economic department, ui jakarta, 30 march 2010 trade policies (non-tariff) course #9 pos m....
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Economic Department, UIJakarta, 30 March 2010
TRADE POLICIES (Non-Tariff) Course #9
Pos M. Hutabarat, PhD
Pos M. Hutabarat PhD
Component of GDP
GDP
Agriculture
Industry
Services
Economic Development
primary industry services
Economic Activities (2005)
Country Pop GNI/cap Agr Ind Serv (mil) (US$) (%) (%) (%)
1. USA 295 43700 1 2277
2. Germany 82 34580 1 2970
3. Japan 128 38980 1 31 66
4. Korea 48 15830 4 41 55
5. Brazil 186 3460 10 38 52
6. Malaysia 25 4960 9 5041
7. Thailand 64 2750 10 4644
8. China 1305 1740 13 46 41
9. Indonesia 220 1280 14 4145
10.Egypt 74 1250 14 39 47
11.Philippines 83 1300 14 3353
12.Laos 6 440 46 2826
Pos M. Hutabarat PhD
Industrialization Process
Industrialization Trade Policies
Export Oriented
Import Substitute
Pos M. Hutabarat PhD
Trade and Industrialization
Model Export Promotion:Development of industrial sector through export oriented industries, example of Korea, Taiwan, RRC, Malaysia and Thailand (instrument: duty draw back, tax incentive, subsidies, currency devaluation, etc)
Model Import Substitution:Development of industrial sector through production of previously imported goods example of Latin America Countries (instrument: high tariff, quota, non-tariff barriers, etc)
Pos M. Hutabarat PhD
Trade Policies
Tariff (percentage increase on price of imports)
Nominal Tariff
Effective Tariff
Non-Tariff MeasuresQuota (limitation of import quantity)
Standards (health, safety)
Dumping/Subsidies
Non-economic issues (environment, labor, Human Rights, IPR, etc)
Trade Policies
1. Trade Policies as a part of broader social policy objectives
2. Protection to offset market imperfection
3. Protection as a response to international policy distortion
Non-Tariff Measures
1. Quota (limitation of import quantity)2. VER (limitation of export quantity voluntary)3. Local Content Requirement4. National Procurement5. Export Credit Subsidies6. Rule of Origin7. Custom Procedures8. Standards (health, safety)9. Dumping/Subsidies10. Non-economic issues (environment, labor, Human
Rights, IPR, etc)
Pos M. Hutabarat PhD
Tariff (partial equilibrium)
P
QQ1
P1
SD
SwPw
Q2 Q3
Pt
Q4 Q5
Pt = Pw (1 + t)
Before Tariffconsumption: Q3
Production : Q2
Import : Q2-Q3
After TariffConsumption: Q5
Production : Q4
Import : Q4-Q5
Pos M. Hutabarat PhD
Tariff
P
QQ1
P1
SD
SwPw
Q2 Q3
Pt
Q4 Q5
Pt = Pw (1 + t)
a b
c
d e
f
Deadweight lossarea abc + def
Pos M. Hutabarat PhD
Quota (limitation of import quantity)
P
QQ1
P1
SD
SwPw
Q2 Q3
Pq
Q4 Q5
quota
Pos M. Hutabarat PhD
Quota (with increasing Demand)
P
QQ1
P1
SD
SwPw
Q2 Q3
Pq
Q4 Q5
quota
D’
Pq’
Two Ways to Promote Import-Competing Production
Pos M. Hutabarat PhD
2. Standard
1. Health2. Safety
Pos M. Hutabarat, PhD
Dumping (1)
Dumping (predatory or economy) when a product is selling in other countries at less than its normal value:
1. Its price in domestic market
2. Cost of production (fix cost, variable cost, plus administrative, selling and general cost)
If there is no comparable products, use like products and third country
Country can initiate dumping allegation if :
1. There is an injury to domestic industry
2. Period of investigation at least one year
Pos M. Hutabarat, PhD
Dumping (2)
If Dumping is hold after final determination, country can impose anti dumping duties for period of 5 years (during investigation, provisional anti dumping duties can be imposed)
Midterm review can be asked after 2 year of implementation
Alleged Country can be escaped from anti dumping duties by proposing price undertaking
Developing countries import share 2% and cumulative 8%
Pos M. Hutabarat, PhD
Subsidies
1. Financial contribution by government:
(a) Government direct transfer, including loan guarantee
(b) Forgone government revenue
(c) Government provides goods or services other than general infrastructures
2. Any form of income and price support
Actionable subsidies if import caused a serious injury to domestic industries
Pos M. Hutabarat, PhD
Rules of Origin (1)
Rule of origin are the criteria used to define where a product was made.
They are an essential parts of trade rules because a number of policies discriminate between exporting countries: quota, preferential tariffs, anti dumping actions, and more.
WTO wants to :
1. Harmonize the rules of origin among all members
2. Require all members to ensure that their rules of origin are transparent (do not have restricting, distorting, or disruptive effects on international trade) and administered in a consistent, uniform, impartial and reasonable manner.
Pos M. Hutabarat, PhD
Rules of Origin (2)
Example rules of origin:
1. Wheat flour : change of tariff heading (CTH)
2. Steel : Substantial transformation
3. Fishes : ship flag
4. AFTA (cumulative 40% member countries)
Pos M. Hutabarat PhD
4. Non-Economic Issues
1. Environment (ISO)2. Labor (children age, prisoner/jail labor)3. Human Rights (labor strike, basic
facilities)4. IPR