CSTMQT C3 - Import Policy - Preclass Handouts

International Trade Policy PhD.
Tran Nguyen Chat
INTERNATIONAL TRADE POLICY
Lecturer: PhD. Tran Nguyen Chat

Division: International Business and Trade
Email: trannguyenchat.cs2@ftu.edu.vn
FOREIGN TRADE UNIVERSITY

HOCHIMINH CITY CAMPUS
1
Chapter 3
IMPORT POLICY
FTU-HCMC 1
International Trade Policy PhD. Tran Nguyen Chat
Chapter outline
3.1. The purpose and role of imports

3.2. Basic principles and import policies of
Vietnam
3.3. Measures for import management
3.3.1. Import Tax
3.3.2. Groups of non-tariff measures and
tools
Roles of Import
i. Facilitating the national economic structure

transfer in the direction of industrialization and
modernization;
ii. Making prompt supplement to imbalanced
aspects of the national economy in order to
gain a balanced and sustainable economy;
iii. Improving people’s life and incomes;
iv. Promoting exports.
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Basic principles and import policies
i. Using the country’s import capital

economically, reasonably and efficiently;
ii. Importing advanced and modern machines
and equipment suitable with Vietnam’s
conditions;
iii. Protecting and promoting the development of
domestic production, boosting exports.
Arguments for trade restrictions
• Job protection
• Protect against cheap foreign labor
• Fairness in trade - level playing field
• Protect domestic standard of living
• Equalization of production costs
• Infant-industry protection
• Political and social reasons
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What Is Free Trade?
Free trade occurs when governments do

not attempt to restrict what citizens can buy
from another country or what they can sell
to another country
many nations are nominally committed to free
trade, but intervene to protect the interests of
politically important groups
Why Do Governments Intervene In

Markets?
• Benefits of free trade come in the long

term, and are usually spread widely across
society
• Costs of free trade are felt rapidly and are
usually concentrated in specific sectors of
the economy
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Tariff measures
Import Tariff is an indirect tax imposed on

commercial and non-commercial goods
eligible to move across the country’s customs
border/territory.
Import Tariff is a tax levied on imports that

effectively raise the cost of imported products
relative to domestic products .
Tariff measures
A tariff is a tax (duty) levied on products as they

move across customs borders
Transaction/ movement of goods
– Import tariff - levied on imports
– Export tariff - levied on exported goods as they leave
the country
Main Purpose
– Protective tariff - designed to insulate domestic
producers from competition
– Revenue tariff - intended to raise funds for the
government budget (no longer important in industrial
countries)
10
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Types of tariff
• Specific tariff
– Fixed monetary fee per unit of the product
• Ad valorem tariff
– Levied as a percentage of the value of the
product
• Mixed tariff
– A combination of the above, often levied on
finished goods whose components are also
subject to tariff if imported separately
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Tariff measures
Tariffs
➢ increase government revenues
➢ force consumers to pay more for certain
imports
➢ are pro-producer and anti-consumer
➢ reduce the overall efficiency of the world
economy
12
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Costs and Benefits of Tariffs

• A tariff raises the price of a good in the importing
country, so we expect it to hurt consumers and
benefit producers there.
• In addition, the government gains tariff revenue from
a tariff.
• How to measure these costs and benefits?
• We use the concepts of consumer surplus and
producer surplus.
13
Tariff welfare effects
• Consumer surplus measures the amount that a

consumer gains from a purchase by the difference in
the price he pays from the price he would have been
willing to pay.
– The price he would have been willing to pay
is determined by a demand (willingness to
buy) curve.
– When the price increases, the quantity demanded
decreases as well as the consumer surplus.
14
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Tariff welfare effects
• Producer surplus measures the amount that a

producer gains from a sale by the difference in the
price he receives from the price he would have been
willing to sell at.
– The price he would have been willing to sell at is
determined by a supply (willingness to sell) curve.
– When price increases, the quantity supplied increases as
well as the producer surplus.
15
Costs and Benefits of Tariffs

• A tariff raises the price of a good in the importing
country, making its consumer surplus decrease
(making its consumers worse off) and making its
producer surplus increase (making its producers
better off).
• Also, government revenue will increase.
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Consumer and producer surplus
17
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Tariff trade and welfare effects
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Who pays for import restrictions?
• Domestic consumers face increased costs

Low-income consumers are especially hurt by
tariffs on low-cost imports
• Overall net loss for the economy (deadweight
loss)
• Export industries face higher costs for inputs
• Cost of living increases
• Other nations may retaliate, further restricting
trade
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Why Do Governments
Intervene In Markets?
There are two main arguments for

government intervention in the market
1. Political arguments - concerned with
protecting the interests of certain groups
within a nation (normally producers), often at
the expense of other groups (normally
consumers)
2. Economic arguments - concerned with
boosting the overall wealth of a nation –
benefits both producers and consumers
10
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What Are The Political Arguments For

Government Intervention?
1. Protecting jobs - the most common political

reason for trade restrictions
results from political pressures by unions or

industries that are "threatened" by more efficient
foreign producers, and have more political clout
than consumers
11
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What Are The Political Arguments

For Government Intervention?
2. Protecting industries deemed important

for national security - industries are often
protected because they are deemed
important for national security
12
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What Are The Political Arguments

3. Retaliation for unfair foreign competition - when

governments take, or threaten to take, specific
actions, other countries may remove trade
barriers
➢ if threatened governments do not back down,
tensions can escalate and new trade barriers may
be enacted
➢ risky strategy
4. Protecting consumers from “dangerous”
products – limit “unsafe” products
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5. Furthering the goals of foreign policy -

preferential trade terms can be granted
to countries that a government wants
to build strong relations with
trade policy can also be used to punish

rogue states
14
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6. Protecting the human rights of

individuals in exporting countries –
through trade policy actions
7. Protecting the environment –
international trade is associated with a
decline in environmental quality
➢ concern over global warming
➢ enforcement of environmental regulations
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What Are The Economic Arguments For

1. The infant industry argument - an industry
should be protected until it can develop and
be viable and competitive internationally
➢ accepted as a justification for temporary trade
restrictions under the WTO
16
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What Are The Economic Arguments

Question:
When is an industry “grown up”?
Critics argue that if a country has the potential
to develop a viable competitive position,
its firms should be capable of raising
necessary funds without additional support
from the government
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27
What Are The Economic Arguments

2. Strategic trade policy – first-mover

advantages can be important to success
➢ governments can help firms from their
countries attain these advantages
➢ governments can help firms overcome
barriers to entry into industries where
foreign firms have an initial advantage
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Politics of protectionism
• “Supply” of protectionism (trade policy)
depends on:
– the cost to society of restricting trade
– the political importance of the import-competing
industries
– Magnitude of the adjustment costs from free trade
– Public sympathy for those sectors hurt by free
trade
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Politics of protectionism
• “Demand” for protectionism depends on:

– The amount of the import-competing industry’s
comparative disadvantage
– The level of import penetration
– The level of concentration in the affected sector
– The degree of export dependence in the sector
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When Should Governments

Avoid Using Trade Barriers?
Paul Krugman argues that strategic trade

policies aimed at establishing domestic firms
in a dominant position in a global industry
are:
beggar-thy-neighbor policies that boost

national income at the expense of other
countries
countries that attempt to use such policies will
probably provoke retaliation 19
31
When Should Governments

Avoid Using Trade Barriers?
Krugman argues that since special interest

groups can influence governments, strategic
trade policy is almost certain to be captured
by such groups who will distort it to their own
ends
20
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Tariffs
Export-import goods tariff nomenclature

(schedule):
o Each country has an export-import goods
tariff nomenclature/Schedule
o VN tariff is based on HS
o There are export tax rate & import tax rate
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Effective rate of protection
• The impact of a tariff is often different from

its stated amount
• The effective tariff rate measures the total
increase in domestic production that the
tariff makes possible, compared to free
trade
– Domestic producers may use imported inputs
or intermediate goods subject to various
tariffs, which affects the calculation
34
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Effective rate of protection

• When tariff rates are low on raw materials
and components, but high on finished
goods, the effective tariff rate on finished
goods is actually much higher than it
appears from the nominal rate
• This is referred to as tariff escalation
35
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Tariffs
Tax rates for imported goods:
a) Preferential tax rates (MFN tax rate):

Preferential tax rates are the rates applicable to
imported goods originated from countries or
groups of countries which have reached
agreements on most-favored-nation (MFN)
treatment in trade relations with Vietnam.
Preferential tax rates are specified for every
goods item in the Preferential Import Tariffs.
36
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Tariffs
Tax rates for imported goods :

b) Specially preferential tax rates (FTA tax rate):
Specially preferential tax rates are the rates applicable
to imported goods originated from the countries or
groups of countries those have reached agreements
with Vietnam on specially preferential import tax rates
under the institution of free trade areas, tariffs
alliance, or aiming to facilitate border trade exchanges
and other cases of specially preferential treatment.
Specially preferential tax rates shall be applicable
specifically to every goods item according to the
provisions of the agreements.
37
Tariffs
Tax rates for imported goods :

c) Ordinary tax rates:
• Ordinary tax rates are the rates applicable to
imported goods originated from countries or groups
of countries with which Vietnam has not reached any
agreement on MFN or on specially preferential import
tax rates.
• Ordinary tax rate is 50% (fifty percent) higher than
the preferential tax rate of each goods item specified
in the Preferential Import Tariffs Nomenclature (or
equal to 150% MFN rate)
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Customs Valuation
Concept:
• The Customs value on imported goods is
determined mainly for the purpose of
applying ad valorem duties.
• Constitutes the taxable basis for Customs
duties.
• An essential element for trade statistics, for
monitoring quantitative restrictions, tariff
preferences and for collecting internal
national taxes, etc.
39
Customs Valuation
Valuation methods:
1. The transaction value of the imported
goods
2. The transaction value of identical goods;
3. The transaction value of similar goods;
4. The deductive value method;
5. The computed value method;
6. The fall-back method.
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INDIRECT DUTIES FOR

IMPORTED OR EXPORTED GOODS
For imported goods:

1. Import Duty
2. Additional Import Duty (anti-dumping duties,
countervailing duties, safeguard duties, non-
discrimination duties or a kind of retaliation
duties)
3. Excise Duty
4. Environmental Protection Duty
5. Value Added Tax
For exported goods: Export Duty
41
Non-tariff measures
Non-tariff measures (NTMs)

vs.
Non-tariff barriers (NTBs)
42
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Non-tariff measures
Some popular NTMs:
• Quantitative restrictions: prohibition, quota, import licensing
(non-automatic license)
• Trading rights
• Para-tariff measures: surcharge, customs valuation
• Price control
• Technical measures (Technical Barriers to Trade – TBT)
• Distribution restrictions
• Trade-related investment measures
• Administrative procedures
• Trade remedies (anti-dumping, countervailing, safeguard
measures)
→Trends of tariffication 3
43
WTO AGREEMENTS: GATT 1994
1. Agriculture (AoA)
2. Sanitary and Phytosanitary Measures (SPS)
3. Textiles and Clothing Note (terminated on 1 Jan 2005)
4. Technical Barriers to Trade (TBT)
5. Trade-Related Investment Measures (TRIMs)
6. Anti-dumping (Article VI of GATT 1994) (ADA)
7. Customs valuation (Article VII of GATT 1994) (ACV)
8. Preshipment Inspection
9. Rules of Origin (ROO)
10. Import Licensing (ILP)
11. Subsidies and Countervailing Measures (SCM)
12. Safeguards
13. Trade facilitation (TFA)
Government procurement: a plural agreement
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Non-tariff measures
Sanitary and Phytosanitary Measures:

• Measures that are applied to protect human
or animal life from risks arising from:
additives, contaminants, toxins or disease-
causing organisms in food.
• Geographical restrictions on eligibility:
Imports of dairy products from countries.
45
Non-tariff measures
Technical Barriers to Trade:

• Measures referring to technical regulations,
and procedures for assessment of
conformity with technical regulations and
standards.
• Labelling requirements. Eg: Refrigerators
need to carry a label indicating their size,
weight and electricity consumption level.
46
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Import quotas
• Quotas are a restriction on the quantity of a
good that may be imported in any one period
(usually below free-trade levels)
• Global quotas restrict the total quantity of an
import, regardless of origin
• Selective quotas restrict the quantity of a good
coming from a particular country
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47
Import Quota
• An import quota is a restriction on the quantity of a
good that may be imported.
• This restriction is usually enforced by issuing
licenses to domestic firms that import, or in some
cases to foreign governments of exporting countries.
• A binding import quota will push up the price of the
import because the quantity demanded will exceed
the quantity supplied by domestic producers and
from imports.
48
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Import Quota
• When a quota instead of a tariff is used to
restrict imports, the government receives no
revenue.
– Instead, the revenue from selling imports at high
prices goes to quota license holders: either
domestic firms or foreign governments.
– These extra revenues are called quota rents.
49
Import Quota
50
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Import Quota
51
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Tariff-rate quota
• The tariff-rate quota is a two-tiered tariff
– A specified number of goods (up to the quota
limit) may be imported at one (lower) tariff rate,
while imports in excess of the quota face a higher
tariff rate
52
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Tariff-rate quota: trade & welfare effects
53
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Voluntary Export Restraint

• A voluntary export restraint works like an
import quota, except that the quota is imposed
by the exporting country rather than the
importing country.
• However, these restraints are usually
requested by the importing country.
• The profits or rents from this policy are earned
by foreign governments or foreign producers.
– Foreigners sell a restricted quantity at an
increased price.
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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 domestic valued added, or in physical
units.
• Often has the effect of forcing lower-priced imports
to include higher-cost domestic components or be
assembled in a higher-cost domestic market
55

• 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
domestic inputs, however, the requirement
does not place a strict limit on imports, but
allows firms to import more if they also use
more domestic parts.
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• Local content requirement provides neither
government revenue (as a tariff would) nor quota
rents.
• Instead the difference between the prices of
domestic goods and imports is averaged into the
price of the final good and is passed on to
consumers.
57
Main instruments of trade restrictions
All four trade policies benefit producers and

hurt consumers.
Subsidy and VER definitely hurt the nation
as a whole, while tariffs and import
quotas are potentially beneficial only for
large countries that can drive down
world prices.
Why, then, do governments so often act to
limit imports or promote exports?
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Dumping
• The practice of selling a product at a lower
price in export markets than at home (or
exporting at prices below production cost)
– Sporadic dumping - to clear unwanted inventories
or cope with excess capacity
– Predatory dumping - to undermine foreign
competitors
– Persistent dumping - reaping greater profits by
engaging in price discrimination
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Dumping
Dumping is a situation of international price discrimination,

where the price of a product when sold in the importing
country is less than the price of that product in the market
of the exporting country.
Thus, in the simplest of cases, one identifies dumping simply
by comparing prices in two markets.
However, the situation is rarely, if ever, that simple, and in
most cases it is necessary to undertake a series of
complex analytical steps in order to determine the
appropriate price in the market of the exporting country
(known as the “normal value”) and the appropriate price
in the market of the importing country (known as the
“export price”) so as to be able to undertake an
appropriate comparison. 60
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Other NTBs
• Social regulations (health, environmental

and safety rules can also restrict trade)
• Sea transport and freight restrictions
61
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The effects of Trade Policy:

Summary
1. A tariff drives a wedge between foreign

and domestic prices, raising the
domestic price but by less than the tariff
rate.
An important and relevant special case,
however, is that of a “small” country that
cannot have any substantial influence on
foreign prices.
In the small country case, a tariff is fully
reflected in domestic prices. 62
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Summary
2. The costs and benefits of a tariff or other

trade policy may be measured using the
concepts of consumer surplus and
producer surplus.
Using these concepts, we can show that the
domestic producers of a good gain because
a tariff raises the price they receive; the
domestic consumers lose, for the same
reason. There is also a gain in government
revenue. 63
63

Summary
3. If we add together the gains and losses from a

tariff, we find that the net effect on national
welfare can be separated into two parts:
On one hand is an efficiency loss, which results from the
distortion in the incentives facing domestic
producers and consumers.
On the other hand is a terms of trade gain, reflecting the
tendency of a tariff to drive down foreign export
prices.
In the case of a small country that cannot affect
foreign prices, the second effect is zero, so that
64
there is an unambiguous loss.
64
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Summary
4. The analysis of a tariff can be readily adapted to

analyze other trade policy measures, such as
export subsidies, import quotas, and voluntary
export restraints.
An export subsidy causes efficiency losses similar to
those of a tariff but compounds these losses by
causing a deterioration of the terms of trade.
Import quotas and voluntary export restraints differ from
tariffs in that the government gets no revenue.
Instead, what would have been government
revenue accrues as rents to the recipients of
import quota and to foreigners (VER). 65
65
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International Trade Policy PhD.

Tran Nguyen Chat

INTERNATIONAL TRADE POLICY

Lecturer: PhD. Tran Nguyen Chat

FOREIGN TRADE UNIVERSITY

3.1. The purpose and role of imports

i. Facilitating the national economic structure

Basic principles and import policies

i. Using the country’s import capital

Arguments for trade restrictions

What Is Free Trade?

Free trade occurs when governments do

Why Do Governments Intervene In

• Benefits of free trade come in the long

Import Tariff is an indirect tax imposed on

Import Tariff is a tax levied on imports that

A tariff is a tax (duty) levied on products as they

Costs and Benefits of Tariffs

Tariff welfare effects

• Consumer surplus measures the amount that a

Tariff welfare effects

• Producer surplus measures the amount that a

Costs and Benefits of Tariffs

Consumer and producer surplus

Tariff trade and welfare effects

Who pays for import restrictions?

• Domestic consumers face increased costs

There are two main arguments for

What Are The Political Arguments For

1. Protecting jobs - the most common political

results from political pressures by unions or

What Are The Political Arguments

2. Protecting industries deemed important

What Are The Political Arguments

3. Retaliation for unfair foreign competition - when

What Are The Political Arguments For

5. Furthering the goals of foreign policy -

trade policy can also be used to punish

What Are The Political Arguments For

6. Protecting the human rights of

What Are The Economic Arguments For

What Are The Economic Arguments

What Are The Economic Arguments

2. Strategic trade policy – first-mover

• “Demand” for protectionism depends on:

When Should Governments

Paul Krugman argues that strategic trade

beggar-thy-neighbor policies that boost

When Should Governments

Krugman argues that since special interest

Export-import goods tariff nomenclature

Effective rate of protection

• The impact of a tariff is often different from

Effective rate of protection

Tax rates for imported goods:

a) Preferential tax rates (MFN tax rate):

Tax rates for imported goods :

Tax rates for imported goods :

INDIRECT DUTIES FOR

For imported goods:

Non-tariff measures (NTMs)

WTO AGREEMENTS: GATT 1994

Sanitary and Phytosanitary Measures: