AD International Economic 2023 Day 4 Trade Policy

International Economic Course
Day 4: Trade Policy: Free trade

vs Trade Protection
Presented by:
Anh Duy Nguyen, PhD. International Economics

Duyna@uef.edu.vn
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AD @ UEF 2022
Agenda
International Trade Policy
– Free trade vs. Protectionism : overview
– The Case for Protection
– Trade Instruments:
Tariffs
Subsidies
Imported Quotas
Voluntary Export Restraints (VER)
Other tools: Non-
Tariff Barriers | Measures
Analyze the Welfare of these tools
Case study:
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Free Trade Versus Protectionism
Up to this point, we have explored the benefits of unrestricted

international trade
BUT
governments do restrict free international trade in order to
protect domestic industries from foreign competition.
The restriction of international trade is called protectionism.
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Contents
The case for free trade

The case against free trade (Protectionism)
Political models of trade policy
International negotiations over trade policy and
the World Trade Organization
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Freer trade cuts the cost of living
According to critics of agricultural protectionism,

consumers and governments in rich countries have paid $
350 billion per year supporting agriculture — enough to fly
their 41 million dairy cows first class around the world one
and a half times. (WTO)
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Tariffs and quotas have deadweight losses and

encourage rent-seeking;
free trade allows large-scale production, and
provides more incentives for innovation;
even when barriers to free trade make economic sense,
these policies are often corrupted by interest
groups
ARGUMENTS FOR FREE TRADE
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Free trade makes the world more
efficient
Scarce resources are used most efficiently when
governments do not interfere with the way free
markets work.
– National welfare of a small country is highest under
free trade.
– Under restricted trade, consumers pay higher prices.
– Under restricted trade, prices for domestic
producers are artificially high. This causes
overproduction either by existing firms producing
more or by more firms entering the industry.
Free trade boosts dynamic efficiency

Free trade allows firms to take advantage of
economies of scale.
– Example: In the auto industry, to operate at efficient
scale, an auto plant should make a minimum of 80,000
cars per year.
– In Argentina, under a protectionist regime in 1964, 13
firms produced a total of 166,000 cars per year.
Free trade provides
– Increased competition, and
– Greater incentives for innovation.
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Free trade reduces rent seeking
Quotas can lead to rent seeking behavior that is
economically wasteful
– In India in the 1950s and 1960s, the amount of resources that a
business was allowed to import was tied to how big the
business was. This gave businesses an artificial incentive to
over-invest and be big
– Tuna importers to the United States were allowed to bring in a
limited amount of tuna on a first-come-first-served basis. Tuna
importers spent a lot of money to stockpile tuna in December,
in order to be first in line in January
– Such wasteful activities that are provoked by quirks in the
laws are called rent seeking
Tariff Man
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Tariff Man
It was also agreed that the two countries would “immediately

begin negotiations on structural changes with respect to
forced technology transfer, intellectual property protection,
non-tariff barriers, cyber intrusions and cyber theft,
services and agriculture.” 15
Tariff Man
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Yet for hundreds of years the nations of the

world have tried hinder the free trade by means
of several devices, such as tariffs, quotas,
technical or administrative rules and
procedures, such as licensing regulations, and
exchange control.
Such polices are called commercial policies.
In general, these policies are influenced by
political, social, and economic considerations.
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ECONOMIC ARGUMENTS AGAINST
FREE TRADE
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The Lure of Protectionism:

The argument for so-called "protectionism" (called
"fair trade" by some) may at first sound appealing.
Supporters of "protectionist" laws claim that keeping out
foreign goods will
– save jobs,
– give ailing domestic industries a chance to recover and
prosper,
– and reduce the trade deficits.
Are these claims valid?
Arguments for protection can be either economic or
noneconomic.
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due date
email: duyna@uef.edu.vn
The Case for Protection:
Do You agree or don’t agree with
Protectionism ?
What are the benefits and arguments
against Protectionism ? Discuss in 1 page.
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Arguments for and against
Protectionism
1/ The infant industry argument

2/ The dying industry argument
3/ National pride
4/ National defence
5/ Income distribution
Kristoffer J. M. Hansen, Institute for Economic Policy 23
Domestic market failure: examples

Persistently high under-employment of workers
– Labor surpluses that are not eliminated because wages do not adjust
Persistently high under-utilization of structures,

equipment and other forms of capital
– Capital surpluses that are not eliminated because prices do not adjust
Technological benefits for society discovered through
private production, but from which private firms can not
fully profit
Environmental costs for society caused by private
production, but for which private firms do not fully
pay
Property rights that are not well defined or well enforced
Sellers that are not well informed about the (opportunity) cost of
production or buyers that are not well informed about value from
consumption
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How special-interest groups that are
against free trade can capture political
power and the special-interest groups
that favor free trade are sidelined
ANTI-TRADE POLITICS
Which Industries Are Protected?

Agriculture: in the U.S., Europe, and Japan farmers
make up a small fraction of the electorate but receive
generous subsidies and trade protection.
– Examples: European Union’s Common Agricultural Policy, Japan’s 1000% tariff
on imported rice, America’s sugar quota.
Clothing: textiles (fabrication of cloth) and apparel (assembly of

cloth into clothing).
– Until 2005, quotas licenses granted to textile and apparel exporters were specified
in the Multi-Fiber Agreement between the U.S. and many other nations.
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Protectionism: Agriculture in
Japan
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Instrument of Trade Policy
World economy gains when countries first begin

international trade:
Comparative advantage based either on a relative
advantage in technology or on relative factor abundance,
or because different countries specialize in producing
different brands when economies of scale exist.
...But this does not mean that everyone will be better off.
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new tools
Ấn Độ thu giữ 27.000 smartphone Vivo
Thúy Liên
Thứ tư, 7/12/2022 14:33 (GMT+7)
Động thái này cho thấy Ấn Độ muốn loại các nhà sản
xuất điện thoại Trung Quốc khỏi thị trường smartphone.
Số smartphone Vivo bị tịch thu trị giá gần 15 triệu USD.
Ảnh: Economic Times.
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new tools
TikTok giữa 'sóng thần
trừng phạt' của Mỹ
Vi Trân 08/12/
Một số tiểu bang tại Mỹ đã công bố
lệnh cấm cục bộ hoặc toàn phần đối
với ứng dụng TikTok trong khi nhiều
tiểu bang khác cũng đang cân nhắc
hành động tương tự.
Trong vài năm qua, các nghị sĩ Mỹ đã
kêu gọi cấm nhân viên chính quyền
cài đặt và sử dụng ứng dụng chia sẻ
video ngắn TikTok. Cuộc vận động
diễn ra khi cơ quan chức năng Mỹ
ngày càng giám sát kỹ TikTok vì
nguy cơ an ninh quốc gia dù nền tảng
này phản bác.
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new tools
Trung Quốc khiếu nại lên
WTO việc Mỹ hạn chế xuất
khẩu chip cao cấp
Khánh Lan
Thứ Năm, 15/12/2022
(KTSG Online) – Bộ Thương mai
Trung Quốc vừa gửi đơn khiếu nại lên
Tổ chức Thương mại thế giới (WTO)
để phản đối việc Mỹ áp đặt các biện
pháp kiểm soát xuất khẩu chip cao cấp
cũng như công cụ sản xuất chip đối với
các công ty Trung Quốc.
Tổng thống Mỹ Joe Biden cầm

một con chip phát biểu trước khi
ký sắc lệnh giải quyết tình trạng
thiếu chip toàn cầu tại Nhà Trắng
ngày 24/2/2021. Ảnh: Reuters
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new tools
Muốn xuất khẩu mạnh, doanh nghiệp phải
'xanh'
18/11/2022 16:22 GMT+7
TTO - Hơn 300 doanh nghiệp hàng đầu đến từ các ngành cà
phê, gỗ, thuỷ sản… đã tham gia hội thảo 'Xuất khẩu vào các
thị trường FTA - Giải bài toán phát triển bền vững' do Báo
Công Thương tổ chức tại TP.HCM ngày 18-11.
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new tools
EU cấm các sản phẩm
nông nghiệp có liên
quan đến phá rừng
Chánh Tài Thứ Tư, 7/12/2022
(KTSG Online) – Hôm 6-12,
Liên minh châu Âu (EU) đã
tán thành một luật mới, cấm
các công ty bán vào thị trường
chung châu Âu các sản phẩm
nông nghiệp như cà phê, cao
su, đậu nành, gỗ, thịt bò, dầu
cọ… có liên quan đến nạn phá
rừng trên toàn cầu.
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new tools
Bangladesh làm không đủ bán, vì sao dệt may
Việt Nam than thở thiếu đơn hàng?
Trả lời tờ Daily Star, giám đốc điều hành SM
Khaled của Công ty hàng may mặc Snowtex cho
biết giá cả cạnh tranh, chất lượng, cũng như
những thành tựu gần đây về an toàn và tuân thủ
tiêu chuẩn đã nâng tầm ngành may mặc nước
này.
"Bangladesh hiện là nhà vô địch toàn cầu trong

lĩnh vực quần áo "xanh", thân thiện với môi
trường. Hơn nữa, quốc gia này có khả năng phục
vụ số lượng lớn hàng hóa vì các nhà đầu tư địa
phương đã đổ rất nhiều tiền vào lĩnh vực này
trong những năm qua", ông Khaled nói.
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new tools
Bangladesh làm không đủ bán, vì sao dệt may
Việt Nam than thở thiếu đơn hàng?
33 công ty bao gồm chủ sở hữu của các thương hiệu thời
trang và hàng xa xỉ nổi tiếng như H&M, Zara, Gucci cam
kết mua 550.000 tấn sợi carbon thấp được sản xuất từ áo
quần cũ tái chế và phế phẩm nông nghiệp. Những loại sợi
được xem là bền vững này sẽ được sử dụng để sản xuất
áo quần mới và bao bì đóng gói trong một nỗ lực hỗ trợ
chống nạn phá rừng và cắt giảm khí thải nhà kính.
Lĩnh vực thời trang cũng đang chuẩn bị thực

hiện những thay đổi lớn để tuân thủ các quy định
mới từ Liên minh châu Âu, sau khi Ủy ban châu
Âu (EC) công bố một kế hoạch hồi tháng 3, yêu
cầu quần áo phải “có tuổi thọ cao, có thể tái chế
và phần lớn phải được làm từ sợi tái chế” vào
năm 2030. AD @ UEF 2023 38
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Next we will consider different commercial policies

We will show how to analyze costs and benefits of tariffs
as well as other types of trade restrictions.
Most Common Trade Barriers:
Trade barriers -obstacles to trade-
take many forms, three most
common ones are:
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Phòng vệ thương mại: Chiếc phao
giúp doanh nghiệp bơi ra biển lớn
Phạm Sơn - 15:08, 27/10/2020
TheLEADERTrong bối cảnh thực
hiện cam kết ngày càng cao của các
hiệp định tự do thương mại (FTA),
bức tranh của hội nhập, toàn cầu
hóa được khắc họa rõ nét với cả
những tác động tiêu cực đến kinh tế,
xã hội. Lúc này, phòng vệ thương
mại trở thành công cụ giúp doanh
nghiệp tự vệ trước sự cạnh tranh
thiếu lành mạnh từ thị trường quốc
tế.
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Instrument of Trade Policy: TARIFF

Trade barriers -obstacles to trade- take many forms, three
most common ones are:
1. Tariffs: A tariff is simply a tax on imports (import
tariff) or exports (export tariff). Tariffs are the most
common type of trade restriction.
February 12, 2016

Russian and Chinese makers of non-stainless steels face European
Union tariffs as high as 26.2 percent after the EU found that
imports from the two countries unfairly undercut producers in
Europe such as ArcelorMittal and ThyssenKrupp AG.
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Most Common Trade Barriers: What are Tariffs?

Tariffs are Taxes on imports
Two main types
– Ad valorem: % of value (a percentage of
the monetary value of 1 unit of import)
For example, 25% tariff on the value of imported trucks.
– Specific: $ per unit (a monetary sum that
must be paid to import 1 physical unit of a
product)
For example, $3 per barrel of oil.
What are the advantages and disadvantages of these two
tariffs ?
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Who Uses Tariffs?
Sample US tariffs
– Cars: 2.5%
– Trucks: 25%
– Men’s cotton shirts 19.7%
– Women’s blouses 26.9%
– Tariffs facing exports of developing countries:
Nepal 13.2%
Bangladesh 13.6%
Example:
Lecture 5: Tariffs 45
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Government uses to protect industry
Vietnam imposes high tariffs to save jobs..

to protect local producers..?
Do you agree or not...? Explain your ideal
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Revised concept: Consumer & Producer
Surplus
FIGURE 8-1 (2 of 2)
Consumer and Producer Surplus

In panel (a), the consumer surplus from purchasing quantity D1 at price P1 is
the area below the demand curve and above that price.
In panel (b), the producer surplus from supplying the quantity S1 at the price
P1 is the area above the supply curve and below that price.
Instrument of Trade Policy: Tariffs
Economic of Tariffs:
Tariffs are the most common type of trade
restriction
A tariff requires the importer of a good to
pay a
specified fraction of the world price to the
government
By raising the domestic price of imports, a tariff
helps domestic producers but hurts domestic
consumers
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We can summarize the effects of tariffs to
Consumption effect
– Domestic consumers reduce their
consumption.
Production effect
– Higher prices make it profitable for domestic
producers to increase their output.
– Thus the tariff attracts resources into the
protected industry from other sectors of the
economy.
© AD at UEF 53
We can summarize the effects of tariffs to
Trade effect
imports to fall.
– The tariff causes
Revenue effect
– After the imposition of the tariff, the
government
collects a certain amount of money.
Redistribution effect
– The tariff redistributes income from consumers to
producers.
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The Effect of a Tariff
Sdom Ddom & Sdom show the domestic

demand and supply for a good.
If the world price is Pw,

and there is free trade,
Pw+ T domestic firms produce Qs,
domestic consumption is Qd
Pw and the difference is imported.
Ddom
A tariff can stimulate domestic
production and restrict imports:
Qs Qs ' Qd' Qd Quantity
At a domestic price Pw + T,
where T is the size of the tariff,
quantity of domestic demand falls to Qd',
quantity of domestic supply rises to Qs' and imports fall.
4 International Trade Policy - 4.2 Trade Barriers: Tariffs, Subsidies and Quotas 55
The Welfare Analysis of a Tariff

The tariff leads both to transfers and net social losses.
Consumer surplus is decreased by the area between
S Pw+T, Pw and D.
But where The government raises

does this lost revenue – i.e. there is a
of CS go to? transfer to the government,
Pw+ T and there is a transfer in
the form of extra profits to
Pw producers.
D The tariff leads to a social
dead-weight cost from
Qs Qs ' Qd' Qd Quantity production inefficiency,
given that the good could be
imported at Pw.
The tariff also leads to a dead-weight loss from
consumption inefficiency.
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Effects of a Tariff on Prices and Quantities
Price
of Steel
Domestic
supply
Equilibrium
without trade
Price
after tariff Tariff
Price World
before tariff Imports price
Domestic
with tariff
demand
S S D D
0 Q Q Q Q Quantity
of Steel
Imports
under free trade
Welfare under free trade
Price
of Steel
Consumer surplus
before tariff Domestic
supply
Producer
surplus Equilibrium
before without trade
tariff
Price World
before tariff price
Domestic
demand
S D
0 Q Q Quantity
of Steel
Imports
under free trade
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Consumer Surplus after Tariff
Price
of Steel
Consumer surplus
after tariff Domestic
supply
A
Equilibrium
without trade
B
Price
after tariff Tariff
Price World
Domestic
with tariff
demand
S S D D
0 Q Q Q Q Quantity
of Steel
Imports
under free trade
Producer Surplus after Tariff
Price
of Steel
Domestic
supply
Producer
surplus Equilibrium
after tariff without trade
Price
after tariff C Tariff
Price World
before tariff G Imports price
Domestic
after tariff
demand
S S D D
0 Q Q Q Q Quantity
of Steel
Imports
under free trade
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Government’s Revenue from Tariff
Price
of Steel
Domestic
supply
Tariff Revenue
Price
after tariff Tariff
E
Price World
Domestic
after tariff
demand
S S D D
0 Q Q Q Q Quantity
of Steel
Imports
under free trade
Effects of Tariff on Social Welfare
Price
of Steel
Domestic
supply
A
Deadweight Loss
B
Price
with tariff C Tariff
D E F
Price World
without tariff G Imports price
Domestic
after tariff
demand
S S D D
0 Q Q Q Q Quantity
of Steel
Imports
without tariff
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The Welfare Analysis of a Tariff
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Effects of Tariff on
Social Welfare
Price
of Steel
Domestic
supply
A
Deadweight Loss:
Production distortion loss
B Consumption distortion loss
Price
with tariff C Tariff
D E F
Price World
without tariff G Imports price
Domestic
after tariff
demand
S S D D
0 Q Q Q Q Quantity
of Steel
© AD at UEF
Imports
without tariff
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Summing up, in addition to deadweight loss (triangle ( d+ f)),
there are other losses:
❑ d/Production distortion loss – too much produced at higher

price
❑ f/ Consumption distortion loss – too little consumed at higher
price
When we add together all these effects – the drop in consumer

surplus, gain in producer surplus, and the government revenue
collected – we still get a net loss for the importing country. We have
referred to that loss as the deadweight loss resulting from
the tariff.
© AD at UEF 66

Summing up, in addition to deadweight loss (triangle ( d+ f)), there
are other losses:
The area of the triangle F can be interpreted as the drop in
consumer surplus for those individuals who are no longer able to
consume the units between D1 and D2 because of the higher price.
We refer to this drop in consumer surplus as the consumption loss
for the economy.
The area of triangle D equals the increase in marginal costs for the
extra units produced and can be interpreted as the production loss
(or the efficiency loss) for the economy due to producing at
marginal cost above the world price.
© AD at UEF 67
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The deadweight burden of a tariff suggests that
society suffers from restricting trade.
This is the case for free trade.
Tariffs have fallen substantially under the
GATT (General Agreement on Tariffs and
Trade) and WTO (World Trade Organization).
© AD at UEF 68
The Impact of Import Tariff:

The Small-Country Case
Introducing a tariff
→ Domestic price increases
→ Domestic quantity supplied increases
→ Domestic quantity demanded falls
→ Increase of government revenues
Distributional effect
– surplus is transferred from the consumers to the
producers and the government
Consumers lose more than producers and government
win: deadweight loss
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Welfare Effects of a Tariff
Consumers of the imported good are worse off

(compared to free trade)
Producers of the imported good are better off
The government gains some revenue
Total surplus decreases, because the loss to
consumers is larger than the gains to the
producers and to the government
The decrease in total surplus is called the
deadweight loss of the tariff.

The Case of Tariffs – second-best arguments (continued)
Infant industries
– An attempt to nurture new activities via learning by
doing.
A temporary production subsidy probably
better.
Revenue
– Tariffs raise government revenue.
But there are better ways to do that.
Cheap foreign labour
– A non-argument – denies benefits of comparative
advantage
© AD at UEF 71
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Protectionist Policies: Tariff
Justification
Infant industry argument
– Protection for young domestic Cost of Tariffs
industry
Interfere with comparative
Employment argument advantage
– Protect domestic jobs
Reduced economic efficiency
Terms of Trade argument (case (generate 2 deadweight
for Big Country)
– Tariffs improve terms of trade losses for Economy)
Diversification and
Industrialization argument
Collect revenue to help!
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Protectionist Policies: Tariff
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Protectionist Policies: Tariff Example 2
The cost of producing a

T-shirt in Canada increases and
creates a social loss shown by
area C.
The decrease in the quantity of
imported T-shirts creates a social
loss shown by area E.
The tariff creates a social loss
(deadweight loss) equal to area C
+ E.
Instrument of Trade Policy: Quotas
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Other commercial policies: Types of Quotas
Embargo—complete ban on import of a

certain good.
Tariff Rate Quota (TRQ)—allows a certain
quantity of a good into a country at low or zero
tariff rate, but applies higher tariff to quantities
exceeding the quota.
Voluntary Export Restraint (VER)—an
indirect quota resulting from an exporting
country “voluntarily” limiting its exports.
© AD at UEF 76
US Import Quotas:
• Sugar
• Tobacco
• Peanuts & peanut butter
• Specific dairy products (e.g. powdered milk, baby
formula)
• Cotton
• Beef
• Animal feed
• Anchovies
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Welfare Effects of a Quota

Domestic demand and
supply of good M
Areas b and d represent

deadweight costs. How World price of M
about c, who gets these
“quota rents”?
Government, domestic
producers/importers or foreign
producers (VER)? That is,
who gets the licenses!
Husted/Melvin, © 2001, Addison Wesley Longman, Inc. All rights reserved.
The Effects of an Import Quota

Price
of Steel
Domestic
supply
Equilibrium
without trade
Domestic
Quota
supply
+
Import supply
Isolandian
price with
Equilibrium
quota
with quota
Price
World World
without =
price Imports price
quota Domestic
with quota
demand
S S D D
0 Q Q Q Q Quantity
of Steel
© AD at UEF
Imports
without quota
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© AD at UEF
81
Protectionist
Policies:
Quotas
Example 1
AFTER
QUOTA
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Protectionist Policies: Quotas
Winners, Losers, and Social Loss from an Import Quota
◦ When the Canadian government imposes an import tariff on
imported T-shirts:
◦ Canadian consumers of T-shirts lose.
◦ Canadian producers of T-shirts gain.
◦ Importers of T-shirts gain.
◦ Society loses: A deadweight loss arises.
◦ Figure 7.8 illustrates the winners and losers with an import
quota.
Protectionist Policies: Quotas Example 2
The import quota raises the price

of a T-shirt to $7 and decreases
imports.
Area B is transferred from
consumer surplus to producer
surplus.
Importers’ profit is the sum of the
two areas D.
The area C + E is the loss of total
surplus—a deadweight loss created
by the quota.
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Because the quota raises the domestic price above the
world price,
– domestic buyers of the good are worse off, and
– domestic sellers of the good are better off.
Import license holders are better off

– they make a profit from buying at the world
price and selling at the higher domestic price.
© AD at UEF
The Effects of
an Import
Quota
Price
of Steel
Domestic
supply
Equilibrium
without trade
Domestic
Quota
supply
A
+
Import supply
Isolandian
price with B
Equilibrium
quota
with quota
C D E'
Price E" F
World World
without =
price G Imports price
quota Domestic
with quota
demand
S S D D
0 Q Q Q Q Quantity
of Steel
© AD at UEF
Imports
without quota
42
42
With a quota, total

surplus in the market
decreases by an amount referred to as a
deadweight loss.
The quota can potentially cause an even larger
deadweight loss, if a political mechanism
such as lobbying is employed to allocate the
import licenses.
© AD at UEF
Tariffs v. Quotas
If government sells import licenses for full value,
– the revenue would equal that from an equivalent tariff
and
– tariffs and quotas would have identical results.
Otherwise, quotas are worse than

tariffs
43
43
The Lessons for Trade Policy
Both tariffs and import quotas . . .

– raise domestic prices.
– reduce the welfare of domestic consumers.
– increase the welfare of domestic producers.
– cause deadweight losses.
Tariffs vs. Quotas
If government sells import licenses for full

value,
– the revenue would equal that from an equivalent tariff and
– tariffs and quotas would have identical results.
Otherwise, quotas are worse than tariffs.
The Lessons for Trade Policy : Both tariffs and
import Quota
– raise domestic prices.
– reduce the welfare of domestic consumers.
– increase the welfare of domestic producers.
– cause deadweight losses.
44
44
Other commercial policies: Export Quotas

Voluntary Export Restraint (VER)—an indirect
quota resulting from an exporting country
“voluntarily” limiting its exports.
Market sharing pact, voluntary export restraint
agreement
To moderate the intensity of international
competition
Tend to be more costly than tariffs
© AD at UEF 90
Voluntary Export Restraints (VERs)

– With VERs, an importing country induces another
nation to reduce its exports voluntarily, under threat of
higher trade restrictions.
– Sometimes called orderly marketing arrangements,
VERs allow industrial nations to appear to support the
principle of free trade.
– Less effective in limiting imports than import quotas
because exporters tend to fill the quota with higher
quality, higher priced goods over time.
© AD at UEF 91
45
45
Voluntary Export Restraints (VERs)
Restriction of exports
– At request of importing country
– Usually specified as maximum quantity
This was the major form of protection for the
US auto industry in the 1980s: US persuaded
Japan to limit exports of cars to US
Illegal since 1995 under WTO rules
– But how to enforce
– Examples in 2012 that look like VERs
Effect is exactly like a quota allocated to

foreigners
© AD at UEF 92
A Voluntary Export Restraint in

Practice: Japanese Cars
For much of the 1960s and 1970s, the US car industry
was largely insulated from competition by the different
kind of cars bought by US and foreign consumers
US buyers, living in a large country with low gasoline
taxes, preferred much larger cars than Europeans and
Japanese
In 1979, however, sharp oil price increases and
temporary gasoline shortages caused the U.S. market to
shift abruptly toward smaller cars.
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46
Japanese producers moved in to fill the new demand.
As the Japanese market share soared and US output fell,
strong political forces in the US demanded protection
Rather than act unilaterally and risk creating a trade war,
the US government asked the Japanese government to
limit its exports
The Japanese, fearing unilateral US protectionist
measures, agreed to limit their sales

The first agreement, in 1981, limited Japanese exports to
the US to 1.68 million cars.
The price of Japanese cars in the US rose, with the rent
captured by Japanese firms.
The US government estimates the total costs to the US
to be $3.2 billion in 1984, primarily in transfers to Japan
rather than efficiency losses.
47
47
Instrument of Trade Policy: Subsidy
2. Export and Production Subsidies:
Government payments made to domestic firm to
encourage exports or production in general.
AD @ UEF 2018 96
Trade Policy Tools

WTO rules against Boeing in US subsidies case
The World Trade Organization (WTO) has ruled that a tax
break from Washington state to help Boeing develop its new
777X jetliner was a prohibited subsidy - a victory for Airbus
and EU regulators.
US aircraft manufacturer Boeing had received
forbidden subsidies for its 777X wide-body passenger jet, the
World Trade Organization (WTO) said Monday, as they
encouraged the use of domestic materials and fuel unfair trade
distortions.
The WTO said the subsidy came in the form of a renewed
cut in Washington state's main business tax for aeropsace
agreed in 2013, when Boeing was considering where to base
assembly its latest long-haul jet.
The trade body didn't give a value for the banned aid, but the
EU estimated it at $5.7 billion (5.2 billion euros) out of an
$8.7-billion package of tax measures granted to the
planemaker by Boeing's home state of Washington.
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48
Trade Policy Tools
WTO rules against Boeing in US subsidies case Boeing
added that it was confident the ruling would be overturned on appeal and
insisted its tax breaks were not nearly as high as the $22 billion Airbus
had received in subsidized loans by European governments.
War over subsidies
The ruling is WTO's third in the two aerospace giants' disputes over
illegal state aid. Mutual accusations involve tens of billions of
dollars allegedly received by the other.
European Union Trade Commissioner Cecilia Malmström welcomed the
ruling on Monday, calling for the prohibited tax break to be scrapped
immediately.
"We expect the US to respect the rules, uphold fair competition and
withdraw these subsidies without any delay," she said.
Meanwhile, Boeing's rival Airbus called for a fundamental solution to
the subsidies dispute. On Monday, Airbus Chief Executive Tom Enders
said in an emailed statement that the rivalry should no longer set the
"framework of reference in future," noting recent support by the Quebec
government for Canada's Bombardier.
Instrument of Trade Policy: Subsidy

2. Export and Production Subsidies:
Government payments made to domestic
firm to encourage exports or production in
general.
– Can also act as a barrier to trade.
February 8, 2016
The WTO’s decision to end agricultural export subsidies is good news
for farmers and consumers
In December 2015 at the World Trade Organization’s (WTO) 10th Ministerial Conference in
Nairobi, members finally agreed that export subsidies for agriculture would be abolished.
The agreement states that “developed country members shall immediately eliminate their
remaining scheduled export subsidy entitlements as of the date of adoption of this
decision” and “developing country members shall eliminate their export subsidy
entitlements by the end of 2018.” WTO members also “undertake not to provide export
credit, export credit guarantees, or insurance programs” for agricultural products. This is
the final step in a long journey to end
ADan
@absurd and harmful system
UEF 2018 99
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49
Subsidies
Government assistance to producers

– Export subsidy: paid only for exports
– Domestic subsidy: paid for all production (but
still increases exports or reduces imports)
Effect on the subsidizing country
– In competitive industries, country loses
– Subsidies usually are intended to benefit producers,
not country
– In non-competitive industries, result may be
different (recall Boeing-Airbus example)
Lecture 6: NTBs 100
Instrument of Trade Policy: Subsidies
Other commercial policies: Subsidies
– Outright cash disbursements, tax

concessions, insurance arrangements, and
loans at below-market interest rates
– From the government for producers
– To help improve their market position
– Provide domestic firms a cost advantage
Market products at prices lower than warranted
by their actual cost or profit considerations
AD @ UEF 2018 101
50
50
Instrument of Trade Policy: Subsidies
Other commercial policies: Subsidies (cont.)

Domestic production subsidy
– Granted to producers of import-competing
goods
Export subsidy
– Granted to producers of goods that are to be sold
overseas
Subsidy
– Net price received by the producer = price paid by
the purchaser + subsidy
AD @ UEF 2018 102
Instrument of Trade Policy: Export Subsidy

An export subsidy can also be specific or ad valorem:
– A specific subsidy is a payment per unit exported.
– An ad valorem subsidy is a payment as a proportion of the value exported.
When the government offers an export subsidy,
shippers will export the good up to the point at
which the domestic price exceeds the foreign price by
the amount of the subsidy.
An export subsidy raises the price in the exporting country,
decreasing its consumer surplus (consumers worse off) and
increasing its producer surplus (producers better off).
AD @ UEF 2018
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51
Export Subsidies
Export subsidies are paid to companies for exporting a given
product Such subsidies expands production and exports
– This increases profits in the favoured industries
– Lowers the price paid by foreigners
– Raises the price paid by domestic consumers of the
good The national well-being of the exporting country is
worse off
– This is an example of a policy that expands trade
beyond what is optimal: the country becomes more
engaged in international trade than is really warranted by
the data of the market
– Capital is misallocated as a result – toward the exporting industries and
away from industries producing for the domestic market
– Since imports and exports must balance, import-competing 10
4
industries are hurt Kristoffer J. M. Hansen, Institute for Economic Policy
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Subsidies: Are They Used?
YES!!
US, EU, Japan all have large subsidies on many
agricultural products
These reduce world prices and hurt producers of
these products in developing countries
Examples of US subsidies and whom they hurt:
– Corn: Mexico
– Sugar: Caribbean countries
– Cotton: Certain African countries
Lecture 6: NTBs 106
Export subsidies
Commercial policy to boost exports.
Consumption Production
loss Exports loss
Price
Sdom
A B Sw +
P’ subsidy
G E
P Sw
C F
Ddom
Qd’ Qd Qs Qs’ Quantity
4 International Trade Policy - 4.3 Other Commercial Policies 107
53
53
Instrument of Trade Policy:
Other commercial policies: Welfare effects of

export subsidy
– Higher output and price
Higher exports; Lower domestic consumption
– Domestic producers gain at the expense of the domestic
consumer and taxpayer
Decrease in the consumer surplus
Increase in the producer surplus

Taxpayer - bears the cost of export subsidy
– Deadweight loss of welfare
AD @ UEF 2018 108
Export subsidies
(cont.)
Under free trade,

domestic consumption
is Qd and production Qs
and exports are GE.
With a subsidy on exports alone, domestic producers will restrict supply to

the home market to Qd’ so that home consumers pay P’, the same as
producers can earn by exporting. Total output is Qs’, and exports AB.
Area EFB shows the social cost of producing goods
whose marginal cost exceeds the world price for
which they are sold.
Area CGA shows the social cost of restricting
consumption when marginal benefits exceeds the world 109
price of the good.

4 International Trade Policy - 4.3 Other Commercial Policies
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Export Subsidies
2 May 2022 Kristoffer J. M. Hansen, Institute for Economic Policy 11

0
Export Subsidies
• The subsidy raises the price received – in international markets –

to 120 from 100
• As a result, more is produced for exports – production increases
to 190 from 160
• Less is consumed, as producers can charge the same, higher price
at home
• Consumer loss is area e + f
• Producer gain is area e + f + g
• Government outlay is are f + g +
• h Net loss is f + h

1
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Export Subsidy
Competitive playing fields
Domestic Employment National Security
Because foreign imports are produced in Subsidizing the exports of domestic Export subsidies can also encourage
other countries by foreign workers, production "levels the competitive domestic production of goods that are
subsidizing exports and increasing playing field" compared to imports
deemed critical to the security of the
domestic production also increases produced by foreign workers who
receive lower wages. national economy.
domestic employment
Infant Industry Unfair Trade

If foreign imports compete with a relatively young Foreign imports might be sold at lower prices in the
domestic industry that is not mature enough nor large domestic economy because foreign producers engage in
enough to benefit from economies of scale, then unfair trade practices, such as "dumping" imports at prices
export subsidies protect the "infant industry" while it below production cost. Export subsidies once again seek to
matures and develops "level the competitive playing field.":
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loss total international
6% market share
48%
the Middle East
market share $50,000,000,000
7% subsidy
42% transatlantic
market share
34%
Case Study 9-4 Agricultural Subsidies in

OECD Countries
Salvatore: International Economics, 11th Edition © 2013 John Wiley & Sons, Inc.
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Europe’s Common Agricultural
Program
The EU has a massive export subsidy program
The CAP began not as an export subsidy, but as an effort
to guarantee high prices to farmers by having the EU buy
products when prices fell below support levels
To prevent this policy from drawing in imports, it was
initially backed by tariffs that offset the difference
between European and world prices ➔ to make imports
more expensive
Since the 1970s, however, the support prices set by the EU have turned out
to be so high that Europe—which, under free trade, would be an importer
of most agricultural products—was producing more than consumers were
willing to buy
AD @ UEF 2018
Europe’s Common Agricultural Program
The EU found itself obliged to buy and store huge

quantities of food.
In 1985, it had stored 780,000 tons of beef, 1.2 million
tons of butter, and 12 million tons of wheat.
To avoid unlimited growth in these stockpiles, the EU
turned to a policy of subsidizing exports to dispose of
surplus production.
So why does the EU continue with this policy?
AD @ UEF 2018
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58
Question: Bonus point
Actually, temporary production
subsidies rather than import tariffs are
some times suggested by economists.
WHY? What are the economic
effect of Subsidy on the welfare of Economy.
AD @ UEF 2018
Test Concept
1) Specific tariffs are
A) import taxes stated in specific legal statutes.
B) import taxes calculated as a fixed charge for each unit
of imported goods.
C) import taxes calculated as a fraction of the value of the
imported goods.
D) the same as import quotas.
E) import taxes calculated based solely on the origin
country.
AD @ UEF 2018
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AD @ UEF 2018
International Trade Policy:


Closely related to subsidies is the practice of dumping.
– Dumping takes place when a firm or an industry sells
products on the world market at price below the cost of
production.
March 7th, 2016

Government may extend anti-dumping duty on Chinese
Chemical
NEW DELHI: Government may re-impose anti-dumping duty of up to
USD 144 per ton on import of a chemical from China that is used in
several sectors including pottery and ceramics so as to safeguard
domestic industry from below cost in-bound shipments.
121
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60
Dumping
Dumping happens when goods are sold in export
markets for less than their “normal value”.
Generally this is taken to mean as less than their
price in domestic or third-country markets
Price-based dumping is when a firm sells a product in a
foreign market at a price below that for which the firm
sells in the domestic market
Cost-based dumping is when a firm sells a good in a foreign
market below its average total cost
Both are really examples of price discrimination – in favour
of the buyers of exports!
Kristoffer J. M. Hansen, Institute for Economic Policy 12
2
International Trade Policy:

Dumping is essentially price discrimination, in
which a producer sells a product to an export
market at a lower price than it sells it at home.
As such, it is often condemned as “unfair trade practice”
which accords exporters a competitive advantage over producers
of similar goods in the market of importation.
While the question of whether dumping is “unfair” or a legitimate

commercial practice remains highly controversial, anti-dumping
actions are permitted under the rules of the World Trade
Organisation and are used frequently by many nations
123
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61
AD @ UEF 2018
Trade Policy Tools

Trump orders probe into cheap steel imports, raises
prospect of new tariffs
"Dumping is a tremendous problem in this country," Trump said.
"They're dumping vast amounts of steel in our country, and
they're really hurting not only our country, but our companies."
Invoking national security interests, the Republican president
said: "Steel is critical to both our economy and our military.
This is not an area where we can afford to become
dependent on foreign countries."
Trump was elected to the White House on an
"America First" campaign vowing to rein in on foreign
trade practices and boost domestic manufacturing. That message
appeared to win him support in industrial states including Ohio,
Michigan and Pennsylvania. AD @ UEF 2018
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Trade Policy Tools
Solar tariffs on China are ‘counter-productive’ say experts
Stopping Chinese solar ‘dumping'
The move comes after complaints by European producers to the EU Commission,
that China is flooding Europe with cheap solar panels sold at below
the cost of production. Fast growth, rude awakening
The current trade war has been a long time coming. In the early 2000s, the solar
market grew exceptionally fast in places like Spain, Germany and Italy,
encouraged by government subsidies. That led to the emergence of new solar
manufacturers in Europe, the US and China, drastically increasing the number of
solar products being produced. But, as subsidies were cut, many manufacturers
found they were unable to make a profit in a market saturated with solar goods.
German-based company, SolarWorld claimed Chinese manufacturers were
getting unfair support from their governments and that they were selling panels
below cost. Many European competitors — led by SolarWorld – have charged that
Chinese competitors are underpricing them in order to keep their grip on the
lucrative European market.
Trade Policy Tools

EU announces tariffs on Chinese solar panels
The European Commission on Tuesday said it would begin
to apply a provisional staggered system of duties on
Chinese solar imports, in anticipation of possible talks
with Beijing.
EU Trade Commissioner Karel De Gucht said that an average levy of
11.8 percent would be applied from June 6, with the levy rising to 47.6
percent on August 6, unless a solution could be agreed.
"I want a fair solution with China," De Gucht said, adding
that the EU was keen to pursue a course of negotiation with
Beijing. "The ball is now in China's court. I want an amicable
solution with our Chinese partners."
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Trade Policy Tools
China retaliates despite calls to end trade row with EU China had informed
the European Commission that European chemicals companies, notably Belgian
group Solvay, were the focus of an anti-dumping investigation, France's daily
newspaper Les Echo reported Monday.
The move follows a complaint made by China two weeks ago against EU
companies that produce unwelded pipes, including French group Vallourec.
China accuses firms from the two sectors of selling their products below cost to
win market share and eliminate competitors. Trade experts see the Chinese
complaints as coming in retaliation to European Union anti-dumping
procedures.
Earlier this month, the EU Commission imposed a higher customs duty of
about 47 percent on Chinese solar panels, accusing Beijing of undercutting
market prices with hefty state subsidies. In addition, EU authorities announced a
probe into Chinese manufacturers of mobile network equipment amid claims they
sell their products at a loss.
Trade Policy Tools

China to scrap anti-dumping duties on US car imports China has
indicated it will stop levying punitive tariffs on many types of
vehicles imported from the United States. The duties were originally
directed in particular against General Motors and the Chrysler
Group.
China's Ministry of Commerce said on its website on Friday that
punitive measures related to US car imports would be terminated on
December 15.
The Asian country had started levying duties on US sedans and
sport-utility vehicles (SUVs) with engines of 2.5 liters and above
in what it said was in retaliation for unfavorable US trade
policies.
Beijing had argued carmakers such as General Motors (GM) and
Chrysler had received government subsidies and dumped their
vehicles onto the Chinese market, harming the domestic automotive
sector.
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Dumping:
– International price discrimination
– Foreign producers charge lower prices than
domestic producers for an identical product
After allowing for transportation costs and tariff
duties
– Selling in foreign markets at a price below
the cost of production
© AD at UEF 130
Dumping: Sporadic dumping (distress dumping)

– A firm disposes of excess inventories on
foreign markets
Selling abroad at lower prices than at home
– May be the result of misfortune or poor planning
– Beneficial to importing consumers
– Disruptive to import-competing producers
Persistent dumping
– Goes on indefinitely
– A producer may consistently sell abroad at lower
prices than at home
© AD at UEF 131
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Dumping: Predatory dumping
– A producer temporarily reduces the prices charged

abroad to drive foreign competitors out of business
– Acquiring a monopoly position
New higher prices – to offset any losses that occurred
during the period of cutthroat pricing
Prevent the entry of potential competitors
– Home governments - concerned

Retaliate with antidumping duties
© AD at UEF 132
Antidumping Regulations
Antidumping duty
– U.S. Department of Commerce
Foreign merchandise is being sold at less than fair
value (LTFV)
– U.S. International Trade Commission (ITC)
Determines that LTFV imports are
causing/threatening material injury
– Imposed in addition to the normal tariff
© AD at UEF 133
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66
Thực tiễn điều tra phòng vệ
thương mại của EU
(1995-2019)
Số vụ việc điều tra phòng vệ thương mại do EU tiến hành
1995-2019
70
66
60
50
40
40
35
33
31
29
30 27
25 24 24
20 20
20 18 17
15 15 14 14
13 12 11
9 9 8
10 7
5 5 6 6 6
3 3 4 45 5
12 22 2 2 2 2 23
00 00 0 0 0 00 0 1 01 10 00 0 0 1 0 0 0 0 0 10 0 0
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Anti-Dumping Anti-Subsidy Safeguard
Nguồn: European Commission – https://trade.ec.europa.eu/ |4
Thực tiễn điều tra phòng vệ

thương mại của EU (1995-2019)
Các sản phẩm bị điều tra Nước bị điều tra nhiều nhất
nhiều nhất
161 vụ
(148 AD, 10 CVD, 3
SG)
188 vụ
Trung Quốc Chiếm khoảng 30%
Chiếm 31%
Sắt thép
(Iron & Steel)
Đối với Việt Nam
11 vụ
(10 AD, 1 CVD)
Việt Nam
148 vụ
Chiếm 25% Vụ việc lớn nhất Thuế chống bán phá giá đối
Hóa chất và các sản với
phẩm liên quan giày mũ da (2005 – 2010)
Vụ việc ảnh Thuế chống bán phá giá đối
(Chemicals)
hưởng nặng với
nề nhất xe đạp
|
13
5
67
67
Part II : Non- Tariff Barriers
136
AD @ UEF 2021
Outline: Nontariff Barriers

What Are NTBs?
Quotas
– Effects Equivalent to Tariffs
– Who Gets the Rents
Other NTBs
– Tariff-Rate Quotas
– Voluntary Export Restraints (VERs)
– Variable Levies
– Government Procurement Regulations
– Customs Procedures
– Standards
– Unfair Trade Laws
– Export taxes
Subsidies
Lecture 6: NTBs 137
68
68
Nontariff Barriers to
Imports
Nontariff barriers to imports are any policies used by the
• government to reduce imports other than tariffs
An NTB reduces imports through one or more of the
• following direct effects:
– Limiting the quantity of imports

– Increasing the cost of getting imports to market
– Creating uncertainty about whether imports will be
• permitted
As tariffs have been reduced through GATT and
WTO agreements, NTBs have become more
important
13
8
Kristoffer J. M. Hansen, Institute for Economic Policy
Types of NTBs

9
69
69
NON-TARIFF BARRIERS
TO T R A D E
• Non-tariff barriers to trade (NTBs) are trade barriers that

restrict imports or exports of goods or services through
mechanisms other than the simple imposition of tariffs.
• They may take the form of import quotas, subsidies,

customs delays, technical barriers, or other systems
preventing or impeding trade
Non-tariff barriers to trade can arise from
Import bans
Quality conditions imposed
Complex regulatory environment
Determination of eligibility
Additional trade documents
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Inspection density is too Strict quality standards
high
Long-lasting, reusable and High-quality requirements,

repairable. environmentally friendly.
Non –Tariff barriers:

delays at border
quality and safety control measures
even standards some times... and
The European Union and Canada have

responded angrily to the 'Buy American' clause
in President Obama's $825bn economic
stimulus package.
Will 'buying American' They claim it could lead to protectionist trade
cause more harm than practices and help spark a new trade war.
good? Philippa Thomas reports from Washington 3 February 2009
© AD at UEF 143
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71
Nhiều doanh nghiệp, nông dân trồng
thanh long ruột đỏ xuất khẩu đi Nhật
đang "ngồi trên lửa" với quy định mới
về mã số vùng trồng.
Cái khó là chỉ có giống thanh long ruột đỏ LD1
mới được Nhật chấp nhận nhập khẩu, mà giống này
lại thuộc sở hữu của một công ty tư nhân tại Long
An. Do yêu cầu quá gấp và phức tạp nên không ít
doanh nghiệp phải đem thanh long xuất khẩu ra bán
tại các chợ đầu mối, thiệt hại đơn hàng xuất khẩu
không nhỏ. Như... trên trời rơi xuốngGiữa tháng
1 vừa qua, Công ty TNHH chế biến trái cây Yasaka
(chuyên xuất khẩu trái cây đi Nhật Bản) gặp vấn đề
khi 5 container (khoảng 70 tấn) thanh long ruột đỏ
trị giá 190.000 USD xuất đi Nhật... bị vướng rào
cản bất ngờ. Đó là thông báo từ Trung tâm Kiểm
dịch thực vật sau nhập khẩu II (thuộc Cục Bảo vệ
thực vật) về việc áp dụng mã số vùng trồng cho trái
thanh long ruột trắng và thanh long ruột đỏ khi xuất
khẩu qua thị trường Nhật Bản.
© AD at UEF 144
Challenged sectors
Wooden
o Woodchip products have a preferential export tax rate of 0%.
o Require original C/O ( EUR.1)
 Enhancing control of supply
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72
Challenged sectors
Fishery
o Many big competitors.
o When the agreement came

into force, 50% of tariff lines
were eliminated.
o Non-tariff barriers, SPS, TBT
o Vietnam's seafood got a

yellow card.
 Improve product quality.

 Quickly remove the yellow card.
Government Procurement Regulations

“Buy American” was part of the Stimulus Package of the US in
2009
– Congress would have imposed broad restrictions
– Obama got them to restrict only when not contrary to US commitments
under trade agreements
– Even so, result was broadly restrictive, because purchasers were not sure
of rules, so avoided imports
– Result was also that other countries included similar provisions in their
stimulus packages
– See reading by Hufbauer and Schott.
“Buy American” was said in President Trump’s
Inauguration Speech, Jan 20
© AD at UEF 147
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Other NTBs:
Unfair Trade Laws
The (legal) threat and use of
– Anti-Dumping Duties
– Countervailing Duties
We’ll say more about this later, in lecture about U.S.
Trade Policies
These are NTBs if
– “Unfair trade” is actually normal trade (it usually is)
– The threat of action discourages trade, even when duties are
not levied (the “chilling effect”)
Lecture 6: NTBs 148
Non –Tariff barriers: Standards

All countries also have standards, for
– Health and safety (e.g., no lead paint)
–Compatibility (e.g., 110 volt appliances)
They become NTBs when biased against
imports in
– Substance of the requirement
– Procedures for certifying compliance
© AD at UEF 149
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74
Occupational safety and health regulation
Employment law
Import licenses
State subsidies, , procurement, trading, state

ownership
Export subsidies
TECHNICAL BARRIERS
Technical Barriers—Technical barriers to trade (TBT) refer

to technical regulations and voluntary standards that set
its size,
out specific characteristics of a product, such as
shape, design,v..v..., or the way a product is
labelled or packaged before it enters the
marketplace.
75
75
TECHNICAL BARRIERS
easily select and ensure mass easily exchange and

use products production in large negotiate to buy and
with quality scale sell products
specifications
TECHNICAL BARRIERS
Barriers to technical standards of governance
76
76
Các biện pháp phi
thuế
Non tariff measures
Thủ tục hợp pháp hóa lãnh sự giấy tờ thương mại: Bỏ ngay
Consular legalization requirement is to be immediately removed
Thủ tục hải quan/Custom procedures:
▪ Nỗ lực giải phóng hàng trong 48 giờ (6 giờ với hàng dễ

hỏng)/ Endeavour to rease goods within 48 hours (6 hours for perishable
goods)
▪ Thúc đẩy đơn giản hóa thủ tục hải quan, hải quan điện tử/
Promote simplification of custom procedures and e-customs
▪ Phương pháp quản lý rủi ro/ Risk management method
Các biện pháp phi thuế (tiếp)
Non tariff measures (cont.)

Phòng vệ thương mại
Trade remedies
▪ Không sử dụng phương pháp “Quy về 0” (Zeroing) trong

điều tra chống bán phá giá, chống trợ cấp/ Zeroing in anti-
dumping and anti-subsidy investigations is prohibited
▪ Biện pháp tự vệ trong giai đoạn chuyển tiếp/ Transitional

safeguard measure
TBT, SPS
▪ Minh bạch/ Transparency
▪ Công nhận tương đương/ Mutual recognition
▪ Căn cứ trên các tiêu chuẩn quốc tế/ Based on international
standards
77
77
➢Ứng phó với các rào cản, quy định mới
là không dễ... / Coping with new regulations and barriers is no
easy task...
o Khó phát triển nếu không chủ động nâng cao nhận thức, thói quen tìm hiểu
thị hiếu và quy định của thị trường Trung Quốc / Improving awareness and
skills is imperative to penetrate Chinese market
• Đặc biệt là nếu chỉ duy trì cách làm tiểu ngạch, thiếu gắn kết, ... / Adaptation to
formal
channels and business linkages, etc.
o Khó phát triển nếu không điều chỉnh chiến lược kinh doanh phù hợp, gắn
với đề xuất hỗ trợ (không trái cam kết) từ các Bộ, ngành và cơ quan địa
phương; /
Adjustment of business strategies, together with proposal for legitimate supports from
Ministries, line
authorities and local governments;
o Khó phát triển nếu doanh nghiệp không chủ động kiến nghị, tháo gỡ những
bất cập chính sách (bởi cơ quan nhà nước khó tự rà soát hết được). / Active
proposals to address regulatory constraints (as self-review by government agencies hardly
suffice).
EXAMPLE
EU has adopted a series of directives

that establish essential requirements
for a whole variety of equipment
The purpose of such regulations

include: electrical safety,
electromagnetic compatibility, user
safety and quality of communications.
78
78
Administrative and bureaucratic delays at the entrance
• These procedures become barriers to market

entry if their use is arbitrary and left to the
judgment of customs officers.
• Voluminous and complicated document

requirements and excessive delays in customs
clearance due to human and technical factors
serve as non-tariff barriers.

Customs Procedures All countries have customs procedures
for maintaining border security and collecting tariffs
They become NTBs when
– Excessive difficulty, or red tape, limits imports
– Rules impose artificially high valuation for ad valorem tariffs
local content requirement : a regulation that requires a
specified fraction of a final good to be produced
domestically
Viewpoints
• domestic producers
o protects like import quota
• firms w/ local content mandate
o no strict import limit
o© AD↑(home
at UEF parts) → ↑imports 159
79
79
Local Content Requirement
A local content requirement is a regulation that requires a
specified fraction of a final good to be produced domestically.
It may be specified in value terms, by requiring that some
minimum share of the value of a good represent home value
added, or in physical units.
AD @ UEF 2018
Local Content Requirement

From the viewpoint of domestic producers of inputs, a local
content requirement provides protection in the same way that an
import quota would.
From the viewpoint of firms that must buy home inputs, however,
the requirement does not place a strict limit on imports, but allows
firms to import more if they also use more home parts.
Local content requirement provides neither government revenue
(as a tariff would) nor quota rents.
Instead, the difference between the prices of home goods and
imports is averaged into the price of the final good and is passed
on to consumers.
80
80
American buses, made in Hungary
• In 1995, sleek new buses began rolling onto the

streets of Miami and Baltimore.
• Probably very few riders were aware that these buses
had been made in Hungary, of all places. Why
Hungary?
• Some clever Hungarian investors’ realised that there
is a loophole in the Buy American Act, originally
passed in 1933.
THE REASON
Governments offer barriers to encourage
domestic production, encourage import
and export and stabilize their economies.
It also creates favorable conditions for

business organizations to participate in
international labor division, expand
import, export activities and protect the
domestic market
Especially due to uneven economic

development, countries maintain trade
barriers to protect domestic production.
81
81
Other Trade Policies
Sanctions, bans, and the politics of trade policies
Summary:
Choose 1 trade tool that benefit the Economy
In the long run ? ( Social welfare, Job Creation,
Social Stability, Local Economy, Production
© AD at UEF
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AD International Economic 2023 Day 4 Trade Policy

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International Economic Course

Day 4: Trade Policy: Free trade

Anh Duy Nguyen, PhD. International Economics

Up to this point, we have explored the benefits of unrestricted

Free Trade Versus Protectionism

The case for free trade

According to critics of agricultural protectionism,

Free Trade Versus Protectionism

Tariffs and quotas have deadweight losses and

Free trade boosts dynamic efficiency

It was also agreed that the two countries would “immediately

Free Trade Versus Protectionism

Yet for hundreds of years the nations of the

Free Trade Versus Protectionism

The Lure of Protectionism:

Free Trade Versus Protectionism

1/ The infant industry argument

Domestic market failure: examples

Persistently high under-utilization of structures,

Which Industries Are Protected?

Clothing: textiles (fabrication of cloth) and apparel (assembly of

World economy gains when countries first begin

Instrument of Trade Policy

Instrument of Trade Policy

Tổng thống Mỹ Joe Biden cầm

Instrument of Trade Policy

"Bangladesh hiện là nhà vô địch toàn cầu trong

Instrument of Trade Policy

Lĩnh vực thời trang cũng đang chuẩn bị thực

Next we will consider different commercial policies

Instrument of Trade Policy

Most Common Trade Barriers:

February 12, 2016

Instrument of Trade Policy

Most Common Trade Barriers: What are Tariffs?

Free Trade Versus Protectionism

Vietnam imposes high tariffs to save jobs..

Consumer and Producer Surplus

Instrument of Trade Policy: Tariffs

Instrument of Trade Policy: Tariffs

Sdom Ddom & Sdom show the domestic

If the world price is Pw,

The Welfare Analysis of a Tariff

But where The government raises

Welfare under free trade

Producer Surplus after Tariff

Effects of Tariff on Social Welfare

❑ d/Production distortion loss – too much produced at higher

When we add together all these effects – the drop in consumer

Instrument of Trade Policy: Tariffs

The Impact of Import Tariff:

Consumers of the imported good are worse off

Instrument of Trade Policy: Tariffs

Protectionist Policies: Tariff

The cost of producing a

Instrument of Trade Policy: Quotas

Embargo—complete ban on import of a

Welfare Effects of a Quota

Areas b and d represent

Husted/Melvin, © 2001, Addison Wesley Longman, Inc. All rights reserved.

The Effects of an Import Quota

Protectionist Policies: Quotas Example 2

The import quota raises the price