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TRADE POLICIES (Non-Tariff) Course #9 Pos M. Hutabarat, PhD Economic Department, UI Jakarta, 30 March 2010 Component of GDP Agriculture GDP Industry Services Pos M. Hutabarat PhD Economic Development primary industry services Economic Activities (2005) Country Agr 1. 2. 3. 4. USA Germany Japan Korea 5. 6. 7. 8. 9. Brazil Malaysia Thailand China Indonesia 10.Egypt 11.Philippines 12.Laos Pop (mil) 295 82 128 48 186 25 64 1305 220 74 83 6 GNI/cap (US$) 43700 34580 38980 15830 3460 4960 2750 1740 1280 1250 1300 440 (%) 1 1 1 4 10 9 10 13 14 14 14 46 Ind (%) 22 29 31 41 38 50 46 46 41 39 33 28 Serv (%) 77 70 66 55 52 41 44 41 45 47 53 26 Industrialization Process Export Oriented Industrialization Trade Policies 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 Measures Quota (limitation of import quantity) Standards (health, safety) Dumping/Subsidies Non-economic issues (environment, labor, Human Rights, IPR, etc) Pos M. Hutabarat PhD 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 Requirement 4. National Procurement 5. Export Credit Subsidies 6. Rule of Origin 7. Custom Procedures 8. Standards (health, safety) 9. Dumping/Subsidies 10. Non-economic issues (environment, labor, Human Rights, IPR, etc) Tariff Before Tariff consumption: Q3 Production : Q2 Import : Q2-Q3 (partial equilibrium) P D S P1 Pt = Pw (1 + t) Pt Pw Sw Q2 Q4 Q1 Q5 Pos M. Hutabarat PhD Q3 Q After Tariff Consumption: Q5 Production : Q4 Import : Q4-Q5 Tariff P D S P1 c Pt Pw a Q2 f b Q4 d Q1 Q5 Pos M. Hutabarat PhD Pt = Pw (1 + t) e Q3 Sw Q Deadweight loss area abc + def Quota P (limitation of import quantity) D S P1 Pq Pw Sw Q2 Q4 Q1 quota Q5 Pos M. Hutabarat PhD Q3 Q Quota (with increasing Demand) D’ P D S P1 Pq’ Pq Pw Sw Q2 Q4 Q1 quota Q5 Pos M. Hutabarat PhD Q3 Q Two Ways to Promote ImportCompeting Production 2. Standard 1. Health 2. 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 Pos M.at Hutabarat, 2. Period of investigation leastPhD one year 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 Pos M.impartial Hutabarat, PhDand reasonable manner. in a consistent, uniform, 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 Pos M. Hutabarat PhD