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

Pos M. Hutabarat PhD Component of GDP GDP Agriculture Industry Services

Economic Development primaryindustry services

Economic Activities (2005) CountryPopGNI/capAgrIndServ (mil)(US$)(%)(%)(%) 1.USA Germany Japan Korea Brazil Malaysia Thailand China Indonesia Egypt Philippines Laos

Pos M. Hutabarat PhD Industrialization Process Industrialization Trade Policies Export Oriented Import Substitute

Pos M. Hutabarat PhD Trade and Industrialization Model Export Promotion: Development of industrial sector through export oriented industries, example of Korea, Taiwan, RRC, Malaysia and Thailand (instrument: duty draw back, tax incentive, subsidies, currency devaluation, etc) Model Import Substitution: Development of industrial sector through production of previously imported goods example of Latin America Countries (instrument: high tariff, quota, non-tariff barriers, etc)

Pos M. Hutabarat PhD Trade Policies Tariff (percentage increase on price of imports) Nominal Tariff Effective Tariff Non-Tariff Measures Quota (limitation of import quantity) Standards (health, safety) Dumping/Subsidies Non-economic issues (environment, labor, Human Rights, IPR, etc)

Trade Policies 1.Trade Policies as a part of broader social policy objectives 2.Protection to offset market imperfection 3.Protection as a response to international policy distortion

Non-Tariff Measures 1.Quota (limitation of import quantity) 2.VER (limitation of export quantity voluntary) 3.Local Content Requirement 4.National Procurement 5.Export Credit Subsidies 6.Rule of Origin 7.Custom Procedures 8.Standards (health, safety) 9.Dumping/Subsidies 10. Non-economic issues (environment, labor, Human Rights, IPR, etc)

Pos M. Hutabarat PhD Tariff (partial equilibrium) P Q Q1Q1 P1P1 SD Sw Pw Q2Q2 Q3Q3 Pt Q4Q4 Q5Q5 Pt = Pw (1 + t) Before Tariff consumption: Q 3 Production : Q 2 Import : Q 2 -Q 3 After Tariff Consumption: Q 5 Production : Q 4 Import : Q 4 -Q 5

Pos M. Hutabarat PhD Tariff P Q Q1Q1 P1P1 SD Sw Pw Q2Q2 Q3Q3 Pt Q4Q4 Q5Q5 Pt = Pw (1 + t) ab c de f Deadweight loss area abc + def

Pos M. Hutabarat PhD Quota (limitation of import quantity) P Q Q1 P1 SD Sw Pw Q2Q3 Pq Q4Q5 quota

Pos M. Hutabarat PhD Quota (with increasing Demand) P Q Q1 P1 SD Sw Pw Q2Q3 Pq Q4Q5 quota D’ Pq’

Two Ways to Promote Import- Competing Production

Pos M. Hutabarat PhD 2. Standard 1.Health 2.Safety

Pos M. Hutabarat, PhD Dumping (1) Dumping (predatory or economy) when a product is selling in other countries at less than its normal value: 1.Its price in domestic market 2.Cost of production (fix cost, variable cost, plus administrative, selling and general cost) If there is no comparable products, use like products and third country Country can initiate dumping allegation if : 1.There is an injury to domestic industry 2.Period of investigation at least one year

Pos M. Hutabarat, PhD Dumping (2) If Dumping is hold after final determination, country can impose anti dumping duties for period of 5 years (during investigation, provisional anti dumping duties can be imposed) Midterm review can be asked after 2 year of implementation Alleged Country can be escaped from anti dumping duties by proposing price undertaking Developing countries import share 2% and cumulative 8%

Pos M. Hutabarat, PhD Subsidies 1. Financial contribution by government: (a) Government direct transfer, including loan guarantee (b) Forgone government revenue (c) Government provides goods or services other than general infrastructures 2. Any form of income and price support Actionable subsidies if import caused a serious injury to domestic industries

Pos M. Hutabarat, PhD Rules of Origin (1) Rule of origin are the criteria used to define where a product was made. They are an essential parts of trade rules because a number of policies discriminate between exporting countries: quota, preferential tariffs, anti dumping actions, and more. WTO wants to : 1.Harmonize the rules of origin among all members 2.Require all members to ensure that their rules of origin are transparent (do not have restricting, distorting, or disruptive effects on international trade) and administered in a consistent, uniform, impartial and reasonable manner.

Pos M. Hutabarat, PhD Rules of Origin (2) Example rules of origin: 1.Wheat flour : change of tariff heading (CTH) 2.Steel : Substantial transformation 3.Fishes : ship flag 4.AFTA (cumulative 40% member countries)

Pos M. Hutabarat PhD 4. Non-Economic Issues 1.Environment (ISO) 2.Labor (children age, prisoner/jail labor) 3.Human Rights (labor strike, basic facilities) 4.IPR