The return of a ghost: Why the EU's 'voluntary' export restraint on Chinese cars is a dangerous anachronism

The European Commission has reportedly asked China to "voluntarily" cap its hybrid vehicle exports at around 15 percent of the EU market, with the implicit threat of higher tariffs if Beijing refuses. The proposal is presented as a pragmatic solution to a trade dispute. In reality, it is the resurrection of a zombie policy that the multilateral trading system laid to rest three decades ago — and its return should alarm anyone who cares about the international rules-based order.

A policy with a name that lies

"Voluntary export restraint" is one of the egregious misnomers of modern trade policy. There is nothing voluntary about a choice made under the threat of punitive tariffs. China's Ministry of Commerce has rightly stated that such measures "severely violate WTO rules, run counter to market economy principles, and undermine fair competition".

The EU's floated VER on Chinese hybrid cars is old wine in a tarnished 1980s bottle — one pried open by the US and forced on Japan. In May 1981, Tokyo agreed to limit car shipments to the United States, initially capping exports at 1.68 million units per year. The "voluntary" label was just a cover for hard diplomatic pressure.

The effects were not confined to Japan. US consumers paid billions of dollars in higher prices. Estimates from the time put the annual welfare loss at roughly 3 percent of revenue spent on Japanese imports in the early years of the program. Meanwhile, Detroit did not use the breathing room to become competitive. The policy achieved neither of its stated goals: it did not save US automotive jobs, nor did it restore American competitiveness.

The WTO was supposed to end this

After the World Trade Organization was founded in 1995, its Agreement on Safeguards explicitly banned this exact type of "voluntary export restraint". Article 11.1(b) states that members "shall not seek, take or maintain any voluntary export restraints, orderly marketing arrangements or any other similar measures on the export or the import side". For three decades, no WTO member has formally employed this mechanism. VER thus became a relic of a less disciplined era.

Now the EU — a founding member of the WTO and a self-styled champion of the rules-based trading system — wants to bring it back. This is not merely a violation of specific rules, it is nothing short of an assault on the principle that the system exists precisely to prevent powerful economies from using coercion to manage their trade relationships.

The Pandora's box

If the EU succeeds in extracting a "voluntary" quota from China, it will have established a precedent that any major economy can use. The United States could demand that the EU "voluntarily" limit its steel exports. India could demand the same of Chinese electronics. The logic of managed trade, once legitimized, is inexhaustible.

The end result is predictable: once the bloc normalizes rule-breaking for its own gain, every other economy would grab the same tarnished bottle, turning global trade into a patchwork of hidden quotas. Every trade dispute then becomes an occasion for a new quota, a new ceiling, a new negotiation conducted under duress. The EU itself would eventually be the one on the receiving end of the same trick it brought back.

The EU knows this danger all too well. In 2018, when the Trump administration proposed a similar "voluntary" arrangement on EU steel and aluminum, EU Trade Commissioner Cecilia Malmström made it clear that the EU would not agree to use VERs in exchange for tariff exemptions. That was the right position then, and remains the right position now.
The real problem

What Brussels is actually attempting to do is to shield its automotive industry from a competition it is currently losing. European carmakers face expensive energy, high production costs, and a difficult transition from combustion engines to electric drive trains. These are structural problems. A quota on Chinese hybrids would do little to make European batteries cheaper, lower energy costs, or accelerate innovation.

What it will do is raise prices for European consumers, delay the transition to cleaner vehicles, and give European automakers a temporary respite that will almost certainly be used to delay reform rather than pursue it, leaving them more dependent on protection. Moreover, it will make the multilateral trading system weaker for everyone.

Zhou Xiaoming is the former deputy permanent representative of China's Permanent Mission to the United Nations Office in Geneva and senior fellow at the Centre For China and Globalization.

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