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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).
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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 .
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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
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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).
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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
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The welfare lost of the tariffs imposed bylarge Country
P
PW
X0
S
P = PW+T
D
Tariff (T)
Q3 Q4 Q2
P
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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
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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
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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
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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.
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Imports (MT)Imports (MT)Quota volumeQuota volume
Applied duty %Applied duty %
Tariff Quotas or Tariff Rate Quotas
Out-of-quotatariff
In-quotatariff
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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.
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§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
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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
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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
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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)
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§ 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
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§ 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
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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
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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 ?
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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
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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
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§ 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
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Non-tariff barriers
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§ 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
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§ Disclosure
DEFINITION
§ Patentable subject matter
§ Industrial applicability
§ Novelty
§ Inventive Step
Patents
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§ NO if dictated purely by the function
§ NO if contrary to public order and morality
§ Industrial
§ New (Worldwide)
Main Characteristics of Industrial Design
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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
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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
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VolumeQ
FixedCost
TotalCost
Revenue
Break-EvenPoint
C o
s t a n d
R e
v e n u e
Variable
Cost
Profit
Loss
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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
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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
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§ 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
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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
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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
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2. ASEAN Trade Cooperation
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.
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2. ASEAN Trade Cooperation
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.
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2. ASEAN Trade Cooperation
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)
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2. ASEAN Trade Cooperation
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
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2. ASEAN Trade Cooperation
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.
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2. ASEAN Trade Cooperation
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2. ASEAN Trade Cooperation
Cambodian Schedules of Tariff Rate in ASEANCambodian Schedules of Tariff Rate in ASEAN
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Tariffication
r Tariff
r NTM
Conversion
Tariff equivalent
Bind Reduce
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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
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2. ASEAN Trade Cooperation
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2. ASEAN Trade Cooperation
Effects of AFTA
1. Effects on ASEAN s Country Industries
2. Effects on ASEAN s CountryInvestments
3. Effects on ASEAN s Country Trade
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2. ASEAN Trade Cooperation
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.
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2. ASEAN Trade Cooperation
Effects on Industries
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2. ASEAN Trade Cooperation
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.
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2. ASEAN Trade Cooperation
§ Effects on ASEAN Investment : Investments in Cambodia byCountry 1994-1st Half 2006
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2. ASEAN Trade Cooperation
Effects on ASEAN Investment: Investments by Sector(1994-1st Half 2006)
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2. ASEAN Trade Cooperation
Effects on ASEAN Trade
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3. ASEAN Cooperation in Services
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.
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3. ASEAN Cooperation 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
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3. ASEAN Cooperation in Services
At present, ASEAN has concluded 5packages of commitments under ASEAN
Framework Agreement on Services(AFAS) through 4 rounds of negotiationssince 1 January 1996.
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3. ASEAN Cooperation in Services
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
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3. ASEAN Cooperation in Services
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.
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3. ASEAN Cooperation in Services
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.
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3. ASEAN Cooperation in Services
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
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3. ASEAN Cooperation in Services
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)
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3. ASEAN Cooperation in Services
nMARKET ACCESS
Absence of quota-type and similar restrictions
n NATIONAL TREATMENTNon-discrimination with regard to all measuresaffecting the supply of a service
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3. ASEAN Cooperation in Services
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
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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
(4) Unbound, except as indicated in
the horizontal section.
(1) None
(2) None
(3) None
(4) Unbound, except as indicated
in the horizontalsection.
(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
(4) Unbound, except as indicated in
the horizontal section
(1) None
(2) None
(3) None
(4) Unbound, except as indicated
in the horizontalsection.
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3. ASEAN Cooperation in Services
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3. ASEAN Cooperation in Services
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3. ASEAN Cooperation in Services
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4. Other ASEAN Cooperation
Cooperation in Investment
Industrial Cooperation
Cooperation in Transport
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4. Other ASEAN Cooperation
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.
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Investment Environments or Investment
Climates:
Political situationEconomics (inflation, interest rate, exchangerate, balance payment, trade barriers,productivity)
Market psychology and consumer confidence
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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.
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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
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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
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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
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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)
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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.
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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
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4. Other ASEAN Cooperation
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;
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4. Other ASEAN Cooperation
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.
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4. Other ASEAN Cooperation
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.
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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.
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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
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Financial Intermediaries
p Financial intermediaries are financialinstitutions through which savers canindirectly provide funds to borrowers.
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Financial Intermediaries
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.
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Financial Intermediaries
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.
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Financial Intermediaries
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)
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4. Other ASEAN Cooperation
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.
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4. Other ASEAN Cooperation
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.
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4. Other ASEAN Cooperation
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4. Other ASEAN Cooperation
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.
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4. Other ASEAN Cooperation
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.
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4. Other ASEAN Cooperation
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
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4. Other ASEAN Cooperation
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
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Trade Facilitation
è Making trade procedures as efficientas possible through the rationalizationof procedures, documentation, andinformation flows
First approach
Trade Facilitation
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Trade Facilitation
Customs
Fees and
Formalities
Transit
of Goods
Trade
Regulations
Trade
Facilitation
Elements
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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
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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
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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
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Preference
ASEAN Integration System of
Preference (AISP) Similar to Generalized System of
Preference (GSP).
Bilateral basis and based on
products proposed by newmembers.
5. ASEAN Integration System of
P f
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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.
5. ASEAN Integration System of
P f
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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
5. ASEAN Integration System of
P f
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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.
5. ASEAN Integration System of
P f
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Preference
Criteria for granting AISP: Products items
Tariff rate
Duration
Rules of Origin
Suspension of AISP
Review
5. ASEAN Integration System of
P f
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Preference
Product Items:
Granting preferential privileges
by bilateral arrangement withindividual list of products beinggranted privileges for eachCountry
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5. ASEAN Integration System of
P f
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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.
5. ASEAN Integration System of
P f
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Preference
Rule of Origin: Agriculture products (chapter 01-
24) and agricultural productscommit to WTO, such as cottonchapter 52, silk chapter 50.
Non-agricultural products
5. ASEAN Integration System of
P f
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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.
5. ASEAN Integration System of
P f
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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.
5. ASEAN Integration System of
Pr f r
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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
5. ASEAN Integration System of
Preference
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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
5. ASEAN Integration System of
Preference
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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
5. ASEAN Integration System of
Preference
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Preference
Review of AISP :
There will be annual review of AISP
5. ASEAN Integration System of
Preference
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Preference
5. ASEAN Integration System of
Preference
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Preference
6 ASEAN Vision 2020
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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
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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.
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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.
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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
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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).
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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
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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.
7 ASEAN External Relations
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7. ASEAN External Relations
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).
7 ASEAN External Relations
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7. ASEAN External Relations
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
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7. ASEAN External Relations
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;
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7. ASEAN External Relations
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;
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7. ASEAN External Relations
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.
7 ASEAN External Relations
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7. ASEAN External Relations
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;
7. ASEAN External Relations
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7. ASEAN External Relations
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.
7. ASEAN External Relations
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7. ASEAN External Relations
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.?
7. ASEAN External Relations
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7. ASEAN External Relations
ASEAN-China (con t):
Special and differential treatment andflexibility to the new ASEAN Members.
Special preferential tariff treatment forsome goods from Cambodia, Laos andMyanmar.
7. ASEAN External Relations
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7. ASEAN External Relations
ASEAN-Japan: Joint Declaration on ASEAN-Japan
Comprehensive Economic Cooperation(2002 ASEAN Summit).
The Framework on ASEAN-JapanComprehensive Economic Cooperation(2003 ASEAN Summit).
7. ASEAN External Relations
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7. ASEAN External Relations
ASEAN-Korea:
Establishment of the ASEAN-Korea Experts Group toundertake the feasibility studyof the establishment of anASEAN-Korea FTA : in process
7. ASEAN External Relations
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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.
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2. Theoretical Interpretation of Economic
Development
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2. Natural Resources and Eco. Development§ Limitation of substitution of input factors
§ Natural Resources Raw materials
Land
Weather
Environment
2. Theoretical Interpretation of Economic
Development
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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.
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2. Theoretical Interpretation of Economic
Development
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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
2. Theoretical Interpretation of Economic
Development
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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.
2. Theoretical Interpretation of Economic
Development
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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.
2. Theoretical Interpretation of Economic
Development
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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.
2. Theoretical Interpretation of Economic
Development
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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.
2. Theoretical Interpretation of Economic
Development
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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%.
2. Theoretical Interpretation of Economic
Development
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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
2. Theoretical Interpretation of Economic
Development
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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
2. Theoretical Interpretation of Economic
Development
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3. Capital and Development (con´t)
§ 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.
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2. Theoretical Interpretation of Economic
Development
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3. Capital and Development (con´t)
2. Theoretical Interpretation of Economic
Development
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3. Capital and Development (con´t)
2. Theoretical Interpretation of Economic
Development
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3. Capital and Development (con´t)
2. Theoretical Interpretation of Economic
Development
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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
2. Theoretical Interpretation of Economic
Development
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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
Financial Intermediaries
Commercial Banks
Trade Banks
Development Banks
Cooperative Banks
Mutual Fund
Other Financial Market
Micro-Finances Institutions
Loan and Credit Associations
Insurances and Pension Funds
2. Theoretical Interpretation of Economic
Development
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3. Capital and Development (con´t)
§ 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.
2. Theoretical Interpretation of Economic
Development
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3. Capital and Development (con´t)§ Reasons of deficit of financial institutions
(con´t)
2. Theoretical Interpretation of Economic
Development
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3. Capital and Development (con´t)§ Reasons of deficit of financial institution (con´t)
2. Theoretical Interpretation of Economic
Development
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3. Capital and Development (con´t)§ Reasons of deficit of financial institutions
(con´t)
2. Theoretical Interpretation of Economic
Development
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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
2. Theoretical Interpretation of Economic
Development
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3. Capital and Development (con´t)
§ 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
2. Theoretical Interpretation of Economic
Development
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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.
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Development
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3. Capital and Development (con´t)
§ 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.
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Development
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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.
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Development
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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
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Development
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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
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Development
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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
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Development
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5. Development and international Economic
§ 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.
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Development
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5. Development and internationalEconomic
§ 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
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Development
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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.
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2. Theoretical Interpretation of Economic
Development
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§ 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
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Development
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§ 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
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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)
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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
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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 ?
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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.
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To start: some definitions
Technical Regulation
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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
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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
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Development
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5. Development and international Economic
§ 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
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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
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The welfare lost of a tariff imposed by a smallCountry base on the above figure.
Change in consumer surplus: - a$ - b$ - c$ - d$
Change in producer surplus : + a$
Change in government revenue: + c$
Net welfare change: - b$ - d$
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The Tariff
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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
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The welfare lost of a tariff imposed by a largeCountry base on the above figure.
Change in consumer surplus: - a$ - b$ - c$ - d$
Change in producer surplus : + a$
Change in government revenue: + c$ + e$
Net welfare change: - b$ - d$ + e$
Tariff escalation
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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
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2. Theoretical Interpretation of Economic
Development
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5. Development and internationalEconomic
§ 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.
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Development
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5. Development and internationalEconomic
§ 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.
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2. Theoretical Interpretation of Economic
Development
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5. Development and internationalEconomic
§ 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.
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Development
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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.
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Development
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5. Development and internationalEconomic§ Underdeveloped as the effects of declining
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.
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Development
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5. Development and internationalEconomic§ Underdeveloped as the effects of declining
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.
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Development
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5. Development and internationalEconomic§ Underdeveloped as the effects of declining
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.
2. Theoretical Interpretation of Economic
Development
l d i i l
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5. Development and internationalEconomic§ Underdeveloped as the effects of declining
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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Development
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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.
2. Theoretical Interpretation of Economic
Development
l d i i l
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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.
2. Theoretical Interpretation of Economic
Development
l d i i l
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5. Development and internationalEconomic§ Effects of instability of export revenue (con t)
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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Development
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5. Development and internationalEconomic§ Effects of instability of export revenue (con t)
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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2. Theoretical Interpretation of Economic
Development
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5. Development and internationalEconomic§ Effects of instability of export revenue (con t)
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.
2. Theoretical Interpretation of Economic
Development
5 D l t d i t ti l
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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.
2. Theoretical Interpretation of Economic
Development
5 Development and international Economic
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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.
2. Theoretical Interpretation of Economic
Development
5 Development and international Economic
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5. Development and international Economic§ Underdevelopment as the effects of international
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
2. Theoretical Interpretation of Economic
Development
5 Development and international
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5. Development and internationalEconomic
§ 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
2. Theoretical Interpretation of Economic
Development
5 Development and international Economic
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5. Development and international Economic§ Underdevelopment as the effects of international
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.
2. Theoretical Interpretation of Economic
Development
6 Population Growth and the Eco
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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)
2. Theoretical Interpretation of Economic
Development
6 Population Growth and the Eco
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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.
2. Theoretical Interpretation of Economic
Development
6 Population Growth and the Eco
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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
2. Theoretical Interpretation of Economic
Development
6 Population Growth and the Eco
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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.
2. Theoretical Interpretation of Economic
Development
6 Population Growth and the Eco
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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.
2. Theoretical Interpretation of Economic
Development
6 Population Growth and the Eco
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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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