Chapter 1:

International Trade
INTERNATIONAL Concepts
TRADE
Lecturer: Tran Huong Linh
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 WHERE ARE WE?

PART 1 PART 2 PART 3 PART 4

Introduction & International International International

overview trade theories trade policies trade integration

● Introduction ● The Ricardian Model ● Tariff ● VN Integration in WTO

● Overview of ● The Heckscher-Ohlin ● Non-tariff barriers ● VN Integration in ASEAN
International Trade Model ● Political economy of ● VN Integration into FTAs
● The Standard Trade Model Trade policy
● Modern Trade Theories ● Trade policy in
developing countries
● Controversies

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WHAT WE EXPLORE TODAY

What is international trade?

What are international trade activities?

Why do nations trade?

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Do you know what is one of the
most historic examples of
international trade?

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That's the SILK ROAD!

The Silk Road was an important trade route for over 2,000 years,
connecting Asia with Europe via the Middle East.

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1 1.1. International trade concepts

What is international 1.2. International trade vs Domestic

trade? trade
International Trade Concepts

● The exchange across national borders of goods and

services.
○ Trade in goods
○ Trade in services
● Small and large, developing and developed countries
rely on trade
● A branch of International economics
○ A foundation for economic integration

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International Trade Concepts

What is the differences

between domestic trade
and international trade?

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International trade vs Domestic trade
Main differences:
● Subjects: Different nations ⇒ Regulated laws and
policies
● Objects: Across nations ⇒ Government controls and
Trade barriers
● Payment: Use of different currencies ⇒ BOP (Balance of
Payments) and exchange rate
● Market: Diversified market
● Goods transportation: More complicated
⇒ International trade is more complicated and risky
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2.
What are
international trade 2.1 Trade in goods

activities? 2.2 Trade in services

What are international trade activities?

Trade in Goods

Exports Imports

International On-the-spot exports

processing and imports

Re-export Switch trade

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What are international trade activities?

Exports
● Send goods to another country for sales
● Goods are produced in domestic country and
purchased by citizens of another country
● Why exports?
○ Increase foreign exchange reserves
○ Increases jobs
○ Brings in higher wages, Raises the standard of
living → happy and support national leaders

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What are international trade activities?

Imports
● Bring goods into a country from abroad for sale
● Imports and exports:
○ Trade deficit
○ trade surplus
● Most country would prefer import less and export more.
○ Imports make a country dependent
○ Reduce foreign currency reserves (domestic currency
value, inflation and interest rate)
● Domestic company must compete with the imports →
bankruptcy

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What are international trade activities?

International Processing
● Processing is a mode of producing goods in which an
outsourcer supplies raw materials and semi-finished
products to the processor.
● Processors shall produce and deliver final products
upon request to the outsourcers and receive the
processing fee
E.g.: garments, textile and shoes processing

Processor: Processing for Outsourcer: Hiring foreign

foreign companies companies to process

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What are international trade activities?

International Processing
Outsourcer Processor

Raw materials, machines,

semi-final products, etc.

Final products

Processing fee

Question:
1. Pros and cons of international processing
2. The international processing trap in Vietnam
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What are international trade activities?

Re-export
● To export again what has been imported but is not
processed domestically
○ Objectives: profit or non-profit
○ Vietnam: Goods temporarily imported for re-export -
Decree 187/2013/NĐ-CP (replace 12/2006/NĐ-CP)
Buy goods from one country to sell to another, conduct custom
procedures on importation into Vietnam and custom procedures
on exportation from Vietnam without processing goods
domestically

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What are international trade activities?

Re-export
● Vietnam: Goods temporarily imported for re-export
○ Goods temporarily imported for re-export shall be
subject to customs procedures on importation into
Vietnam and shall be subject to customs
supervision for the entire period until their
re-exportation from Vietnam
○ Decree 187/2013/NĐ-CP
Only be permitted to be circulated in Vietnam for
60 days → can be extended → 1 extension shall
not exceed 30 days and no more than 2 extensions permitted.

Case study: Goods temporarily imported for Re-exports in Vietnam

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What are international trade activities?

Switch trade
(Border-gate transfers of goods)

Goods are transported from one country to another via a

third country.
E.g: Lumber is transported from Canada to Mexico by road

Border Border
Canada The US Mexico

Transportation,
warehouse,
bonded warehouse

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What are international trade activities?

Switch trade
(Border-gate transfers of goods)
Border-gate transfers of goods (Decision 1064/TM-PC, Circular
194/2010/TT-BTC)
● To buy goods from a country (export country) to sell to another
country (import country) without doing the import procedures into
Vietnam and export procedures out of Vietnam.
● Compare with re-export?

Border-gate transfers of goods can been undertaken in 3 forms

● Goods are transported directly from export country to import country

without passing the border gates of Vietnam.
● Goods are transported from export country to import country via the
border gates of Vietnam
● Goods are transported to Vietnam where first temporarily stored in
“bonded warehouse" and then transported to import country 19
What are international trade activities?

On-the-spot exports
and imports
Vietnam

● Goods exported or imported on the spot are goods which are

produced in Vietnam by the Vietnamese companies (including
foreign-invested company and export processing companies),
sold to foreigner traders; however, the goods are not exported
out of Vietnam territory but delivered to other domestic
enterprises as assigned by foreign traders.

● Advantages of on-the-spot export is to save costs:

transportation, packing, insurance, preferential tax...

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What are international trade activities?

Trade in Services

Mode 1:
Cross-border supply Mode 2:
Consumption abroad

Mode 3:
Commercial presence Mode 4:
Natural persons presence

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What are international trade activities?

Mode 1: Cross-border supply

Services are supplied from the territory of one
country into the territory of another country
E.g:
● Distance learning
● Banking or architectural services are transmitted via
telecommunications/Internet
● Telehealth
● Passing of information by mail

Service supplier Service consumer

Supply service from the territory of Receive service in the territory of

one country another country
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What are international trade activities?

Mode 2: Consumption abroad

Where a service consumer
moves into another country’s
territory to obtain a service.
E.g:
● Chinese tourists travel to Britain
● Vietnamese people go to
Singapore for health care
services

Service supplier
Service consumer
Service consumer

Service consumer receives services in

territory of the supplier 23
What are international trade activities?

Mode 3: Commercial Presence

A service supplier of one country establishes a territorial
presence, including through ownership or lease of premises, in
another country's territory to provide a service
E.g:
● Insurance companies, hotels, hospitals of Vietnam set up branches,
subsidiaries or joint-venture in Laos
● Establishment of a private hospitals by a European company in
Ecuador

Service supplier
Service supplier Establishes a commercial
presence in the territory of
other country

Service consumer 24
What are international trade activities?

Mode 4: Natural Person Presence

(Movement of Natural Person)
Persons of one country temporarily entering the territory of
another country to supply a service
E.g: EU’s Accountants, doctors or teachers move to Vietnam temporarily to
provide their services

Service supplied by
presence of natural
persons on 1 country in the
territory of another country

Service consumer
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 What are international trade activities?

Quick Quiz:
A user in Vietnam receives services from America through its
1
telecommunications or postal infrastructure. Such supplies may
include consultancy or market research reports, tele-medical
advice, distance training, or architectural drawings.

Mode 1: Cross-border Mode 2: Consumption

supply abroad

Mode 3: Commercial Mode 4: Natural persons

presence presence

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 What are international trade activities?

Quick Quiz:
The banking service is provided within Singapore by a
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representative office of a British-owned and — controlled bank.

Mode 1: Cross-border Mode 2: Consumption

supply abroad

Mode 3: Commercial Mode 4: Natural persons

presence presence

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 What are international trade activities?

Quick Quiz:
Nationals of China have moved abroad as tourists, students,
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or patients to consume the respective services.

Mode 1: Cross-border Mode 2: Consumption

supply abroad

Mode 3: Commercial Mode 4: Natural persons

presence presence

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 What are international trade activities?

Quick Quiz:
A Korean expert provides a service within Mexico as an
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independent business consultant.

Mode 1: Cross-border Mode 2: Consumption

supply abroad

Mode 3: Commercial Mode 4: Natural persons

presence presence

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3.
Why do nations
trade? 3.1.
 Why Do Nations trade?

Differences in
Benefits (Profit: Distance: Gravity
resource
price differences) model
endowment

Diversified
Reach economies of
consumption
scales
tastes

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International Trade Situations and Prospects

What happen to the

World Trade?

Financial Crisis?

Coronavirus?
War?
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READING MATERIALS

Must-read
CHAPTER 1 - Krugman, P. R., Obstfeld, M., Meltiz, M. J.
(2012). International Economics: theory and policy (9th
ed.). Boston, MA: Addison-Wesley.

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 Preparation

Read: CHAPTER 1 & 2 (Course

book)

End of
chapter 1
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