Asean-Lecture of Chan Bonnivoit

ASEAN ECONOMICS
Prepared by
MSc. Chan Bonnivoit
For
Norton University
TABLE OF CONTENTS
I. Background of ASEAN Country
1. ASEAN Overview
2. ASEAN Trade Cooperation
3. ASEAN Cooperation in Services
4. Other ASEAN’s Cooperation
5. ASEAN Integration System of Preference
6. ASEAN Vision 2020
7. ASEAN External Relations
II. Theoretical Interpretation of Economic Development
8. Grouping the Country Group in the Reality
9. Natural Resources and Eco. Development
10. Capital and Development
11. Social and political conditions and eco. Development
12. Development and international Economic
13. Population Growth and the Eco. Development
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, social
and culture in the region through
cooperation.
p defend political and economical stability in

the region.
p forum to solve the conflict among the

members.
1. ASEAN Overview
4. ASEAN Structure
• ASEAN Summit: The Leaders of the ASEAN
Countries meet officially in every 3 Years to
set up direction and initiative of ASEAN
activities.
• ASEAN Ministerial Meeting (AMM): Meeting of

foreign Minister of the Member Countries in
every year to prepare the policy of ASEAN
and to coordinate the ASEAN activities.
1. ASEAN Overview
• ASEAN Economic Ministers (AEM):
– Like AMM the Minister of Economics of the Member
Countries meet in every year to supervise, coordinate
and review CEPT scheme.
– Both AMM and AEM report to the leader of ASEAN
Countries for the ASEAN Summit.
• Sector Ministers Meeting:

– In the Sectoral Minister Meeting are participated by
the sectoral Minister of the ASEAN Members who
have responsibility for Industry and Energy and
Agriculture and Forestry.
– Sectoral Ministers meet together only for the
important issues and report to the AEM.
1. ASEAN Overview
• Other Ministers Meeting:
n Other Ministers having responsibility for
Health, Environment, Labor and Social,
Education and Science, Technology,
Information, Justice and Law meet
together for important issues in order to
prepare the cooperation programs.
n Result of the meeting is directly reported to

the leader of the ASEAN members.
1. ASEAN Overview
• Joint Ministerial Meeting (JMM):
n JMM established in 1987 and have
responsibility a cross sectoral coordination.
n In JMM would be participated by the officials

from foreign affair and economic ASEAN and
chaired by the chief of AMM and AEM.
n JMM can be initiated by Minister of Foreign

Affairs or Ministry of Economic and would be
met before the ASEAN Summit.
1. ASEAN Overview
• Secretary General of ASEAN:
n Raise the initiative concerning with the coordination and

implementation of ASEAN activities.
n These responsibilities was renewed during the amendment of

agreement on establishing of ASEAN secretariat at 22 July
1992.
n The new responsibility of Secretary General is responsible for

the ASEAN Summit and for every ASEAN ministerial meeting,
and for the ASEAN standing committee.
n Secretary General chairs all meeting of the ASEAN standing

committee on behalf of the president of ASEAN standing
committee, 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 the

period between one AMM to an other AMM.
n ASC which directly reports to AMM comprises of the

President as Foreign Minister hosting AMM, ASEAN
Secretary General and Director General of all ASEAN
Countries.
n In a position as advisory board for the permanent

committees ASC reviews the activities of all committees
to implement the policy adopted by AMM.
1. ASEAN Overview
• Senior Officials Meeting (SOM)
n SOM officially existed as a part of the ASEAN
mechanism in ASEAN Summit 1987 in Manila.
n To be responsible for the cooperation policy

ASEAN SOM meets in a necessary time and
reports directly to AMM.
1. ASEAN Overview
• Senior Economic Officials Meeting (SEOM):
n 5 Economic Committees (committee on finance and
banking, committee on food, agriculture and forestry,
committees on industry, mine and energy, committee on
transport and communication and committee on trade
and tourist) was finished in 4rt ASEAN Summit.
n Since them SEOM is existed.
n SEOM has responsibility for the economic cooperation issues.
n SEOM meets regularly and reports direct to AEM.

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 Secretary
General, SOM, SEOM and all ASEAN General
Directors.
n JCM coordinate technical activities of the level

of ordinary officials.
n Secretary General reports the results to AMM

and AEM.
1. ASEAN Overview
• ASEAN National Secretariat
n Member of ASEAN has own national secretariat
in the Ministry of Foreign Affairs.
n Preparing and implementing the activities

relating to ASEAN in the national level.
n Having one General Director.

1. ASEAN Overview
• ASEAN Secretariat:
n Being a institution responding comprehensively
to initiate, advise, facility and implement the
ASEAN activities.
n Having offices: General Working Office,

Economic Cooperation Office, Sectoral
Cooperation 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 activities

and seeks the advises or recommendation
from ASC.
• 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 through

rounds of negotiations.
n To expand trade among the members through cooperation on

basic 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.
• Cooperation in trade in goods: ASEAN
Free Trade Area (AFTA)
n The most important move was made in 1992.
n The framework agreement on enhancing

economic cooperation was adopted which
included the launching of a scheme towards an
ASEAN Free Trade Area or AFTA.
• 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 through
elimination of tariffs and non-tariff barriers
among 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 a

fixed amount of money per unit sold.
• Ex: 14 cents on each pound of imported fertilizer.
• Compound tariff: a trade tax that has both

a specific and an ad valorem.
• Ex: 19 cents per pound plus 18.5 percent ad
valorem on imported cashmere sweaters.
Tariff (Schedules of concessions for WTO Members)
The Tariff
• MFN (most favored nation):
• If any other Country grants another Country MFN
status, it agrees to charge tariffs against that
Country’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 lower
tariffs on goods from Developing Countries
The Tariff
• GSP (general system of preference) (con’t)
• Importers in the preference granting Countries

such a the United States will have an incentive to
expand their purchases from the preference
receiving Countries.
• In turn, expanded exports should improve the

standards of living for the Countries ( and raise
demand for imports from industrialized Countries
such as the United States).
(Schedules of concessions for WTO Members)
Structure
Part I MFN Rates
State
A
Section I Agricultural Products
of Tariff Concessions
IA Duties
Tariff Rate Quotas
Schedule
IB
Section II Other Products
Part II Preferential rates
Part III Non--tariff Concessions

Non
Part IV Subsidies
• The welfare lost of the tariffs imposed by
small Country
P S
PW+T
a b c d Tariff (T)
PW
0 Q3 Q4 Q2 X
large Country
P S
P’= PW+T
Tariff (T)
PW
P’’
D
0 Q3 Q4 Q2 X
• The welfare lost of the tariffs by the large
Country
SB + Tariff
PA PW PB
SA
Tariff SB
P’ SB
a c
PW PW PW
e
P’’ b d
P’’
DA DB
DA
XA L1 L0 XW XB
Country A: Market large World Market Country B: Market small

Country Country
Non-tariff barriers
• Quota:
• Government imposed the limitation on the

volume or value of international trade.
• Quota rent: Profit that come about, because a

quota has artificially raised the price of imported
products.
• Quota occurs the loss of the consumers

5. Non-tariff barriers and argument for
protection
• The welfare Effects of the Quota
P SM
SM + Quota
Quota (Q1 + Q2)
PM+Q
a b C1 C2 d
PW
0 Q1 Q2 X
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.
Tariff Quotas or Tariff Rate Quotas
Applied duty %
Out-of-quota
tariff
In-quota
tariff
Quota volume Imports (MT)

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 limit
the amount of their export.
• Through this agreement these foreign industries

are able to raise their prices.
Non-tariff barriers: Export subsidy
§Financial Contribution by Government as Examples
— Grants — Provision of goods or

— Loans services other than
general infrastructure
— Loan guarantees
— Purchase of goods
— Tax credits
— Income or price
— Tax exemptions supports
— Import duty — Gov’t entrusts or
exemptions on capital directs private body
equipment used to carry out above
functions
Pillars of the Agreement on Agriculture
Market Domestic Export

Access Support Competition
Tariffication Amber Box Volume
Bindings AMS Reduction Reduction
Reductions
Market Access Blue Box
Production Limiting Value Reduction
Tariff Rate Quotas
Programmes
Special Roll-over
Green Box
Safeguard Non Trade Distorting
Amber box
Calculating the Current Total AMS
Annexes 3 and 4
l Market price support
Product-specific l Compensatory payments
support l Product-specific
+ subsidies
l Fertilizers
Non-product specific
l Irrigation, drainage
support
l Electricity
l Subsidized credits
= Current Total AMS
Blue box
Partial “decoupling”
Direct payments under production-limiting
programmes
not subject reduction commitment if:
n based on fixed area and yields; or
n made on 85% or less of base level of
production; or
n livestock payments are made on a fixed
number of heads
Green Box
Policy coverage (Annex 2)
Government services Direct payments

- general services - natural disaster relief
-examples? - structural adjustment
- public stockholding -producer or resource
- domestic food aid retirement programme
- other ... - environmental

- regional assistance
-other ...
Non-tariff barriers
§ 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 contingent (e) favourable internal transport

on export performance and freight charges for
(b) sale or disposal for export exports
by gov’t at price below (f) subsidies on ag. Products
domestic market contingent on incorporation
(c) payments on exports in exported products
financed by gov’t action
(d) marketing subsidies,
including handling,
upgrading, transport, freight
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 to

offset the subsidized export goods.
§ Government procurement policies:

• Direct purchasing agents of state and local
government to purchase American product unless
comparable foreign good are substantially
cheaper.
Non-tariff barriers
§ Health and safety standard:
• Government often regulate the production and
distribution of products deemed (considered) to
be hazardous to the health and safety of their
Citizens.
• Some time, however, such standard provide a
mechanism to protecting domestic products from
the foreign competition.
• In example Japan bans importing of skis, because
of unsafely.
• Regarding the WTO agreements these non-tariff
barriers are described in the SPS (sanitary and
phyto-sanitary) and TBT (technical barriers to
trade) agreements.
Definition of an SPS Measure in WTO
Agreement
To protect : from :
risks arising from additives,

human or animal contaminants, toxins or disease-causing
life organisms
human life diseases carried by animals or plants
animal or plant pests, diseases or disease-causing

life organisms
damage caused by the entry,
a Country
establishment or spread of pests
What type of SPS’s measures ?
All types of measures with SPS objectives,
including :
p product criteria p inspection

p quarantine p sampling procedures
treatments p packaging and
p production methods labelling directly
p certification and related to food
approval safety
The WTO’s TBT Agreement….
To start: some definitions
Technical Regulation
p "Document which lays down product characteristics
or their related processes and production
methods...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 procedure
p Any procedure used, directly or indirectly, to determine that
relevant requirements in technical regulations or standards
are fulfilled
Scope of the TBT Agreement
All industrial and agricultural products

Article 1
But does NOT apply to:
- sanitary and phytosanitary measures

- regulations and standards related to
services
- purchasing specifications for production
or consumption of governments
Non-tariff barriers
§ Protect intellectual property right:
• Defined as the innovative or creative ideas of

inventors, artists or authors.
• Patent, copyright and trademark laws exist to

provide incentive to create intellectual property
by ensuring that the owners of the intellectual
property maintain exclusive control over these
ideas at least for a certain period of time.
Non-tariff barriers
§ Protect intellectual property right:
• Patent allows inventors the opportunity to

recover their investment and the cost of creating
and marketing inventions.
• Copyright give authors to control over the

reproduction, dissemination and public
performance of their work.
• Trademark assures consumers about the product

characteristics 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 product
originates in a given country/region/place and its
quality, reputation or other characteristic are
essentially due to its geographical origin.
• Industrial design is aesthetic shape (ex. Model of

shirt) of mass-produced products.
• Neigbouring right is Performers, Phonogram

Producers and Broadcasting Organizations.
Copyright
Fields Protected:
§ Literary Works
§Musical Works
§Artistic Works
§Photographic Works
§Cinematographic Works
§Maps
§Computer Programs
§Works of Applied Art
Patents
DEFINITION
§ Patentable subject matter

§ Industrial applicability
§ Novelty
§ Inventive Step
§ Disclosure
Main Characteristics of Industrial Design
§ Industrial
§ New (Worldwide)
§ NO if dictated purely by the function
§ NO if contrary to public order and morality

Non-tariff barriers
• Dumping:
• Defined a selling a product in a foreign Country at

a price that is lower than the price charged by
the same firm in its home market or at a price
below 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 profits
from 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)
Revenu
e
Total
Profit
Break-Even Cost
Revenue
Cost and
Point
Fixed
Cost
Loss
Variable
Cost
Q
Volume
Non-tariff barriers
Definition of Dumping base on WTO agreement
§ Dumping = when a product is sold for export to
another 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 a
reasonable amount for selling, general and
administrative expenses and profit.
Non-tariff barriers
§ Antidumping law:
• Dumping margin: The difference between the

normal value of a product and its dumped price.
• Injury test: Investigation to determine the cause

of the foreign trade practice to harm a domestic
producer.
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
Non-tariff barriers
§ Safeguard:
• A measure trade law that allows for

temporary protection (5 years) against fairly
trade foreign import.
• Reason for using this measure is trade

adjustment in the domestic producers.
• But for using this measure it should be

investigated the injury of the domestic
industry through the foreign products.
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 increased
quantities
§ As to cause or threaten to cause
§ Serious injury to the domestic industry
§ Producing “like products” or directly competitive
products
… 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
“New” Safeguard Measures
— Maximum duration
— 4 years
— Extension (max. + 4 years)
— Compensation
— In principle (agreement on compensation)
— If no agreement :
— “retaliation”
— not within the first 3 years (if absolute increase in
imports)
• Agreement on the common effective
preferential tariff (CEPT) scheme for AFTA
n Ultimate Goal : 0% tariff rate in 2010 for

ASEAN- and 2015 (2018) for new members
Countries.
The common effective preferential tariff

(CEPT) is a mechanism to achieve the
AFTA’s target by reducing import tariff
rates and eliminating quantitative
restriction and non-tariff barriers among
ASEAN 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 Scheme
1. 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 Program

p 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 Rattan
Furniture, Vegetable Oils, Chemicals,
Pharmaceuticals, Plastics, Rubber
Products, Ceramics and Glass Products
and Copper Cathodes.
Cambodian Schedules of Tariff Rate in ASEAN
“Tariffication”
r Tariff Bind Reduce
r NTM Tariff equivalent
Conversion
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 Country

Investments
3. Effects on ASEAN’s Country Trade

• Effects on Industries
n Providing exporters with access to raw materials and
intermediate inputs at world market prices. For example,
membership in ASEAN and the bilateral trade and investment
protection agreement with China allows Cambodia to import
fabrics from ASEAN countries or from China to produce
garments for the US or EU market.
n Cambodia’s textile and garment industry well illustrates the role

of exports and investment in generating employment and
helping to reduce poverty. More than half the current 300,000
skilled and unskilled jobs in the industry have been created
during the past five years, making the industry by far the
largest 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 1995
to 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 and
industrial knowledge. Cambodia has much to learn
from the foreign firms that know foreign markets the
best and possess the technology, managerial
experience, and marketing channels that are needed
to export successfully.
n From the most open policy to other Countries in the

region and to the World, Cambodia’s investment
sector can be seen as a dynamic sector benefiting
from the liberal policy, and it is being interested by the
foreign investors from the region and the world,
including from the ASEAN Countries.
§ Effects on ASEAN Investment : Investments in Cambodia by
Country 1994-1st Half 2006
• Effects on ASEAN Investment: Investments by Sector
(1994-1st Half 2006)
• Effects on ASEAN Trade
• Effects on Export
• ASEAN Framework Agreement on Services
(AFAS) singed in 1995.
• Objectives of AFAS are following:
1. To enhance cooperation in services amongst member

states.
2. To eliminate substantially restrictions to trade in
services amongst member states.
3. To liberalize trade in services beyond the GATS with
the aim to realizing a free trade area in services.
• Services Sector:
• BUSINESS SERVICES
• COMMUNICATION SERVICES
• CONSTRUCTION AND RELATED ENGINEERING
SERVICES
• DISTRIBUTION SERVICES
• EDUCATIONAL SERVICES
• ENVIRONMENTAL SERVICES
• FINANCIAL SERVICES
• HEALTH RELATED AND SOCIAL SERVICES
• TOURISM AND TRAVEL RELATED SERVICES
• RECREATIONAL SERVCES
• TRANSPORT SERVICES
Cambodia’s Service Commitments for
Accession into WTO (for hyperlink)
p Undertaken market access and national treatment commitments in at least one sub-
sector under each of 11 different service which are business services, communications
services, construction and related engineering services, distribution services, education
services, environmental services, financial services, health-related services, tourism
and travel services, recreational services and transport services.
p Allowing foreign firm to operate in the areas of legal services (with some exceptions),
accounting, auditing, bookkeeping, banking, management consulting,
telecommunication and transport, but some conditions were attached to market access
in areas of financial services (banking and insurance) and telecommunication services.
p Allowing foreign firms to provide higher education and adult education services.
p Reserving part of a market for Cambodian small and medium sized enterprise in areas
such as banking, tourism and courier service (tourist guides services; opening hotel
market only for hotels of three stars or higher; and allowing foreign supply of retailing
services only a small number of specific items or for very large supermarkets or
department stores.
• At present, ASEAN has concluded 5

packages of commitments under ASEAN
Framework Agreement on Services
(AFAS) through 4 rounds of negotiations
since 1 January 1996.
• These 5 packages consist of the
following:
• 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
§ These 5 packages consist of the following
(con’t):
• Round 3 (2002-2004)
• 4th package, signed on 3 Sep 2004 in Jakarta
• Round 4 (2005-2006)
• 5th package, signed on 8 Dec 2006 in Cebu, the
Philippines.
• Services Sector:
• BUSINESS SERVICES
• COMMUNICATION SERVICES
• CONSTRUCTION AND RELATED ENGINEERING
SERVICES
• DISTRIBUTION SERVICES
• EDUCATIONAL SERVICES
• ENVIRONMENTAL SERVICES
• FINANCIAL SERVICES
• HEALTH RELATED AND SOCIAL SERVICES
• TOURISM AND TRAVEL RELATED SERVICES
• RECREATIONAL SERVCES
• TRANSPORT SERVICES
ASEAN has concluded its negotiations on

the third package of commitments for
the liberalization of services. The
package includes commitments in 7
areas: business services, construction,
financial services, telecommunication,
tourism, air and maritime transport.
q The ASEAN Economic Ministers adopted the Protocol to
implement the third package of commitments under the
ASEAN framework agreement on services on 31
December 2001.
q The ASEAN Economic Ministers also launched the third

round of negotiations beginning on 1 Jan 2002 and
ending on 31 Dec 2004. The third round is meant to go
beyond 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 (Market
access of services):
n Cross border supply
n Consumption in abroad
n Commercial present
n Movement of natural person

Mode Presence of Form of Delivery Examples
supplier
Cross border From abroad into Telecommunications, mail,

supply the territory of the services incorporated in
Member goods
Consumption No Delivery outside Movement of consumer or
abroad the territory of the property abroad (e.g.
Member tourism, ship repair)
Commercial Through local Corporations, joint ventures,
presence establishment of representative offices, etc.
legal entities
Presence of Yes Through physical Consultants, doctors,
natural persons presence of service lawyers, interpreters, etc.
supplier (including employees)
n MARKET ACCESS
Absence of quota-type and similar restrictions
n NATIONAL TREATMENT
Non-discrimination with regard to all measures
affecting 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
Meaning of “limitations”?
Scheduling of a sector does not imply that
trade (i.e. MA and NT) must be liberalized for
all modes. Rather, commitments may vary
within a spectrum between:
“unbound” = no commitment
“none” = no limitation (full commitment)
Modes of supply: 1) Cross-Border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or sub-sector Limitations on market access Limitations on national treatment Additional commitments
B. SECTOR-SPECIFIC COMMITMENTS
I. BUSINESS SERVICES
1. Professional Services
(a) Legal services (1) None (1) None
(CPC 861): (2) None (2) None
(3) In commercial association with (3) None
Cambodian law firms[1], and may not (4) Unbound, except as indicated
directly represent clients in courts. in the horizontal section.
(4) Unbound, except as indicated in
the horizontal section.
Foreign legal consultancy (1) None (1) None
on law of jurisdiction where (2) None (2) None
service supplier is qualified as a (3) None (3) None
lawyer (including home country (4) Unbound, except as indicated in (4) Unbound, except as indicated
law, third country law, and the horizontal section. in the horizontal section.
international law)
(b) Accounting, auditing, (1) None, except must have (1) None
bookkeeping commercial presence in Cambodia for (2) None
(CPC 86211, 86212, 86220) auditing services. (3) None
(2) None (4) Unbound, except as indicated
(3) None in the horizontal section.
(4) Unbound, except as indicated in
the horizontal section
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 area
with a more liberal and transparent investment
environment amongst member states.
n To ensure that the realization of the above objectives

would contribute towards free flow of investments by
2020.
Investment Environments or Investment
Climates:
− Political situation
− Economics (inflation, interest rate, exchange
rate, balance payment, trade barriers,
productivity)
− Market psychology and consumer confidence
Government intervention & factors
influenced
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) and
monetary 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
Under Floating Exchange Rates
e LM* LM*'
e LM*
+DG, or –DT Þ +DM Þ
+De, no DY -De, +DY
IS*
IS* IS*'
Income, Output, Y Income, Output, Y
When income rises in a small open economy, due to When the increase in the money supply puts downward
the fiscal expansion, the interest rate tries to rise but pressure on the domestic interest rate, capital flows out
capital inflows from abroad put downward pressure as investors seek a higher return elsewhere. The capital
on the interest rate.This inflow causes an increase in outflow prevents the interest rate from falling. The
the demand for the currency pushing up its value outflow also causes the exchange rate to depreciate
and thus making domestic goods more expensive making domestic goods less expensive relative to
to foreigners (causing a –DNX). The –DNX offsets foreign goods, and stimulates NX. Hence, monetary
the expansionary fiscal policy and the effect on Y. policy influences the e rather than r.
ExSekag IS (The IS Curve)
esdækic©ebIkcMhr (Open Economy)

p eBlEdlbBa©ÚlRbeTseRkAeTAkñúgKMrUrbs;eyIg enaHcMnUllMnwgGacsresrdUcxag
eRkam ³
a + I0 + G0 + EX0 – IM0 – bTx0 + bTr0 - bi
Y=
1- b + bt + m
(b)
An increase in the interest E
rate (in graph a), lowers Y=E
planned investment, Planned Expenditure,
which shifts planned E=C+I
expenditure downward (in
graph b) and lowers
income (in graph c).
Income, Output, Y
(a) (c)
r r
I(r) IS
Investment, I Income, Output, Y
Political conditions
• Internal, regional, and international political conditions and events can

have a profound effect on currency markets.
• All exchange rates are susceptible to political instability and

anticipations about the new ruling party. Political turmoil and
instability can have a negative impact on a nation's economy. For
example, destabilization of coalition governments in Pakistan and
Thailand can negatively affect the value of their currencies.
• Similarly, in a country experiencing financial difficulties, the rise of a

political 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 negative

interest in a neighboring country and, in the process, affect its
currency.
Market psychology
Market psychology and trader perceptions influence the

foreign 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 and
regulations of each Member State;
p (iv) claims to money or to any contractual performance related to a business and
having financial value ;
p (v) rights under contracts, including turnkey, construction, management, production or
revenue-sharing contracts; and
p (vi) business concessions required to conduct economic activities and having financial
value 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 in
which assets are invested or reinvested shall not affect their classification as
investment;
The AIA’s features :
• National treatment and opening up of all
industries for investment to ASEAN
investors by 2010, and to all investors
by 2020, subject to the exceptions
provided for under the agreement
through a Temporary Exclusion List
(TEL) and a Sensitive List (SL), if any.
Cooperation in Investment (con’t):
• In 2000, AEM decided to accelerate the full

realization of the AIA for ASEAN investors in the
manufacturing, agricultural, forestry, fisheries
and mining sectors and services incidental to
those sectors.
• Full AIA realization for the sectors would be

advanced from 2002 to 2010 for 6 original
members and to 2015 for Cambodia, Laos and
Vietnam.
The AIA’s coverage :
• The protocol to amend framework agreement on the AIA
signed in 2001.
• The agreement covers all direct investments other than

portfolio investments, and matters relating to investment
covered by other ASEAN agreements.
• This agreement includes direct investments in the

following sectors and services incidental to such sectors:
• (a) manufacturing
• (b) agriculture
• (c) fishery
• (d) forestry
• (e) mining and quarrying
The Financial System
p The financial system consists of the group
of institutions in the economy that help to
match one person’s saving with another
person’s investment.
p It moves the economy’s scarce resources
from savers to borrowers.
FINANCIAL INSTITUTIONS
p Financial Markets
n Stock Market
n Bond Market
p Financial Intermediaries
n Banks
n Mutual Funds
p Other Financial Institutions
n Credit unions
n Pension funds
n Insurance companies
n Loan sharks
Financial Markets
p The Stock Market
n 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 financial
institutions through which savers can
indirectly provide funds to borrowers.
p Banks
n take deposits from people who want to save
and use the deposits to make loans to people
who want to borrow.
n pay depositors interest on their deposits and
charge borrowers slightly higher interest on
their loans.
p Banks
n Banks help create a medium of exchange by
allowing people to write checks against their
deposits.
p A medium of exchanges is an item that people can
easily use to engage in transactions.
n This facilitates the purchases of goods and
services.
p Mutual Funds
n A mutual fund is an institution that sells shares
to the public and uses the proceeds to buy a
portfolio, 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 direct
investment in such other sectors and services
incidental to such sectors as may be agreed
upon by all member states.
• Brunei Darussalam, Indonesia, Malaysia,

Myanmar, the Philippines, Singapore and
Thailand have until 1 January 2003 to phase
out their TEL for the manufacturing sector. The
newer members of ASEAN, Cambodia, Laos and
Viet 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 and

development globally in the area of services, the Ministers
agreed to work out the scope of expanding the AIA to include
services (such as, but not limited to education services, health
care, telecommunication, tourism, banking and finance,
insurance, trading, e-commerce, distribution and logistics,
transportation and warehousing, professional service such as
accounting engineering and advertising).
• To this end, the Ministers tasked the senior officials to

recommend future steps in expanding the scope of AIA to cover
those services sectors for final deliberation at a back-to-back
meeting of the ASEAN investment and economic Ministers in
April 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 cooperation
activities.
Industrial Cooperation:
• Waive the 30% national equity requirement
under AICO scheme during the period of 1999-
2000 to provide greater scope for industrial
cooperation in the region.
• ASEAN agreed to extend the waiving period

until 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, and
Singapore.
n By 1 Jan 2005 for the Philippines, Thailand
and Myanmar.
n By 1 Jan 2006 for Vietnam
Cooperation in Transport :
• ASEAN framework agreement on the facilitation
of goods in transit (1998).
• ASEAN framework agreement on the facilitation

of inter-state transport.
(for singing by 10th ASEAN Transport Ministers
Meeting in 2004).
• ASEAN framework agreement on the multimodal

transport.
(for singing by 10th ASEAN Transport Ministers
Meeting in 2004).
Trade Facilitation
First approach
è Making trade procedures as efficient
as possible through the rationalization
of procedures, documentation, and
information flows
Trade Facilitation
Elements
Transit Fees and
of Goods Formalities
Trade
Facilitation
Trade
Regulations Customs
Trade Facilitation
Existing WTO rules on TF
ª Art. V Freedom of Transit
ª Art. VIII Fees + Formalities connected

with Importation & Exportation
ª Art. X Publication and Administration

of Trade Regulations
Trade Facilitation
TF Rules in Other WTO Agreements
£ Customs Valuation Agreement

£ Agreement on Preshipment Inspection
£ Agreement on Import Licensing Procedures
£ Agreement on Rules of Origin
£ Agreement on Technical Barriers to Trade
£ Agreement on Sanitary & Phytosanitary Measures
Trade Facilitation
Trade facilitation features
p Simple procedures and forms (Import Licensing)

p Advance Rulings (Rules of Origin)
p Basic single window concept (Import Licensing)
p Enquiry Points (TBT, SPS Agreements)
p Use of existing international standards (TBT, SPS Agreements)
p Release of goods upon posting of guarantee (Customs
Valuation)
Basic principles
p Customs valuation based on the
actual price of the goods (generally that
shown on the invoice = transaction value)
p 6 Customs valuation methods

p 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
Preference
ASEAN Integration System of
Preference (AISP)
• Similar to Generalized System of
Preference (GSP).
• Bilateral basis and based on

products proposed by new
members.
Preference
AEM Retreat 3 - 4 May 2001 Cambodia
• ASEAN – 6 provide CLMV with
preferential privileges on bilateral basis
and unilateral principal.
• CLMV must inform ASEAN – 6 about

product items which need preferential
treatment.
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
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 not

obtain preferential privileges.
• Product items in SL of Thailand, which

have not been phased in IL, yet will not
obtain preferential privileges.
Preference
Criteria for granting AISP:
• Products items
• Tariff rate
• Duration
• Rules of Origin
• Suspension of AISP
• Review
Preference
Product Items:
Granting preferential privileges

by bilateral arrangement with
individual list of products being
granted privileges for each
Country
Preference
Tariff rate:
• Tariff rate for product items in
IL of CLMV is zero percent.
• Tariff rate for product in SL and

in TEL is 5% or MFN rate
whichever is lower.
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 to
be effective from 1 Jan 2002 to 31
Dec 2002.
Preference
Rule of Origin:
• Agriculture products (chapter 01-
24) and agricultural products
commit to WTO, such as cotton
chapter 52, silk chapter 50.
• Non-agricultural products
Preference
Rule of Origin (con’t): Agricultural
Products
• Apply the rule of wholly produced or obtained
applicable for goods which are made wholly
from domestic raw material.
• The value of raw materials from exporting

country and ASEAN Country is not less than
60% of total production cost.
Preference
Rule of Origin (con’t): Non-agricultural
Products
• Apply the rule of wholly produced or
obtained
• The value of raw materials from

exporting country and ASEAN Coutry
is not less than 40% of total
production cost.
Preference
The formula for calculating the RCV
shall be:
A- Build-Up Method
RVC = (VOM / FOB) x 100%
B- Build-Down Method
RVC = [(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
p The local ASEAN content can be
cumulative, that is, the value of inputs
from various ASEAN members can be
combined to meet the 40% requirement.
The following formula is applied:
p (Raw material cost + Direct labor cost +

Direct overhead cost + Profit + Inland
transport cost) x 100% FOB value
Preference
Suspension of AISP :
• Import value of products being granted
preferential privileges increases by 100%
• Complaint from domestic producers that

imports adversely affect domestic industries,
for example
n Declined market share
n Reduction of selling prices
n Increase of inventory
Preference
Review of AISP :
• There will be annual review of AISP

Preference
Preference
• A free flow of goods, services and

investments, a free flow of capital.
• Reduce poverty and socio-economic

disparity.
• Create equitable economic development

ASEAN Economic Community (AEC) :
• At the Bali Summit in Oct 2003, the ASEAN
Leaders signed the Declaration of ASEAN
Concord II to create an ASEAN Economic
Community (AEC).
• The establishment of the AEC will make ASEAN

a single market and production base, with free
flow of goods, services, investment, skilled
labor, and freer flow of capital by the year
2020.
AEC (con’t) :
• The AEC would be realized by strengthening
existing initiatives and building new initiatives
to enhance economic integration on a
progressive basis with clear timelines.
• To ensure concrete progress towards the AEC,

two key measures were adopted:
i. Institution of an effective dispute settlement system
by end-2004; and
ii. Acceleration of the integration of eleven priority
sectors.
AEC (con’t) :
• The Special Informal AEM, July 2003, Jakarta, Indonesia
• Priority Sector (11 Sectors)
• The 11 priority sectors and country coordinators are as

follows:
n Indonesia: Wood-based products and automotives
n Malaysia: Rubber-based products, textile and apparels
n Myanmar: Agro-based products and fisheries
n Philippines: Electronics
n Singapore: e-ASEAN and heath care
n Thailand: Air travel and tourism
AEC (con’t) :
• Future Developments
n Roadmaps on the integration of 11
priority sectors will be transcribed into
legally binding commitments to be
submitted to ASEAN Leaders for signing
in 2005.
n Vientiane plan of action to be adopted at

the 10 ASEAN Summit in Nov 2004 will be
successor to Hanoi Plan of Action (HPA).
AEC (con’t) :
p At the 12th ASEAN Summit in January 2007, the Leaders
affirmed their strong commitment to accelerate the
establishment of an ASEAN Community by 2015 as
envisioned in the ASEAN Vision 2020 and the ASEAN
Concord II, and signed the Cebu Declaration on the
Acceleration of the Establishment of an ASEAN
Community by 2015.
p In particular, the Leaders agreed to hasten the

establishment of the ASEAN Economic Community by
2015 and to transform ASEAN into a region with free
movement of goods, services, investment, skilled labour,
and freer flow of capital
p ASEAN ECONOMIC COMMUNITY BLUEPRINT.

ASEAN-CER :
• Ministerial Declaration on the AFTA-CER
closer economic partnership had been
signed by the Economic Ministers in
September 2002
• Work program covers barriers to trade,

standards, trade and investment
promotion and facilitation, e-commerce
and SMEs, fostering private sector
competitiveness etc.
ASEAN + 3 (China, Japan and Korea) Economic
Cooperation:
• Announced joint statement on East Asia
Cooperation.
• Ten areas for cooperation ranging from acceleration

of trade and investment to cooperation in various
international and regional for a..
• 4 Priority areas for cooperation identified (promotion

and facilitation of trade and investment;
encouraging technical cooperation in the areas of IT
and E-commerce; strengthening of SMEs and
supporting industries; and development of Mekong
Basin).
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 Free
Trade Area
Short-term Measures (17 Concrete
Measures)
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 Information
Network;
n Develop resources and infrastructure jointly for
growth areas and expand financial resources for
development with the active participation of the
private sector;
n Provide assistance and cooperation in four
priority areas: infrastructure, information
technology, human resources development,
and ASEAN regional economic integration;
n Cooperate through technology transfers and
joint technology development;
n Develop information technology jointly to
build telecommunications infrastructure and
to 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 resources
development program for East Asia;
n Establish poverty alleviation programs;
n Take concerted steps to provide access to primary
healthcare for the people;
n Strengthen mechanisms for cooperation on non-
traditional security issues;
n Work together with cultural and educational
institutions to promote a strong sense of identity and
an East Asian consciousness;
n Promote networking and exchanges of experts in the
conservation of the arts, artifacts, and cultural
heritage 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 medium
enterprises;
n Establish an East Asia Investment Area by
expanding the ASEAN Investment Area;
n Establish a regional financing facility;
n Pursue a more closely coordinated regional
exchange rate mechanism;
n Pursue the evolution of the ASEAN+3 Summit into
an East Asian Summit;
n Promote closer regional marine
environmental cooperation for the entire
region;
n Build a framework for energy policies and
strategies, and action plans; and
n Work closely with NGOs in policy consultation
and coordination to encourage civic
participation and state-civil society
partnerships 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 ten

years and approved at the ASEAN-China
Leaders Summit in 2001.
• Framework Agreement on ASEAN-China

comprehensive economic cooperation.
• ASEAN-China FTA will be established by 2010

for old Member Countries and 2015 for
Cambodia, Laos and Myanmar.?
ASEAN-China (con’t):
• Special and differential treatment and
flexibility to the new ASEAN Members.
• Special preferential tariff treatment for

some goods from Cambodia, Laos and
Myanmar.
ASEAN-Japan:
• Joint Declaration on ASEAN-Japan
Comprehensive Economic Cooperation
(2002 ASEAN Summit).
• The Framework on ASEAN-Japan

Comprehensive Economic Cooperation
(2003 ASEAN Summit).
ASEAN-Korea:
• Establishment of the ASEAN-
Korea Experts Group to
undertake the feasibility study
of the establishment of an
ASEAN-Korea FTA : in process
ASEAN-India:
By first ASEAN-India Summit (Nov 2002) the
Leaders agreed on several issues among others:
• Establishment of the ASEAN-India Task Force

on Economic Linkages :
To draft Framework Agreement to enhance
ASEAN-India Economic Cooperation
• Establishment of ASEAN-India FTA within 10

years
Framework Agreement on ASEAN-India
Comprehensive Economic Cooperation.
2. Theoretical Interpretation of Economic
Development
1. Grouping the Country Group in the

Reality
1. Grouping the Country Group by OECD
2. Grouping the Country Group by UN
• Industrial Country Group
• Transition Economic Group
• Developing Country Group
• Least Developed Country
• Most Seriously Affected Country
• New-Industrial Country
• Land Locked Country
Development

§ Limitation of substitution of input factors
§ Natural Resources
• Raw materials
• Land
• Weather
• Environment
Development

a. 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 use
those export revenue only to import the
consumption goods, not to import the goods for
building-up the industrial infrastructure in their
Countries.
Development

b. Land and Eco. Development
p Not efficient using of land, because of
• Problem of ownership of Land
• Lack of crop management
• Lack of land management
• Lack of irrigation system
• Lack of other technologies and know how
• Lack of public and private investment
• Lack of credit
• And so on
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
c. Weather and Eco. Development
• Most developed Countries located in the zone where
have a the moderated weather, namely having four
seasons 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 it
can create the conditions for the organism, virus,
bacteria etc. to spread their activities which can
hazardous the human and plant health.
• But Countries like Singapore and Malaysia locate also
in the inadequate weather zone, but such Countries
can be developed their economies, because the
Countries improved the health system and sanitary
measures for their people.
Development
d. Environment and Economic Development
• Urbanization, gas pollution, waster, migration
into the City, wood cutting etc. can hazard the
environment.
• But to use the environment in reproduction-able
manner for developing the Country economies
can not be destroyed the environment.
• Currently, most developing Countries and least
developed Countries in the World are taking into
account to use the environment in the
sustainable manner.
Development
1. Natural Resources and Eco.

Development
e. Conclusion
§ Having natural resources means that the Country
has the capacity to develop the economic of the
Country.
§ But it doesn’t means that it can determine the
level of economic development of the Country.
§ The economic development of the Country
significantly depends on the skill (human
resource) and the management of using natural
resources.
Development
3. Capital and Development

§ Effects of the Capital on the Eco.
Development
• Capital is the Motor.
• Adam Smith: “Capital accumulation is a

prerequisite to extend the national specialization
and the allocation of the resources which are a
basis to improve the Per Capita.”
• Production elasticity of the Developed Countries

is larger 2 time or 3 time than the production
elasticity 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 production

provides the share of the output from 50% to
70% of the output in comparing to the material
capital providing only from 30% to 50%.
Development

§ 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

§ Reasons of deficit of saving
• It can have a deficiency of capacity to save
Low Productivities Low Output
Low Capital
Low Per Capita
Equipments
Low Capital
Low Saving
Investment
Development

§ Reasons of deficit of saving (con´t)
• Deficit of willingness to save, because
of:
− Fluctuating interest rate that can not be
predicable
− Considering meta-economic which affects

on the comparison between the value of
current and future using of their capital.
Development

§ Reasons of deficit of investments
• Deficit of capacity to invest : It can be deficient
through deficit of following conditions:
− Policy
− Security
− Legal and judicial system
− Macro economics
− Market and marketing
− Consumer behaviors
− Internal Company issues
Development

Development

Development

Development

§ Reasons of deficit of investments
• It can have a deficit of willingness to invest
Low Productivities Low Output
Low Capital
Low Per Capita
Equipments
Low Capital Low Domestic

Investment Demand
Development

§ 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
Development

(con´t)
• It can have a deficit of quality of the financial
institutions:
− Insufficiency of liquidity ratios.
− Current ratios
− Acid-Test
− Problem of source of capital investments.
− Insufficiency of profitability ratios.
Development
(con´t)
Development

§ Reasons of deficit of financial institution (con´t)
Development
(con´t)
Development
§ Deficit of capital equipments of sub-population
− Balance sheet of household income
Debit Credit
- Expenditure for Consumption - GNP
- Investments : - Income from Assets
- Capacity Building - Income from Working
- Assets
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 up
the capacity
§ Having small land
§ Using only traditional equipments for their productions
§ Deficit of rural credits and investments
Development
§ Deficit of capital equipments of sub-
population (con´t)
§ To solve the problem of the deficit of capital
equipments of sub-population it doesn’t
actually have the experiences and theory,
because it is the complete issue affected by
the internal and external factors.
§ But by the side of other development policy
the re-distribution income policy, resource
allocation and specialization which often is
used by most Countries are successfully
instrument to diminish the problem.
Development

§ The reason of deficit of capital is
also 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 in
abroad.
Development
Þ Cambodian investment protection: The
investment law and sub-decree contains a
number of important guarantees for the
investors:
§ Equal treatment of all investors
§ No nationalization adversely affecting the
property 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 different
group of people
Development
5. Development and international

Economic
§ International economics means all
economical transactions between
households, privates and public of
one Country and household, privates
and public of an other Countries
Development
Imports (Debits) Exports (Credits)
§ Current Account: (M) § Current Account: (X)
§ Goods and services § Goods and services
§ Factor- and assets income § Factor- and assets income
§ Assets transfer (= transfer § Assets transfer (= transfer
account) account)
§ Aids, gifts etc. (= unilateral § Aids, gifts etc. (= unilateral
transfer) transfer)
§ Capital Account: (CM) § Capital Account: (CX)

§ Direct investments § Direct investments
§ Security purchase § Security purchase
§ Bank claims, liabilities, § Bank claims, liabilities,
obligations, etc. obligations, etc.
§ Government assets abroad § 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 case

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

the Country can use the surplus for public investment or
increasing the salary.
Development

Economic
§ Conditions of international trade
p Absolute price advantage
p Comparative price advantage
p Exchange rate
p Domestic Demand
p Cost and profit variation
§ Technology, salary, production factors, money supply
policy, 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 A
exports good 1 to B. (only with the stable exchange
rate)
§ 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 price
of goods trading and can change the direction of
trade.
§ Domestic demand for the product.
Development
Conditions of international trade (con’t)
§ Profit and cost variation
§ It depends on variation of production condition like
production factor, technology, salary, state policy
(tax and expenditure for infrastructure) and money
supply.
§ Tariffs and non-tariff barriers
§ Ad valorem, specific tax, compound tariff, MFN and
GSP.
§ Quota, voluntary restriction, SPS, TBT, subsidies,
safeguard and government procurement.
§ Location of export Country
§ Production diversifying in different areas can be
provided difference factor allocation as well salary.
Development
§ The table below will be illustrated Adam
Smith theorem before the Countries take
the measures to specialize the production.
Items Country A Country B The world

production
Soybean 3 h for producing 1 12 h for producing 2 units of soybean

unit of soybean 1 unit of soybean
Textile 6 h for producing 1 4 h for producing 1 2 units of textile

unit of textile unit of textile
Development
§ The table below will be illustrated David
Ricado theorem before the Countries take
the measures to specialize the production.
Items Country A Country B The world

production
Soybea 3 h for producing 12 h for 2 units of
n 1 unit of soybean producing 1 unit soybean
of soybean
Textile 6 h for producing 8 h for producing 2 units of textile
1 unit of textile 1 unit of textile
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 a

fixed amount of money per unit sold.
• Ex: 14 cents on each pound of imported fertilizer.
• Compound tariff: a trade tax that has both

a specific and an ad valorem.
• Ex: 19 cents per pound plus 18.5 percent ad
valorem on imported cashmere sweaters.
The Tariff (con’t)
• MFN (most favored nation):
• If any other Country grants another Country MFN
status, it agrees to charge tariffs against that
Country’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 lower
tariffs on goods from Developing Countries
Definition of an SPS Measure
To protect : from :
human or animal risks arising from additives,

life contaminants, toxins or disease-causing
organisms
human life diseases carried by animals or plants
animal or plant pests, diseases or disease-causing

life organisms
damage caused by the entry,
a country
establishment or spread of pests
What type of measures ?
All types of measures with SPS objectives,
including :
p product criteria p inspection

p quarantine p sampling procedures
treatments p packaging and
p production methods labelling directly
p certification and related to food
approval safety
The TBT Agreement….
To start: some definitions
Technical Regulation
p "Document which lays down product
characteristics or their related processes and
production methods...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 procedure

p Any procedure used, directly or indirectly, to determine that
relevant requirements in technical regulations or standards
are fulfilled
Scope of the TBT Agreement
Article 1
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
Development

§ Effects of the unequally power share in
international trade
p Perroux theory said that the large Countries has:
p Dominant to implement the trade policy
p Having power to influence the importing price and
exporting price
p Using the revenue from the export for domestic
goods
p Dominant to implement the monetary policy, in
particular the interest rate policy for credits for the
foreign market
The Tariff
small Country
P S
PW+T
a b c d Tariff (T)
PW
0 Q3 Q4 Q2 X
The Tariff
• The welfare lost of a tariff imposed by a small
Country base on the above figure.

• Change in government revenue: + c$
• Net welfare change: - b$ - d$

The Tariff
large Country
P S
P’= PW+T
a b c d Tariff (T)
PW e
P’’
D
0 Q3 Q4 Q2 X
The Tariff
• The welfare lost of the tariffs by the large
Country
SB + Tariff
PA PW PB
SA
Tariff SB
P’ SB
a c
PW PW PW
e
P’’ b d
P’’
DA DB
DA
XA L1 L0 XW XB
Country A: Market large World Market Country B: Market small

Country Country
The Tariff
• The welfare lost of a tariff imposed by a large
Country base on the above figure.

• Change in government revenue: + c$ + e$
• Net welfare change: - b$ - d$ + e$

Tariff escalation
p Tariffs escalate when they increase with the
level of processing
p At the aggregate level, the picture is diverse
n the tariff structures of Canada, Australia, New
Zealand, Turkey and Norway exhibit escalation
n the tariff structures of several countries show
partial escalation
p At the product level, tariff escalation is
present even in countries where overall
structure exhibits little or no escalation
Tariff distribution: tariff peaks
p Tariffs that exceed a selected reference level
p National peaks are more frequent where
average tariff is low
p Developed countries: New Zealand, Australia
and Iceland have many peaks, EU has few
p Latin America: often all tariffs above 15%
p Other developing countries: also high share
of tariffs above 15%
Development

Economic
§ Backwash effects of Myrdall
p Myrdall theory argued that the international
trade has the backwash effects:
p Flow of Human Resources into the large
Country.
p Continual flow of Capital into the large
Country, because of its economic boom.
p Large Country has trading price’s advantage
and export’s advantage.
Development
Economic
§ Underdeveloped as the effects of
declining term of trade (ToT)?
p It is the theory of Prebish and Singer
p Definition of ToT = PX/PM
p PX is exporting price index
p PM is importing price index
p ToT means how many units of importing
goods will be exchanged with one unit of
exporting goods of the Country.
Development

Economic
§ Underdeveloped as the effects of
declining term of trade (TOT)? (con’t)
p Price index formula:
§ Laspeyres price index = ∑ Pit . Qit0 / ∑ Pit0 . Qit0
§ Paashe price index = ∑ Pit . Qit / ∑ Pit0 . Qit

§ P = Price
§ Q = Quantity
§ t = time
§ i = kind of the products
Development

Economic
§ Underdeveloped as the effects of declining
term of trade (TOT)? (con’t)
p Production Possibility Frontier (PPF) and TOT
Development

Economic
p TOT declines that means eco. development will
be gone down, because the importing price
can be increased or/and the exporting price
can be reduced.
p TOT increases that means eco. development
will be grown up, because the importing price
can be reduced or/and the exporting price can
be increased.
Development
Economic
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 income
elasticity.
§ Price of their exporting goods depends on price
elasticity.
§ Monopolizing of importing goods from industrial
Countries.
§ Exporting goods and those price of Developing Countries
faced some constraints regarding to potential
implementing of trade policy by the large Countries.
Development

Economic
p In the case that the TOT declines or is bad, the effects
on eco. development of the Developing Countries are
following:
§ Reducing the importing goods which are significant for
the development of the Countries.
§ Exporting sector can not be improved regarding the
technology and productivity.
§ Employment of exporting sector can be declined.
Development

Economic
p Critic on the theory of Prebish and Singer:
p Formula of price index took to calculate the TOT is not
so correct, if the time took to calculate the price index
is so far from the basic time in the formula.
p The reason is that the products can be already
changed the physical attitude or quality, although
those name is not changing.
Development

Economic
p Critic on the theory of Prebish and Singer (con’t):
p Dreadful TOT depends not only external issues like
mentioned above.
p It can depends on the internal issues like increasing
income and technology in the Developing Country
which are causing to increase the importing price and
to reduce the exporting price.
Development

Economic
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 internal
effects compares to external effects positive.
p Thus, dreadful TOT can be considered as terrible for
development of the developing Country if the external
effects is strongly than the internal effects.
Development

Economic
§ 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 only
single product or sector and their domestic
development depending mostly on importing goods.
p It can explain these effects below.
Development

Economic
§ 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 in
order to compensate.
p Finally, the development of the Country will be
stagnate or gone down.
p It can see in the mathematical formulation below.
Development

Economic
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
Development

Economic
p Base on above formula it can write following
p CM + IM – M = 0
p => Y = CD + ID + X
p If X reduced and, CD and ID are stable, it will be seen
that Y or GDP will be reduced accordingly.
p Also, GDP = Y = CD + ID + X is gone down.
Development

p Otherwise if the export revenue has reduced, it can
happen like below relating to importing of the Country :
p Base on above formula it has X = M, and
p CM + IM - M = 0 which can be written as CM + IM = M
p If X reduced , it will be seen that M will also reduce
accordingly,
p Reducing M means CM as well IM can be reduced, but CM
as daily consumption can not decrease for all cases.
p Therefore, only IM will be decreased and those reducing’s
effect can bring to diminish the eco. development of the
Country.
Development

Economic
p In case increasing of the exporting price
§ Since some Developing Countries and LDC has a
limitation of HR and material capital, it can delay the
production’s plan for exporting in the time that the
exporting price is increasing.
§ Thus, the Countries can not use such opportunity to

improve the export revenue which can effect on the GDP
and the development of the Country.
Development

Economic
§ 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 other
third Countries.
Development
§ 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 its
raw 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 the
traditional products.
Development

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
Development

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
§ Disadvantage
§ Flow out the income and profit into the Country of FDI
§ Domestic producers can disappear from the domestic
market, because of weak competition.
§ Increasing unemployment as disappearing of domestic
companies
Development
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 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.
§ 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 their
Country is inconvenient.
Development
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 = Population
p Production function in the relation to the population
§ X/P = f ( L/P, C/P, R/P)
Development

Development
§ Effects population growth on the labor
factor
p 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 on
the productivity of those people
§ If those productivity is 0, it means that GDP will be
stable and the per capita will be reduced.
§ If those productivity is not 0, it means that GDP will
increase and thus the per capita will also increase.
Development
Development
§ Effects population growth on the Capital
p 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 the
young generation it can appear in the future that they
can not be efficiently used for the Country’s production,
because of unemployment’s issues, deficit moral and
understanding of the ethnic, and the mortality etc.
§ Building up of capital or capital accumulation will be
reduced accordingly
§ Finally, GDP or per capita will be reduced
Development

Development
§ Effects population growth on natural
resources
p X/P = f ( L/P, C/P, R/P)
§ Population growth in Developing Country did not mean
that in the reality the natural resource will be grown up.
§ Oft, population growth in this Country causes in
upgrading the natural resources.
§ The reasons of upgrading natural resource by the
population growth are increasing to use energy, forest,
land, water and other material equipment.
§ Increasing the above using will bring the natural disaster
like land erosion, flooding, drying etc.
Development

Development
§ Effects population growth on international
trade
p It can be positive as well negative effects on the
international trade.
p Positive effects can exist, if till now the domestic
productions for the export in the Country seem to
intensively need the labor.
p Negative effects will exist, because demand of the
Country will be increased which can causes to reduce
the export of those goods as well the export revenue
for the Country.
Development
Development
§ Conclusion of effects of the population growth
for the eco. development
p 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 the
negatively affects on the eco. development.
p Clark found for his empirical research which didn’t find the
correlation between the population growth and increasing
per capita.
p The finding of his research was not found any Country with
the low population growth that has increasing per capita.
sUmGrKuN
THANKS YOU

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ASEAN ECONOMICS

• Founder: Thailand, Philippines, Indonesia,

• New Members: Brunei (1984), Vietnam

p defend political and economical stability in

p forum to solve the conflict among the

• ASEAN Ministerial Meeting (AMM): Meeting of

• Sector Ministers Meeting:

n Result of the meeting is directly reported to

n In JMM would be participated by the officials

n JMM can be initiated by Minister of Foreign

n Raise the initiative concerning with the coordination and

n These responsibilities was renewed during the amendment of

n The new responsibility of Secretary General is responsible for

n Secretary General chairs all meeting of the ASEAN standing

n Having the mandate 5 years.

n A mechanism to coordinate the issues existing in the

n ASC which directly reports to AMM comprises of the

n In a position as advisory board for the permanent

n To be responsible for the cooperation policy

n Since them SEOM is existed.

n SEOM has responsibility for the economic cooperation issues.

n SEOM meets regularly and reports direct to AEM.

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

n JCM coordinate technical activities of the level

n Secretary General reports the results to AMM

n Preparing and implementing the activities

n Having one General Director.

n Having offices: General Working Office,

n Reports to ASC about the Committee activities

n To establish the preferential trading arrangement through

n To expand trade among the members through cooperation on

n To improve access to markets outside ASEAN.

n To increase the production and to improve the quality of

n The framework agreement on enhancing

n To promote greater economic efficiency,

• Specific tariff: a trade tax is equally to a

• Compound tariff: a trade tax that has both

• GSP (general system of preference)

• GSP (general system of preference) (con’t)

• Importers in the preference granting Countries

• In turn, expanded exports should improve the

Section II Other Products

Part II Preferential rates

Part III Non--tariff Concessions

Country A: Market large World Market Country B: Market small

• Government imposed the limitation on the

• Quota rent: Profit that come about, because a

• Quota occurs the loss of the consumers

Quota (Q1 + Q2)

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

• Net welfare change: - b$ - d$

Quota volume Imports (MT)

• Voluntary export restraint (VER)

• Through this agreement these foreign industries

— Grants — Provision of goods or

Market Domestic Export

Government services Direct payments

- other ... - environmental

(a) direct subsidies contingent (e) favourable internal transport