Asean-lecture of Chan Bonnivoit

8/7/2019 Asean-lecture of Chan Bonnivoit

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TABLE OF CONTENTSI. Background of ASEAN Country1. ASEAN Overview

2. ASEAN Trade Cooperation

3. ASEAN Cooperation in Services

4. Other ASEAN s Cooperation5. ASEAN Integration System of Preference

6. ASEAN Vision 2020

7. ASEAN External Relations

II. Theoretical Interpretation of Economic Development8. Grouping the Country Group in the Reality

9. Natural Resources and Eco. Development10. Capital and Development

11. Social and political conditions and eco. Development

12. Development and international Economic

13. Population Growth and the Eco. Development

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1. ASEAN Overview 1. ASEAN Background and History

Set up August 8, 1967.

Founder: Thailand, Philippines, Indonesia,Malaysia, Singapore.

New Members: Brunei (1984), Vietnam(1995), Laos and Myanmar (1997) and

Cambodia (30/04/1999).




1. ASEAN Overview 2. ASEAN Goal:

To accelerate economic, social and cultural

development of Southeast Asia through joint

endeavor in the spirit of equality and partnership in

order to strengthen the foundations for a prosperous

and peaceful community .




1. ASEAN Overview 3. ASEAN Objective:

p promote development of economics, socialand culture in the region throughcooperation.

p defend political and economical stability inthe region.

p forum to solve the conflict among the

members.




1. ASEAN Overview 4. ASEAN Structure

ASEAN Summit: The Leaders of the ASEANCountries meet officially in every 3 Years to

set up direction and initiative of ASEANactivities.

ASEAN Ministerial Meeting (AMM): Meeting of foreign Minister of the Member Countries in

every year to prepare the policy of ASEANand to coordinate the ASEAN activities.




1. ASEAN Overview Other Ministers Meeting:

n Other Ministers having responsibility forHealth, Environment, Labor and Social,Education and Science, Technology,Information, Justice and Law meettogether for important issues in order toprepare the cooperation programs.

n Result of the meeting is directly reported tothe leader of the ASEAN members.




1. ASEAN Overview Joint Ministerial Meeting (JMM):

n JMM established in 1987 and haveresponsibility a cross sectoral coordination.

n In JMM would be participated by the officialsfrom foreign affair and economic ASEAN andchaired by the chief of AMM and AEM.

n JMM can be initiated by Minister of Foreign

Affairs or Ministry of Economic and would bemet before the ASEAN Summit.




1. ASEAN Overview Secretary General of ASEAN:

n Raise the initiative concerning with the coordination andimplementation of ASEAN activities.

n These responsibilities was renewed during the amendment of agreement on establishing of ASEAN secretariat at 22 July1992.

n The new responsibility of Secretary General is responsible forthe ASEAN Summit and for every ASEAN ministerial meeting,

and for the ASEAN standing committee.

n Secretary General chairs all meeting of the ASEAN standingcommittee on behalf of the president of ASEAN standingcommittee, except the first and the final meeting.

n Having the mandate 5 years.




1. ASEAN Overview ASEAN Standing Committee (ASC):

n A mechanism to coordinate the issues existing in theperiod between one AMM to an other AMM.

n ASC which directly reports to AMM comprises of thePresident as Foreign Minister hosting AMM, ASEANSecretary General and Director General of all ASEANCountries.

n In a position as advisory board for the permanentcommittees ASC reviews the activities of all committeesto implement the policy adopted by AMM.




1. ASEAN Overview Senior Officials Meeting (SOM)

n SOM officially existed as a part of the ASEANmechanism in ASEAN Summit 1987 in Manila.

n To be responsible for the cooperation policyASEAN SOM meets in a necessary time andreports directly to AMM.




1. ASEAN Overview Other ASEAN Senior Official Meeting

n ASEAN Senior Officials on Environment

n ASEAN Officials on Drug Matters

n Committee on Social Development

n Committee on Science and Technology

n ASEAN Conference on Civil Services Matters

n Committee on Culture and Information




1. ASEAN Overview Joint Consultative Meeting (JCM)

n JCM is a meeting between ASEAN SecretaryGeneral, SOM, SEOM and all ASEAN General

Directors.

n JCM coordinate technical activities of the levelof ordinary officials.

n Secretary General reports the results to AMMand AEM.




1. ASEAN Overview ASEAN National Secretariat

n Member of ASEAN has own national secretariatin the Ministry of Foreign Affairs.

n Preparing and implementing the activitiesrelating to ASEAN in the national level.

n Having one General Director.




1. ASEAN Overview ASEAN Secretariat:

n Being a institution responding comprehensivelyto initiate, advise, facility and implement the

ASEAN activities.

n Having offices: General Working Office,Economic Cooperation Office, SectoralCooperation Office, AFTA Office.




1. ASEAN Overview ASEAN Committee in Third Countries

n In Bonn, Brussels, Canberra, Geneva, London,Ottawa, Paris, Seoul, Washington, Tokyo,

Willington and New Delhi.

n Reports to ASC about the Committee activitiesand seeks the advises or recommendationfrom ASC.




2. ASEAN Trade Cooperation The Objectives: According to the declaration of ASEAN

Concord in Indonesia, 24 February 1976 the objectives of ASEAN trade cooperation are:n To promote development and growth of new production and

trade.

n To establish the preferential trading arrangement throughrounds of negotiations.

n To expand trade among the members through cooperation onbasic commodities, particularly in food and energy.

n To improve access to markets outside ASEAN.

n To increase the production and to improve the quality of ASEAN exports products.




2. ASEAN Trade Cooperation Cooperation in trade in goods: ASEAN

Free Trade Area (AFTA)n The most important move was made in 1992.

n The framework agreement on enhancingeconomic cooperation was adopted whichincluded the launching of a scheme towards anASEAN Free Trade Area or AFTA.




2. ASEAN Trade Cooperation Objectives of ASEAN Free Trade Area

(AFTA):n To increase the ASEAN s region s competitive

advantage as a single production unit.

n To promote greater economic efficiency,productivity and competitiveness throughelimination of tariffs and non-tariff barriersamong member countries.




The Tariff Ad valorem tariff: a trade tax is equally to a

given percentage of selling price. Ex: 13% for imported knit cotton headwear in

US$.

Specific tariff: a trade tax is equally to afixed amount of money per unit sold. Ex: 14 cents on each pound of imported fertilizer.

Compound tariff: a trade tax that has botha specific and an ad valorem. Ex: 19 cents per pound plus 18.5 percent ad

valorem on imported cashmere sweaters.




The Tariff MFN (most favored nation):

If any other Country grants another Country MFNstatus, it agrees to charge tariffs against thatCountry s good that are no higher than those

imposed against the goods of any other Country.

GSP (general system of preference) Which was instituted by the United States in the

early 1970.

Other industrialized Countries, including Canada,EC and Japan have their own GSP programs.

The idea behind the GSP is that by charging lowertariffs on goods from Developing Countries




The Tariff

GSP (general system of preference) (con t)

Importers in the preference granting Countriessuch a the United States will have an incentive toexpand their purchases from the preferencereceiving Countries.

In turn, expanded exports should improve thestandards of living for the Countries ( and raisedemand for imports from industrialized Countriessuch as the United States).




The welfare lost of the tariffs imposed bysmall Country

P

P

W

X

a

0

S

PW+T

D

Tariff (T)

Q3 Q4 Q2

b c d




The welfare lost of the tariffs imposed bylarge Country

P

PW

X0

S

P = PW+T

D

Tariff (T)

Q3 Q4 Q2

P





The welfare lost of the tariffs by the largeCountry

DB

PAPW

XW

PB

XA XB

Country A: Market largeCountry

Country B: Market smallCountry

World Market

DA

SB

DA

SA

SB

PW

P

P

SB + Tariff

Tariff

L0L1

a c

e

b d

PW PW

P





Non-tariff barriers

Quota:

Government imposed the limitation on the

volume or value of international trade.

Quota rent: Profit that come about, because aquota has artificially raised the price of importedproducts.

Quota occurs the loss of the consumers





5. Non-tariff barriers and argument for

protection

The welfare Effects of the QuotaP

PW

X0

SM

PM+Q

D

Quota (Q1 + Q2)

Q1 Q2

SM + Quota

a b C1 C2 d

Remark: C = C1 + C2






5. Non-tariff barriers and argument for

protection

The welfare lost of a Quota.

Change in consumer surplus: - a$ - b$ - c$ - d$

Change in producer surplus : + a$ Change in government revenue: + c$ (= C1+ C2)

Net welfare change: - b$ - d$

c$ is a Quota Rent.






Imports (MT)Imports (MT)Quota volumeQuota volume

Applied duty %Applied duty %

Tariff Quotas or Tariff Rate Quotas

Out-of-quotatariff

In-quotatariff





Non-tariff barriers

Embargo: Embargo is a complete ban on trade in product or

products.

Voluntary export restraint (VER) Agreement between Importing and Exporting

Countries whereby the exporter agrees to limitthe amount of their export.

Through this agreement these foreign industriesare able to raise their prices.





§Financial Contribution by Government as Examples

— Grants

— Loans

— Loan guarantees

— Tax credits

— Tax exemptions

— Import dutyexemptions on capitalequipment used

— Provision of goods or

services other thangeneral infrastructure

— Purchase of goods

— Income or pricesupports

— Gov t entrusts ordirects private bodyto carry out abovefunctions

Non-tariff barriers: Export subsidy





Market

Access

Domestic

Support

Export

Competition

TarifficationBindings

Reductions

Market Access

Tariff Rate Quotas

Special

Safeguard

Amber Box

AMS Reduction

Blue Box

Production Limiting

ProgrammesGreen Box

Non Trade Distorting

Volume

Reduction

Value Reduction

Roll-over

Pillars of the Agreement on Agriculture





Product-specific

support

l Market price support

l Compensatory payments

l

Product-specificsubsidies +

= Current Total AMS

Non-product specific

support

l Fertilizers

l Irrigation, drainage

l Electricity

l Subsidized credits

Amber box

Calculating the Current Total AMSAnnexes 3 and 4




Government services

- general services

-examples?

- public stockholding

- domestic food aid

- other ...

Direct payments

- natural disaster relief

- structural adjustment

-producer or resource

retirement programme

- environmental

- regional assistance

-other ...

Green BoxPolicy coverage (Annex 2)





§ Export subsidy:§ A payment by a government to an industry that

leads to an expansion of exports by that industry.

§ Export subsidies policy coverage (Article 9.1 WTO)

(a) direct subsidies contingenton export performance

(b) sale or disposal for exportby gov t at price belowdomestic market

(c) payments on exportsfinanced by gov t action

(d) marketing subsidies,including handling,upgrading, transport, freight

(e) favourable internal transportand freight charges forexports

(f) subsidies on ag. Productscontingent on incorporation

in exported products

Non-tariff barriers





§ Countervailing duty: A tax imposed by importing Country designed to

offset artificially low prices charged by exporters.

This measures is to impose the tax in order tooffset the subsidized export goods.

§ Government procurement policies:

Direct purchasing agents of state and localgovernment to purchase American product unlesscomparable foreign good are substantiallycheaper.

Non-tariff barriers




risks arising from additives,

contaminants, toxins or disease-causing

organisms

damage caused by the entry,

establishment or spread of pestsa Country

human life diseases carried by animals or plants

human or animal

life

pests, diseases or disease-causingorganismsanimal or plantlife

To protect : from :

Definition of an SPS Measure in WTO

Agreement






p product criteria

p quarantinetreatments

p production methods

p certification andapproval

p inspection

p sampling procedures

p packaging andlabelling directlyrelated to foodsafety

All types of measures with SPS objectives,

including :

What type of SPSs measures ?




To start: some definitions

Technical Regulation

p "Document which lays down product characteristicsor their related processes and productionmethods...with which compliance is mandatory.

Standard p Document, approved by a recognized body that provides,

for common and repeated use, rules, guidelines or characteristics for products or related processes and

production methods, with which compliance is not mandatory

Conformity assessment procedurep Any procedure used, directly or indirectly, to determine that

relevant requirements in technical regulations or standardsare fulfilled





Scope of the TBT Agreement

All industrial and agricultural products

But does NOT apply to:

- sanitary and phytosanitary measures

- regulations and standards related to

services- purchasing specifications for production

or consumption of governments

Article 1




§ Protect intellectual property right:

Patent allows inventors the opportunity torecover their investment and the cost of creatingand marketing inventions.

Copyright give authors to control over thereproduction, dissemination and public

performance of their work.

Trademark assures consumers about the productcharacteristics such as quality.

Non-tariff barriers





Non-tariff barriers





§ Protect intellectual property right(con t): Geographical Indication (GI): any geo. sign (word

or symbol) used to indicate that a productoriginates in a given country/region/place and itsquality, reputation or other characteristic areessentially due to its geographical origin.

Industrial design is aesthetic shape (ex. Model of

shirt) of mass-produced products.

Neigbouring right is Performers, PhonogramProducers and Broadcasting Organizations.

Non-tariff barriers




§ Disclosure

DEFINITION

§ Patentable subject matter

§ Industrial applicability

§ Novelty

§ Inventive Step

Patents





§ NO if dictated purely by the function

§ NO if contrary to public order and morality

§ Industrial

§ New (Worldwide)

Main Characteristics of Industrial Design





Dumping:

Defined a selling a product in a foreign Country ata price that is lower than the price charged by

the same firm in its home market or at a pricebelow cost of production.

Many reasons for dumping : May be predatory pricing policy

May be result of custom production May be unintentional / technical dumping

May be conscious economic decision relating to profitsfrom increased marginal production.

Non-tariff barriers





p Break-Even analysis :

Profit = (P x Q) [(CV x Q) + CF]

p For Break-Even analysis the profit is 0

=> 0 = (P x Q) [(CV x Q) + CF]

= Q (P CV) CF

=> Q = CF /(P CV)

Non-tariff barriers





VolumeQ

FixedCost

TotalCost

Revenue

Break-EvenPoint

C o

s t a n d

R e

v e n u e

Variable

Cost

Profit

Loss





Definition of Dumping base on WTO agreement

§ Dumping = when a product is sold for export toanother country at less than its normal value .

§ Normal Value is§ the price in the home market when the good is

sold at a price above the cost of production

§ the price charged for the good when sold at a

price above cost in third-country markets§ constructed normal value calculated as the

total costs of producing the product plus areasonable amount for selling, general andadministrative expenses and profit.

Non-tariff barriers




INJURY FACTORS (Article 3.4)

Include:

— Actual and potential decline in:

Sales - Productivity

Profits - Return on investment

Output - Utilisation of capacity Market share

— Actual and potential negative effects on:

Cash flow - Growth

Inventories - Ability to raise capital

Employment - Ability to raise investment Wages

— Factors affecting domestic prices

— The magnitude of the margin of dumping





§ Safeguard:

A measure trade law that allows fortemporary protection (5 years) against fairlytrade foreign import.

Reason for using this measure is tradeadjustment in the domestic producers.

But for using this measure it should beinvestigated the injury of the domesticindustry through the foreign products.

Non-tariff barriers





SAFEGUARDS (WTO): BASIC REQUIREMENTS

§ A determination that,

§ As a result of (i) unforeseen developments and(ii) the effect of a Member s obligations under

GATT 1994

§ A product is being imported in such increasedquantities

§ As to cause or threaten to cause

§ Serious injury to the domestic industry

§ Producing like products or directly competitiveproducts





serious injury

(threat of)= significant overall impairment in the position of a domestic industry

— Relevant factors:

—

Increased imports (value and volume)— Market penetration of imports

— Changes in sales

— Production

— Productivity

— Capacity utilization— Profits / losses

— Employment





Agreement on the common effectivepreferential tariff (CEPT) scheme for AFTA

n Ultimate Goal : 0% tariff rate in 2010 forASEAN- and 2015 (2018) for new membersCountries.






The common effective preferential tariff (CEPT) is a mechanism to achieve the

AFTA s target by reducing import tariff rates and eliminating quantitativerestriction and non-tariff barriers amongASEAN member states.






Classification of the tariff cutting list of CEPT:

n Inclusion List (IL)

n Temporary Exclusion List (TEL)

n Sensitive and High Sensitive List (SL & HSL)

n General Exception List (GEL)






CEPT Tariff Reduction Scheme1. Fast Track Program

p Tariffs > 20% reduced to 0-5% by Jan 2000

p Tariffs = and < 20% reduced to 0-5% by Jan 1998

p 15 product groups covered

2. Normal Track Programp Tariffs > 20% reduced in 2 stages:

§ To 20% by 1 Jan 1998

§ From 20% to 0-5% by Jan 2003

p

Tariffs = and < 20% reduced to 0-5% by Jan 2000






Fast Track Group (15 Products Groups):

Cement, Fertilizer, Leather Products,Pulp, Textile, Gems and Jewelry,

Electronics, Wooden and RattanFurniture, Vegetable Oils, Chemicals,Pharmaceuticals, Plastics, RubberProducts, Ceramics and Glass Products

and Copper Cathodes.






Cambodian Schedules of Tariff Rate in ASEANCambodian Schedules of Tariff Rate in ASEAN





Tariffication

r Tariff

r NTM

Conversion

Tariff equivalent

Bind Reduce





Tariffication formula

E = (Pi - Pe) / Pe * 100

l E = Tariff equivalent

l Pi = Internal price

(representative wholesale)

l Pe = External price (c.i.f. unit values)l Base period average: 1986-88






Effects of AFTA

1. Effects on ASEAN s Country Industries

2. Effects on ASEAN s CountryInvestments

3. Effects on ASEAN s Country Trade






Effects on Industriesn Providing exporters with access to raw materials and

intermediate inputs at world market prices. For example,membership in ASEAN and the bilateral trade and investmentprotection agreement with China allows Cambodia to importfabrics from ASEAN countries or from China to producegarments for the US or EU market.

n Cambodia s textile and garment industry well illustrates the roleof exports and investment in generating employment andhelping to reduce poverty. More than half the current 300,000skilled and unskilled jobs in the industry have been createdduring the past five years, making the industry by far thelargest source of job growth during this period.

n Garment exports have also helped manage the balance of payments; they rose sharply from around US$20 million in 1995to almost US$2.93 billion in 2007.






Effects on Industries






Effects on ASEAN Investments :n Foreign investment has an important role in upgrading

technology levels and transferring commercial andindustrial knowledge. Cambodia has much to learnfrom the foreign firms that know foreign markets the

best and possess the technology, managerialexperience, and marketing channels that are neededto export successfully.

n From the most open policy to other Countries in theregion and to the World, Cambodia s investmentsector can be seen as a dynamic sector benefitingfrom the liberal policy, and it is being interested by theforeign investors from the region and the world,including from the ASEAN Countries.






§ Effects on ASEAN Investment : Investments in Cambodia byCountry 1994-1st Half 2006






Effects on ASEAN Investment: Investments by Sector(1994-1st Half 2006)






Effects on ASEAN Trade





ASEAN Framework Agreement on Services(AFAS) singed in 1995.

Objectives of AFAS are following:

1. To enhance cooperation in services amongst memberstates.

2. To eliminate substantially restrictions to trade inservices amongst member states.

3. To liberalize trade in services beyond the GATS withthe aim to realizing a free trade area in services.






Services Sector:

BUSINESS SERVICES COMMUNICATION SERVICES

CONSTRUCTION AND RELATED ENGINEERINGSERVICES DISTRIBUTION SERVICES EDUCATIONAL SERVICES ENVIRONMENTAL SERVICES FINANCIAL SERVICES

HEALTH RELATED AND SOCIAL SERVICES TOURISM AND TRAVEL RELATED SERVICES RECREATIONAL SERVCES

TRANSPORT SERVICES





At present, ASEAN has concluded 5packages of commitments under ASEAN

Framework Agreement on Services(AFAS) through 4 rounds of negotiationssince 1 January 1996.






These 5 packages consist of thefollowing:

Round 1 (1996-1998) 1st package, signed on 15 Dec 1997 in Kuala

Lumpur

2nd package, signed on 16 Dec 1998 in Ha Noi

Round 2 (1999-2001) 3rd package, signed by 31 Dec 2001





ASEAN has concluded its negotiations onthe third package of commitments for

the liberalization of services. Thepackage includes commitments in 7areas: business services, construction,financial services, telecommunication,

tourism, air and maritime transport.






q The ASEAN Economic Ministers adopted the Protocol toimplement the third package of commitments under theASEAN framework agreement on services on 31December 2001.

q The ASEAN Economic Ministers also launched the thirdround of negotiations beginning on 1 Jan 2002 andending on 31 Dec 2004. The third round is meant to gobeyond the commitments made in the first two rounds,by covering all services sectors and all modes of supply.






q The modes of supply of services (Marketaccess of services):n Cross border supply

n Consumption in abroad

n Commercial present

n Movement of natural person






Mode Presence of

supplier

Form of Delivery Examples

Cross border

supply

From abroad into

the territory of the

Member

Telecommunications, mail,

services incorporated in

goods

Consumption

abroad

No Delivery outside

the territory of the

Member

Movement of consumer or

property abroad (e.g.

tourism, ship repair)

Commercial

presence

Through local

establishment of

legal entities

Corporations, joint ventures,

representative offices, etc.

Presence of

natural persons

Yes Through physical

presence of service

supplier

Consultants, doctors,

lawyers, interpreters, etc.

(including employees)






nMARKET ACCESS

Absence of quota-type and similar restrictions

n NATIONAL TREATMENTNon-discrimination with regard to all measuresaffecting the supply of a service






Main Provisions Governing Market Access and

National Treatment

p Market Access

n No limitations on the numbers of service suppliers,*

n No limitations on the value of service transactions,*

n No limitations on the number of service operations,*

n No limitations on the number of natural persons in a sector,*

n No restrictions on types of legal entity,

n

No limitations on foreign capital participation* Includes limitations in the form of economic needs tests.

p National Treatment (non-discrimination de facto)

n No measures which modify the conditions of competition in favour of

domestic services or service suppliers




3. ASEAN Cooperation in ServicesModes of supply: 1) Cross-Border supply 2) Consumption abroad 3) Commercialpresence 4) Presence of naturalpersons

Sector or sub-sector Limitations on market access Limitations on national treatment Additional commitments

B. SECTOR-SPECIFIC COMMITMENTS

I. BUSINESSSERVICES

1. Professional Services

(a) Legal services

(CPC 861):

(1) None

(2) None

(3) In commercial association withCambodian law firms[1], and may not

directly represent clients in courts.

(4) Unbound, except as indicated in

the horizontal section.

(1) None

(2) None

(3) None(4) Unbound, except as indicated

in the horizontalsection.

Foreign legal consultancy

on law of jurisdiction where

service supplier is qualified as a

lawyer (including home country

law, third country law, and

international law)

(1) None

(2) None

(3) None


the horizontal section.

(1) None

(2) None

(3) None

(4) Unbound, except as indicated


(b) Accounting, audi ting,

bookkeeping

(CPC 86211, 86212, 86220)

(1) None, except must have

commercial presence in Cambodia for

auditing services.

(2) None

(3) None


the horizontal section

(1) None

(2) None

(3) None

(4) Unbound, except as indicated






4. Other ASEAN Cooperation

Cooperation in Investment

Industrial Cooperation

Cooperation in Transport






Cooperation in Investment : Framework agreement on ASEAN Investment

Area (AIA) signed in 1998.

Objectives of AIA are following:n To establish a competitive ASEAN investment areawith a more liberal and transparent investmentenvironment amongst member states.

n To ensure that the realization of the above objectiveswould contribute towards free flow of investments by

2020.





Investment Environments or Investment

Climates:

Political situationEconomics (inflation, interest rate, exchangerate, balance payment, trade barriers,productivity)

Market psychology and consumer confidence





Government intervention & factorsinfluenced

Supply and demand for any given currency, and

thus its value, are not influenced by any single

element, but rather by several. These elements

generally fall into three categories:

— Economic factors,

— Political conditions and— Market psychology.





Economic factors

These include:1. Economic policy comprises:

Government fiscal policy (budget/spending practices) andmonetary policy (the means by which a government's

central bank influences the supply and "cost" of money,which is reflected by the level of interest rates).

2. Economic conditions include: Government budget deficits or surpluses Balance of trade levels and trends Inflation levels and trends Economic growth and health Productivity of an economy

The Mundell-Fleming Model






e

Income, Output, Y

LM*

IS*

e

Income, Output, Y

LM*

IS*IS*'

LM*'

When income rises in a small open economy, due tothe fiscal expansion, the interest rate tries to rise but

capital inflows from abroad put downward pressure

on the interest rate.This inflow causes an increase in

the demand for the currency pushing up its value

and thus making domestic goods more expensive

to foreigners (causing a DNX). The DNX offsets

the expansionary fiscal policy and the effect on Y.

When the increase in the money supply puts downwardpressure on the domestic interest rate, capital flows out

as investors seek a higher return elsewhere. The capital

outflow prevents the interest rate from falling. The

outflow also causes the exchange rate to depreciate

making domestic goods less expensive relative to

foreign goods, and stimulates NX. Hence, monetary

policy influences the e rather than r.

+DG, or DTÞ

+De, no DY

+DMÞ

-De, +DY

g

Under Floating Exchange Rates

E






ExSekag IS (The IS Curve)

esdæ ki c©ebI kcM hr (Open Economy)

p eBlEdlbBa©ÚlRbeTseRkAeTAkñ úgKMrUrbs;eyIg enaHcMnUllMnwgGacsresrdUcxageRkam ³

a + I0 + G0 + EX0 IM0 bTx0 + bTr0 - bi

Y =

1- b + bt + m





E

Income, Output, Y

Y=E

Planned Expenditure,

E = C + I

r

Income, Output, Y

r

Investment, I

I(r) IS

An increase in the interest

rate (in graph a), lowers

planned investment,

which shifts planned

expenditure downward (in

graph b) and lowers

income (in graph c).(a)

(b)

(c)





Political conditions

Internal, regional, and international political conditions and events canhave a profound effect on currency markets.

All exchange rates are susceptible to political instability andanticipations about the new ruling party. Political turmoil and

instability can have a negative impact on a nation's economy. Forexample, destabilization of coalition governments in Pakistan andThailand can negatively affect the value of their currencies.

Similarly, in a country experiencing financial difficulties, the rise of apolitical faction that is supposed to be fiscally responsible can have the

opposite effect.

Also, events in one country in a region may spur positive or negativeinterest in a neighboring country and, in the process, affect itscurrency.





Market psychology

Market psychology and trader perceptions influence theforeign exchange market in a variety of ways:

Flights to quality

Long-term trends "Buy the rumor, sell the fact" Economic numbers Technical trading considerations






investment means every kind of asset owned or controlled by an investor,

including but not limited to the following:

p (i) movable and immovable property and other property rights such as mortgages,liens or pledges;

p (ii) shares, stocks, bonds and debentures and any other forms of participation in a juridical person and rights or interest derived there from;

p (iii) intellectual property rights which are conferred pursuant to the laws andregulations of each Member State;

p (iv) claims to money or to any contractual performance related to a business andhaving financial value ;

p (v) rights under contracts, including turnkey, construction, management, production orrevenue-sharing contracts; and

p (vi) business concessions required to conduct economic activities and having financialvalue conferred by law or under a contract, including any concessions to search,

cultivate, extract or exploit natural resources.p The term investment also includes amounts yielded by investments, in particular,

profits, interest, capital gains, dividend, royalties and fees. Any alteration of the form inwhich assets are invested or reinvested shall not affect their classification asinvestment;






The AIA s features :

National treatment and opening up of allindustries for investment to ASEAN

investors by 2010, and to all investorsby 2020, subject to the exceptionsprovided for under the agreementthrough a Temporary Exclusion List

(TEL) and a Sensitive List (SL), if any.





Cooperation in Investment (con t):

In 2000, AEM decided to accelerate the fullrealization of the AIA for ASEAN investors in the

manufacturing, agricultural, forestry, fisheriesand mining sectors and services incidental tothose sectors.

Full AIA realization for the sectors would beadvanced from 2002 to 2010 for 6 original

members and to 2015 for Cambodia, Laos andVietnam.




The Financial System

p The financial systemfinancial system consists of the groupof institutions in the economy that help tomatch one person s saving with another

person s investment.

p It moves the economy s scarce resourcesfrom savers to borrowers.




Financial Markets

p The Stock Marketn Most newspaper stock tables provide the

following information:p Price (of a share)

p Volume (number of shares sold)

p Dividend (profits paid to stockholders)

p Price-earnings ratio





Financial Intermediaries

p Financial intermediaries are financialinstitutions through which savers canindirectly provide funds to borrowers.






p Banksn take deposits from people who want to save

and use the deposits to make loans to peoplewho want to borrow.

n pay depositors interest on their deposits andcharge borrowers slightly higher interest ontheir loans.






p Banksn Banks help create a medium of exchange by

allowing people to write checks against theirdeposits.p A medium of exchanges is an item that people can

easily use to engage in transactions.

n This facilitates the purchases of goods andservices.






p Mutual Fundsn A mutual fund is an institution that sells shares

to the public and uses the proceeds to buy aportfolio, of various types of stocks, bonds, or

both.p They allow people with small amounts of money to

easily diversify. (Links to Text)






The AIA s coverage (con t):

This agreement further covers directinvestment in such other sectors and servicesincidental to such sectors as may be agreedupon by all member states.

Brunei Darussalam, Indonesia, Malaysia,Myanmar, the Philippines, Singapore andThailand have until 1 January 2003 to phase

out their TEL for the manufacturing sector. Thenewer members of ASEAN, Cambodia, Laos andViet Nam have until 1 January 2010.






Cooperation in Investment (con t): The sixth AIA Ministerial Council Meeting, 1 September 2003 in

Phnom Penh, Cambodia.

Recognizing the new wave of business opportunities anddevelopment globally in the area of services, the Ministers

agreed to work out the scope of expanding the AIA to includeservices (such as, but not limited to education services, healthcare, telecommunication, tourism, banking and finance,insurance, trading, e-commerce, distribution and logistics,transportation and warehousing, professional service such asaccounting engineering and advertising).

To this end, the Ministers tasked the senior officials torecommend future steps in expanding the scope of AIA to coverthose services sectors for final deliberation at a back-to-backmeeting of the ASEAN investment and economic Ministers inApril 2004.






Industrial Cooperation: ASEAN Industrial Cooperation Scheme (AICO):

n Privileges:p Preferential tariff rate of 0-5% and other incentives

n Criteria for participating companies:p Be incorporated and operating in any ASEAN

Country.p Have a minimum 30% national equity.p Undertake resource sharing, industrial

complementation or any industrial cooperationactivities.






Industrial Cooperation: Waive the 30% national equity requirement

under AICO scheme during the period of 1999-2000 to provide greater scope for industrialcooperation in the region.

ASEAN agreed to extend the waiving perioduntil 31 Dec 2004.






New developments in the AICO:

Ending dates for the AICO rate at 0%:n By 2003 for Brunei Darussalam, Cambodia,

Lao PDR, Indonesia, Malaysia, andSingapore.

n By 1 Jan 2005 for the Philippines, Thailandand Myanmar.

n By 1 Jan 2006 for Vietnam






Cooperation in Transport :

ASEAN framework agreement on the facilitationof goods in transit (1998).

ASEAN framework agreement on the facilitationof inter-state transport.(for singing by 10th ASEAN Transport MinistersMeeting in 2004).

ASEAN framework agreement on the multimodaltransport.(for singing by 10th ASEAN Transport MinistersMeeting in 2004).

T d F ilit ti





Trade Facilitation

è Making trade procedures as efficientas possible through the rationalizationof procedures, documentation, andinformation flows

First approach

Trade Facilitation





Trade Facilitation

Customs

Fees and

Formalities

Transit

of Goods

Trade

Regulations

Trade

Facilitation

Elements





Trade Facilitation

Freedom of Transit

Publication and Administration

of Trade Regulations

Fees + Formalities connectedwith Importation & Exportation

ª Art. V

ª Art. VIII

ª Art. X

Existing WTO rules on TF





Trade Facilitation

£ Customs Valuation Agreement

£ Agreement on Rules of Origin

£ Agreement on Sanitary & Phytosanitary Measures

£ Agreement on Import Licensing Procedures

£ Agreement on Preshipment Inspection

£ Agreement on Technical Barriers to Trade

TF Rules in Other WTO Agreements




Basic principles

p Customs valuation based on theactual price of the goods (generally that

shown on the invoice = transaction value)

p 6 Customs valuation methodsp method 1: Transaction value

p method 2: Transaction value of identical goods

p method 3: Transaction value of similar goods

p method 4: Deductive value

p method 5: Computed value

p method 6: Fall-back method

5. ASEAN Integration System of

P f





Preference

ASEAN Integration System of

Preference (AISP) Similar to Generalized System of

Preference (GSP).

Bilateral basis and based on

products proposed by newmembers.


P f





Preference

AEM Retreat 3 - 4 May 2001 Cambodia ASEAN 6 provide CLMV with

preferential privileges on bilateral basisand unilateral principal.

CLMV must inform ASEAN 6 aboutproduct items which need preferentialtreatment.


P f





Preference

The 4th Informal ASEAN Summit 24-25 Nov

2002 Singapore

Initiative for ASEAN Integration: IAI

Strengthening ASEAN

Enhancing ASEAN competitiveness

ASEAN-6 provide CLMV with preferential tariff privileges


P f





Preference

ASEAN Integration System of Preference:Support of AFTA Consider granting for items listed in IL of

CLMV only

Product items in GEL of CLMV will notobtain preferential privileges.

Product items in SL of Thailand, whichhave not been phased in IL, yet will notobtain preferential privileges.


P f





Preference

Criteria for granting AISP: Products items

Tariff rate

Duration

Rules of Origin

Suspension of AISP

Review


P f





Preference

Product Items:

Granting preferential privileges

by bilateral arrangement withindividual list of products beinggranted privileges for eachCountry




P f





Preference

Duration of granting privileges: From 1 Jan 2002 to 31 Dec 2009 (8

Years) by granting once each year.

By annual announcement of Ministry of Finance; for example tobe effective from 1 Jan 2002 to 31Dec 2002.


P f





Preference

Rule of Origin: Agriculture products (chapter 01-

24) and agricultural productscommit to WTO, such as cottonchapter 52, silk chapter 50.

Non-agricultural products


P f





Preference

Rule of Origin (con t): Agricultural

Products Apply the rule of wholly produced or obtained

applicable for goods which are made whollyfrom domestic raw material.

The value of raw materials from exportingcountry and ASEAN Country is not less than

60% of total production cost.


P f





Preference

Rule of Origin (con t): Non-agriculturalProducts Apply the rule of wholly produced or

obtained

The value of raw materials fromexporting country and ASEAN Coutryis not less than 40% of total

production cost.


Pr f r





Preference

The formula for calculating the RCVshall be:A- Build-Up Method

RVC = (VOM / FOB) x 100%

B- Build-Down MethodRVC = [(FOB VNM) / FOB] x 100%

- RVC: Regional Value Content- VOM: Value of originating materials used by

the producer in the production of good- VNM: Value of non-originating materials used

by the producer in the production of good


Preference





Preference

p The local ASEAN content can becumulative, that is, the value of inputsfrom various ASEAN members can becombined to meet the 40% requirement.The following formula is applied:

p (Raw material cost + Direct labor cost +

Direct overhead cost + Profit + Inlandtransport cost) x 100% FOB value


Preference





Preference

Suspension of AISP : Import value of products being granted

preferential privileges increases by 100%

Complaint from domestic producers thatimports adversely affect domestic industries,for example

n Declined market share

n Reduction of selling prices

n Increase of inventory


Preference





Preference

Review of AISP :

There will be annual review of AISP


Preference





Preference


Preference





Preference

6 ASEAN Vision 2020





A free flow of goods, services andinvestments, a free flow of capital.

Reduce poverty and socio-economicdisparity.

Create equitable economic development

6 ASEAN Vision 2020





ASEAN Economic Community (AEC) :

At the Bali Summit in Oct 2003, the ASEANLeaders signed the Declaration of ASEANConcord II to create an ASEAN Economic

Community (AEC).

The establishment of the AEC will make ASEANa single market and production base, with freeflow of goods, services, investment, skilledlabor, and freer flow of capital by the year2020.

6 ASEAN Vision 2020





AEC (con t) :

The AEC would be realized by strengtheningexisting initiatives and building new initiativesto enhance economic integration on aprogressive basis with clear timelines.

To ensure concrete progress towards the AEC,two key measures were adopted:

i. Institution of an effective dispute settlement systemby end-2004; and

ii. Acceleration of the integration of eleven prioritysectors.

6 ASEAN Vision 2020





AEC (con t) : The Special Informal AEM, July 2003, Jakarta, Indonesia

Priority Sector (11 Sectors)

The 11 priority sectors and country coordinators are asfollows:n Indonesia: Wood-based products and automotivesn Malaysia: Rubber-based products, textile and apparelsn Myanmar: Agro-based products and fisheriesn Philippines: Electronicsn

Singapore: e-ASEAN and heath caren Thailand: Air travel and tourism

6 ASEAN Vision 2020





AEC (con t) : Future Developments

n Roadmaps on the integration of 11priority sectors will be transcribed into

legally binding commitments to besubmitted to ASEAN Leaders for signingin 2005.

n Vientiane plan of action to be adopted atthe 10 ASEAN Summit in Nov 2004 will besuccessor to Hanoi Plan of Action (HPA).

6 ASEAN Vision 2020





AEC (con t) :p At the 12th ASEAN Summit in January 2007, the Leaders

affirmed their strong commitment to accelerate theestablishment of an ASEAN Community by 2015 asenvisioned in the ASEAN Vision 2020 and the ASEANConcord II, and signed the Cebu Declaration on the

Acceleration of the Establishment of an ASEANCommunity by 2015.

p In particular, the Leaders agreed to hasten theestablishment of the ASEAN Economic Community by2015 and to transform ASEAN into a region with freemovement of goods, services, investment, skilled labour,

and freer flow of capital

p ASEAN ECONOMIC COMMUNITY BLUEPRINT.

7 ASEAN External Relations





ASEAN-CER : Ministerial Declaration on the AFTA-CER

closer economic partnership had beensigned by the Economic Ministers in

September 2002

Work program covers barriers to trade,standards, trade and investmentpromotion and facilitation, e-commerce

and SMEs, fostering private sectorcompetitiveness etc.






ASEAN + 3 (China, Japan and Korea) EconomicCooperation: Announced joint statement on East Asia

Cooperation.

Ten areas for cooperation ranging from accelerationof trade and investment to cooperation in variousinternational and regional for a..

4 Priority areas for cooperation identified (promotionand facilitation of trade and investment;

encouraging technical cooperation in the areas of ITand E-commerce; strengthening of SMEs andsupporting industries; and development of MekongBasin).






ASEAN+3 (con t): East Asia Study Group (EASG) s

recommendations:n 17 short term measures

n 9 medium and long term measures

One of the long term measures includes

the establishment of an East Asia FreeTrade Area






Short-term Measures (17 ConcreteMeasures)

n Form an East Asia Business Council;

n Establish GSP status and preferential treatment for

the least developed countries;n Foster an attractive investment environment for

increased foreign direct investment;

n Establish an East Asian Investment InformationNetwork;

n Develop resources and infrastructure jointly forgrowth areas and expand financial resources fordevelopment with the active participation of theprivate sector;






n Provide assistance and cooperation in fourpriority areas: infrastructure, informationtechnology, human resources development,and ASEAN regional economic integration;

n Cooperate through technology transfers and joint technology development;

n Develop information technology jointly tobuild telecommunications infrastructure andto provide greater access to the Internet;

n Build a network of East Asian think-tanks;

n Establish an East Asia Forum;






n Implement a comprehensive human resourcesdevelopment program for East Asia;

n Establish poverty alleviation programs;

n Take concerted steps to provide access to primaryhealthcare for the people;

n Strengthen mechanisms for cooperation on non-traditional security issues;

n Work together with cultural and educationalinstitutions to promote a strong sense of identity andan East Asian consciousness;

n Promote networking and exchanges of experts in theconservation of the arts, artifacts, and culturalheritage of East Asian countries; and

n Promote East Asian studies in the region.






Medium-term and Long-term Measures, and

Those that Require Further Studies (9

Concrete Measures)

n Form an East Asian Free Trade Area

n Promote investment by small and mediumenterprises;

n Establish an East Asia Investment Area byexpanding the ASEAN Investment Area;

n Establish a regional financing facility;

n Pursue a more closely coordinated regionalexchange rate mechanism;

n Pursue the evolution of the ASEAN+3 Summit intoan East Asian Summit;






n Promote closer regional marineenvironmental cooperation for the entireregion;

n Build a framework for energy policies and

strategies, and action plans; andn Work closely with NGOs in policy consultation

and coordination to encourage civicparticipation and state-civil societypartnerships in tackling social problems.






ASEAN-China: The possibility of establishing a free trade area

(FTA) between ASEAN and China.

ASEAN-China FTA will be established within tenyears and approved at the ASEAN-ChinaLeaders Summit in 2001.

Framework Agreement on ASEAN-Chinacomprehensive economic cooperation.

ASEAN-China FTA will be established by 2010for old Member Countries and 2015 forCambodia, Laos and Myanmar.?






ASEAN-China (con t):

Special and differential treatment andflexibility to the new ASEAN Members.

Special preferential tariff treatment forsome goods from Cambodia, Laos andMyanmar.






ASEAN-Japan: Joint Declaration on ASEAN-Japan

Comprehensive Economic Cooperation(2002 ASEAN Summit).

The Framework on ASEAN-JapanComprehensive Economic Cooperation(2003 ASEAN Summit).






ASEAN-Korea:

Establishment of the ASEAN-Korea Experts Group toundertake the feasibility studyof the establishment of anASEAN-Korea FTA : in process





N

ASEAN-India:By first ASEAN-India Summit (Nov 2002) theLeaders agreed on several issues among others:

Establishment of the ASEAN-India Task Forceon Economic Linkages :To draft Framework Agreement to enhance ASEAN-India Economic Cooperation

Establishment of ASEAN-India FTA within 10

yearsFramework Agreement on ASEAN-IndiaComprehensive Economic Cooperation.



2. Theoretical Interpretation of Economic

Development





2. Natural Resources and Eco. Development§ Limitation of substitution of input factors

§ Natural Resources Raw materials

Land

Weather

Environment


Development





p

2. Natural Resources and Eco. Developmenta. Raw materials and Eco. Development

Some Industrial Countries like Japan, Hong Kong,Singapore, Switzerland etc. do not have the raw

material, but those Countries well developed. The Countries have specialization.

Price of the raw materials is always cheaper.

The Countries having raw materials tend to usethose export revenue only to import theconsumption goods, not to import the goods forbuilding-up the industrial infrastructure in theirCountries.




Development





2. Natural Resources and Eco. Development

b. Land and Eco. Development (con t)p Inefficient of using land can be improved

through: Adopting new technology and know how

Public Investment in irrigation system,fertilizer and other infrastructure

Legal and institutional reform, including

credit reform and bureaucracy reform


Development





v p

2. Natural Resources and Eco. Developmentc. Weather and Eco. Development

Most developed Countries located in the zone wherehave a the moderated weather, namely having fourseasons in a year.

Developing Countries mostly locate in the inadequate

weather zone of the world. The inadequate weather can be negatively effected on

the human health as well the productivity, because itcan create the conditions for the organism, virus,bacteria etc. to spread their activities which canhazardous the human and plant health.

But Countries like Singapore and Malaysia locate alsoin the inadequate weather zone, but such Countriescan be developed their economies, because theCountries improved the health system and sanitarymeasures for their people.


Development





2. Natural Resources and Eco. Development

d. Environment and Economic Development

Urbanization, gas pollution, waster, migrationinto the City, wood cutting etc. can hazard theenvironment.

But to use the environment in reproduction-ablemanner for developing the Country economiescan not be destroyed the environment.

Currently, most developing Countries and leastdeveloped Countries in the World are taking intoaccount to use the environment in thesustainable manner.


Development





1. Natural Resources and Eco.Development

e. Conclusion

§ Having natural resources means that the Countryhas the capacity to develop the economic of theCountry.

§ But it doesn t means that it can determine thelevel of economic development of the Country.

§ The economic development of the Countrysignificantly depends on the skill (humanresource) and the management of using naturalresources.


Development





3. Capital and Development§ Effects of the Capital on the Eco.

Development Capital is the Motor.

Adam Smith: Capital accumulation is aprerequisite to extend the national specializationand the allocation of the resources which are abasis to improve the Per Capita.

Production elasticity of the Developed Countriesis larger 2 time or 3 time than the productionelasticity of the Developing Countries.


Development





3. Capital and Development (con´t)§ Relationship between Material Capital and HR

Material capital can be equipment, building,goods in store, inventory, etc.

HR can not be used as a material capital,although HR is defined as a skilled Capital.

Base on Denison, HR involved in the productionprovides the share of the output from 50% to

70% of the output in comparing to the materialcapital providing only from 30% to 50%.


Development





3. Capital and Development (con´t)

§ Reasons of the deficit of Capital Deficit of Savings

Deficit of Investments

Deficit of Financial Institutions

Deficit of Capital Equipments of Sub-Population

Capital Flows into Abroad


Development





Low Output

Low Per Capita

Low SavingLow Capital

Investment

Low Capital

Equipments

Low Productivities

3. Capital and Development (con´t)§ Reasons of deficit of saving

It can have a deficiency of capacity to save


Development






§ Reasons of deficit of saving (con´t) Deficit of willingness to save, because

of:Fluctuating interest rate that can not bepredicable

Considering meta-economic which affectson the comparison between the value of current and future using of their capital.




Development





Low Output

Low Per Capita

Low Domestic

Demand

Low Capital

Investment

Low Capital

Equipments

Low Productivities

3. Capital and Development (con´t)§ Reasons of deficit of investments

It can have a deficit of willingness to invest


Development





3. Capital and Development (con´t)§ Reasons of deficit of financial institutions

§ Deficit of some financial institutions like: Financial Market

Stock Market and Bonds Market


Commercial Banks

Trade Banks

Development Banks

Cooperative Banks

Mutual Fund

Other Financial Market

Micro-Finances Institutions

Loan and Credit Associations

Insurances and Pension Funds


Development






§ Reasons of deficit of financial institutions(con´t)

It can have a deficit of quality of the financialinstitutions:

Insufficiency of liquidity ratios.

Current ratios

Acid-Test

Problem of source of capital investments.Insufficiency of profitability ratios.


Development






(con´t)


Development





3. Capital and Development (con´t)§ Reasons of deficit of financial institution (con´t)


Development






(con´t)


Development





DebitDebit CreditCredit

-- Expenditure for ConsumptionExpenditure for Consumption-- Investments :Investments :

-- Capacity BuildingCapacity Building-- AssetsAssets

-- GNPGNP-- Income from AssetsIncome from Assets-- Income from WorkingIncome from Working

3. Capital and Development (con´t)§ Deficit of capital equipments of sub-population

Balance sheet of household income


Development






§ Deficit of capital equipments of sub-population (con´t)

§

Deficiency of the household income are:§ Low skill labor, because of deficit of capital to build upthe capacity

§ Having small land

§ Using only traditional equipments for their productions

§ Deficit of rural credits and investments


Development





3. Capital and Development (con´t)§ Deficit of capital equipments of sub-

population (con´t)§ To solve the problem of the deficit of capital

equipments of sub-population it doesn tactually have the experiences and theory,because it is the complete issue affected bythe internal and external factors.

§ But by the side of other development policythe re-distribution income policy, resourceallocation and specialization which often isused by most Countries are successfullyinstrument to diminish the problem.


Development






§ The reason of deficit of capital isalso the capital flow into abroad:p Repatriation of foreign income and profit.p Repayment of the credit or loan and

payment of interest rate.

p Local people save their money in abroad.

p High skilled labors move to work inabroad.


Development





3. Capital and Development (con´t)Þ Cambodian investment protection: The

investment law and sub-decree contains anumber of important guarantees for the

investors:§ Equal treatment of all investors

§ No nationalization adversely affecting theproperty of investors

§ No price controls on products or services§ No restriction on foreign equity participation

§ No restriction on foreign convertibility

§ Remittance of foreign currencies abroad.


Development





4. Social and political conditions and eco.Development

§ Problem of the religion

§ Family structure (clan)

§ Problem of ethnic

§ Deficit of mobilization or problem of

marginalization of the differentgroup of people


Development





5. Development and internationalEconomic

§ International economics means alleconomical transactions betweenhouseholds, privates and public of one Country and household, privates

and public of an other Countries


Development





Imports (Debits)§ Current Account: (M)

§ Goods and services

§ Factor- and assets income

§ Assets transfer (= transferaccount)

§ Aids, gifts etc. (= unilateraltransfer)

§ Capital Account: (CM)§ Direct investments

§ Security purchase

§ Bank claims, liabilities,obligations, etc.

§ Government assets abroad

Exports (Credits)§ Current Account: (X)

§ Goods and services

§ Factor- and assets income

§ Assets transfer (= transferaccount)

§ Aids, gifts etc. (= unilateraltransfer)

§ Capital Account: (CX)§ Direct investments

§ Security purchase

§

Bank claims, liabilities,obligations, etc.

§ Government assets abroad


Development






§ Balance sheet of balance payment

X + CM = M + CX

=> M X = CM CX

§ if M>X => CM>CX, it means trade deficit. In this casethe Country should take the credit from the abroad tofulfill the deficit in order to maintain the current value of exchange rate.

§ if M<X => CM<CX, it means trade surplus. In this casethe Country can use the surplus for public investment orincreasing the salary.


Development






§ Conditions of international tradep Absolute price advantage

p Comparative price advantage

p Exchange rate

p Domestic Demand

p Cost and profit variation

§ Technology, salary, production factors, money supplypolicy, public investments, tax policy, etc.

p Tariff and Non-Tariff Barriers

p Geographic or location of the Country


Development





Conditions of international trade (con t)§ Absolute price advantage

§ P1 Country A < P1 of Country B, in this case Aexports good 1 to B. (only with the stable exchangerate)

§ Comparative price advantage§ P1B /P1A > P2B /P2A or P1A /P1B < P2A /P2B in this case A

exports good 1 to B, and B exports good 2 to A(only with the stable exchange rate)

§ Exchange rate§

Exchange rate varied occurs the change of the priceof goods trading and can change the direction of trade.

§ Domestic demand for the product.




Development





§ The table below will be illustrated AdamSmith theorem before the Countries takethe measures to specialize the production.

Items Country A Country B The worldproduction

Soybean 3 h for producing 1unit of soybean

12 h for producing1 unit of soybean

2 units of soybean

Textile 6 h for producing 1unit of textile

4 h for producing 1unit of textile

2 units of textile


Development





§ The table below will be illustrated DavidRicado theorem before the Countries takethe measures to specialize the production.

Items Country A Country B The worldproduction

Soybean

3 h for producing1 unit of soybean

12 h forproducing 1 unitof soybean

2 units of soybean

Textile 6 h for producing1 unit of textile

8 h for producing1 unit of textile

2 units of textile

The Tariff




Ad valorem tariff: a trade tax is equally to agiven percentage of selling price. Ex: 13% for imported knit cotton headwear in

US$.

Specific tariff: a trade tax is equally to afixed amount of money per unit sold. Ex: 14 cents on each pound of imported fertilizer.

Compound tariff: a trade tax that has botha specific and an ad valorem. Ex: 19 cents per pound plus 18.5 percent ad

valorem on imported cashmere sweaters.

The Tariff (cont)




MFN (most favored nation): If any other Country grants another Country MFN

status, it agrees to charge tariffs against thatCountry s good that are no higher than thoseimposed against the goods of any other Country.

GSP (general system of preference) Which was instituted by the United States in the

early 1970.

Other industrialized Countries, including Canada,

EC and Japan have their own GSP programs. The idea behind the GSP is that by charging lower

tariffs on goods from Developing Countries

Definition of an SPS Measure




risks arising from additives,

contaminants, toxins or disease-causing

organisms

damage caused by the entry,

establishment or spread of pestsa country

human life diseases carried by animals or plants

human or animal

life

pests, diseases or disease-causing

organisms

animal or plant

life

To protect : from :

What type of measures ?




p product criteriap quarantine

treatments

p production methods

p

certification andapproval

p inspectionp sampling procedures

p packaging andlabelling directlyrelated to foodsafety

All types of measures with SPS objectives,

including :

The TBT Agreement.




To start: some definitions

Technical Regulation




Technical Regulationp "Document which lays down product

characteristics or their related processes and production methods...with which compliance ismandatory.

Standard

p

Document, approved by a recognized body that provides,for common and repeated use, rules, guidelines or characteristics for products or related processes and

production methods, with which compliance is not mandatory

Conformity assessment procedurep Any procedure used, directly or indirectly, to determine that

relevant requirements in technical regulations or standardsare fulfilled

Scope of the TBT Agreement




All industrial and agricultural products

But does NOT apply to:

- sanitary and phytosanitary measures

- regulations and standards related toservices

- purchasing specifications for production

or consumption of governments

Article 1


Development






§ Effects of the unequally power share ininternational tradep Perroux theory said that the large Countries has:

p Dominant to implement the trade policy

p Having power to influence the importing price andexporting price

p Using the revenue from the export for domesticgoods

p Dominant to implement the monetary policy, inparticular the interest rate policy for credits for theforeign market

The Tariff




The welfare lost of the tariffs imposed bysmall Country

P

PW

X

a

0

S

PW+T

D

Tariff (T)

Q3 Q4 Q2

b c d

The Tariff




The welfare lost of a tariff imposed by a smallCountry base on the above figure.


Change in producer surplus : + a$

Change in government revenue: + c$

Net welfare change: - b$ - d$



The Tariff




The welfare lost of the tariffs by the largeCountry

PAPW

XW

PB

XA XB

Country A: Market largeCountry

Country B: Market smallCountry

World Market

DA

SB

DA DB

SA

SB

PW

P

P

SB + Tariff

Tariff

L0L1

a c

e

b d

PW PW

P

The Tariff




The welfare lost of a tariff imposed by a largeCountry base on the above figure.


Change in producer surplus : + a$

Change in government revenue: + c$ + e$

Net welfare change: - b$ - d$ + e$

Tariff escalation




p Tariffs escalate when they increase with thelevel of processing

p At the aggregate level, the picture is diversen the tariff structures of Canada, Australia, New

Zealand, Turkey and Norway exhibit escalation

n the tariff structures of several countries showpartial escalation

p At the product level, tariff escalation ispresent even in countries where overallstructure exhibits little or no escalation




Development






§ Backwash effects of Myrdall

p Myrdall theory argued that the internationaltrade has the backwash effects:

p Flow of Human Resources into the largeCountry.

p Continual flow of Capital into the largeCountry, because of its economic boom.

p Large Country has trading price s advantageand export s advantage.


Development






§ Underdeveloped as the effects of declining term of trade (ToT)?

p It is the theory of Prebish and Singerp Definition of ToT = PX /PM

p PX is exporting price index

p PM is importing price index

p ToT means how many units of importinggoods will be exchanged with one unit of exporting goods of the Country.




Development






§ Underdeveloped as the effects of decliningterm of trade (TOT)? (con t)

p TOT declines that means eco. development willbe gone down, because the importing pricecan be increased or/and the exporting pricecan be reduced.

p TOT increases that means eco. development

will be grown up, because the importing pricecan be reduced or/and the exporting price canbe increased.


Development





5. Development and internationalEconomic§ Underdeveloped as the effects of declining

term of trade (TOT)? (con t)p TOT of some Developing Countries and least

developed Countries is generally terrible.p The reasons of dreadful TOT of such Countries are:

§ Price of their importing goods depends on incomeelasticity.

§ Price of their exporting goods depends on priceelasticity.

§ Monopolizing of importing goods from industrialCountries.

§ Exporting goods and those price of Developing Countriesfaced some constraints regarding to potentialimplementing of trade policy by the large Countries.


Development






term of trade (TOT)? (con t)p In the case that the TOT declines or is bad, the effects

on eco. development of the Developing Countries arefollowing:

§ Reducing the importing goods which are significant forthe development of the Countries.

§ Exporting sector can not be improved regarding thetechnology and productivity.

§ Employment of exporting sector can be declined.


Development






term of trade (TOT)? (con t)p Critic on the theory of Prebish and Singer:

p Formula of price index took to calculate the TOT is notso correct, if the time took to calculate the price indexis so far from the basic time in the formula.

p The reason is that the products can be alreadychanged the physical attitude or quality, althoughthose name is not changing.


Development






term of trade (TOT)? (con t)p Critic on the theory of Prebish and Singer (con t):

p Dreadful TOT depends not only external issues likementioned above.

p It can depends on the internal issues like increasingincome and technology in the Developing Country

which are causing to increase the importing price andto reduce the exporting price.


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term of trade (TOT)? (con t)p Critic on the theory of Prebish and Singer (con t):p Thus, dreadful TOT can be considered as fine for

development of the developing Country if the internaleffects compares to external effects positive.

p Thus, dreadful TOT can be considered as terrible for

development of the developing Country if the externaleffects is strongly than the internal effects.


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5. Development and internationalEconomic§ Effects of instability of export revenue

p Instability of export revenue depends on the

fluctuation of exporting price.p It can seriously affect on the Country that has small

GDP, large share of export in GDP, exporting onlysingle product or sector and their domesticdevelopment depending mostly on importing goods.

p It can explain these effects below.


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5. Development and internationalEconomic§ Effects of instability of export revenue (con t)

p In case exporting price going down the export

revenue will be reduced.p Thus, the GDP will be reduced if the Country doesn t

have other export revenue of an other products inorder to compensate.

p Finally, the development of the Country will be

stagnate or gone down.p It can see in the mathematical formulation below.


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p Y = C + I + X M or

p Y = CD + CM + ID + IM + X M or

p Y = CD + ID + X + (CM + IM M)

§ Y = GDP

§ C = Consumption

§ I = Gross Investments

§ X = Export§ M = Import

§ D = Domestic


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p Base on above formula it can write followingp CM + IM M = 0

p => Y = CD + ID + X

p If X reduced and, CD and ID are stable, it will be seenthat Y or GDP will be reduced accordingly.

p Also, GDP = Y = CD + ID + X is gone down.




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p In case increasing of the exporting price

§ Since some Developing Countries and LDC has alimitation of HR and material capital, it can delay theproduction s plan for exporting in the time that theexporting price is increasing.

§

Thus, the Countries can not use such opportunity toimprove the export revenue which can effect on the GDPand the development of the Country.


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5 D l t d i t ti l





5. Development and internationalEconomic§ Underdevelopment as the effects of

international capital s transaction?p Categorizing the foreign direct Investments

(FDI) in following:§ FDIs invest to exploit the natural resources

§ FDIs invest to supply in the domestic market

§ FDIs invest to supply in their Countries and otherthird Countries.


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5 Development and international Economic





5. Development and international Economic§ Underdevelopment as the effects of international

capital s transaction? (con t)p Advantages and disadvantages of FDI investing to exploit

the natural resources§ It can be mono culture production which can bring to foods

insecurity§ Loss of potential development of the Country if they (FDIs)

think that the Country doesn t invest some money to obtain itsraw material

§ Relatively small capital investments in this sector

§ The Country can gain low technology by this investment

§ Low salary for the labor in which those salary can not push to

build up the domestic industries, because it can buy only thetraditional products.


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capital s transaction? (con t)p Advantages and disadvantages of FDI investing to

supply in the domestic market§ Advantages

§ Increasing the volume of GDP.§ Flow the capital into the Country which can effect on capital

accumulation for the Country.§ Reducing or cutting up importing goods which will be

produced by such FDI.§ Saving capital, which use for importing such goods, in

order to invest for other sectors of the Country.§ Improving domestic technology§ Creating jobs for domestic labor§ Building up capacity of human resource and training

institution


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5 Development and international






§ Underdevelopment as the effects of international capital s transaction? (con t)p Advantages and disadvantages of FDI investing to

supply in the domestic market§ Disadvantage

§ Flow out the income and profit into the Country of FDI

§ Domestic producers can disappear from the domesticmarket, because of weak competition.

§ Increasing unemployment as disappearing of domesticcompanies


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capital s transaction? (con t)p Advantages of FDI investing to supply in their Country or

the third Countries§ Increasing the volume of GDP.

§ Flow the capital into the Country which can effect on capitalaccumulation for the Country.

§ Reducing or cutting up importing goods which will be produced by suchFDI.

§ Saving capital, which use for importing such goods, in order to invest forother sectors of the Country.

§ Increasing capital reserve

§ Improving domestic technology

§Creating jobs for domestic labor

§ Building up capacity of human resource and training institutions

§ Repatriate of their profit can be not carried out if the tax policy of theirCountry is inconvenient.


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6 Population Growth and the Eco





6. Population Growth and the Eco.Development§ Basic theory of production function

p X = f (L, C, R)

§ x = Output§ f = Function

§ L = Labor

§ C = Capital

§ R = Natural resources

§ P = Populationp Production function in the relation to the population

§ X/P = f ( L/P, C/P, R/P)


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6. Population Growth and the Eco.Development§ Effects population growth on the labor

factorp X/P = f ( L/P, C/P, R/P)

§ Population growth will occur increasing the potential of labor

§ But increasing of labor depends on the mortality rate

§ The Effects on GDP by the population growth depend onthe productivity of those people

§ If those productivity is 0, it means that GDP will bestable and the per capita will be reduced.

§ If those productivity is not 0, it means that GDP willincrease and thus the per capita will also increase.


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6. Population Growth and the Eco.Development

§ Effects population growth on the Capitalp X/P = f ( L/P, C/P, R/P)§ Capital coming from state and household is needed to

provide the food, education and training§ Reducing capital which planed to invest other productive

sector

§ As deficiency of capital to build up the capacity of theyoung generation it can appear in the future that theycan not be efficiently used for the Country s production,

because of unemployment s issues, deficit moral andunderstanding of the ethnic, and the mortality etc.

§ Building up of capital or capital accumulation will bereduced accordingly

§ Finally, GDP or per capita will be reduced


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6. Population Growth and the Eco.Development§ Effects population growth on natural

resourcesp X/P = f ( L/P, C/P, R/P)

§ Population growth in Developing Country did not meanthat in the reality the natural resource will be grown up.

§ Oft, population growth in this Country causes inupgrading the natural resources.

§

The reasons of upgrading natural resource by thepopulation growth are increasing to use energy, forest,land, water and other material equipment.

§ Increasing the above using will bring the natural disasterlike land erosion, flooding, drying etc.


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6. Population Growth and the Eco.Development§ Effects population growth on international

tradep It can be positive as well negative effects on the

international trade.

p Positive effects can exist, if till now the domesticproductions for the export in the Country seem tointensively need the labor.

p Negative effects will exist, because demand of theCountry will be increased which can causes to reducethe export of those goods as well the export revenuefor the Country.


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6. Population Growth and the Eco.Development§ Conclusion of effects of the population growth

for the eco. developmentp Negative effect on using capital and natural resources

p Positive effect regarding the labor

p But Economist named Clark criticized that it can not believe the myth that said the population growth can bring thenegatively affects on the eco. development.

p Clark found for his empirical research which didn t find the

correlation between the population growth and increasingper capita.

p The finding of his research was not found any Country withthe low population growth that has increasing per capita.




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Asean-lecture of Chan Bonnivoit

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