You are on page 1of 257

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.
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 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.
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 enhancing
economic cooperation was adopted which
included the launching of a scheme towards an
ASEAN Free Trade Area or AFTA.
2. ASEAN Trade Cooperation
• Objectives of ASEAN Free Trade Area
(AFTA):
n To increase the ASEAN’s region’s competitive
advantage as a single production unit.
n To promote greater economic efficiency,
productivity and competitiveness 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)
S
c
h
e
d
u
l
e

S
c
h
e
d
u
l
e

o
f

T
a
r
i
f
f

C
o
n
c
e
s
s
i
o
n
s
o
f

T
a
r
i
f
f

C
o
n
c
e
s
s
i
o
n
s
State
A
Part I
Part II
Part III
Part IV
Section I
IA
IB
Section II
Preferential rates Preferential rates
Non Non--tariff Concessions tariff Concessions
Subsidies Subsidies
MFN Rates MFN Rates
Duties
Tariff Rate Quotas
Agricultural Products
Other Products
Structure Structure
• The welfare lost of the tariffs imposed by
small Country
P
P
W
X
a
0
S
P
W+T
D
Tariff (T)
Q
3
Q
4
Q
2
b c d
• The welfare lost of the tariffs imposed by
large Country
P
P
W
X
0
S
P = P
W+T
D
Tariff (T)
Q
3
Q
4
Q
2
P
• The welfare lost of the tariffs by the large
Country
D
B
P
A
P
W
X
W
P
B
X
A
X
B
Country A: Market large
Country
Country B: Market small
Country
World Market
D
A
S
B
D
A
S
A
S
B
P
W
P
P
S
B
+ Tariff
Tariff
L
0
L
1
a c
e
b d
P
W
P
W
P
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
P
W
X
0
S
M
P
M+Q
D
Quota (Q
1
+ Q
2
)
Q
1
Q
2
S
M
+ Quota
a b C
1
C
2
d
Remark: C = C
1
+ C
2
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$ (= C
1
+ C
2
)
• Net welfare change: - b$ - d$
• c$ is a Quota Rent.
Imports (MT) Imports (MT) Quota volume Quota volume
Applied duty % Applied duty %
Tariff Quotas or Tariff Rate Quotas
Out-of-quota
tariff
In-quota
tariff
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.
§Financial Contribution by Government as Examples
— Grants
— Loans
— Loan guarantees
— Tax credits
— Tax exemptions
— Import duty
exemptions on capital
equipment used
— Provision of goods or
services other than
general infrastructure
— Purchase of goods
— Income or price
supports
— Gov’t entrusts or
directs private body
to carry out above
functions
Non-tariff barriers: Export subsidy
Market
Access
Domestic
Support
Export
Competition
Tariffication
Bindings
Reductions
Market Access
Tariff Rate Quotas
Special
Safeguard
Amber Box
AMS Reduction
Blue Box
Production Limiting
Programmes
Green Box
Non Trade Distorting
Volume
Reduction
Value Reduction
Roll-over
Pillars of the Agreement on Agriculture
Product-specific
support
l Market price support
l Compensatory payments
l Product-specific
subsidies +
= Current Total AMS
Non-product specific
support
l Fertilizers
l Irrigation, drainage
l Electricity
l Subsidized credits
Amber box
Calculating the Current Total AMS
Annexes 3 and 4
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
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 Box
Policy coverage (Annex 2)
§ Export subsidy:
§ A payment by a government to an industry that
leads to an expansion of exports by that industry.
§ Export subsidies policy coverage (Article 9.1 WTO)
(a) direct subsidies contingent
on export performance
(b) sale or disposal for export
by gov’t at price below
domestic market
(c) payments on exports
financed by gov’t action
(d) marketing subsidies,
including handling,
upgrading, transport, freight
(e) favourable internal transport
and freight charges for
exports
(f) subsidies on ag. Products
contingent on incorporation
in exported products
Non-tariff barriers
§ Countervailing duty:
• A tax imposed by importing Country designed to
offset artificially low prices charged by exporters.
• This measures is to impose the tax in order 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.
Non-tariff barriers
risks arising from additives,
contaminants, toxins or disease-causing
organisms
damage caused by the entry,
establishment or spread of pests
a 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 :
Definition of an SPS Measure in WTO
Agreement
p product criteria
p quarantine
treatments
p production methods
p certification and
approval
p inspection
p sampling procedures
p packaging and
labelling directly
related to food
safety
All types of measures with SPS objectives,
including :
What type of SPS’s measures ?
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
But does NOT apply to:
- sanitary and phytosanitary measures
- regulations and standards related to
services
- purchasing specifications for production
or consumption of governments
Article 1
§ Protect intellectual property right:
• 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.
Non-tariff barriers
Fields Protected:
§ Literary Works
§Musical Works
§Artistic Works
§Photographic Works
§Cinematographic Works
§Maps
§Computer Programs
§Works of Applied Art
Copyright
§ Disclosure
DEFINITION
§ Patentable subject matter
§ Industrial applicability
§ Novelty
§ Inventive Step
Patents
§ NO if dictated purely by the function
§ NO if contrary to public order and morality
§ Industrial
§ New (Worldwide)
Main Characteristics of Industrial Design
• Dumping:
• Defined a selling a product in a foreign Country 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) – [(C
V
x Q) + C
F
]
p For Break-Even analysis the profit is 0
=> 0 = (P x Q) – [(C
V
x Q) + C
F
]
= Q (P – C
V
) – C
F
=> Q = C
F
/(P – C
V
)
Non-tariff barriers
Volume
Q
Fixed
Cost
Total
Cost
Revenu
e
Break-Even
Point
C
o
s
t

a
n
d

R
e
v
e
n
u
e
Variable
Cost
Profit
Loss
Definition of Dumping base on WTO agreement
§ Dumping = when a product is sold for export 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.
Non-tariff barriers
INJURY FACTORS (Article 3.4)
Include:
— Actual and potential decline in:
– Sales - Productivity
– Profits - Return on investment
– Output - Utilisation of capacity
– Market share
— Actual and potential negative effects on:
– Cash flow - Growth
– Inventories - Ability to raise capital
– Employment - Ability to raise investment
– Wages
— Factors affecting domestic prices
— The magnitude of the margin of dumping
§ Safeguard:
• A measure trade law that allows 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.
Non-tariff barriers
SAFEGUARDS (WTO): BASIC REQUIREMENTS
§ A determination that,
§ As a result of (i) unforeseen developments and
(ii) the effect of a Member’s obligations under
GATT 1994
§ A product is being imported in such 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)
2. ASEAN Trade Cooperation
• 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.
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 quantitative
restriction and non-tariff barriers among
ASEAN member states.
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)
2. ASEAN Trade Cooperation
• 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
2. ASEAN Trade Cooperation
• 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.
2. ASEAN Trade Cooperation
2. ASEAN Trade Cooperation
Cambodian Schedules of Tariff Rate in ASEAN Cambodian Schedules of Tariff Rate in ASEAN
“Tariffication”
rTariff
r NTM
Conversion
Tariff equivalent
Bind
Reduce
Tariffication formula
E = (P
i
- P
e
) / P
e
* 100
l E = Tariff equivalent
l P
i
= Internal price
(representative wholesale)
l P
e
= External price (c.i.f. unit values)
l Base period average: 1986-88
2. ASEAN Trade Cooperation
2. ASEAN Trade Cooperation
• Effects of AFTA
1. Effects on ASEAN’s Country Industries
2. Effects on ASEAN’s Country
Investments
3. Effects on ASEAN’s Country Trade
2. ASEAN Trade Cooperation
• 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.
2. ASEAN Trade Cooperation
• Effects on Industries
2. ASEAN Trade Cooperation
• 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.
2. ASEAN Trade Cooperation
§ Effects on ASEAN Investment : Investments in Cambodia by
Country 1994-1
st
Half 2006
2. ASEAN Trade Cooperation
• Effects on ASEAN Investment: Investments by Sector
(1994-1
st
Half 2006)
2. ASEAN Trade Cooperation
• Effects on ASEAN Trade
2. ASEAN Trade Cooperation
• Effects on Export
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 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.
3. ASEAN Cooperation 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.
3. ASEAN Cooperation in Services
• 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.
3. ASEAN Cooperation in Services
• These 5 packages consist of the
following:
• Round 1 (1996-1998)
• 1
st
package, signed on 15 Dec 1997 in Kuala
Lumpur
• 2
nd
package, signed on 16 Dec 1998 in Ha Noi
• Round 2 (1999-2001)
• 3
rd
package, signed by 31 Dec 2001
3. ASEAN Cooperation in Services
§ These 5 packages consist of the following
(con’t):
• Round 3 (2002-2004)
• 4
th
package, signed on 3 Sep 2004 in Jakarta
• Round 4 (2005-2006)
• 5
th
package, signed on 8 Dec 2006 in Cebu, the
Philippines.
3. ASEAN Cooperation 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
3. ASEAN Cooperation in 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.
3. ASEAN Cooperation in Services
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.
3. ASEAN Cooperation in Services
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
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)
3. ASEAN Cooperation in Services
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
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
3. ASEAN Cooperation in Services
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)
3. ASEAN Cooperation in Services
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
(CPC 861):
(1) None
(2) None
(3) In commercial association with
Cambodian 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 horizontal section.
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 horizontal section.
(b) Accounting, auditing,
bookkeeping
(CPC 86211, 86212, 86220)
(1) None, except must have
commercial presence in Cambodia for
auditingservices.
(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 horizontal section.
3. ASEAN Cooperation in Services
3. ASEAN Cooperation in Services
3. ASEAN Cooperation in Services
3. ASEAN Cooperation in Services
4. Other ASEAN Cooperation
• Cooperation in Investment
• Industrial Cooperation
• Cooperation in Transport
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 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
e
Income, Output, Y
LM*
IS*
e
Income, Output, Y
LM*
IS*
IS*'
LM*'
When income rises in a small open economy, due to
the 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 downward
pressure 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 DT Þ
+De, no DY
+DM Þ
-De, +DY
The Mundell-Fleming Model
Under Floating Exchange Rates
:-·:-:- IS (The IS Curve)
:uc-« :--«-: (Open Economy)
p :-u:cu--: u·-:au:·-::a:---::-u:e - :-::«-uu- -a:«u::u:c«-:-
:·-:- ·
a + I
0
+ G
0
+ EX
0
– IM
0
– bTx
0
+ bTr
0
- bi
Y =
1- b + bt + m
E
Income, Output, Y
Y=E
Planned Expenditure,
E = C + I
r
Income, Output, Y
r
Investment, I
I(r)
IS
An increase in the interest
rate (in graph a), lowers
planned investment,
which shifts planned
expenditure downward (in
graph b) and lowers
income (in graph c).
(a)
(b)
(c)
Political conditions
• Internal, regional, and international political conditions and events 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
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 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;
4. Other ASEAN Cooperation
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.
4. Other ASEAN Cooperation
4. Other ASEAN Cooperation
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.
4. Other ASEAN Cooperation
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 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.
Financial Intermediaries
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.
Financial Intermediaries
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.
Financial Intermediaries
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)
4. Other ASEAN Cooperation
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.
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 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.
4. Other ASEAN Cooperation
4. Other ASEAN Cooperation
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 cooperation
activities.
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 industrial
cooperation in the region.
• ASEAN agreed to extend the waiving period
until 31 Dec 2004.
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, and
Singapore.
n By 1 Jan 2005 for the Philippines, Thailand
and Myanmar.
n By 1 Jan 2006 for Vietnam
4. Other ASEAN Cooperation
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 10
th
ASEAN Transport Ministers
Meeting in 2004).
• ASEAN framework agreement on the multimodal
transport.
(for singing by 10
th
ASEAN Transport Ministers
Meeting in 2004).
Trade Facilitation
è Making trade procedures as efficient
as possible through the rationalization
of procedures, documentation, and
information flows
First approach
Trade Facilitation
Customs
Fees and
Formalities
Transit
of Goods
Trade
Regulations
Trade
Facilitation
Elements
Trade Facilitation
Freedom of Transit
Publication and Administration
of Trade Regulations
Fees + Formalities connected
with Importation & Exportation
ª Art. V
ª Art. VIII
ª Art. X
Existing WTO rules on TF
Trade Facilitation
£ Customs Valuation Agreement
£ Agreement on Rules of Origin
£ Agreement on Sanitary & Phytosanitary Measures
£ Agreement on Import Licensing Procedures
£ Agreement on Preshipment Inspection
£ Agreement on Technical Barriers to Trade
TF Rules in Other WTO Agreements
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)
Trade Facilitation
Trade facilitation features
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.
5. ASEAN Integration System of
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.
5. ASEAN Integration System of
Preference
The 4
th
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
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.
5. ASEAN Integration System of
Preference
Criteria for granting AISP:
• Products items
• Tariff rate
• Duration
• Rules of Origin
• Suspension of AISP
• Review
5. ASEAN Integration System of
Preference
Product Items:
Granting preferential privileges
by bilateral arrangement with
individual list of products being
granted privileges for each
Country
5. ASEAN Integration System of
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.
5. ASEAN Integration System of
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.
5. ASEAN Integration System of
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
5. ASEAN Integration System of
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.
5. ASEAN Integration System of
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.
5. ASEAN Integration System of
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
5. ASEAN Integration System of
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
5. ASEAN Integration System of
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
5. ASEAN Integration System of
Preference
Review of AISP :
• There will be annual review of AISP
5. ASEAN Integration System of
Preference
5. ASEAN Integration System of
Preference
6. ASEAN Vision 2020
• A free flow of goods, services and
investments, a free flow of capital.
• Reduce poverty and socio-economic
disparity.
• Create equitable economic development
6. ASEAN Vision 2020
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.
6. ASEAN Vision 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.
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 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
6. ASEAN Vision 2020
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).
6. ASEAN Vision 2020
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.
7. ASEAN External Relations
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.
7. ASEAN External Relations
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).
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 Free
Trade Area
7. ASEAN External Relations
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;
7. ASEAN External Relations
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;
7. ASEAN External Relations
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.
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 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;
7. ASEAN External Relations
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.
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 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.?
7. ASEAN External Relations
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.
7. ASEAN External Relations
ASEAN-Japan:
• Joint Declaration on ASEAN-Japan
Comprehensive Economic Cooperation
(2002 ASEAN Summit).
• The Framework on ASEAN-Japan
Comprehensive Economic Cooperation
(2003 ASEAN Summit).
7. ASEAN External Relations
ASEAN-Korea:
• Establishment of the ASEAN-
Korea Experts Group to
undertake the feasibility study
of the establishment of an
ASEAN-Korea FTA : in process
7. ASEAN External Relations
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
2. Theoretical Interpretation of Economic
Development
2. Natural Resources and Eco. Development
§ Limitation of substitution of input factors
§ Natural Resources
• Raw materials
• Land
• Weather
• Environment
2. Theoretical Interpretation of Economic
Development
2. Natural Resources and Eco. 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.
2. Theoretical Interpretation of Economic
Development
2. Natural Resources and Eco. 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
2. Theoretical Interpretation of Economic
Development
2. Natural Resources and Eco. Development
b. Land and Eco. Development (con’t)
p Inefficient of using land can be improved
through:
• Adopting new technology and know how
• Public Investment in irrigation system,
fertilizer and other infrastructure
• Legal and institutional reform, including
credit reform and bureaucracy reform
2. Theoretical Interpretation of Economic
Development
2. Natural Resources and Eco. 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.
2. Theoretical Interpretation of Economic
Development
2. Natural Resources and Eco. 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.
2. Theoretical Interpretation of Economic
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.
2. Theoretical Interpretation of Economic
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.
2. Theoretical Interpretation of Economic
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%.
2. Theoretical Interpretation of Economic
Development
3. Capital and Development (con´t)
§ Reasons of the deficit of Capital
• Deficit of Savings
• Deficit of Investments
• Deficit of Financial Institutions
• Deficit of Capital Equipments of Sub-
Population
• Capital Flows into Abroad
2. Theoretical Interpretation of Economic
Development
Low Output
Low Per Capita
Low Saving
Low 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
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 be
predicable
Considering meta-economic which affects
on the comparison between the value of
current and future using of their capital.
2. Theoretical Interpretation of Economic
Development
3. Capital and Development (con´t)
§ 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
2. Theoretical Interpretation of Economic
Development
3. Capital and Development (con´t)
2. Theoretical Interpretation of Economic
Development
3. Capital and Development (con´t)
2. Theoretical Interpretation of Economic
Development
3. Capital and Development (con´t)
2. Theoretical Interpretation of Economic
Development
Low Output
Low Per Capita
Low Domestic
Demand
Low Capital
Investment
Low Capital
Equipments
Low Productivities
3. Capital and Development (con´t)
§ Reasons of deficit of investments
• It can have a deficit of willingness to invest
2. Theoretical Interpretation of Economic
Development
3. Capital and Development (con´t)
§ Reasons of deficit of financial institutions
§ Deficit of some financial institutions like:
• Financial Market
Stock Market and Bonds Market
• 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
3. Capital and Development (con´t)
§ Reasons of deficit of financial institutions
(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.
2. Theoretical Interpretation of Economic
Development
3. Capital and Development (con´t)
§ Reasons of deficit of financial institutions
(con´t)
2. Theoretical Interpretation of Economic
Development
3. Capital and Development (con´t)
§ Reasons of deficit of financial institution (con´t)
2. Theoretical Interpretation of Economic
Development
3. Capital and Development (con´t)
§ Reasons of deficit of financial institutions
(con´t)
2. Theoretical Interpretation of Economic
Development
Debit Debit Credit Credit
-- Expenditure for Consumption Expenditure for Consumption
-- Investments : Investments :
-- Capacity Building Capacity Building
-- Assets Assets
-- GNP GNP
-- Income from Assets Income from Assets
-- Income from Working Income 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
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 up
the capacity
§ Having small land
§ Using only traditional equipments for their productions
§ Deficit of rural credits and investments
2. Theoretical Interpretation of Economic
Development
3. Capital and Development (con´t)
§ Deficit of capital equipments of sub-
population (con´t)
§ To solve the problem of the deficit of capital
equipments of sub-population it doesn’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.
2. Theoretical Interpretation of Economic
Development
3. Capital and Development (con´t)
§ 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.
2. Theoretical Interpretation of Economic
Development
3. Capital and Development (con´t)
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.
2. Theoretical Interpretation of Economic
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
2. Theoretical Interpretation of Economic
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
Imports (Debits)
§ Current Account: (M)
§ Goods and services
§ Factor- and assets income
§ Assets transfer (= transfer
account)
§ Aids, gifts etc. (= unilateral
transfer)
§ 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 (= transfer
account)
§ Aids, gifts etc. (= unilateral
transfer)
§ Capital Account: (CX)
§ Direct investments
§ Security purchase
§ Bank claims, liabilities,
obligations, etc.
§ Government assets abroad
2. Theoretical Interpretation of Economic
Development
2. Theoretical Interpretation of Economic
Development
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 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.
2. Theoretical Interpretation of Economic
Development
5. Development and international
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
Conditions of international trade (con’t)
§ Absolute price advantage
§ P
1
Country A < P
1
of Country B, in this case A
exports good 1 to B. (only with the stable exchange
rate)
§ Comparative price advantage
§ P
1B
/P
1A
> P
2B
/P
2A
or P
1A
/P
1B
< P
2A
/P
2B
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.
2. Theoretical Interpretation of Economic
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.
2. Theoretical Interpretation of Economic
Development
2. Theoretical Interpretation of Economic
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
unit of soybean
12 h for producing
1 unit of soybean
2 units of soybean
Textile 6 h for producing 1
unit of textile
4 h for producing 1
unit of textile
2 units of textile
2. Theoretical Interpretation of Economic
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
n
3 h for producing
1 unit of soybean
12 h for
producing 1 unit
of soybean
2 units of
soybean
Textile 6 h for producing
1 unit of textile
8 h for producing
1 unit of textile
2 units 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
risks arising from additives,
contaminants, toxins or disease-causing
organisms
damage caused by the entry,
establishment or spread of pests
a 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 :
Definition of an SPS Measure
p product criteria
p quarantine
treatments
p production methods
p certification and
approval
p inspection
p sampling procedures
p packaging and
labelling directly
related to food
safety
All types of measures with SPS objectives,
including :
What type of measures ?
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
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
2. Theoretical Interpretation of Economic
Development
5. Development and international Economic
§ 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
• The welfare lost of the tariffs imposed by
small Country
P
P
W
X
a
0
S
P
W+T
D
Tariff (T)
Q
3
Q
4
Q
2
b c d
The Tariff
• The welfare lost of a tariff imposed by a small
Country 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$
The Tariff
• The welfare lost of the tariffs imposed by
large Country
P
P
W
X
0
S
P = P
W+T
D
Tariff (T)
Q
3
Q
4
Q
2
P
a b c d
e
The Tariff
• The welfare lost of the tariffs by the large
Country
P
A
P
W
X
W
P
B
X
A
X
B
Country A: Market large
Country
Country B: Market small
Country
World Market
D
A
S
B
D
A
D
B
S
A
S
B
P
W
P
P
S
B
+ Tariff
Tariff
L
0
L
1
a c
e
b d
P
W
P
W
P
The Tariff
• The welfare lost of a tariff imposed by a large
Country 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
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%
2. Theoretical Interpretation of Economic
Development
5. Development and international
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.
2. Theoretical Interpretation of Economic
Development
5. Development and international
Economic
§ Underdeveloped as the effects of
declining term of trade (ToT)?
p It is the theory of Prebish and Singer
p Definition of ToT = P
X
/P
M
p P
X
is exporting price index
p P
M
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.
2. Theoretical Interpretation of Economic
Development
5. Development and international
Economic
§ Underdeveloped as the effects of
declining term of trade (TOT)? (con’t)
p Price index formula:
§ Laspeyres price index = ∑ P
i
t
. Q
i
t0
/ ∑ P
i
t0
. Q
i
t0
§ Paashe price index = ∑ P
i
t
. Q
i
t
/ ∑ P
i
t0
. Q
i
t
§ P = Price
§ Q = Quantity
§ t = time
§ i = kind of the products
2. Theoretical Interpretation of Economic
Development
5. Development and international
Economic
§ Underdeveloped as the effects of declining
term of trade (TOT)? (con’t)
p Production Possibility Frontier (PPF) and TOT
2. Theoretical Interpretation of Economic
Development
5. Development and international
Economic
§ Underdeveloped as the effects of declining
term of trade (TOT)? (con’t)
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.
2. Theoretical Interpretation of Economic
Development
5. Development and international
Economic
§ 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 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.
2. Theoretical Interpretation of Economic
Development
5. Development and international
Economic
§ 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 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.
2. Theoretical Interpretation of Economic
Development
5. Development and international
Economic
§ 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 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.
2. Theoretical Interpretation of Economic
Development
5. Development and international
Economic
§ 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 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.
2. Theoretical Interpretation of Economic
Development
5. Development and international
Economic
§ 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 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.
2. Theoretical Interpretation of Economic
Development
5. Development and international
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.
2. Theoretical Interpretation of Economic
Development
5. Development and international
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.
2. Theoretical Interpretation of Economic
Development
5. Development and international
Economic
§ Effects of instability of export revenue (con’t)
p Y = C + I + X – M or
p Y = C
D
+ C
M
+ I
D
+ I
M
+ X – M or
p Y = C
D
+ I
D
+ X + (C
M
+ I
M
– M)
§ Y = GDP
§ C = Consumption
§ I = Gross Investments
§ X = Export
§ M = Import
§ D = Domestic
2. Theoretical Interpretation of Economic
Development
5. Development and international
Economic
§ Effects of instability of export revenue (con’t)
p Base on above formula it can write following
p C
M
+ I
M
– M = 0
p => Y = C
D
+ I
D
+ X
p If X reduced and, C
D
and I
D
are stable, it will be seen
that Y or GDP will be reduced accordingly.
p Also, GDP = Y = C
D
+ I
D
+ X is gone down.
2. Theoretical Interpretation of Economic
Development
5. Development and international Economic
§ Effects of instability of export revenue (con’t)
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 C
M
+ I
M
- M = 0 which can be written as C
M
+ I
M
= M
p If X reduced , it will be seen that M will also reduce
accordingly,
p Reducing M means C
M
as well I
M
can be reduced, but C
M
as daily consumption can not decrease for all cases.
p Therefore, only I
M
will be decreased and those reducing’s
effect can bring to diminish the eco. development of the
Country.
2. Theoretical Interpretation of Economic
Development
5. Development and international
Economic
§ Effects of instability of export revenue (con’t)
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.
2. Theoretical Interpretation of Economic
Development
5. Development and international
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.
2. Theoretical Interpretation of Economic
Development
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 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.
2. Theoretical Interpretation of Economic
Development
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
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
2. Theoretical Interpretation of Economic
Development
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 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.
2. Theoretical Interpretation of Economic
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)
2. Theoretical Interpretation of Economic
Development
6. Population Growth and the Eco.
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.
2. Theoretical Interpretation of Economic
Development
6. Population Growth and the Eco.
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
2. Theoretical Interpretation of Economic
Development
6. Population Growth and the Eco.
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.
2. Theoretical Interpretation of Economic
Development
6. Population Growth and the Eco.
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.
2. Theoretical Interpretation of Economic
Development
6. Population Growth and the Eco.
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.
u-a:-¬
THANKS YOU