Export Quota Allocations, Export Earnings, and Market Diversification

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Abstract
Countries facing voluntary export restraints (VERS) often adopt a two-tier allocation system for export licenses to the restricted market; (1) a “basic” allocation related to export shares to the restricted market; and (2) an “open” allocation based on export shares to the nonrestricted market. Such a two-tier allocation system increases exports to the nonrestricted market beyond the levels which would exist under a single-quota allocation system and has an efficiency cost as it results in some sales being made at less than marginal cost. The history of VER negotiations provides a rationale for such a policy and suggests that the recent increase in antidumping cases may be partly associated with the adoption of two-tier quota allocation systems.

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