EC Members Fighting About Surplus : VERs, FDI and Japanese Cars

The distribution of consumer and producer surplus among EC members of three different trade regimes - free trade, a voluntary export restraint (VER) and a VER in conjunction with foreign direct investment (FDI) - are derived and compared within the framework of a Nash-Cournot duopoly model. Free trade and a VER are likely to be first and third best for countries without import competing production, while the opposite holds for countries with import competing production. A VER-cum-FDI regime is second best for both. If the producing countries are in majority and set the common VER, while the power to allow FDI remains under national control, the policy equilibrium is one of a VER with or without FDI. A VER-cum-FDI outcome is third best for the EC as a whole