Economic Department, UI Jakarta, 30 March 2010 TRADE POLICIES (Non-Tariff) Course #9 Pos M....

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