4/18/2023
Profile
International
Trade Policy
Nguyen Ha Lien Chi, MA.
Email: nguyenhalienchi.cs2@ftu.edu.vn
Office: Department of International
Business and Trade, FTU2
Instructor: Nguyen Ha Lien Chi, MA.
2
Text book & materials
Learning outcomes
By the end of the module students should be able to:
▸ Critically evaluate the various arguments for and against trade policy (in
general as well as specific measures) in terms of their welfare
implications;
▸ Use different trad itiona l an d advanced theoretical mod els to
demonstrate the welfare effects of trade and integration policies
motivated by both strict economic and political economy factors;
▸ Use ITC tools for market access: find and compare trade facts, figures,
regulations and barriers
▸ Paul R. Krugman, Maurice Obstfeld (2010), International
Economics: Theory and Policy, 9th edition, Pearson Addison
Wesley
▸ Bui Xuan Luu, Nguyen Huu Khai (2007), International Trade
Policy, Labor Publisher (Vietnamese)
3
Schedule
Text book & materials
▸
4
Lecture
Some websites:
https://wits.worldbank.org/CountryProfile/en/VNM
https://www.wto.org/
https://unctad.org/en/Pages/Home.aspx
https://www.trademap.org/Index.aspx
https://www.macmap.org/
https://findrulesoforigin.org/home/index
https://congthuong.vn/
http://trungtamwto.vn/
https://www.facebook.com/itrade4.0/ (iTrade page created and managed by
iTrade team - FTU students)
5
Topic
1
Introduction/Group assignment
2
Theories of trade
3
Theories of trade (continued)
4
World Trade Overview
5
World Trade Overview
6
WTO
7
WTO
8
Tariff
9
Tariff
10
Non–tariff measures
11
Non–tariff measures
12
Non–tariff measures
13
Report Presentation
14
Report Presentation
15
Review and Discussion
Note
register the topic for report (mid-term)
approve the topic
submit reports and slides
6
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Course Assessment
Midterm – Export Potential Report
▸
▸
▸
▸
▸
▸ Formation: 6 groups
▸ Topic: Choose 1 product from 1 company to prepare the export
potential report
Attendance in class: 10%
Mid-term: Report & presentation: 30%
Final test: 60% (Multiple-choice and essay questions)
Discussion & exercises: plus ½ - 1
Any score below 4: fail to join final test
▸
Register: 2rd lecture (approved by lecturer)
▸
Submit on the 9th lecture (hard copy and soft copy in pdf
file)
▸ Presentation time: max 15 minutes for presenting, 10 minutes
for Q&A.
7
1.1. Overview of the world trade
8
Merchandise trade volume by region (2014 – Q3/2020)
1.1.1. Who trades with whom?
(source: WTO-UNCTAD)
The key trading partners
Using the gravity model
Copyright © 2006 Pearson Addison-Wesley. All rights reserved.
Merchandise trade volume by region (2014 – Q3/2020)
Merchandise trade volume by region (2019 – Q4/2022)
(source: WTO-UNCTAD)
Copyright © 2006 Pearson Addison-Wesley. All rights reserved.
2-10
(source: WTO-UNCTAD)
2-11
Copyright © 2006 Pearson Addison-Wesley. All rights reserved.
2-12
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Key trading partners in the world
Key trading partners in the world
Biggest merchandise importers 2021
(Source: Statista, 2023)
Biggest merchandise exporters 2021
(Source: Statista, 2023)
2-13
Key trading partners in the world
Key trading partners in the world
Top 10 service exporter in Q3 – 2020
(Source: UNCTAD)
Ranking:1
Top 10 service importer in Q3 – 2020
(Source: UNCTAD)
Ranking: 3
Japan
Value: $43B
Ranking: 4
Ranking: 9
Ranking: 9
Netherlands
Value: $61B
Singapore
Value: $42B
Ranking: 5
Ranking: 8
Germany
Value: $74B
India
Value: $49B
China
Value: $70B
United Kingdom
Value: $47B
Ranking: 3
Ranking: 8
Ranking: 4
Ranking: 7
China
Value: $98B
Ireland
Value: $63B
Germany
Value: $74B
France
Value: $65B
Ranking: 2
Ranking: 7
United Kingdom
Value: $86B
Ireland
Value: $56B
United States of
America
Value: $108B
Netherlands
Value: $65B
Ranking: 2
Ranking: 6
Ranking:1
Ranking: 6
United States of
America
Value: $163B
2-14
Copyright © 2006 Pearson Addison-Wesley. All rights reserved.
Ranking: 5
Ranking: 10
France
Value: $60B
Japan
Value: $35B
Singapore
Value: $39B
Ranking: 10
India
Value: $35B
Vietnam’s partners
Vietnam’s partners
2-17
2-18
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Using the gravity model
Using the gravity model
▸
▸
▸
▸
First introduced by Jan Tinbergen (1962)
The model is inspired by Newton's law of gravitation in physics.
Gravity models have long been used to explain bilateral trade.
They explain trade flows between countries i and j by their sizes (GDPs)
and a variety of variables capturing the geographic and historical
proximity between the two counties (distance, culture, border, and other
factors that affect trade barriers).
The gravity model’s equation:
Where:
Tij: the value of trade between country i and country j
A: the constant
Yi: the GDP of the country i
Yj: the GDP of the country j
Dij: the distance between country i and j
§ 2 of the top 10 trading partners
with the US in 2019 were also the 2
largest European economies:
Germany and the United Kingdom
Using the Gravity model: Size matters
§ These countries have the largest
gross domestic product (GDP) in
Europe.
The size of an economy is directly related to the volume of imports and exports:
§ Larger economies produce more goods and services, so they have more
to sell in the export market
§ Larger economies generate more income from the goods and services
sold, so people can buy more imports.
§ GD P m e as u re s t he v a l u e of
goods and services produced in an
economy.
§ Why does the US trade most with
these European countries and not
other European countries?
Figure 7: The size of European economies and the value of their
trade with the US
Source: US Department of Commerce, European Commission
Using the Gravity model: Distance
§
§
§
The United States
does markedly
more trade with its
neighbors than it
does with
European
economies of the
same size
Distance between market influences transportation costs => cost of imports and exports
Distance may also influence personal contact and communication, which may influence
trade
Estimates of the effect of distance of the gravity model predict that a 1% increase in the
distance between countries is associated with a decrease in the volume of trade of 0.7% to
1%
Figure 5: Economic Size and Trade with the US
Source: US Department of Commerce, European Commission
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Using gravity model: Cultural affinity
Vietnam Top 5 Merchandise Export Partners in 2019
Using the Gravity model: Other matter
Cultural affinity: if two countries have cultural ties, it is likely that
§
they also have strong economic ties.
Geography: ocean harbors and a lack of mountain barriers make
§
transportation and trade easier.
Partner share (%)
61404
23.2
China
41434
15.7
Japan
20427
7.7
Korea
19729
7.5
7162
2.7
Vietnam Top 5 Merchandise Import Partners in 2019
Market
nations import and export many goods between their divisions.
Borders: crossing borders involves formalities that take time and
§
Trade (US$ Million)
United Stated
Hong Kong
Multinational corporations: corporations spread across different
§
Market
perhaps monetary costs like tariffs.
Trade (US$ million)
Partner share (%)
China
75586
29.8
Korea
46941
18.5
Japan
19532
Taipei, Chinese
15180
6.0
United States of America
14376
5.7
7.7
Source: UNCTAD
2-25
Using gravity model: MNCs
Using gravity model: Geography
▸
▸
Geography: ocean harbors and a lack of
mountain barriers make transportation
and trade easier
For example, Netherlands and Belgium
have traditionally been the point of entry
to much of northwestern Europe;
Rotterdam in the Netherlands is the
most im portant port in Eur ope, as
measured by the tonnage handled
Antwerp in Belgium ranks second.
▸
§
§
▸
▸
▸
Multinational corporations (MNCs) spread across different nations import and export
many goods between their divisions
Foreign affiliates of MNCs account for over one-third of the world exports
More than 40% of total exports of China is done by MNCs (UNCTAD 2017)
Surprisingly, Ireland plays a special role as host to many U.S-based corporations
Over a third of
the world trade
happens inside
MNCs
Netherlands, Belgium and Germany are all big
trading partners of the US
Using gravity model: Borders
•
ü
ü
Using gravity model: Borders
Borders: borders increase the cost and time needed to trade.
• The US has signed a free trade agreement with Mexico and
Canada in 1994, the North American Free Trade Agreement
(NAFTA).
Trade agreements between countries are intended to reduce
the formalities and tariffs needed to cross borders, and
therefore to increase trade.
• Because of NAFTA and because Mexico and Canada are close to
the US, the amount of trade between the US and its northern and
southern neighbors as a fraction of GDP is larger than between
the US and European countries.
The gravity model can assess the effect of trade agreements on
trade: does a trade agreement lead to significantly more trade
among its partners than one would otherwise predict given their
GDPs and distances from one another?
2-29
2-30
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Using gravity model: Borders
•
Yet even with a free trade agreement between the US and Canada, which
use a common language, the border between these countries still seems to
be associated with a reduction in trade.
2-31
2-32
1.1.2. Changing composition of trade
Volume and growth rate of
international trade
What do we trade: changes in
trade structure
2-33
Changing Composition of Trade
World trade is expected to fall by between 13% and 32% in 2020 as the COVID-19
pandemic disrupts normal economic activity and life around the world
Changing Composition of Trade
2-35
2-36
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Changing Composition of Trade
•
•
Changing Composition of Trade
• In the past, a large fraction of the volume of trade came
What kinds of products do nations currently trade, and how does this composition
compare to trade in the past?
from agricultural and mineral products.
Today, most of the volume of trade is in manufactured products such as
automobiles, computers, clothing and machinery.
¨
Services such as shipping, insurance, legal fees and spending by tourists account for 20% of
¨
Mineral products (e.g., petroleum, coal, copper) and agricultural products are a relatively small
¨
the volume of trade.
¨
part of trade.
¨
In 1910, Britain mainly imported agricultural and mineral products,
although manufactured products still represented most of the
volume of exports.
In 1910, the US mainly imported and exported agricultural
products and mineral products.
In 2002, manufactured products made up most of the volume of
imports and exports for both countries.
2-38
Changing Composition of Trade (cont.)
Changing Composition of Trade (cont.)
2-39
2-40
Changing Composition of Trade (cont.)
Changing Composition of Trade (cont.)
• Developing countries, or low and middle-income
countries, have also changed the composition of
their trade.
¨
In 2001, about 65% of exports from developing
countries were manufactured products, and only
10% of exports were agricultural products.
¨
In 1960, about 58% of exports from developing
countries were agricultural products and only
12% of exports were manufactured products.
2-41
2-42
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1.1.3. International trade situation and prospects
Multinational Corporations and Outsourcing
▸ Some tendencies of the world development
§ Multicultural corporations
§ Outsourcing
▸ Impacts of those tendencies on the world trade
§ Before 1945, multinational corporations played a small role world
trade.
§ But today about one third of all US exports and 42% of all US
imports are sales from one division of a multinational corporation
to another.
2-44
Multinational Corporations and Outsourcing (cont.)
Outstanding international trade issues
▸ Important FTAs with Vietnam as a member have been signed
• Outsourcing occurs when a firm moves business operations out of the
§
domestic country.
¨
¨
The operations could be run by a subsidiary of a multinational corporation.
§
Or they could be subcontracted to a foreign firm.
• Outsourcing of either type increases the amount of trade.
§
and come into effect
European Union & Vietnam (EVFTA)
•
•
signed: 30/6/2019
•
•
signed: 29/12/2020
•
•
signed: 15/11/2020
in force: 1/8/2020
United Kingdom – Vietnam (UKVFTA)
in force: 1/1/2021
Regional Comprehensive Economic Partnership (RCEP)
15 members: Australia, Brunei, Cambodia, China,
Indonesia, Japan, South Korea, Laos, Malaysia, Myanmar,
New Zealand, Philippines, Singapore, Thailand, Vietnam
2-45
Outstanding international trade issues
§
On 31 December 2020, United Kingdom
completed its separation from the European
Union
§
On 1 February 2021, the UK government
formally applied to join CPTPP, a trade pact
between 11 countries (including Vietnam)
2-46
Outstanding international trade issues
A trade dispute ramped up between China and Australia
§ The relationship between the two countries has deteriorated since Australia
supported a call for an international inquiry into China’s handling of the
coronavirus
§ China has taken several measures this year that impede Australian imports,
ranging from levying tariffs to imposing bans and restrictions.
Several Australian export sectors being affected
§ barley (anti-dumping and anti-subsidy duties of 80.5%)
§ wine (preliminary anti-dumping duties ranging from around 107% to 212%)
* CPTPP: Comprehensive and Progressive Agreement for Trans-Pacific
Partnership
2-47
2-48
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“
“
DISCUSSION
What does WTO
stand for?
49
“
When did Vietnam
become the official
member of WTO?
50
“
Which countries are the
biggest exporter and importer
in the world in 2018-2019?
51
Biggest exporters in 2018-2019
52
Biggest importer in 2018-2019
53
54
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“
“
What is the sector that
Vietnam export the most in
2019?
How is the trade balance of
Vietnam in 2019?
55
56
Trade openness: exports plus imports as percent of GDP
“
What is international trade policy?
See more about Trade openness rankings at
https://www.theglobaleconomy.com/rankings/trade_openness/
57
What are the gains from trade? What
determines a distribution of gains?
▸
▸
▸
▸
▸
▸
▸
▸
▸
▸
58
International trade policy
International trade policy is a system of appropriate principles,
tools and measures that countries apply to regulate international
trade activities in order to achieve national goals.
v
Tariff
v
Non-tariff measures (NTM)
Expansion in Production;
Increase in Welfare;
Rise in National Income;
Vent for Surplus;
Technological Development;
Increased Competition;
Widening of Market;
Increase in Investment;
Efficient Use of Resources;
Stimulus to Growth.
59
60
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1.3. INTRODUCTION OF
WORLD TRADE ORGANIZATION
1.3.1. History of WTO
▸ Created only on 1 January, 1995 by the Marrakesh Declaration
▸ The youngest international organization
▸ Successor to the General Agreement on Tariffs and Trade
1.3.1. History
1.3.2. Principles
1.3.3. Structure
1.3.4. Agreement
▸ At end of World War II, internationalism was pursued to support
peace
▸ To avoid conflicts based on nationalism
▸ Succeeded in creating:
▸ United Nations
▸ Bretton Woods Institutions
■ International Monetary Fund (IMF)
■ World Bank
Background Cont
▸
▸
▸
▸
Third institution was to be International Trade Organization (ITO)
Objective: avoid conflicts over trade and protectionism
Havana Charter to create ITO concluded in March, 1948
Was never ratified because of US Congress
Background Cont
▸ While negotiations underway, 23 participants negotiated to
reduce and bind tariffs starting in 1946
▸ To give early boost to liberalizing trade and end protectionism of
the 1930’s
▸ Was agreed to liberalize one fifth (1/5th) of world trade and
adopt some trade rules in draft ITO Charter
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Background Cont
▸ Package called the General Agreement on Tariffs and Trade
(GATT)
▸ Entered into effect “provisionally” on 1 January, 1948
▸ “Provisionally” because Havana Charter was still being negotiated.
Those applying GATT became known as Contracting Parties
▸ Remained in force until WTO created
Background Cont
▸ GATT continues to exist today as a part of the WTO
▸ Basic principles of GATT also form basis for WTO
Background Cont
▸ When Havana Charter failed, GATT became only multilateral
instrument governing international trade
▸ Numerous negotiations were conducted under GATT to liberalize
trade
▸ Eight in total up to Uruguay Round which created WTO
The General Agreement on Tariffs and Trade (GATT)
▸ Multilateral trading system created under GATT is over 50 years old
▸ GATT’s basic pursuit of trade liberalization achieved through “rounds”
of trade negotiations
▸ Early “rounds” dealt mainly with tariff reductions
▸ Later rounds added areas such as non-tariff measures, antidumping,
etc.
Results of GATT
▸
▸
▸
▸
Exceptional growth of world trade
Merchandize exports grew on average 6% annually.
Total trade in 1997 was 14 times that of 1950.
Last round (Uruguay Round) added new areas of services and
intellectual property and created the WTO.
Results Of GATT Cont
▸ Tariffs were reduced to such low levels that in recessions,
countries turned to other forms of protectionism.
▸ Market-sharing agreements (voluntary export restraint
agreements) were used.
▸ Subsidies were used to encourage exports (particularly with
agriculture exports).
▸ Technical barriers were used for trade protection.
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Results of GATT Cont
Result of GATT Cont
▸ Realities of world trade also were changing.
▸ Trade was more complex and important.
▸ Services trade and international investment had expanded
greatly.
▸ Vastly increased membership with new and different interest.
▸ Led to agreement to create a new expanded agreement to
encompass all these matters.
Multilateral and Regional Approaches
▸ In recent years a variety of bilateral and regional trading
arrangements have emerged in addition to multilateral efforts at
trade liberalization.
▸ The GATT provides specific rules regarding such arrangements.
Similar rules exist for services.
▸ But in practice these have not constrained the growth of
preferential arrangements.
Membership and Decision-making in the WTO
▸ Some 150 member countries, accounting for over 97% of world
trade
▸ Some 30 other countries are negotiating membership.
▸ Decisions are made by entire membership.
▸ While a majority vote is possible, decisions are usually by
consensus.
▸ Uruguay Round concluded at Marrakesh brought WTO into
existence
▸ Also created General Agreement on Trade in Services (GATS)
▸ Created Trade Related Intellectual Property Agreement (TRIPs)
▸ And much more
Functions of the WTO
▸
▸
▸
▸
▸
▸
Administers trade agreements
Acts as a forum for negotiations
Works to settle trade disputes
Reviews national trade policies
Assists developing countries with trade policy
Cooperates on subjects of mutual interest with other organizations
WTO Mission Statement
▸ The World Trade Organization is the only international
organization dealing with the global rules of trade between
nations. Its main function is to ensure that trade flows as
smoothly, predictably and freely as possible.
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1.3. 2. WTO’s Fundamental Principles
▸ Complicated legal agreement guiding the international trading system
▸ Based on five, easy to understand, principles:
▸ Trade without discrimination
▸ Freer trade, gradually, through negotiation
▸ Predictability, through binding and transparency
Trade without discrimination
▸ This means treating all member countries equally.
▸ It is formally known as the Most-Favoured-nation (MFN)
Principle.
▸ For example, if a WTO member lowers its customs duty for a
product imported from one country, it must also give the
same concession to all other members.
▸ Promoting fair competition
▸ Encouraging development and economic reform
Trade without discrimination
▸ Members must also not discriminate between domestic and
foreign goods, services or nationals once they have entered
the market.
▸ This is known as National Treatment.
Trade without Discrimination
▸ A few exceptions are permitted:
▸ For partners in a free trade agreement
▸ For extending better access to developing countries
▸ General waivers
▸ To protect morals, human and animal health and National
Security
▸ To counteract unfairly traded products
Vietnam’s anti-dumping tax on Chinese steel
▸ After an anti-dumping investigation that started in September 2019,
Vietnam’s ministry of industry and trade (MOIT) concluded that
Chinese steel producers are dumping their products
▸ Consequently, an anti-dumping tax ranging from 4.43% to 25.22%
has been imposed on some coil or sheet cold-rolled steel products
from China for five years, starting Dec. 28
Free Trade Gradually, through negotiation
▸ The WTO encourages fair trade by disciplining barriers related
to:
▸ Tariffs
▸ Import bans or quotas
▸ Other issues
▸ Now into 9th round of liberalizing negotiations (8 under GATT)
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Predictability through Binding and Transparency
▸ “Binding” means setting a fixed upper limit on tariffs and other
commitments
▸ Provides stability and predictability
▸ Can be changed only after negotiations with trading
partners
Binding and Transparency
▸ The WTO discourages the use of less visible and less
predictable barriers (e.g. Quotas)
▸ It encourages transparency through requirements to disclose
policies and practices and notify WTO of changes.
▸ Conducts trade policy reviews
▸ NOTE: 100% of agriculture products of developed countries
have bound tariff rates.
Promoting Fair Competition
▸ Rules to establish what is considered fair and unfair competition
(e.g. Dumping and subsidies are considered unfair competition.)
▸ Rules to establish how governments can respond to trade
disputes.
▸ Specific agreements, such as that on agriculture, aim to support
fair competition.
Encourage Development and Economic Reform
▸ Fully three quarters of WTO members are developing or
transition economies.
▸ WTO rules and mechanisms provide
▸ more time for developing countries to implement
undertakings.
▸ special assistance (training, legal advice).
▸ trade concessions (generalized system of tariff preferences).
▸ extend Special and Differential Treatment.
Case: Spain – Tariff treatment of unroasted coffee –
BISD 28S/102 (1982)
More readings on WTO principles:
https://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_e.htm
Prior to 1975, imports of unroasted coffee to Spain were subject to a customs
duty of 22.5%. In 1975, Spain exempted import of, inter alia, unroasted coffee
under its state-trading system from customs duties. In 1979, Spanish
authorities enacted Royal Decree No.1764/79 which subdivided imports of
unroasted coffee into the categories “Columbian mild” and “other mild” on
which no tariff was levied, and the categories “unwashed Arabica”, “Robusta”
and “other” which were liable to a 7% of tariff
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Organs of the WTO
1.3.3. Structure of the WTO
▸
▸
▸
▸
▸
A Ministerial Conference meets every two years.
General Council meets regularly at level of Ambassadors.
Goods Council administers GATT (including agriculture).
Services Council administers GATS.
Intellectual Property Council administers TRIPS.
Secretariat of the WTO
▸ Director General and Deputy positions selected by members
(usually political and term limited)
▸ Staff of over 500; all in Geneva
▸ Secretariat has no decision-making powers.
▸ Provides technical and legal support to councils, committees,
working parties and to developing countries
1.3.4. WTO Agreements
▸ Cover goods, services and intellectual property
▸ Include individual countries’ commitments to lower customs tariffs and
other trade barriers, and to open and keep open services markets
▸ Set procedures for settling disputes
▸ prescribe special treatment for developing countries
▸ Require governments to make their trade policies transparent by
notifying the WTO
(Secretariat of the WTO)
General Director of WTO
Ngozi Okonjo-Iweala
A Nigerian-American economist and
international development expert
• The seventh Director-General of the WTO
• Her term starts on 1 March 2021
•
•
The first woman and the first African to hold the
office
▸
▸
▸
▸
▸
▸
▸
▸
▸
▸
▸
▸
▸
WTO Agreements
General Agreement on Trade and tariff (GATT)
General Agreement on Trade in Services (GATS)
Trade Related Intellectual Property Agreement (TRIPs)
Agreement on Trade related investment measures (TRIMs)
Agreement on Subsidy and countervailing measures (SCM)
Agreement on Agriculture (AoA)
Agreement on Textiles and Clothing (ATC)
Agreement on Anti-dumping (AAD)
Agreement on Technical Barriers to Trade (TBT)
Agreement on Sanitary and Phytosanitary Measures (SPS)
Agreement on Custom Valuation (ACV)
Agreement on Rules of Origin (ROO)
More readings:
https://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm1_e.htm
http://trungtamwto.vn/chuyen-de/192-van-kien-co-ban-cua-wto
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Key Learning Objectives
Trade as an
Engine of
Growth – From
Ricardo to 21st
Century
1. Understand the concept of comparative advantage, and the way in
which it can drive mutually beneficial exchange between countries.
2. Look at trade through the lens of technological differences
(Ricardo) and resource endowments (Heckscher-Ohlin).
3. Use Diamond Model to explain competitive advantage of nations.
4. Use these new concepts to better understand the operation of
Global Value Chains , and the potential economic gains they can
offer.
Theories of trade: role of trade policy
2
Outline
1.
2.
3.
“
Why do countries trade? – traditional views: exploiting advantages
of “single country production”
Why does a country can lead and sustain in certain industry? –
modern view: Diamond model
Why do countries trade – more m odern views: ex ploiting
advantages of Global Value Chains and Trading in Tasks
1. Why do
countries
trade?
3
1. Why do countries trade?
a. Different concepts of “advantage”.
a. Different concepts of advantage
b. Productivity differences as a driver of trade
(Ricardo).
Absolute advantage:
One country manufactures goods at a lower (absolute) cost
than another.
Ø
Swiss watches cost $100, Chinese watches cost $20
Ø
Swiss t-shirts costs $10, Chinese t-shirts costs $1
=> China has an absolute advantage in watch production AND in tshirt production
Ø
Ø
c. Resource endowments as a driver of trade
(Heckscher-Ohlin).
d. Scale economies as a driver of trade
(Krugman/Melitz).
4
5
6
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1. Why do countries trade?
1. Why do countries trade?
a. Different concepts of advantage
a. Different concepts of advantage
Ø
Comparative advantage:
One country manufactures goods at a lower cost in terms of
Ø
foregone resources than another.
Ø
Switzerland: production of 1 watch = non-production of 10
t-shirts
Ø
China: production of 1 watch = non-production of 20 tshirts
=> Switzerland has a comparative advantage in watch production
=> China has a comparative advantage in t-shirt production
Ø
Ø
Ø
7
Competitive advantage:
Firm level: One firm creates and/or maintains a strategic edge
over others competing in the same market.
Nation level: One nation has advantage over other nations in
specific industries when competing globally
The popular press often focuses on absolute and competitive
advantage in discussing trade relations, but economists believe
comparative advantage is in fact more important as an explanation
for trade.
8
1. Why do countries trade?
b. Productivity differences (Ricardo)
Ø
1.
Why do
countries trade?
Basic ideas:
Ø
Comparative advantage is driven by differences in labour
productivity (=“technology”)
Ø
In the absence of trade, these differences can lead to
differences in the prices of inputs as well as outputs and
these in turn create incentives to trade.
Ø
Opening to trade leads to:
Ø
Ø
Ø
b. Productivity differences (Ricardo)
Ø
1. Why do countries trade?
b. Productivity differences (Ricardo)
Step One: The Production Side
Ø
Ø
Ø
10
1. Why do countries trade?
b. Productivity differences (Ricardo)
Ø
Equalisation of world relative prices
Specialisation by comparative advantage
Separation of production and consumption possibilities in
each country
Increased consumption possibilities for both countries
Each country produces the same two goods (watches and tshirts).
Producing a certain amount of one product implies not
producing a certain amount of another product (opportunity
cost).
The tradeoff between producing one product rather than the
other provides a simple representation of a country’s production
technology.
11
12
2
4/18/2023
1. Why do countries trade?
1. Why do countries trade?
b. Productivity differences (Ricardo)
b. Productivity differences (Ricardo)
13
14
1. Why do countries trade?
1. Why do countries trade?
b. Productivity differences (Ricardo)
b. Productivity differences (Ricardo)
Ø
Step Two: The Consumption Side
Ø
Ø
Ø
15
1. Why do countries trade?
In this economy, people consume watches and t-shirts.
Consuming more of either good gives them a higher level
of utility, but their income limits how much they can
consume.
It is possible to identify combinations of t-shirts and
watches at each income level that represent equal utility for
consumers (indifference curves).
16
1. Why do countries trade?
b. Productivity differences (Ricardo)
b. Productivity differences (Ricardo)
17
18
3
4/18/2023
1. Why do countries trade?
1. Why do countries trade?
b. Productivity differences (Ricardo)
b. Productivity differences (Ricardo)
Ø
Step Three: Autarky Equilibrium
Ø
Ø
Autarky means that there is no trade, so countries are
completely self-sufficient in t-shirts and watches.
Equilibrium results from combining the production and
consumption sides of the model in each country: producers
produce the most they can with the available labor and
technological tradeoff, and consumers consume as much
as they can given their income.
19
1. Why do countries trade?
20
1. Why do countries trade?
b. Productivity differences (Ricardo)
b. Productivity differences (Ricardo)
21
1. Why do countries trade?
22
1. Why do countries trade?
b. Productivity differences (Ricardo)
b. Productivity differences (Ricardo)
23
24
4
Black point: autarky equilibrium (means that no trade - only consume what they consume)
4/18/2023
When countries trade, they focus on their comparatively advantageous product --> move from the black to the
red --> they only pro
Consumption: consumers produces watches + T-shirt for China --> makes the indifferent trade move higher.
1. Why do countries trade?
1. Why do countries trade?
b. Productivity differences (Ricardo)
b. Productivity differences (Ricardo)
Step Four: Equilibrium With Trade
Ø
Ø
Ø
Ø
Countries open their borders, and so can exchange watches
for t-shirts with the other country.
There is now one integrated “world market”, with a single
production and consumption tradeoff between watches and
t-shirts. The new tradeoff lies somewhere between the two
original points.
Consumers in both countries are able to consume at a
higher level of utility than under autarky.
25
26
1. Why do countries trade?
1. Why do countries trade?
c. Resource differences (Heckscher-Ohlin)
b. Productivity differences (Ricardo)
Ø
Basic ideas:
Comparative advantage is driven by differences in relative resource
endowments
Ø
In the absence of trade, relative shortage or abundance of some resources
(inputs) can lead to differences in the prices of inputs as well as outputs and
these in turn create incentives to trade [idea of labour-rich country producing
labour-intensive goods at a lesser cost].
Ø
Opening to trade leads to:
Ø
Equalisation of world relative prices
Ø
Partial specialisation in each country according to its comparative
advantage
q
IE, each country specialises in the product that is relatively intensive in
the factor in which the country is relatively abundant
Ø
Separation of production and consumption possibilities in each country
Ø
Increased consumption possibilities for both countries
Ø
Ø
Summary of the basic Ricardian model:
Comparative advantage is driven by differences in labour
productivity (=“technology”)
Ø
Opening to trade leads to:
Ø
Equalisation of world relative prices
Ø
Specialisation by comparative advantage
Ø
Separation of production and consumption possibilities in
each country
Ø
Increased consumption possibilities for both countries
Ø
27
28
So sánh tỉ lệ L/K:
- Nếu lớn hơn --> labor abundant
- Nếu nhỏ hơn --> capital abundant
So sánh tỉ lệ P_L/P_K
- Nếu lớn hơn --> labor intensive
- Nếu nhỏ hơn --> capital intensive
1. Why do countries trade?
1. Why do countries trade?
c. Resource differences (Heckscher-Ohlin)
Ø
c. Resource differences (Heckscher-Ohlin)
In this model, trade has effects on factor incomes (labour and
capital):
Ø
The relative price of the relatively abundant factor increases,
while that of the relatively scarce factor decreases.
Ø
Explains why there are “winners and losers” from trade within
a country: depends on the pattern of comparative advantage,
and industry links.
Ø
Basic components:
Ø
Ø
Ø
Ø
We need to model:
Ø
Ø
Ø
29
2 factors (labour and capital)
2 goods (t-shirts and watches)
2 countries (China, Switzerland)
The production side (optimal use of inputs to produce
outputs)
The consumption side (optimal consumption balance
between watches and t-shirts)
Market equilibria under autarky and with trade
30
5
4/18/2023
1. Why do countries trade?
1. Why do countries trade?
c. Resource differences (Heckscher-Ohlin)
c. Resource differences (Heckscher-Ohlin)
Step One: The Production Side
Ø
Ø
Ø
Ø
Ø
Labor and capital can be combined to produce either watches or tshirts, but in different ratios.
By looking at the amount of labor and capital required to produce one
unit of each product, we can identify one product as relatively labor
intensive and the other as relatively capital intensive.
The two countries differ in resource endowments: China has relatively
more labor than capital, and the opposite is true in Switzerland.
As a result of different resource endowments, feasible production
bundles also differ, with efficient combinations defined by a production
possibility frontier.
31
1. Why do countries trade?
32
1. Why do countries trade?
c. Resource differences (Heckscher-Ohlin)
c. Resource differences (Heckscher-Ohlin)
33
1. Why do countries trade?
34
1. Why do countries trade?
c. Resource differences (Heckscher-Ohlin)
c. Resource differences (Heckscher-Ohlin)
35
36
6
4/18/2023
1. Why do countries trade?
1. Why do countries trade?
c. Resource differences (Heckscher-Ohlin)
Ø
c. Resource differences (Heckscher-Ohlin)
Step Two: The Consumption Side
Ø
Ø
As for the Ricardian model, consumers want to consume as
much as possible given their income.
Indifference curves define combinations of the two products
that give equal utility to consumers.
37
38
1. Why do countries trade?
1. Why do countries trade?
c. Resource differences (Heckscher-Ohlin)
c. Resource differences (Heckscher-Ohlin)
Ø
Step Three: Autarky Equilibrium
Ø
Ø
Ø
As in the Ricardian model, equilibrium is where consumers
consume efficiently and producers produce efficiently.
The point on the diagram is the tangent betwee n an
indifference curve and the production possibility frontier.
The differently shaped curves in the two countries give
different levels of autarkic consumption and production.
39
1. Why do countries trade?
40
1. Why do countries trade?
c. Resource differences (Heckscher-Ohlin)
c. Resource differences (Heckscher-Ohlin)
41
42
7
4/18/2023
1. Why do countries trade?
1. Why do countries trade?
c. Resource differences (Heckscher-Ohlin)
c. Resource differences (Heckscher-Ohlin)
Ø
Step Four: Equilibrium With Trade.
As in the Ricardian model, opening to trade results in an
integrated “world” market, with a single relative price.
At the new relative price, consumers in both countries move to
a higher indifference curve, so they are experiencing greater
utility.
Production continues along the frontier. The difference
between consumption and production is made up by imports
Ø
Ø
Ø
and exports.
43
44
Nhu cầu tăng --> tăng giá thuê
Giàu về lao động, k cần nhiều vốn --> giá giảm
1. Why do countries trade?
1. Why do countries trade?
c. Resource differences (Heckscher-Ohlin)
Ø
c. Resource differences (Heckscher-Ohlin)
Summary of the basic Heckscher-Ohlin model:
Ø
Comparative advantage is driven by differences in resource
endowments
Opening to trade leads to:
Ø
Ø
Ø
Ø
Ø
Ø
Ø
Equalisation of world relative prices
Partial specialisation in each country according to its comparative
advantage
q
Ø
IE, each country specialises in the product that is relatively intensive in
the factor in which the country is relatively abundant
Separation of production and consumption possibilities in each
country
Increased consumption possibilities for both countries
46
1. Why do countries trade?
Ø
1. Why do countries trade?
d. Scale economies (Krugman/Melitz)
Ricardo and Heckscher-Ohlin concentrate on modelling two
(perfectly) different homogeneous goods.
What about a single (imperfectly) differentiated good?
Ø
Ø
Ø
Ø
Ø
Imagine that consumers “love variety”
Imagine there is a “fixed cost” for each producer in differentiating her
goods from those of other producers
The size of the market determines the number of product varieties
available, because each producer has to sell enough to cover her
fixed costs
Hence, increasing the size of the market - e.g., by opening to trade increases the number of varieties available in equilibrium…
Which increases consumption possibilities
The relative price of the relatively abundant factor increases,
while that of the relatively scarce factor decreases.
Explains why there are “winners and losers” from trade
within a country: depends on the pattern of comparative
advantage, and industry links.
45
d. Scale economies (Krugman/Melitz)
Ø
Trade has effects on factor incomes (labour and capital) in
this model:
Ø
More recent theories emphasize productivity differences
across firms: opening to trade leads to a “shake out” in
which the least productive firms exit the market, and the
most productive grow.
Ø
47
Trade increases sectoral productivity, which can drive
growth.
48
8
4/18/2023
1. Why do countries trade?
Ø
1. Why do countries trade?- Are there any costs?
Consolidation:
Ø
Ø
Ø
Ø
Ø
The key concept in explaining the gains from trade is
com p ar ativ e ad v a nt ag e ( no t a bs o lu t e ad v a nt a g e o r
competitive advantage).
Countries can have different comparative advantages due to
technological differences, or different resource endowments.
Models like Ricardo and Heckscher-Ohlin use differences as a
way of explaining the gains from trade, i.e. inter-industry trade.
More recent models like Krugman and Melitz look at similar
products within an industry. Scale economies can drive
consumer gains through intra-industry trade.
Although trade can bring important economic benefits, the adjustment from a
protected economy to a more open one can be painful for particular groups:
Ø
Ø
Ø
Ø
Ø
Ø
49
Unemployment and/or lower incomes as industries contract.
Higher prices for some goods as distortions are removed.
In addition, there are concerns about the extent to which vulnerable and
historically marginalized groups, including women, can benefit from the
opportunities offered by trade.
Economists accept that there is a strong case for using complementary policies
(i.e., policies in areas other than trade) to mitigate these losses.
Examples include adjustment assistance for displaced workers, or antidiscrimination laws.
From an economic standpoint, the gains of the “winners” from trade liberalization
are typically sufficient to more than compensate the “losers”, but redistribution
rarely takes place in reality—which makes it difficult to sustain the political
momentum behind liberalization.
50
Diamond Model
2. Competitive Advantage of
Nations, by Michael Porter
• Research:
• 4 years
• 10 countries: Denmark, Germany,
•
Italy, United States, Switzerland,
Sweden, United Kingdom, Japan,
Singapore, Korea.
More than 30 researchers
51
Purpose:
- analyze a specific factor to see it have a competitive
advantage of not.
VD: Vietnam with rice, electrical components
Vietnam's automobile sector
Factor Conditions
Hierarchies among Factors
Two particular distinctions stand out:
ü
ü
ü
ü
ü
ü
Climate,
location,
debt capital,
labor skills
highway system,
supply of debt
capital
52
ü
ü
ü
ü
educated personnel,
university research,
advanced
technology
narrowly
specialized trained
personnel
53
Factor Endowment Categories
1. Human Resources: quantity, skills, cost of personnel
2. Physical Resources: abundance, accessibility, quality,
location of physical resources
3. Knowledge Resources: stock of trained people, university
and market knowledge.
4. Capital Resources: amount and cost of capital available
to finance industry.
5. Infrastructure: type, quality and user cost of inf. available
that affects competition (i.e. transportation system, health
care, etc.)
54
9
4/18/2023
Demand Conditions
Related and Supporting Industries
Home Demand Composition
Competitive Advantages in Supplier Industries
• provide efficient and cost effective access to inputs
• on-going coordination and the process of innovation and
upgrading close to home
Segment Structure of Demand
Sophisticated and Demanding Buyers
Anticipatory Buyer Needs
Demand Size and Pattern of Growth
1. Size of Home Demand
2. Number of independent buyers
3. Rate of Growth of Home Demand
4. Early Home Demand
5. Early Saturation
Competitive Advantage in Related Industries
1. Related industries involve industries which can share
(computers and application software) or those in which firms can
coordinate activities in the value chain when competing.
2. National success in an industry is likely if the nation has
competitive adv. in a number of related industries
Internationalization of Domestic Demand
1. Mobile or Multinational Local Buyers
2. Influences on Foreign Needs: by visiting trainees, demonstration effects,
cultural dissemination via media and political alliances/historical ties
55
Firm Strategy, Structure, and Rivalry
Strategy and Structure of Domestic Firms
Nations will succeed in industries where management practices
and modes of organization favored by the national environment
are well suited to the industries' sources of competitive advantage.
Goals
Nations will succeed in industries where goals and motivations are
aligned with the sources of competitive advantage
Domestic Rivalry
Having strong competition at home drives firms to pursue
upgrading and innovation, enter foreign markets to increase
market of fill capacity, and even creates stronger survivors for the
global market.
56
The Role of Chance
- Chance events are related to acts of pure invention, technological
discontinuities, discontinued input costs, shifts in financial markets or
exchange rates, surges of regional or world demand, politics, wars.
- allows for shifts in competitive positions: Can nullify advantages of
previous leaders and open the way for new firms/nations to take a
local or global lead.
- have asymmetric impacts on different nations.
The Role of Government
- influencing the 4 determinants: Its positive or negative influence can
have a significant impact in the success of an industry or a firm in the
nation.
- Government policy can be in turn influenced by the 4 determinants.
57
58
3. Global Value Chains and Trading in Tasks
3. Global
Value
Chains and
Trading in
Tasks
Ø
GVCs are complex, interlinked networks of economic activity.
Trade in goods.
Ø
Trade in services.
Ø
Investment.
Ø
Movement of ideas.
Ø
Movement of people
A typical GVC consists of a lead firm, and a potentially large number of suppliers
at various levels.
Trade in intermediate inputs is intense, and goods can travel across borders
multiple times during the production process (more than half of world
Ø
Ø
Ø
manufactured imports are intermediate goods, and more than 70% of world
services imports are intermediate services)
Ø
59
The lead firm is responsible for creating and maintaining the network, and
typically also supplies intellectual property (like designs) and marketing. Suppliers
take care of component sourcing and manufacture, as well as assembly.
60
10
4/18/2023
3. Global Value Chains and Trading in Tasks
3. Global Value Chains and Trading in Tasks
Ø
Ø
Ø
Ø
The concept of comparative advantage is not new; Ricardo first
wrote about it in 1817.
Ø
Do these basic ideas about the gains from trade still apply in a
new trade landscape, where Global Value Chains (GVCs) are
becoming increasingly important?
Ø
To examine this question, we first look at what GVCs are and how
they work, then we consider how they fit with standard trade
paradigms.
Ø
The key concept behind GVCs is “trading in tasks”.
Instead of specializing in production of a complete product like a
watch or a t-shirt, firms (and countries) can specialize in much
narrower activities, like production of a particular component, or
assembly, or a service like research and development, design, or
marketing.
Comparative advantage can still drive trade within GVCs, with
similar economic gains to the ones already seen.
But how do we deal with the fact that GVC logic leads some
countries to specialize in high value added tasks (like design),
while others specialize in low value added tasks (like assembly)?
Ø
61
3. Global Value Chains and Trading in Tasks
Ø
But in fact, specialization with different levels of value addition is
already there in our simple models.
Under a basic comparative advantage framework, a country can
still benefit from trade even though it is less productive
absolutely than another country in all sectors.
Ø
Ø
63
3. Global Value Chains and Trading in Tasks
Ø
Ø
The reason is that comparative advantage is a relative concept
focusing on opportunity costs, not an absolute one.
In our models, countries have different productivity levels, and
one specializes in a “high tech” sector (watches), and the other in
a “low tech” sector (t-shirts)… but both still gain from trade.
64
3. Global Value Chains and Trading in Tasks
Concretely, what kinds of economic benefits can low value added tasks
supply in a poor country?
Ø
62
3. Global Value Chains and Trading in Tasks
Ø
Ø
Value added follows a “smile” pattern in many GVCs: high at the two
extremes of the production process, lowest in the middle.
A Smaller Slice…
Of a Larger Pie.
Emplo yment in the f ormal sect or f or a w age, co mpa re d wi th t he
counterfactual of the informal sector (lower wages and typically worse
conditions) or agriculture (perhaps no wage, but subsistence only).
Low value added activities like assembly typically require foreign inputs, but
there is evidence that domestic and foreign value added are complements:
opening to trade allows faster sectoral growth than otherwise.
But of course, moving up to higher value added activities is an important
medium term goal.
Ø
Ø
Activities like research and development have economic spillovers that can
support faster long-run growth.
Market-based processes can support moving up when labor markets tighten,
assuming that there is a sufficient human capital base—so education is a
more vital investment than ever for developing countries.
65
Transport Equipment Industry in Thailand;
Source: Shepherd (Forthcoming) based on OECD-WTO data.
66
11
4/18/2023
3. Global Value Chains and Trading in Tasks
- Changing Pattern of Regional Trade
Trade in Value Added and Global Value Chains, by country
•
•
Source: Yamano, Meng, Fukasaku (2011)
https://www.wto.org/english/res_e/statis_e/miwi_e/countryprofiles_e.htm
https://www.wto.org/english/res_e/statis_e/miwi_e/miwi_e.htm
67
3. Global Value Chains and Trading in Tasks – Sector level
68
3. Global Value Chains and Trading in Tasks
Ø
Ø
Ø
Comparative advantage reasoning is still powerful in
explaining the spread and operation of GVCs.
Even though the nature of trade is changing, there is still
potential for countries at all income levels to reap
significant economic gains.
GVCs also pose issues of social and environmental
sustainability.
69
3. Global Value Chains and Trading in Tasks Factors affecting competitiveness in GVCs
Ø
Ø
Ø
Ø
Conclusion on why countries trade
1.
Natural factors
Ø
Country’s geographic location
Endowment of natural resources
Size of the economy
2.
Other factors might be changed by the right policy mix.
Ø
Ø
Ø
Ø
Ø
Ø
Infrastructure,
Skills of workforce,
Trade and investment barriers
Border procedures
Macroeconomic stability, access to finance, and the overall ease
of doing business.
Technology absorptive capacity
70
3.
71
The key concept for understanding why countries trade is
comparative advantage. It can drive mutually beneficial
exchange between countries.
Traditional trade theory focuses on technological differences
(Ricardo) and resource endowments (Heckscher-Ohlin) as
drivers of comparative advantage.
GVCs present the new paradigm of trading in tasks, but
comparative advantage reasoning is still relevant—and
suggests why even low value added activities can have
economic benefits for developing countries.
72
12
Content
3.1. The purpose and role of imports
3.2. Basic principles and import policies of
Vietnam
Chapter 3: Import policy
3.3. Measures for import management
3.1. The purpose and role of
imports
o
Additional imports: Importing goods that cannot be
produced domestically or produced but cannot meet
demand
o
Substituted Import: Importing goods that are
domestically produced would not be as profitable as
imports.
Promote the process of
industrialization and modernization
“Industrialization and modernization is the process of
fundamental a nd com preh ensive tra nsf orm ation of
pr o d uc ti o n, b us i n es s , s e r vi ce a nd so ci o - ec o n o m ic
management activities, from mainly using manual labor to
using labor power with advanced and modern technology,
means and methods, based on the development of industry
and scientific and technological progress, creating high
social labor productivity.
Facilities:
Modern technology, devices
Import
3.1. The purpose and role of
imports
o
Speeding up the process of building material and
technical foundations, and transforming the
economic structure in the direction of
industrialization and modernization of the country
o
Timely supplementing imbalanced aspects of the
economy, ensuring balanced and stable economic
development
o
Contributing to the improvement and raising of
people's living standards
o
Actively promote exports
Timely supplementing imbalanced
aspects of the economy
The world plastic industry value chain
Purpose:
high social labor
productivity
6
1
Timely supplementing imbalanced
aspects of the economy
Timely supplementing imbalanced
aspects of the economy
The value chain of the downstream segment
8
7
Timely supplementing imbalanced
aspects of the economy

Supply - Demand
Timely supplementing imbalanced
aspects of the economy

Supply - Demand
9
Timely supplementing imbalanced
aspects of the economy

Supply - Demand
10
Timely supplementing imbalanced
aspects of the economy

11
Supply - Demand of Vietnam
12
2
Timely supplementing imbalanced
aspects of the economy
Contributing to the improvement and
raising of people's living standards
v
v
v
Import of means of production to serve the production
of consumer goods
Satisfying people's direct needs for consumer goods
Ensuring inputs for production to create stable jobs for
workers
13
14
Importing raw materials and
plastic products
Actively imports promote exports
Ø
Ø
Import creates a driving force to promote export
Import nurtures export
15
16
17
18
3

The share of import and
export in the textile and
garment industry in the
period 2012-2014

Nguồn: Viet Capital
20
19
3.2. Basic principles and
import policies of Vietnam
The relationship between inport and export

About turnover:



3.2.1. Import principles
Balance of trade
The main means of import is export
Ø
U sin g imp or t c ap i ta l s p ari n gl y - r a tio n ally effectively
Ø
Importing modern and advanced technical
equipment suitable to Vietnam's conditions
Ø
Protect and promote the development of domestic
production and increase exports
About the product:
Good export structure --> Reasonable import structure
Reasonable import structure --> good export structure (high
processing content, high value of goods, good quality), large
foreign currency revenue
 Through the method of barter


21
Using import capital sparingly rationally - effectively
ICOR Index of Vietnam 2011-2017
Reasons:
Ø
Inevitability
Ø
Import capital is too little, demand is high
Ø
Level of management and use of capital
24
4
I m p o r t i ng m o d e r n a n d ad va n ce d t ec h n i ca l
equipment suitable to Vietnam's conditions

Requirement:




Using capital effectively, spending foreign currency to
import materials for production and life, encouraging
domestic production to replace imported goods
Reasons
Increase production efficiency
Take shortcuts to catch up with other countries in the region
Ø Avoid environmental pollution
Ø
Determine the structure of imported goods in a reasonable
way
Ø

General standards for imported technical equipment
Must produce high quality productivity
Material saving
Ø Machinery and equipment must meet quality and specifications
Ø Ensure ecological problems
Ø
Ø
Thoroughly research the market to import good products at
the right price
26
25
I m p or t i n g m o de rn an d a d v an c e d t e ch n i c al
equipment suitable to Vietnam's conditions

Basis for determining equipment and machinery
suitable to Vietnam's conditions:
Ø
Import capital
Ø
Objectives and tasks of economic development in
each period (industrialization and modernization)
Ø
Resources and ability to exploit in the country
Ø
Level of management and use of technology
Ø
Weather conditions, climate in Vietnam
Protect and promote the development of domestic
production and increase exports

Reasons to protect domestic production
Ø
The goal of political and social stability
Ø
Enhancing the competitiveness of domestic
ma n uf a ct u ri ng in d u s t ri es , g ra d ua l ly re d u ci n g
dependence on outsiders
27
28
Imports increase exports rapidly


Importing promotes the development of domestic
production, creating a diversified source of goods
for export.
3.2. Basic principles and
import policies of Vietnam
3.2.2. Import Policy
Content:

Prioritize the import of machinery and equipment with
new technology to serve the implementation of the goals
of the country's industrialization and modernization, and
for export growth.

Save foreign currency, only import materials for export
production and consumer goods production to minimize
import demand. For example: cotton yarn (textiles),
fertilizer, iron and steel...

Legitimate protection of domestic production.
The relationship between import and export:

Turnover

Product

Market
29
5
3.3. Measures for import
manegement
Bound Tariffs
v Maximum level of customs
tariffs to which a WTO Member
is committed toward other
Members.
3.3.1. Import tariff
Concept
o
Types of customs tariffs under the WTO
Tariff – tax levied on a good when it crosses a
national border
•
import tariff/tax – much more common
•
export tariff/tax – less common
Types of customs tariffs under the WTO
v Bound tariffs are set on a
product-by-product basis and
classified based on Harmonized
System (HS).
v Bound tariffs are not partnerspecific (same commitment
toward all WTO members)
Applied Tariffs
v
Tariff actually imposed by a country
on goods imported into their
markets.
v
Published and administered by
national customs authorities.
v
Sometimes lower than the Bound
tariffs.
v
Cannot be raised above the bound
rates without compensation (among
WTO countries).
v
Include:
§
Most Favoured Nation (MFN) tariffs
§
Non-MFN tariffs
§
Preferential tariffs
Types of customs tariffs
Applied tariffs in Market Access Map
MFN Tariff
Non-MFN Tariff
Preferential
Tariffs
Ad Valorem Tariff
Types of customs tariffs
Australia applies MFN tariff of 5%
on imported wine (2204.21.20)
French wine
Price without tariff
AUD 8
New Zealand
wine
Price without tariff
AUD 6
Tariff paid = Price × Rate
Tariff paid
AUD 0.40
Price including
tariff: AUD
8.40
Tariff paid
AUD 0.30
Price including
tariff: AUD
6.30
6
Specific Tariffs and their Effects on Price
Compound Tariffs

Switzerland imports beef (0201.30.99) from Argentina
Tariff = CHF 2,212 100 kg gross
Before
Border
CHF 32 / kg
CHF 22 /
kg
CHF 10 / kg
Low quality
beef
imported from Sri Lanka into Germany
0.127 EUR/1 kg
CHF 62 / kg
Tariff = 5.1% × 80 EUR + 0.127 EUR/kg × 10 kg
= 5.35 EUR
CHF40 / kg
CHF 10 / kg
Low quality Prime quality
beef
beef
Prime quality
beef
Price with tariff = 85.35 EUR
(package of 10 kg)
The prime beef is now
only ≈ 2 times the price
of the low-quality beef
The prime beef is
4 times the price of the
low-quality beef
Mixed Tariffs
Leather shoes
(6405.10.119)
imported from Viet Nam to
Japan
Branded shoes
JPY 1,000/
pair
Final Price:
5,300 yen /
pair
Technical Tariffs
MFN Tariff =
30% or 4,300 yen/pair,
whichever is the greater
Tariffs that include product-specific technicalities.
Examples:
Importing
country
Option 1
30% ×1,000 yen/pair
= 300 yen/pair
Option 2
4,300 yen/pair
Tariff =
4,300
yen/pair
Russian
Federation
8703.32.90.9
3
New Zealand
9508.10.00
United States
9109.10.10
30% ×300 yen/pair
JPY 300 / pair = 90 yen/pair
Final Price:
4,600 yen /
pair
Option 2
4,300 yen/pair
Tariff =
4,300
yen/pair
Non-Ad Valorem Tariffs

The share of national tariff lines (NTL) with non-ad valorem
tariffs varies depending on the importing country.

Examples:
Switzerland
Product
Description
NTLC
Option 1
Unbranded
shoes
MFN Tariff
5.1% + 12.7
EUR/100 kg
Price w/o tariff = 80 EUR
(package of 10 kg)
CHF 22 /
kg
CHF40 / kg

After
Border
CHF 22 / kg
tariff
Roasted coffee substitutes (NTLC 2101.30.19.00)
80.8% of tariff lines
Russia
14.6% of tariff lines
EU
11.1% of tariff lines
USA
8.5% of tariff lines
Thailand
7.5% of tariff lines
South Africa
3.8% of tariff lines
Motor cars and other motor
vehicles principally designed
for the transport of persons
(other than those of
heading 8702), including
station wagons and racing
cars: Other vehicles, with
compression-ignite
Roundabouts, swings,
shooting galleries and other
fairground amusements;
travelling circuses and
travelling menageries;
travelling theatres: Travelling
circuses and travelling
menageries
Alarm clock movements,
complete and assembled,
electrically operated, with
opto-electronic display only
Customs duty as reported
2.2 euro per cm³ of engine
volume
The rates applicable to the
separate components
3.9% on the movement +
5.3% on the battery
Tariff Rate Quota (TRQ)
A two-tiered tariff:
§ The first level of tariff, inside-quota tariff rate (IQTR), applies up
to a specified quantity of import (contingent).
§ A higher customs tariff, outside-quota tariff (OQTR), is levied on
the imported goods outside of the contingent .
Quantity
imported
OQTR
Contingent
IQTR
0
7
Tariff Rate Quota (TRQ)
Tariff Rate Quota (TRQ)
The United States applies TRQ on imports of (5201.00.18) Cotton
originating from Burkina Faso
Quantity
imported
OQTR
$314 / Ton
Contingent
326 metric
IQTR
$0 / Ton
tons
0
Tariff Rate Quota (TRQ)
Inside-quota NTLC:
•National Tariff Line Code (NTLC) used to define the product
for claiming the inside-quota tariff.
•Generally the same as the outside-quota NTLC
•Some countries apply different NTLCs for the same product
depending on whether it is imported inside the contingent or
outside of it.
Product coverage: The list of products covered by the
TRQ.
Country coverage: The list of countries that can claim
an allocation or a portion of the TRQ.
Administration method: The method used to manage
the TRQ allocation.
Tariff Rate Quota (TRQ)
Categories of principal TRQ administration methods
Applied tariffs: No shares are allocated to importers. Imports of the products concerned are
allowed into the territory of the Member in unlimited quantities at the in-quota tariff rate or below.
Auctioning: Importers' shares are allocated, or licenses issued, largely on the basis of an
auctioning or competitive bid system.
First-come, first-served (at the border): No shares are allocated to importers. Imports are
permitted entry at the in-quota tariff rates until such a time as the tariff quota is filled; then the
higher tariff automatically applies. The physical importation of the good determines the order and
hence the applicable tariff.
Licenses on demand: Importers' shares are generally allocated, or licenses issued, in relation to
quantities demanded and often prior to the commencement of the period during which the physical
importation is to take place. This includes methods involving licenses issued on a first-come, firstserved basis and those systems where license requests are reduced pro rata where they exceed
available quantities.
Historical importers: Importers' shares are allocated, or licenses issued, principally in relation to
past imports of the product concerned.
Imports undertaken by state trading entities: Import shares are allocated entirely or mainly to
a state trading entity which imports (or has direct control of imports undertaken by intermediaries)
the product concerned.
Producer groups or associations: Import shares are allocated entirely or mainly to a producer
group or association which imports (or has direct control of imports undertaken by the relevant
Member) the product concerned.
Other: Administration methods which do not clearly fall within any of the above categories.
Mixed allocation methods: Administration methods involving a combination of the methods as
set out above with no one method being dominant.
Ad valorem equivalents (AVEs)

Non-ad valorem tariff presented as a % of the value of
goods cleared through customs
o
Measure the effect of different types of tariff
on product prices, as if they were ad valorem
o
Allow for comparison of tariffs across different countries and
products
o
Measure the effect of different types of tariff
on product prices, as if they were ad valorem
o
Allows calculation of average tariffs for a
product group, e.g. agricultural products
Ad valorem equivalents (AVEs): calculation
•
AVEs express specific tariffs in percentages
•
AVE depends on the unit value, i.e. value of 1 unit of the product
Specific tariff ($)
AVE (%) =
X
100
Unit value ($)*
Value imported
Quantity imported
(need to use same measurement unit)
8
Exercise: Ad valorem equivalents (AVEs)
For a particular specific tariff, the lower is the unit value,
the higher will be the ad valorem equivalent. Let’s check.
Imagine Switzerland applies a
tariff of $50 per ton to imported
fish fillets
1. If one ton of South Africa’s exported
fish fillets cost $200, what is the
equivalent ad valorem tariff?
Welfare effects
2. If one ton of Ghana’s exported fish
fillets cost $100, what is the equivalent
ad valorem tariff?
quốc gia nhỏ: kim ngạch nhỏ, không đủ ảnh hưởng đến kim ngạch quốc tế --> thay đổi giá trong quốc gia nhỏ không đủ làm thay đổi giá thế
giới --> khi mở cửa, quốc gia nhỏ phải chấp nhận bán giá quốc tế.
Consumer & Producer Surplus
1) Consumer surplus – additional benefit
obtained by the buyer of a good
• difference between the maximum that the
buyer is willing to pay and the actual price
• area below demand and above price
2) Producer surplus – additional benefit obtained
by the seller of a good
• difference between the minimum that the
seller is willing to accept and the actual price
• area above supply and below price
Consumer & Producer Surplus (cont.)
When combined, the areas of consumer surplus and
producer surplus represent the total welfare to the nation
resulting from the sale of this good.
Trong trường hợp nhập khẩu, giá nhập khẩu phải nhỏ hơn giá trong nước
Tariff Welfare Effects – Small Nation
Before Trade:
Consumer surplus
is area in red.
Producer surplus
is area in green.
Tariff Welfare Effects – Small Nation
With Free Trade:
Consumer surplus
increases by areas
a,b,c,d,e,f and g.
Producer surplus
decreases by
areas a and e.
world price
The overall
increase in welfare
is b,c,d and f.
9
Tariff Welfare Effects – Small Nation
With Tariff:
c = revenue effect = lost
consumer surplus now
government rev.
a = redistributive effect
= shift from consumer
to producer surplus
b + d = deadweight loss
= benefits lost to all
parties
b = protective effect
d = consumption effect
Tariff Welfare Effects – Large Nation
With Free Trade:
Consumer surplus
increases
substantially.
Producer surplus
decreases but to a
lesser degree.
The overall
increase in welfare
is b,c,d and the
triangle above.
Tariff Welfare Effects – Large Nation
Revenue Effect:
In this case there are
two separate portions:
c = domestic revenue
effect = prior U.S.
consumer surplus
e = terms-of-trade
effect = redistribution
of income from foreign
nation
area e > (b+d) leads
to more domestic
welfare
Tariff Welfare Effects – Large Nation
Before Trade:
U.S. consumer
surplus is area in
red
U.S. producer
surplus is area in
green.
Tariff Welfare Effects – Large Nation
With Tariff:
c + e = revenue effect
= consumer surplus
now government rev.
a = redistributive
effect = shift from
consumer to producer
surplus
b + d = deadweight
loss = benefits lost to
all parties
b = protective effect
d = consumption
effect above.
Effective versus Nominal
Rates of Protection

The amount of protection given to any one product
depends not only on the tariff rate but also on
tariffs on the inputs used to produce the good

Nominal rate of protection: tariff rate levied on a
given product mức bảo hộ danh nghĩa

Effective rate of protection: nominal rate + tariffs on
intermediate inputs mức bảo hộ hiệu quả

Value added: price of a good minus the costs of
intermediate goods used to produce it (the contributions of
labour and capital at a given stage of production)
6-60
10
Effective versus Nominal
Rates of Protection (cont.)
 In
sum, effective rate of protection =
(VA* - VA) / VA
 VA
= amount of domestic value added under
free trade; VA* = domestic value added after
taking into account all tariffs (on both final
goods and
intermediate inputs)
6-61
4/18/2
023
62
Effective versus Nominal Rates of
Protection (cont.)
Copyright © 2005 Pearson Addison-Wesley. All rights reserved.
6-63
11
Discussion question: What are non-tariff
measures?
Reminder: Market access
1) Definition?
2) Any examples?
Click to add text
3) Who applies them?
Market access for goods refers to the conditions,
customs tariffs and non-tariff measures, applied by
countries to goods imported into their markets.
Related terms
Definition
Non-tariff measures (NTMs)
Official policy measures on export and import, other than
ordinary customs tariffs, than can potentially have an effect on
international trade in goods, changing quantities traded, or prices
or both.
Non-tariff barriers (NTBs)
Mandatory requirements, rules or regulations legally set by the
government of the exporting, importing or transit country (in
contrast to private standards which are not legally set)
Different definitions: “NTMs with a discriminatory intent”
/ “NTMs that negatively affect international trade”  in
ITC’s work, the first definition is used
Can affect both export and import
5
NTM
Classification
• Logic linked to
WTO agreements
• Correspondence
with the EU
Helpdesk
taxonomy
QUIZ: Which of these NTMs are real?
1. A country bans imports of a popular chocolate eggshaped candy. Importers who violate the ban are fined
$2500 per chocolate egg.
2. A country requires imported skis to adhere to
rigorous product design standards, because of
the “unique” snow in that specific country.
3. Imported oranges are allowed to be green,
but only if the green does not cover more than
1/5th of the fruit’s surface area.
4. A country only clears imported lobsters if the
lobsters are alive. The country begins inspecting all
lobsters, which causes them to die while waiting for
inspection. The lobsters do not clear customs.
The necessity of non-tariff protection
globalization
Why do governments impose NTMs?
•
NTMs can be introduced for legitimate reasons, for example protection
of human, animal and plant health
•
But can also be misused as an instrument of protection
Some points of view:
•
Non-tariff protection is necessary in the period of
international economic integration
•
Non-tariff protection is necessary considering national
competition and resource allocation
Why do countries use NTMs?
Importing Country
•
•
•
•
Health and safety of consumers
Environmental factors
Infant industry protection
Achieve political goals
Why do countries use NTMs?
Exporting Country
•
•
•
Ensure adequate supply for the
domestic market
Maintain quality
Ensure best value for their exports
 NTMs are not necessarily a trade barrier
They play an important role in enabling trade
The necessity of non-tariff protection
globalization
-->Protect domestic manufacturing industries, develop production,
encourage exports and create growth momentum under the pressure of
globalization.
Should not giving protection uncontrollably--> must follow a few basic
principles:
•
Only protect goods that are domestically produced to meet the needs of
economic growth, have potential for future development, generate budget
revenue and solve labor problems.
Purpose of non-tariff protection
For Vietnam:
Ø Subjective perspective: the economy is backward,
undergoing transformation, the elements of the market
economy have not been created synchronously and
there are many shortcomings --> poor competitiveness
Ø Objective perspective:
•
The protection is uniform for all economic sectors, including foreign-invested
enterprises.
ü Without protection, the economy will develop unbalanced,
heavily dependent on external factors
•
The protection policy is specified in each case, from time to time and does not
provide permanent protection for any goods.
ü Vietnam needs to improve its competitiveness in terms of micro
and macro
•
Protection of the domestic market must be consistent with the process of
trade liberalization and international agreements that the Government of
Vietnam has signed.
ü Protection is a tool by which we can “bargain” in exchange for
certain political favors.
How do exporters and importers experience
non-tariff measures?
Exporters of agricultural products report more problems
than those in manufacturing
Share of exporters who encounter burdensome NTMs, by sector
Source: ITC (2015);The Invisible Barriers to Trade – How Businesses Experience
Non-Tariff Measures; www.intracen.org/publications/ntm
The trade-hampering measures lie much closer to home
than one might expect
The challenge?
SPS & TBT measures for agriculture, rules of origin for manufacturing
Technical requirements
Distribution of reported NTM cases, by country applying the measure
Regulations on product characteristics, quality,
poduction process. etc.
Conformity assessment
Home
(exporting)
country
Technical inspections, testing, certification etc
to prove compliance with technical regulations
OECD countries
Inspections and other entry formalities
Customs clearance and border control
Charges and taxes
Service charges, customs surcharges, etc.
Quantity control measures
Agriculture
Quotas, licences, prohibitions
Manufacturing
Rules of origin and related certificate
Other developing
countries
Criteria & related certificate to determine the country of
origin of a product.
Other import-related measures
Finance measures, anti-competitive measures, trade remedies, etc.
Regional trade
agreeement partners
Source: ITC business surveys on NTMs; www.ntmsurvey.org
Most regulations pose a problem because of procedural
obstacles
What types of home country procedural obstacles are reported?
Share of NTM cases, by type of difficulty
High cost
24%
Exporting
Admin
burden
15%
Delays
42%
Exporting
country
Lack of
facilities
7%
Other
12%
Source: ITC (2015);The Invisible Barriers to Trade – How Businesses Experience
Non-Tariff Measures; www.intracen.org/publications/ntm
Source: ITC (2015);The Invisible Barriers to Trade – How Businesses Experience Non-Tariff Measures; www.intracen.org/publications/ntm
Where should we look to find the solutions?
Source: ITC (2015);The Invisible Barriers to Trade – How Businesses Experience
Non-Tariff Measures; www.intracen.org/publications/ntm
Other
Lack of recognition/
accreditation
Discriminatory behaviour
of officials
Information/ transparency
issues
Lack of sector-specific
facilities
Location of the
procedural obstacles
Customs authority
Ministry in charge of international trade
Ministry in charge of agriculture
Ministry in charge of public health
Public/private organization for standard and quality
Chamber of commerce and trade support institution
Public/private organizations for certification
Ministry in charge of environmental affairs
Public/private organizations for inspection
Products testing and analysis laboratory
Port authority
Airport
Ministry in charge of finance
Other ministries/agencies
Other private companies/banks
Not specified
Administrative burdens
related to regulation
procedural obstacles
Time constraints
Type of
Informal or unusually high
payment
Distribution of procedural obstacles, by agency
How do we know this? ITC’s business surveys
... document the experiences of companies that are involved in international trade
and identify at product, sector and partner country level the predominant
regulatory and procedural trade obstacles.
• NTMs imposed by importing countries
• NTMs imposed by exporting countries
• Identification of existing national procedures and
facilities that could use strengthening
• Coverage of gaps in understanding of specific
measures resulting form a lack of access to
relevant information
NTM series of more than 40 publications &
survey results available at www.ntmsurvey.org
20
List of goods banned from import
(negative list)
Ø It is a measure decided by a competent state agency not to
bring goods from a separate customs area into the country or
from abroad into the territory of Vietnam.
Groups of non-tariff
measures and tools
Decree 187/2013/ND-CP dated November 20, 2013
Circular 04/2014/TT-BCT
Article 8-10 Law on Foreign Trade Management 2017
Quantitative Restrictive Measures
21
List of goods banned from import
(negative list)
22
Import quota
List of goods banned from import:
a) Regarding national defense and security, which has not yet been
permitted to be imported by a competent state agency;
b) Causing harm to the health and safety of consumers;
c) Causing bad influence on social order and safety, social morality,
fine customs and traditions;
d) Causing harm to the environment and biodiversity, having a high
risk of carrying harmful organisms, threatening food security,
production and export of Vietnam, and infringing upon intellectual
property rights;
e) According to international treaties to which Vietnam is a contracting
party.
Ø Import quota is a measure decided by a competent
state agency to be applied to limit the quantity, volume
and value of goods imported into the territory of a
country.
Ø Classification:
+ Export quota
+ Import quota
23
Import quota
Ø The effect of Import quota:
24
Import quota
Ø The impact of quotas:
Ø Changes taking place in the economy:
• Increase product price
• Declining consumer demand
• Domestic production increases
• Imports decrease
Ø The consumers, producers surplus and the government revenue will
change as follows:
• Producer: +A
• Government: 0
• Importers: +C
• Consumers : - A - B - C - D
• Social welfare : -B - D
25
26
Import quota
Import quota
WTO’s view on quotas:
Not supported because:
Vietnam's commitment to join WTO:
Ø Doesn't show transparency
Ø Quota: Not apply to protect domestic production
Ø Easy to go to the wrong direction
Use only in the following cases:
Then member countries, including the United States,
remove import quotas for textiles
Ø Protection of national interests
Ø The developing countries
Conditions to apply:
Ø Commitment not to affect the interests of other member
countries
Ø Announce specific time and changes if any
27
Tariff Quota
28
Tariff Quota
Ø Definition: An import tariff quota is a measure applied
by a competent state agency to decide on the quantity,
volume and value of imported goods at a tariff rate
more preferential than out-of-quota tariff rate (article 20
of the law on foreign trade management)
Ø Vietnam's commitment to join WTO on tariff quotas:
reservation with 4 items (sugar, poultry eggs, raw
tobacco and salt)
Compare Quota & Tariff quota:
Similarities:
Ø Measures to control the quantity of imported goods
Ø Increase the price of imported goods
Ø Causing losses and waste to society
Ø Create inequality
29
Tariff Quota
30
Import License
Compare Quota & Tariff quota:
Differences:
Quota
Tariff quota
Import quantitive
fixed
More flexible, allow to go
beyond quota
Government
revenue
None, or very little
Yes, due to combination with
tariffs
WTO’s view
Not support
Encourage usage rather than
quota
Level of price
increasing
Higher because of limited
import
Less price increase
ü Concept:
A permit granted by a competent state agency in charge
of import and export management to an importer before
bringing goods across the border into the market of that
country.
ü License types:
• Auto license (general license)
• Non-automatic license (specific license)
31
Voluntary Export Restraints - VERs
ü Concept:
An export restriction measure in which an importing
country requires the exporting country to voluntarily limit
the amount of goods exported to its country.
ü Impact of VERs
ü Pros and cons:
Groups of non-tariff
measures and tools
Para-tariff measures
33
Customs valuation
ü Concept:
Customs value is the value of import and
export goods determined for the purpose of
customs management, which is one of the
basic bases for calculating customs duties
and other taxes.
ü Impact:
Số thuế
nhập khẩu
phải nộp
=
=
Số lượng
hàng hóa
nhập khẩu
x
Đơn giá
tính
thuế
Trị giá tính thuế
x
x
Thuế suất thuế
nhập khẩu
Thuế suất thuế nhập
khẩu
Technical (SPS/ TBT) versus non-technical NTMs
o What is a technical regulation?
• Refer to product-specific properties.
• Product characteristics, technical specifications,
and the production process.
• They also include conformity assessment
methods which confirm that products fulfill the
requirements laid down in regulations
include measures that are applied in order to protect
food safety and animal and plant health (Sanitary and
Phytosanitary Measures – SPS)
Key concept: SPS and TBT measures
“A document which lays
down product
characteristics or their
related processes and
production methods,
including administrative
provisions, with which
compliance is mandatory.”
(Annex 1, WTO TBT Agreement)
as well as other technical measures for national
security reasons, consumer safety reasons (also
known as “Technical Barriers to Trade – TBT”)
o Non-technical requirements:
• do not refer to product specific properties but to trade requirements
• shipping requirements, customs formalities, trade rules, taxation policies, etc.
• all other NTM measures, which are not technical requirements
Who prepares technical regulations and SPS measures?
Technical regulations
SPS measures
- Ministry of Trade
- Ministry of Health
- Ministry of Industry
- Food and Drug Administration
- Ministry of Agriculture
- Plant Protection Authorities
- Ministry of Health
- Veterinary Services
- Consumer Protection Unit
- Ministry of Fisheries and Livestock
- Environment Protection Unit
- …
- …
Examples of products subject to TR
• Machinery and equipment which could endanger human life, e.g.
boilers, electricity-driven tools, metal and wood – working
equipment
• Potentially dangerous consumer articles, e.g. synthetic detergents
and cleaning agents, household electrical appliances, video and
TV sets, motor vehicles
• Hazardous raw materials and agricultural inputs, e.g., fertilizers,
pesticides, and specified chemicals.
Technical regulations compared to standards
Technical Regulations
Standards
• Compliance is MANDATORY and
form part of legislation
• Compliance is VOLUNTARY
• Responsibility of the government
• Consensus not necessary
• Encompass product
characteristics and
administrative provisions
• Can be developed by a variety of
bodies in the public or private
sector
• Developed by consensus
• Contain only product
characteristics, or technical
requirements
• Goods cannot enter the country
• Goods can enter the country
Example of a TBT measure
TBT in international trade
Product characteristics requirements on oranges
C
U
S
Country
B
Technical regulations
Standards
Testing, Calibration
Inspection
Certification
Packaging
Labelling
Other requirements
Oranges with light green colour are
allowed,
theby
colour
does not
Size isprovided
determined
the maximum
diameter
thefifth
equatorial
of the fruit.
exceedofone
of the section
total surface
Oranges:
53 mm
of the fruit
T
Technical regulations
Standards
Testing, Calibration
Inspection
Certification
Packaging
Labelling
Other requirements
Country
A
O
M
S
Example: Canada labeling requirement on a
box of fish product
Labels on fish products exported to
Canada must include:
A.
Brand name
B.
Nutrient Content Claim
C. Storage Instructions
D. Country of Origin
E.
Composition Claim
F.
Net Quantity
G. Canada Inspected Logo
H. Common Name
I.
Nutrition Facts Table
J.
"Contains" Statement
Example of technical NTMs
43
Main challenges reported by businesses for SPS / TBT
Ø Lack of information on foreign market standards
44
Main challenges reported by businesses for SPS / TBT
Example: Inefficient testing and certification procedures
Ø Lengthy procedures
Ø Frequent renewal
Ø High certification cost
Ø Burdensome certification and inspection procedures
Ø Duplication of control among different regulatory bodies
Ø Excessive paperwork and numerous
administrative windows
Ø Inaccessible or absent infrastructure
Ø Lack of testing facilities
Ø Lack of recognition in destination market of local labs
Ø Stringent requirements (difficult to comply with)
The testing process takes 1 - 2 months
while the validity of the product itself is
just a year. Another issue is that it is
very expensive to undertake this test
which hinders us from exporting.
Source: ITC Businesses Surveys on NTMs in 66 countries, www.ntmsurvey.org
Technical Regulations and WTO TBT Agreement
rules
• Technical regulations should not create unnecessary obstacles to
trade, therefore, should
− Not be more trade-restrictive than necessary
− Serve legitimate objective
− Take into account risks that non-fulfilment would create
− Be based on scientific and technical information
• Foreign and domestic products treated equally
• Be based on international standards (except when not appropriate
/ not sufficient to fulfil legitimate interests)
The problem? It’s the
quantity of papers to
submit! There are
too many documents
needed to prepare
the dossier. More
than 20 different
documents are
required for the
conformity
assessment process.
Source: ITC Businesses Surveys on NTMs in 66 countries, www.ntmsurvey.org
Objective
Prevent creation of unnecessary technical
barriers to trade
• Establish rules for development, adoption and
application of Technical Requirements (technical
regulations, standards, and conformity assessment)
• Technical requirements for trade to be based on
international standards, guides or recommendations
as far as possible
• Transparency of requirements
46
Rights
Salient features
Agreement acknowledges countries’ rights to regulate for legitimate
purposes:
Quality of their
exports
Protection of
environment
Protection of human life
or health
Prevention of
deceptive
practices
Protection of animal
or plant life or health
Protection of
security interests
• Base technical requirements for trade on
international standards, guidelines or
recommendations as far as possible
• Make requirements transparent
ü Publish notifications of the proposed technical
regulations and conformity assessment procedures
ü Provide reasonable opportunity to other interested
parties to comment on the proposed technical
regulations and conformity assessment procedures
ü Take into account these comments in finalizing the
drafts
ü Justify the requirements of the technical regulations,
should they be requested to do so
Salient features
TBT - Main principles
Nondiscriminatio
n
Technical regulations, standards, conformity assessment procedures
should be
Harmonizatio
n
Mutual
recognition
• Not more trade restrictive than necessary (based on performance
requirements than product descriptors)
• Not applied arbitrarily, or
• Not discriminatory against imports (national treatment)
• Not maintained if no longer necessary, (changed circumstances or
can be addressed in a less trade restrictive manner)
Avoidance
of
unnecessa
ry
obstacles
to trade
Transparency
49
Equivalence
What is a sanitary or
phytosanitaryvmeasure?
To
protect …
Sanitary and phytosanitary measures
Human or animal
life or health
from
Additives, contaminants, toxins or
disease –causing organisms in
foods, drink, feedstuffs
Human life or health
from
Diseases carried by animals,
plants or their products, or from
pests
Animal or plant
life or health
from
Entry, establishment or spread of
pests, diseases, disease-causing
organisms, etc.
from
Other damage caused by entry,
establishment or spread of pests
PROTECTING HUMAN, ANIMAL, PLANTS, ENVIRONMENT
A country
(Annex A WTO Agreement on SPS)
Some examples of SPS measures
(1/4)
SPS measures comprise of
To protect…
Human or animal
life or health
Laws, decrees,
regulations
Testing, inspection,
certification, approval
procedures
End product
criteria
Quarantine
treatments
Risk
assessment
methods
Processes and
production methods
Packaging and labelling
related to food safety
Residue limits in
seafood
From
Additives, contaminants,
toxins or disease organisms
in foods, drink, feedstuffs
Aflatoxin limits in
nuts
Some examples of SPS measures
(2/4)
To protect…
To protect…
Human life or health
From
Requirement for
rabies vaccination
Diseases carried by animals,
plants or their products, or from
pests
From
Foot- and mouth
disease
To protect…
From
Animal or plant
life or health
Avian influenza
Some examples of SPS measures
(4/4)
A country
Some examples of SPS measures
(3/4)
Other damage caused by entry,
establishment or spread of pests
Entry, establishment or spread of
pests, diseases, disease-causing
organisms, etc.
Prevent the spread of
fruit fly
Rights
Members have the right to take sanitary and
phytosanitary measures necessary for the protection of
human, animal or plant life or health, provided that such
measures are not inconsistent with the provisions of
this Agreement.
Prevent entry of Zebra
mussels via
Ballast water
Regulate seeds to
avoid entry of weeds
Obligations
Key Provisions of the SPS
Agreement
Only to extent necessary
Based on scientific principles
Non discriminatory /
national treatment
Not maintained without
sufficient scientific
evidence (unless
provisional )
No disguised protectionism
• Non-discrimination
• Scientific justification
• harmonization
• risk assessment
• consistency
• least trade-restrictiveness
• Equivalence
• Regionalization
• Transparency
• Technical assistance/special treatment
• Control, inspection and approval procedures
What is conformity assessment
‘Any procedure used, directly
or indirectly, to determine that
relevant requirements in
Te c h n i c a l R e g u l a t i o n s o r
standards are fulfilled’.
Conformity Assessment Procedures
DETERMINING IF REQUIREMENTS ARE FULFILLED
Annex 1 WTO/TBT Agreement
Tackling the transparency challenge: NTM
data collection coverage
Components of Conformity Assessment
Testing
Inspection
Product
certification
Supplier’s Declaration of
Conformity (SDoC)
System certification
Accreditation
So back to our information tools….
Data types
k
Where do I find all this information for products and markets of my interest?
Market Access Map
Market Access Map
Let’s focus
on this first
www.macmap.org
Sanitary and Phyto-Sanitary measures (SPS)
and Technical Barriers to Trade (TBT)
notification alert system: www.epingalert.org
Rules of Origin Facilitator
Find and compare rules of origin, related provisions and
certification requirements
http://findrulesoforigin.org/
Other market access
conditions
Tariffs
Applied
and
bound
tariffs
MFN and
preferenc
es
Tariff
Rate
Quotas
Ad
Trade
valorem
agreeequi- ments
valents
Rules of
Origin
Trade
remedies
Sanitary
and
Phytosanit
ary
Measures
Technical
Barriers
to Trade
Inspection Other Nonrequiretariff
measures
ments
68
Key concept: Rules of Origin
Rules of Origin
Or: About the “nationality” of fish caught in international
waters
What they are
The “economic
nationality” of goods in
international trade
(“customs origin”)
What they are not
A good source of
information for
consumers
What they will never
do
What they do
- They define one (and
only one) origin to
each and every product;
Accept something as
“made in the world”
- They make FTAs possible
69
70
Origin in practice
Rules of Origin – Why?
Toothed-wheels of cast iron and steel (HS code 8483.90.81.90) imported into the EU
http://findrulesoforigin.org/home/compare?reporter=276&partner=410,484,842&product=8483908190
Non-preferential ROOs
Cost of goods:
-
Trade statistics
-
Trade policy measures: e.g. anti-dumping / tariff rate quotas
-
Government procurement
-
Etc.
$500
No trade agreement in place =
MFN rate
$500
Preferential ROOs
-
MFN tariff: 2.7%
Trade agreements: determining
eligibility for preferences
Each trade agreement has its
own sets of rules of origin!
“Except as otherwise
provided in this
Agreement, each Party
shall eliminate its customs
duties on originating
goods of the other Party”
$500 + 2.7%
$500 + 0%
Meet the rule of origin under the EUMexico agreement = preferential rate
$500
Do not meet the rule of origin under the
EU-South Korea agreement = MFN rate
$500 + 2.7%
71
Origin qualifying process
In order for a product to be traded under preferential origin (tariff), the
exporter needs to answer ‘YES’ to each of the five questions.
IF the answer to any of the questions is ‘NO’, the product has got
to be traded under the MFN rate
1. Agreement
• Is there a trade agreement between the
country of export and import?
2. Product
• Is there a preferential tariff rate for the
product under the agreement?
3. Rule
• Does the product comply with the rule of
origin under the agreement?
4. Proof
• Can the exporter prove the origin of the
product?
5. Compliance
• Can the exporter comply with other origin
provisions and conditions?
xuất xứ thuần túy: chỉ xuất xứ từ 1 quốc gia
change of tariff heading: khi thay đổi --> thay
value addition:
Origin criteria: basic principles
Substantial / sufficient transformation of
goods
-
Change of tariff heading: all non-
Wholly obtained
goods
originating materials used in the production
of the product have undergone a change in
tariff classification
-
Value addition:
HS4 08.05
HS4 20.09
E.g. production in which the value of all non-originating materials
used does not exceed 50 % of the transaction value of the product.
-
Technical requirements: E.g. pasteurization of milk
73
14 basic types of rules of origin
Occurrence
6%
Rule
5%
NC
WO
7%
CC
43%
CTH
6%
CTSH
0%
CTI
10%
ALW
10%
ECT
13%
SP
61%
0.1%
RVC
RQC
3%
RVP
0%
RQP
2%
Other
74
Example of rules of origin classification
Definition
Good is entirely (i.e. wholly) obtained or manufactured in one country without using any non-originating materials.
The non-originating inputs are not required to be classified in a different HS code than the final good to confer
originating status.
The originating status is conferred to a good that is classified in a different HS chapter than the non-originating
inputs.
The originating status is conferred to a good that is classified in a different HS heading than the non-originating
inputs.
The originating status is conferred to a good that is classified in a different HS subheading than the non-originating
inputs.
The originating status is conferred to a good that is classified in a different HS tariff item than the non-originating
inputs.
The originating status is allowed to be conferred from non-originating inputs of specific HS codes.
The originating status cannot be conferred to a good if the non-originating inputs are from HS codes listed under
exception.
A good originates in the country where a defined technical requirement, i.e. a specific working or processing,
has taken place.
A good obtains originating status if a defined regional value content percentage has been reached.
A good obtains originating status if a defined regional quantity content percentage has been reached.
A good obtains originating status if a defined regional value content percentage on a part or parts has been
reached.
A good obtains originating status if a defined regional quantity content percentage on a part or parts has been
reached.
Origin criteria other than related to wholly obtained, CTC, value (quantity) content, or specified process.
Note: “Occurrence” means % of presence of the rule among all 500,000 FTA x HS6 combinations (as of Oct 12, 2018)
Good: Sports car - HS 8703.24
Trade agreement
Rule of origin
Criterion (ITC)
FTA, China-Peru
A change from any other heading,
provided there is a regional value content
of not less than 50 percent.
CTH and RVC 50%
NAFTA
A change to subheading 8703.21 through
8703.90 from any other heading, provided
there is a regional value content of not
less than 62.5 percent under the net cost
method.
CTH and RVC 62.5%
EPA, JapanMexico
A change to subheading 8703.21 through
8703.90 from any other heading, provided
there is a regional value content of not
less than 65 percent.
CTH and RVC 65%
75
76
Change in tariff classification – Tomato juice
Value added calculations - example
Good: Tomato juice - HS 2009.50
Process: Tomato juice is made from tomato paste, which in turn is made from
fresh tomatoes.
Parts
Tomato juice and tomato paste are classified in the same Ch. 20 (Prepared
fruits,vegs,nuts), but in different headings. Tomatoes are in Ch. 07.
Motor cars and other motor vehicles
Various HS codes
Tomatoes
Tomato paste
Tomato juice
HS 0702.00
HS 2002.90
HS 2009.50
HS Heading 87.03
Rule of origin: production in which the value of all nonoriginating materials used does not exceed 50 % of the
ex-works price or transaction value of the product.
Change in tariff heading (CTH)
Change in chapter (CC)
77
78
Change in tariff classification – Tomato juice
Change in tariff classification – Tomato juice
Good: Tomato juice - HS 2009.50
Good: Tomato juice - HS 2009.50
Example 1: LDC of Switzerland: “The good obtained should be classified under a HS
tariff heading other than that covering each of the non-originating products used”
Example 2: NAFTA: “A change to subheading 2009.50 through 2009.80 from any
other chapter.”
Criterion (ITC): CC
Criterion (ITC): CTH
Tomatoes
Tomato paste
Tomato juice
Tomatoes
Tomato paste
Tomato juice
?
HS 0702.00
HS 2002.90
HS 2009.50
Change in tariff heading (CTH)
Change in chapter (CC)
?
HS 0702.00
HS 2002.90
HS 2009.50
Change in tariff heading (CTH)
Change in chapter (CC)
79
80
Change in tariff classification – Tomato juice
Change in tariff classification – Tomato juice
Good: Tomato juice - HS 2009.50
Good: Tomato juice - HS 2009.50
Example 3: EPA, Japan-Mexico: “A change to subheading 2009.50 from any other
chapter, except from heading 07.02.”
Example 4: AGADIR: “Manufacture from materials of any heading, except that of the
product, and in which the value of all the materials of Chapter 17 used does not exceed
30% of the ex-works price of the product.”
Criterion (ITC): CC + ECT
Tomatoes
Criterion (ITC): CTH + ECT 30%
Tomato juice
Tomato paste
Tomatoes
Tomato juice
Tomato paste
?
HS 0702.00
HS 2002.90
HS 2009.50
Change in chapter (CC)
EPA, Japan381010
Mexico
Sugar
HS 2002.90
HS 2009.50
Change in tariff heading (CTH)
Change in chapter (CC)
Complicated ROO: Example 1
hs6
HS 0702.00
30%
Change in tariff heading (CTH)
Preference
?
So what about me?
rule
criterion
Example EU-Algeria agreement
Me
My boat
A change to subheading 3810.10 through
3810.90 from any other chapter, except from
chapter 28 through 38; or A change to
subheading 3810.10 through 3810.90 from any
CC + ECT or CTSH + RVC 50 %
other subheading within chapter 28 through 38,
whether or not there is also a change from any
other chapter, provided there is a regional
value content of not less than 50 percent.
My work
My fish
Anything else?
So what’s the problem?
My boat?
+
+
+
Preferential market access: the cost
Main challenges reported: Rules of Origin
The cost of preferential market access
• Cost of obtaining the certificate of origin
1
• Getting the certificate of origin
1
• De jure versus de facto preferential treatment
Up to two
weeks only for
issuance
2
• Strict origin requirements / mutually exclusive
requirements between agreements
3
2 to 3 months to prepare
the dossier. It’s a waste of
time. In addition, it’s
repetitive.
10 different
documents,
every time!
Ø Inefficiencies in issuing the
certificate of origin
 Sometimes it is more costly to prove product
origin than to pay MFN
3-4 additional days just
because I have to come
to the capital
Source: ITC business surveys on NTMs in 30 countries, 2010-2016, www.ntmsurvey.org
3-4
days
2 weeks to prepare the
documents to be
submitted, 5 days to
receive the certificate
Source: ITC business surveys on NTMs in 66 countries, 20102016, www.ntmsurvey.org
87
2
The majority of difficulties linked to the certificate of origin are
encountered at home (in the exporting country)
• Exporter testimonies (continued)
Share of procedural obstacles*, by location
Ø Language issues
Ø De jure versus de facto preferential
treatment
When exporting to any Arab country and
issuing GAFTA certificate of origin, the
certificate must be written 100% in Arabic.
There are some technical wordings, letters
and numbers that cannot be translated.
The customs officials do not understand
this point and usually reject the certificate.
The partner country
doesn't apply both
existing agreements
although the product
satisfies the rules of
origin. The situation
forces us to pay tariffs
[…] and for some
products it becomes
non-profitable to
export.
Rules of Origin
Other types of NTMs
94%
59%
41%
6%
In the home country
In the partner
country
In the home country
In the partner
country
*Note: Only cases reported by exporters
Source: ITC business surveys on NTMs in 30 developing countries, 2010-2016
www.ntmsurvey.org
Source: ITC business surveys on NTMs in 66 countries, 2010-2016, www.ntmsurvey.org
89
Quiz Time
So back to our information tools….
k
Where do I find all this information for products and markets of my interest?
• A container of toys is shipped from Kuantan Port (Malaysia) to Port of
Los Angeles (U.S.). Can we say that the origin of these items is Malaysia?
No. Port of departure does not tell us anything about the origin of the items.
Market Access Map
www.macmap.org
If MFN tariff on your product is 0%, can you still need a certificate of
origin?
Yes. You might steel need a non-preferential certificate of origin in certain cases.
You might also need a preferential certificate of origin if the buyer keeps insisting,
or to be exempt from certain additional fees (i.e. merchandise processing fee in
the case of some U.S. agreements)
Sanitary and Phyto-Sanitary measures (SPS)
and Technical Barriers to Trade (TBT)
notification alert system: www.epingalert.org
Rules of Origin Facilitator
Find and compare rules of origin, related provisions and
certification requirements
http://findrulesoforigin.org/
92
91
Rules of Origin Facilitator
What does the tool offer?
• Product-specific rules of origin. The tool currently covers nearly 114 agreements
(growing by the minute )
• Includes bilateral and multilateral agreements as well as non-preferential
regimes of certain countries (EU, United States, Switzerland)
• Provides comprehensive information on all origin provisions: covers rules of
origin as well as general origin requirements (e.g. certification)
• Allows to access original documentation. Provides links to text of the agreement,
certificate templates and designated local customs authorities
• Includes a range of other supporting materials and articles
• Constantly updated with new agreements, materials and functionality
93
94
1. Agreement
Remember the origin qualifying process
Regularly updated ITC database of trade agreements
http://findrulesoforigin.org/home/agreements
In order for a product to be traded under preferential origin (tariff), the
exporter needs to answer ‘YES’ to each of the five questions.
IF the answer to any of the questions is ‘NO’, the product has got
to be traded under the MFN rate
1. Agreement
• Is there a trade agreement between the
country of export and import?
2. Product
• Is there a preferential tariff rate for the
product under the agreement?
3. Rule
• Does the product comply with the rule of
origin under the agreement?
4. Proof
• Can the exporter prove the origin of the
product?
5. Compliance
• Can the exporter comply with other origin
provisions and conditions?
95
2. Product
Connection to Market Access Map tariff database
96
3. Rule
Key principles and definitions
Based on the Kyoto Convention, there are two main methods for
determining the origin of a product:
1. Where only one country is involved, the good is considered wholly obtained
in that country (originating in this country). Examples include live animals born
and raised there, mineral products extracted from the ground, food products
grown and harvested in the territory of the party (e.g. fruits, grains).
2. Where more than one country is involved in the production process, the origin
of the good is determined based on the country where the last substantial
transformation took place. There are three methods for determining
substantial transformation:
1) Change of tariff classification (based on HS code)
2) Value added calculations, or
3) Specified manufacturing or processing operations
Rules of origin can also consist of a combination of the above methods
http://findrulesoforigin.org/home/compare?reporter=757&partner=170,804,704&product=61091000
98
3. Rule
What to do if I don’t understand the rule?
Rules of Origin
Example: NAFTA: “A change to subheading 2009.40 through 2009.80 from any
other chapter.”
Wholly obtained
Substantial transformation
(WO)
obtained from the earth or sea, or grown on land
basic standard describing what confers to the good its ‘essential
character’
1. Click on “Criterion (ITC)”
Help: What is wholly obtained?
 http://findrulesoforigin.org/glossary/wo
Specified process
Change in tariff classification
(SP)
2. Click on ‘Find Out More’ and read general (introductory) notes to the rules
(CTC)
Ch. 01  Ch. 02
Help: What is CTC?
 http://findrulesoforigin.org/glossary/ctc
Value added content
In the case of NAFTA, print out the following words in front of the rule:
(RVC)
“All non-originating materials used to produce the good must
undergo…”
Help: What is RVC?
 http://findrulesoforigin.org/glossary/rvcformula
+ any combination
99
100
Exercise: Ketchup from Jordan
Solution: Ketchup from Jordan qualifies!
Good: Ketchup - HS 2103.20
Good: Ketchup - HS 2103.20
Task: Using findrulesoforigin.org, find applicable rule of origin for ketchup under
Canada-Jordan FTA and work out whether this ketchup made in Jordan qualifies
for preference.
Key: The ketchup rule of origin under Canada-Jordan FTA is “A change from any
other subheading.” (CTSH). This means every non-originating material has to be
classified in a subheading (6-digit code) other than 2103.20.
Bill of Materials*
Bill of Materials*
http://findrulesoforigin.org/home/compare?reporter=124&partner=400&product=21032010
Watch how ketchup is made: https://youtu.be/pzKdUYtlXSQ
Watch how ketchup is made: https://youtu.be/pzKdUYtlXSQ
Ingredient
HS code
Origin
Cost
Ingredient
HS code
Origin
Cost Passes CTSH shift?
Tomato paste
2002.90
China
$1
2002.90
China
$1
Yes
Sugar
17
Turkey
¢30
Final price (EXW):
Tomato paste
Sugar
17
Turkey
¢30
Yes
Salt
2501.00
Pakistan
¢10
$3
Salt
2501.00
Pakistan
¢10
Yes
Cloves
0907.20
unknown
¢10
Cloves
0907.20
unknown ¢10
Yes
Vinegar
2209.00
Turkey
¢10
Vinegar
2209.00
Turkey
¢10
Yes
Onion powder
0712.20
China
¢10
Onion powder
0712.20
China
¢10
Yes
Glass bottle
7010.90
China
¢30
Glass bottle
7010.90
China
¢30
Disregarded (see Packaging)
* all other materials not on the list are of Jordanian origin
5. Compliance
In addition to fulfilling the rule of origin, products exported under preference
need to comply with a number of other origin requirements and conditions.
These requirements are sometimes referred to as general origin rules and
cover a number of issues.
102
Other origin requirements - examples
q Origin calculation and application: How to calculate value added? How to
treat inputs used during the production process originating in partner countries?
How to treat spare parts? (e.g. Cumulation, Value added calculation, Wholly
obtained products, Sets, Accessories, Spare Parts and Tools)
q Flexibility: Are there any rules that allow for additional flexibility? (e.g. De
Minimis)
Exporters and importers often find that these additional requirements
are less transparent, difficult to navigate and comply with than rules of
origin themselves. They can be the reason exporters of goods eligible
for preferential treatment decide to export under the MFN tariffs.
$3
* all other materials not listed are of Jordanian origin
101
Other origin requirements
Final
price
(EXW):
q Certification and proof of origin: What type of document is required? Can the
exporter self-certify origin or does the proof need to be issued by an authorised
body? How long is the proof valid for? (e.g. Certification, Approved exporter,
Period of validity, Exemption of certification)
q Shipping and handling: Does the good need to be shipped directly from the
country of export to the country of import? Can it be repackaged on the way?
(e.g. Principle of Territoriality, Direct transport)
q Accounting: How long do the documents relating to originating goods need to
be stored? (e.g. Retention period, Supporting documents, Verifications)
Let’s go live
Time for exercises
So back to our information tools….
Where do I find all this information for products and markets of my interest?
What is e-Ping?
Market Access Map
Les pays modifient leurs réglementations SPS et OTC (prescriptions
relatives aux produits) assez régulièrement.
k
Alert system for
SPS and
TBTrester
notifications
Comment
à jour?
www.macmap.org
Sanitary and Phyto-Sanitary measures (SPS)
and Technical Barriers to Trade (TBT)
notification alert system: www.epingalert.org
Rules of Origin Facilitator
Find and compare rules of origin, related provisions and
certification requirements
http://findrulesoforigin.org/
SPS/TBT notifications on the rise
More than 4,000
notifications in 2017!
Enables the private (and public) sector to keep track
of SPS / TBT notifications of interest
1. Published by export markets
2. And also by products
4/18/2023
The role of export
Export principles and policies of
Vietnam
Export incentives
1
Bộ Môn Nghiệp Vụ --Ths.Nguyễn Hạ Liên Chi
2
1. Export creates the main source of
capital for imports to serve the
country's industrialization
1.
Export creates the main source of capital for imports to
serve the country's industrialization
2.
Export contributes to economic
promotes production development
3.
Export has a positive impact on creating jobs and
people's lives
4.
Export is the basis for expanding and promoting
Vietnam's external economic relations with foreign
countries
Bộ Môn Nghiệp Vụ --Ths.Nguyễn Hạ Liên Chi
restructuring
and
3
Capital for import is formed from the following sources:
 Foreign currency earned from exporting goods
 Foreign investment
 Borrowing, aid
 Foreign currency earned from service exports
 Remittances
Bộ Môn Nghiệp Vụ --Ths.Nguyễn Hạ Liên Chi
4
Bộ Môn Nghiệp Vụ --Ths.Nguyễn Hạ Liên Chi
6
Sources of foreign investment capital registered in
Vietnam
Bộ Môn Nghiệp Vụ --Ths.Nguyễn Hạ Liên Chi
5
1
4/18/2023
Borrowing, aid (ODA)
Relatively large but subject to constraints; must ensure safety norms on foreign
debt; payable when due.
still modest, not stable
Bộ Môn Nghiệp Vụ --Ths.Nguyễn Hạ Liên Chi
7
Borrowing, aid (ODA)
Bộ Môn Nghiệp Vụ --Ths.Nguyễn Hạ Liên Chi
Bộ Môn Nghiệp Vụ --Ths.Nguyễn Hạ Liên Chi
8
Public debt per capita in Vietnam
9
1. Export creates the main source of capital
for imports to serve the country's
industrialization
Capital provided by exports is the most important
source:
Bộ Môn Nghiệp Vụ --Ths.Nguyễn Hạ Liên Chi
10
2. Export contributes to economic
restructuring and promotes production
development
 Decide national balance of payments
 The trend of economic restructuring
 Decide the disbursement issues in ODA and FDI:
 Exports  economic restructuring towards
increasing the proportion of industry and services
• Export growth, export turnover ↑  ability to pay debts ↑
 increase capital from borrowing
• Export ↑, investors will find many opportunities to invest
in the country, foreign investment capital ↑
 Exporting ↑ makes the country's status ↑, promoting
exchanges and understanding the country's economy
and culture  tourism activities ↑.
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2. Export contributes to economic
restructuring and promotes production
development
Export and manufacture:
 The first point of view: considers export as just the
consumption of surplus products due to excess production of
domestic demand.
 The second point of view: considers the world as an
important direction in which to organize production.
 This view has great implications for both production
and export, helping to shift the economic structure
towards industrialization.
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Export and production as in the second point of view:
 Promoting other industries to develop
 Creating a large output market, making production
develop stably.
 Create a means of providing economic, technical,
and input materials and equipment for production
 Promoting competition leads to reorganization of
domestic production structure
 Learn management experience from abroad
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3. Export has a positive impact on
creating jobs and people's lives
 Exporting expands the scale of the industry, attracting
labor
 The income of workers in export-producing industries is
usually higher
 Export creates capital to import, expand people's
consumption ability
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4. Export is the basis for expanding and
promoting Vietnam's external economic
relations with foreign countries
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Export duty
The goal of exporting
 In export activities, the firms’ goal may be
different from the common goal of the whole
society.
 The most common and important goal of
exports is to import to meet the needs of the
economy.
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a) Make every effort to effectively exploit all resources of
the country
b) Improve export production capacity to rapidly increase
export volume and turnover
c) Creating key export products (groups) to meet the
requirements of the world market and customers in terms
of
quality,
quantity,
attractiveness
and
high
competitiveness.
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4.3.1. Measures to improve the
export structure
4.3.1. Measures to improve the export structure
Policy on formation and development of export production
regions
4.3.2. Trade credit and financial measures
4.3.3. Group of institutional measures and export
promotion
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a)
Red River Delta and key economic regions
b)
Southeast region and key economic region
c)
North Central Coast, Central Coast and Central Key
Economic Region
d)
Northern Midlands and Mountains (Northwest and Northeast)
e)
Highlands
f)
Mekong Delta
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Industry
Requirement:
 Developing labor-intensive industries
 Creating a breakthrough in the processing industry
 Focus on investment and in-depth industrial
development
 Strengthen industrial links
Purpose:
Supply of input materials for production
Creating initiative for industries
Increase the value of export goods, increase net foreign
currency revenue
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 Increase the competitiveness of industrial
products, reduce the proportion of intermediate
costs
 Encourage and develop efficient raw material
industries
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Agriculture
Requirement:
Solutions:
Accelerate the industrialization and modernization of
agriculture and rural areas
Reasonable construction of agricultural production
structure
Strengthening scientific and technological potential in
agriculture
Continue to develop and basically improve the
irrigation system
Strongly develop industry and services in rural areas
Improve the quality of crops towards providing
enough raw materials
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 Focusing on investing in industries with strengths, creating
products with comparative advantages and exporting
capabilities
 The restructuring of the industry must first give priority to
the goal of national food security, increasing the source of
agricultural products for export processing.
 Improve quality, build brands for agricultural products
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Benefits for the country:
Services
 Increasingly important role:
 Bringing many benefits to the economy:
 For consumers: to be fully satisfied with different
needs at lower prices.
 For service providers: promote competition,
increase efficiency of infrastructure service
markets, reduce production and business costs,
speed up capital turnover...
 Nation
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 Promote
competition
transparency,
improve
government
 Encourage technology transfer
 Increase capital for growth and development by importing
cheaper services to replace inefficient domestic services
Promote import and export activities of tangible goods
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Construction of key export products
The service also brings many economic
costs to countries:
a)
Concept:
 Key export goods: are goods that occupy a decisive
position in export turnover due to the presence of foreign
markets and favorable domestic production conditions.
 Increasing current account deficit, at least in the short
term.
 The competitiveness of many domestic enterprises
decreased due to brain drain.
 Important goods: are goods that do not account for a large
proportion of export turnover, but for each market, each
locality has an important position.
 Many businesses may go bankrupt due to inefficient
operations
 Secondary goods: not falling into the above two
categories will be secondary exports, their turnover is
usually small.
 The unemployment rate increased…
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
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Perspectives in Vietnam
Perspectives on key export goods in the world
Perspective 1: Key export products are simply exports
with large turnover, accounting for over 25% of total
export turnover.
Perspective 2: The key export product is an export
product that is mostly produced for export
The key export products are those that are
domestically produced with higher efficiency than
other goods; has a relatively stable consumption
market, accounting for a high proportion of a
country's total export turnover.
Perspective 3: Key export products are those with large
turnover due to favorable conditions of supply and
demand.
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b. Conditions of a key export product
c. How are key export products formed?
 Demand conditions: There is a relatively stable
and competitive consumption market in that market.
 Supply conditions: Having resources to organize
production and production at low cost to gain profit
in trade.
Penetration  Competition  Surviving 
Transformation of production  Increase profits
 The volume of turnover is large in the total export
turnover of the country.
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Orientation to form key export product in
the coming time?
d. Impact of forming key
export product
For the Vietnamese economy:
 Expanding the scale of domestic production, shifting the
economic structure towards industrialization, expanding and
enriching the domestic market.
 Rapid increase in export turnover: the growth rate of key
export products is always higher than the general rate of
export turnover.
 Existing key export product: invest in processing
to increase export value.
 Focus on searching and discovering new
potential domestic key export products: wood
products, computer software  invest in developing
 Create conditions to maintain and stabilize export and
import markets.
 Create infrastructure to expand economic, scientific and
technical cooperation with foreign countries.
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Invest in production
a) Meaning
b) Investment capital for export production
 Solving the shortage of capital for production and
processing of export goods
 Accelerating the process of technology transfer
Improve management, production and business.
 Expanding and promoting activities of external
economic forms, using domestic resources more
effectively
 Solving social difficulties, create a favorable
environment for export business, etc.
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Vicious circle of poverty:
Domestic investment capital
• State budget
PRIMARILY
• Private
Foreign investment capital
• FDI
IMPORTANT
• FPI
• ODA
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c) Orientation of investment policy
FOREIGN
INVESTMENT
 Prioritize investment for export production
LOW
INVESTMENT
LOW
LEVEL OF
SAVING
 For agricultural products, invest in renewing plant varieties
and processing technology
 Service development: harbors, warehouses, overseas trade
centers
 Create a favorable environment to strongly attract FDI
LOW
PRODUCTIVITY
LOW
INCOME
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4.3.2. Trade credit and financial measures
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State guarantees and provides credit
State guarantees and provides credit
a) State guarantee for export credit
Export subsidies
b) State implements export credit
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a) State guarantee for export credit
b) The State implements export credit
Definition: State guarantee is a commitment to repay a debt on
behalf of the guaranteed in case they fail to fulfill certain obligations
to the beneficiary of the guarantee.
Types of guarantee:
 The State directly lends money to foreign countries
• Definition: The state directly lends money to a foreign
country at a preferential interest rate so that the borrower
can use that money to buy goods from the lending country.
 Loan guarantee
 Contract performance guarantee
Note:Consider protecting domestic production, not
because buying goods with borrowed capital leads to
sabotage of domestic production and unfavorable political
constraints.
 Deposit guarantee
 Payment guarantee
Function:
 Exporters are more secure than selling goods  Export more
 Increase the price of export goods because the selling price on
credit includes both the immediate selling price and the cost of
guaranteeing profit
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b) The State implements export credit
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 The State grants credit to domestic export
enterprises
 The State grants credit to domestic export
enterprises
"Export credit": is a loan from a bank to an exporter for
the purpose of supplementing working capital for the
enterprise so that they can perform the signed foreign
trade contract and help the enterprise to continuously
operating, with no shortage of capital while waiting for
payment from foreign partners.
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EXPORT SUBSIDIES
Types of credit:
 Financing capital in preparation for export
 Discount on export documents
 Advance payment for export goods
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EXPORT SUBSIDIES
Subsidies
Countervailing
Measures
(SCM)
Agreement: “Subsidies are government grants to
businesses that are not available under normal
conditions.”
The concept of export subsidies:
• Government (or public agency) subsidies for revenues or
prices that directly or indirectly increase the export of a
product.
Pros
Coins
• are financial incentives for export producers or exporters
when they sell goods to foreign markets.
 Is an incentive that the Government of a country
gives businesses to promote export activities
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Subsidy classification:
According to WTO:
 Non-agricutural subsidies:
• Red light
• Yellow light
• Green light
 Agricultural support
• Export subsidies
• Domestic support
 Amber box
 Blue box
 Green box
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Impact of export subsidies
Impact of export subsidies
(+) Producers
P($)
4
3.5
3
(-) Consumers
Export
after
subsidies
S
(-) Consumers
1
2
3
3.5
3
(+) Producers
E
20 25 30 35 40
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Export
after
subsidies
1
2
3
Producers:
+1+2+3
Consumers:
-1 – 2
Government : -2 -3 -4
4
Social welfare: - 2 – 4
E
(-) government
Export
before
subsidies
(+) Producers
D
S
4
(-) government
4
Export
before
subsidies
0
P
(+) Producers
(-) government
Q (thousand)
0
51
The effect of export subsidies:
D
20 25 30 35 40
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Q
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The downside of export subsidies:
 Contribute to the development of domestic production and
export promotion.
 Subsidies distort natural competition in a free trade
environment
 Contribute to the adjustment of industry structure and
economic region structure.
 The opportunity costs of subsidies are very large and in the
long run they can impede the development of the subsidized
industry itself.
 Export subsidies are also used as a "bargaining" tool in
international negotiations.
 Subsidies are not financially effective
 The probability of choosing the wrong beneficiary is quite
high
 Subsidies may lead to retaliation
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4.3.3. Group of institutional measures and
export promotion
Implementing export promotion
Institutional measures:
Concept:
 Trade institutions are the rules, forms, institutions and sanctions
that regulate the rules and ways of operating for the participants in
the market.
 Institutional measures are measures through which the
Government creates a favorable regulatory environment for the
export of goods and services.
Purpose:
+ Create a legal environment in the country
+ Negotiating and signing bilateral and multilateral trade
agreements... protecting the interests of exporters, creating
favorable conditions for export
+ Join and sign international treaties that facilitate the promotion of
free trade
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Definition: are tools that directly or indirectly promote export
activities at the enterprise, industry or national level.
Export promotion activities
 Enterprise level
 National level
The role of export promotion
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