: Bilateral industry agreement (SMMT and JAMA) from (9-11% Japanese market share). • 1982-1992: EU takes a passive role: VER rates still banded by the market share (9-11%). • 1993-: EU actively formulates VER rates: removed in December 1999 (numeric no proportional quota). No coverage of FDI.

  6. VER IMPLEMENTATION BY THE COMMISSION From 1993 Commission administered under the “Elements of Consensus”. EOC interpreted in different ways (Flam, 1994; vs. Mason, 1995; Turrini, 1999) - but the following is how it did work: • Included: vehicles >5 tonnes; UK, France, Italy, Spain and Portugal; excluded FDI transplants. • Forecast based formula: aim to aid restructuring of European manufactures.

  7. FDI in the UK and US • Japanese approach in the US: screw driver plants aggressive in the market: they were unconstrained in production (no local content issue). • Honda makes links with the worlds weakest mass producer (Austin-Rover) from 1979; sells joint produce from 1985; independence from Rover when it is purchased by BMW. Uses own plants for ‘Honda’ cars from 1993. Nissan UK sales begin in 1988. • Toyota UK sales begin in 1993.

  8. Optimal Strategy (Producers) FOR UK 1st best: Allow FDI, but disallow sales growth in a protected local market. 2nd best: Allow for FDI, enforce local VER, but provide other ‘incentives’ (that are costly: e.g. subsidies) FOR JAPANESE FIRMS: 1st best if costs lower in Japan – export to Europe (no FDI). 2nd best: produce in and sell throughout Europe (Quota jumping). 3rd best: access as much of the market as possible and receive compensation for not accessing a limited market.

  9. DID THE VER BIND? FDI?

  10. FDI AND VERs • Little domestic control over VERs from 1983 – they were maintained then reduced by the EC. • Considerable Government input into FDI. Government Aims • 1. Protect nationalised industry (jobs) through insulating domestic market. • 2. Encourage FDI, employment and efficiency (Thatcher, 1993) • However these goal conflict if imports and transplants are sold in the domestic market since they compete with domestic offerings.

  11. INTERPRETATION Figure 1: suggests that the UK succeeded in attracting Japanese investment while maintaining internal restraints. What was in it for the Japanese? • Thatcher support 4 (UK/European) cars. • Incentives to Japanese investors: government (‘investment assistance’, land etc.).

  12. WHERE WERE TRANSPLANTS SOLD?(IT, FR, ESP & POR)

  13. LITERATURE History: Secondary literature acknowledges VERs but does not analyse their importance (e.g. Foreman-Peck et al. 1995) Theory: Falvey (1979), Rodriguez (1979), Flam (1994) etc. Linked to the controversial strategic trade debate (Irwin, 2002). Implication of all models is that quality upgrading will occur. Sell less but at higher margins.

  14. DATA Information on sales, prices, 130+ car attributes, location of production at the product version-level. Rich set of product innovations that go beyond ‘performance’ features: "the bias towards the inclusion of performance characteristics is reflecting the fact that engineering attributes are much easier to measure [than other non-technical features]; but they are certainly farther removed from the quality dimensions perceived by consumers" Raff and Trajtenberg (1997, p.11)

  15. HOW TO UPGRADE? • 1. More quality features. • 2. Change product-mix (move to more profitable segments of the market).

  16. QUALITY UPGRADING?

  17. PRODUCT-MIX (Japan)

  18. PRODUCT MIX (British Leyland)

  19. Story with an ending By 1999 when the policy ceased - • European firms adjusted – all bar one at least. • Japanese firms transformed into broad producers with dominance particularly in ‘new goods’.

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