PART 1 : Trade Theory

1. Why do Nations Trade ? What are some of the major argument for and against a Free
Trade ? What are the (Benefits and Costs) of Free Trade (Present: at
Individual/Firms/Nation)? Tại sao Thương mại Quốc gia? Một số lập luận chính ủng hộ và
chống lại Thương mại tự do là gì? (Lợi ích và Chi phí) của Thương mại Tự do (Hiện tại: tại
Cá nhân / Doanh nghiệp / Quốc gia) là gì?
 Nation Trade because:
Countries trade with each other when, on their own, they do not have the
resources, or capacity to satisfy their own needs and wants. By developing and
exploiting their domestic scarce resources, countries can produce a surplus, and
trade this for the resources they need.

Goods and services are likely to be imported from abroad for several reasons.
Imports may be cheaper, or of better quality. They may also be more easily
available or simply more appealing than locally produced goods. In many
instances, no local alternatives exist, and importing is essential. This is highlighted
today in the case of Japan, which has no oil reserves of its own, yet it is the world’s
fourth largest consumer of oil, and must import all it requires.

The production of goods and services in countries that need to trade is based on
two fundamental principles, first analysed by Adam Smith in the late 18th Century
(in The Wealth of Nations, 1776), these being the division of labour and
specialisation.
Division of labour:
+ A division of labour means breaking down production into small, interconnected
tasks, and then allocating these tasks to different workers based on their
suitability to undertake the task efficiently. When applied internationally, a
division of labour means that countries produce just a small range of goods or
services, and may contribute only a small part to finished products sold in global
markets. For example, a bar of chocolate is likely to contain many ingredients from numerous
countries
Specialisation
+ Specialize in the manufacture and export of products can be produced most
efficiently in that country : The exploitation of a country's comparative advantage,
which means that trade encourages a country to specialise in producing only those
goods and services which it can produce more effectively and efficiently, and at
the lowest opportunity cost.
+ When countries specialise they are likely to become more efficient over time.
This is partly because a country’s producers will become larger and exploit
 economies of scale. Faced by large global markets, firms may be encouraged to
adopt mass production, and apply new technology. This can provide a country
with a price and non-price advantage over less specialised countries, making it
increasingly competitive and improving its chances of exporting in the future..
- Importing products can be produced more efficiently in other countries.
- Trade is also likely to increase employment, given that employment is closely
related to production. Trade means that more will be employed in the export
sector and, through the multiplier process, more jobs will be created across the
whole economy.
 The major argument for Free Trade
- All countries can benefit if each country specializes in production those goods
it can produce best and satisfy their other wants and needs by trading for
them.This will lead to an optimum and efficient utilization of resources and,
hence, economy in production.
- Free trade can raise aggregate economic efficiency and aggregate economic
welfare.
- Because of unrestricted trade, global output increases since specialization,
efficiency, etc., make production large scale. Free trade enables countries to
obtain goods at a cheaper price. This leads to a rise in the standard of living of
people of the world. Thus, free trade leads to higher production, higher
consumption and higher all-round international prosperity.
- Free trade will benefit a country even if it is less efficient than all other
countries in every industry
- Accessibility of Domestically Produced Goods and Services: Free trade enables
each country to get commodities which it cannot produce at all or can only
produce inefficiently. Commodities and raw materials unavailable
domestically can be procured through free movement even at a low price.
- Free trade would cause world resources to be utilized most efficiently,
maximizing world welfare.
- Import products can be produced more efficiently in other countries
- Competitive Spirit: Free Trade keeps the spirit of competition of the economy.
As there exists the possibility of intense foreign competition under free trade,
domestic producers do not want to lose their grounds. Competition enhances
efficiency. Moreover, it tends to prevent domestic monopolies and free the
consumers from exploitation
- Greater International Cooperation: Free trade safeguards against
discrimination. Under free trade, there- is no scope for cornering raw
materials or commodities by any country. Free trade can thus promote
international peace and stability through economic and political cooperation.
 - Free from Interference: Free trade is free from bureaucratic interferences.
Bureaucracy and corruption are very much associated with unrestricted trade.
 The major argument Against Free Trade (Protectionism):
- Governments do restrict free international trade in order to protect domestic
industries from foreign competition. The restriction of international trade is
called protectionism.
- Supporters of "protectionist" laws claim that keeping out foreign goods will
+ Save jobs
+ Give ailing domestic industries a chance to recover and prosper
+ Reduce the trade deficits
+ More growth opportunities: Protectionism provides local industries with
growth opportunities until they can compete against more experienced firms
in the international market
+ Lower imports: Protectionist policies help reduce import levels and allow the
country to increase its trade balance.
+ More jobs: Higher employment rates result when domestic firms boost their
workforce
+ Higher GDP: Protectionist policies tend to boost the economy’s GDP due to a
rise in domestic production
+Protectionism can also prevent dumping
+Protectionism makes domestic firms less competitive in the export market
+Protectionism could improve a nations economic well-being is when a
country has monopoly power over a goods.
+Protectionism permits the new and upcoming firms to work and develop at
an acceptable rate. Because they will not be pressured by foreign, more
experienced firms
 Benefits of International Trade
- High prices for exports and lower prices for imports is a net gain for a
country. Efficient allocation of resources is a result of such exchanges. There’s
an increase in overall welfare because of the larger bundle of goods from such
affiance.
- Trade liberalization increases real GDP. Efficient allocation of resources has a
positive influence on GDP. International trade offers the exchange of ideas and
technical flow of expertise.
- Development of high quality and more effective institution’s policies
encourages domestic innovations. Domestic productivity benefits from foreign
development and researchers.
- Global competition motivates companies to become more efficient because
they face an open field. Multinationals also operate on a larger scale leading
to cost savings.
 -Consumers access a variety of goods and services at lower prices. Hence,
living standards of people improve. The absence of restrictions and tariffs
enable production and shipment; hence, ensuring availability of goods and
services.
- An increase in competition leads to a fall in monopoly power. Thus, the
market becomes more efficient.
- Trade encourages efficiency. Through specialization, countries have to
concentrate on producing more of the goods they could produce very well
over goods they cannot produce with efficiency.
 Costs of International Trade
- Loss of jobs and inequality in income caused by competition. As states
concentrate on free trade, the domestic industries adjust to this change. As a
result, they exist as the main exporters. However, the same exporters face
import competition.
- Less efficient firms exit the market. Reason being resources are re-allocated
according to whether the firm is growing or contracting. As firms close, some
countries can be at a loss at the expense of other countries.
- An increase in imports causes domestic industries to compete with imports.
Technology and capital might not be as developed in some countries. As such,
they cannot compete with developed countries in some industries.

2. What were the Mercantilists view on Trade ? What are the new contribution of
Mercantilist’s views on Trade ? What is the weak point of Mercantilist’s ? Discuss? Quan điểm
của Người theo chủ nghĩa Trọng thương về Thương mại là gì? Những đóng góp mới trong quan điểm của
Mercantilist về Thương mại là gì? Điểm yếu của Mercantilist’s là gì? Bàn luận?
 The Mercantilists view on trade:
- Mercantilism is an economic theory that advocates government regulation of
international trade to generate wealth and strengthen national power. Merchants
and the Government work together to reduce the trade deficit and create a surplus. It
funds corporate, military, and national growth. Mercantilism is a form of economic
nationalism .It advocates trade policies that protect domestic industries
- Export surpluses brought inflow of gold and silver.
- Trade policy was to encourage exports and restrict imports.
- One nation gained only at the expense of another.
 Mercantilism suggests that it is in a country’s best interest to maintain a trade
surplus – to export more than it imports. To ensure that a country exported a
lot and imported only a little, the Mercantilists were in favor of high tariffs.
Mercantilism advocates government intervention to achieve a surplus in the
balance of trade
 The new contribution of Mercantilist’s views on Trade
 - To recognize the importance of International Trade.
- Mercantilism suggests that countries | government should design policies that
lead to an increase in their holdings of gold and silver.
- This was usually done by increasing exports and limiting imports. This economic
philosophy was used by Europeans from about the 1500s to the late 1700s.
- To ensure that a country exported a lot and imported only a little, the
mercantilists were in favor of high tariffs. Mercantilism advocates government
intervention to achieve a surplus in the balance of trade
 The weak point of Mercantilist’s
- The key problem with the mercantilist view is that it views trade as a zero sum
game, where if one country benefits the other must lose. As an economic
philosophy, Mercantilism is flawed. Mercantilism weakens country in long run;
enriches only a few
- In 1770s, Adam Smith argued that import restrictions would reduce the gains
from specialization and make a nation poorer. He used absolute advantage to
explain the benefits of trade.
- It creates high levels of resentment.
Trickle-down economics works on paper. It just doesn’t work well in real life
thanks to the inherent greed that so many people have. Why give others money
when you can keep it for yourself? The rich tend to get richer in a system of
mercantilism and the working class gets to be stagnant at best. Eventually this
creates resentment, which leads to rebellion, and ultimately it led to many
colonies seeking out their own independence.
- It creates a preference for the mother nation to always be first.
Many colonies are also treated as a foreign nation in a system of mercantilism.
The colonies are forced to sell their local raw materials for a bargain basement
price and then be forced to purchase manufactured goods at a higher price than
necessary. This creates an even wider wealth gap between the different income
classes.
- There is always a risk of local raw materials and resources running out.
Because mercantilism is based on the complete use of natural resources, there will
always be a day when those resources run out. Natural resources are finite in
nature, so even if there is an extensive reserve in place that can be accessed, that
reserve will one day run out. If that happens sooner rather than later, then the
entire economy can collapse.
- The system is ultimately quite inefficient.
Because materials and goods are shipped back and forth between colonies and
their mother nation, the price of goods is inflated more than it needs to be. Even
with modern shipping methods, it costs less to manufacture goods locally where
 raw resources are available than it does to ship those items back and forth.
Because of this, it also creates vulnerabilities in both economies should those
shipments be intercepted by someone else.
3. How were the Adams Smith (Theory of absolute advantage’s ) views on trade ? How were
gains from trade generated ? What policies did Adam Smith advocate in International
Trade ? What did he think was the proper function of government in the economic life of the
Nation? Quan điểm của Adams Smith (Lý thuyết về lợi thế tuyệt đối) về thương mại như thế nào? Lợi
nhuận từ thương mại được tạo ra như thế nào? Adam Smith đã ủng hộ những chính sách nào trong
Thương mại Quốc tế? Theo ông, chức năng thích hợp của chính phủ trong đời sống kinh tế của Quốc gia là
gì?
 Adams Smith (Theory of absolute advantage’s ) views on trade
- "It is the maxim of every prudent master of a family, never to attempt to make at
home what it will cost him more to make than to buy.” (Adam Smith)
- Specialization and trade among regions and countries are based upon the same
principle as among individuals.
- 1776 Adam Smith, The Wealth of Nation
+ Word’s wealth is not a fixed quantity
+ International trade
 Increase the general level of productivity within a country
 Increase world output (wealth)
- Adam Smith argued that a country has an absolute advantage in the production of
a product when it is more efficient than any other country in producing it
- According to Smith, countries should specialize in the production of goods for
which they have an absolute advantage and then trade these goods for the goods
produced by other countries
 Gains from trade generated
- In 1770s, Adam Smith argued that import restrictions would reduce the gains from
specialization and make a nation poorer. He used absolute advantage to explain
the benefits of trade. Adam Smith argued that a country has an absolute
advantage in the production of a product when it is more efficient than any other
country in producing it
- When one nation has absolute advantage in production of a commodity, but an
absolute disadvantage with respect to the other nation in a second commodity,
both nations can gain by specializing in their absolute advantage good and
exchanging part of the output for the commodity of its absolute disadvantage.
 Policies Adam Smith advocate in International Trade
- According to Smith, countries should specialize in the production of goods for
which they have an absolute advantage and then trade these goods for the goods
produced by other countries
 - Specialization and trade advantage both countries.
- Adam Smith and other classical economists advocated policy of laissez-faire, or
minimal government interference with economic activity.
- Free trade would cause world resources to be utilized most efficiently, maximizing
world welfare.
 The function of government in the economic life of the Nation
- As one might expect from Smith’s conviction that markets were extremely
efficient, he was in favor of a government that did not hamper the working of the
market
- However, Smith emphasized the fact that the government should
+ Maintain law and order
+ Ensure the defense of the nation from foreign enemies,
+ Erect and maintain public works that private citizens would not build
+ Subsidize education for those who could not afford it, and
+ Regulate international trade when free trade endangers ‘infant industries’ or
compromises national security
4. In that way was Ricardo’s law of Comparative Advantage superior to Smith’s Theory of
Absolute Advantage ?( Compare the theory of Absolute Advantage and Comparative
Advantage ?) Why this theory is more relevant to the modern trade situation ? How do
gains from Trade Arise with Comparative Advantage? Theo cách đó, định luật Lợi thế so sánh của
Ricardo vượt trội hơn Lý thuyết về Lợi thế tuyệt đối của Smith? (So sánh lý thuyết Lợi thế tuyệt đối và Lợi
thế so sánh?) Tại sao lý thuyết này phù hợp hơn với tình hình thương mại hiện đại? Làm thế nào để thu
được lợi nhuận từ Thương mại Phát triển với Lợi thế So sánh?

Ricardo’s law of Comparative Advantage superior to Smith’s Theory of absolute

advantage:
 A country has an absolute advantage when it produces a large number of goods with
the same resources that other country are using, on the other hand, the comparative
advantage means producing better quality at cheaper price incurring lower
opportunity cost than the other country.
 The Smith does not take the limitation of production factor into the account while
Ricardo does. According to Smith, a country would produce all the goods in which
they are better performing. They have low absolute cost after having an absolute
advantage; spend fewer factors in making one unit of product, but it cannot be the
manufacturing center of all goods and services. A country cannot outperform in all
types of goods and secondly, it cannot take an advantage of economies of scale which
leads to inefficiency if a country tries to produce all goods and it may lead to an
increase in prices.
  Instead, Ricardo focused on the relative cost of production. He emphasized that the
country should produce those goods in which they have comparatively low
opportunity cost than the other countries. A country has to decide what to produce
and what to sacrifice. This gives other countries an opportunity to produce goods
efficiently and to take advantage of economies of scale in which a large number of
goods are produced at a low cost.
Compare the theory of Absolute Advantage and Comparative Advantage:

Comparative Advantage Absolute Advantage

- Even if someone is absolutely -
more productive at 2 activities,
if he is comparatively more
productive at 1 activity than
another relative to a 2nd
person, he will be better off
specializing and trading than
producing in isolation.
- The causes of economic - David Ricardo, by
progress and the creation of contrast, focused on
wealth was Adam Smith’s main how wealth is
topic of interest shared among
different groups in
society
- According to Smith, the wealth -
of a nation derives from the
level of the technology in use.
- The level of technology and its
rate of improvement depend
on the division of labor.

Comparative Advantage Absolute Advantage

Definition - Ability of country to
produce good better than
other country with same
amount of resources.
Benefit - Trade is mutually beneficial
- Benefits both the countries
- Ability of a country to
produce more goods with
same amount of resources
than other country.
- Trade is not mutually
beneficial
- Beneits the Country with
absolute advantage
Cost - Opportunity cost of
producing good impact the
Country’s comparative
advantage
Economic Nature - It is mutual and reciprocal
- Absolute cost of producing
goods impacts if the
country has absolute
advantage
- It is not mutual and
reciprocal

This theory is more relevant to the modern trade situation:

 A contemporary example: China’s comparative advantage with the United
States is in the form of cheap labor. Chinese workers produce simple
consumer goods at a much lower opportunity cost. The United States’
comparative advantage is in specialized, capital-intensive labor. American
workers produce sophisticated goods or investment opportunities at lower
opportunity costs. Specializing and trading along these lines benefit each.
 The theory of comparative advantage helps to explain why protectionism is
typically unsuccessful. Adherents to this analytical approach believe that
countries engaged in international trade will have already worked toward
finding partners with comparative advantages.
 If a country removes itself from an international trade agreement, if a
government imposes tariffs, and so on, it may produce a local benefit in the
form of new jobs and industry. However, this is not a long-term solution to
a trade problem. Eventually, that country will be at a disadvantage relative
to its neighbors: countries that were already better able to produce these
items at a lower opportunity cost.
Gains from Trade with Comparative Advantage:
 Country should specialize in the production of those goods in which it is
relatively more productive... even if it has absolute advantage in all goods it
produces
 Gain from trade depends on the comparative cost conditions. Comparative
cost doctrine suggests that trade can provide benefit to all countries if they
specialise in the production of those goods and, hence, export them in
which they have comparative advantage
 The idea of gains from trade was at the core of the classical theory of
international trade propounded by Adam Smith and David Ricardo.
According to Smith, the gains from trade arise form the advantages of
division of labour and specialisation—both at the national and international
level. Such advantages arise, according to Smith, due to the absolute
 differences in costs. Ricardo goes a step further. He says that trade
contributes “to increase the mass of commodities, and therefore, the sum
of enjoyments…” Ricardo adds that the gain from trade consists in the
saving of cost resulting from obtaining the imported goods through trade
instead of domestic production.
 Ricardo’s comparative cost thesis may be applied to establish the existence
of gains from trade. In other words, gain from trade depends on the
comparative cost conditions. Comparative cost doctrine suggests that trade
can provide benefit to all countries if they specialise in the production of
those goods and, hence, export them in which they have comparative
advantage.
 A country, thus, specialises in production and export in accordance with its
comparative advantage. Ricardo’s trading nations acquire complete
specialisation in production. As a result, global output becomes larger than
under autarky. Trade also enables each country to consume more than
under isolation. Thus, there is a production gain and a consumption gain
arising out of international trade. Such gains cannot be reaped in the
absence of trade.

 Principle of comparative advantage: Even if a nation has an absolute cost

disadvantage in the production of both goods
- Even if a nation has an absolute cost disadvantage in the production of both goods
+ The less efficient nation
 Specialize in and export the good in which it is relatively less
inefficient
o Where its absolute disadvantage is least

+ The more efficient nation

 Specialize in and export the good in which it is relatively more
inefficient
o Where its absolute disadvantage is greatest
There are gains from trade for both countries. This is the second lesson of the
Ricardian model.
Countries have comparative advantage in producing different goods and hence they
can get mutual benefits from trade. This is because countries differ from each other.
The more different they are, the larger the (potential) benefits from trade
5. What are the sources of Comparative Advantage ? Các nguồn của Lợi thế So sánh là gì?
  Comparative advantage is a dynamic concept meaning that it can and does change
over time. For a country, the following factors are important in determining the
relative unit costs of production:
 The quantity and quality of factors of production available for example some
countries have an abundant supply of good quality farmland, oil and gas, fossil fuels.
Climate and geography have key roles in creating differences in comparative
advantage.
 Different proportions of factors of production – some countries have abundant low-
cost labour suitable for volume production of manufacturing products.
 Increasing returns to scale and the division of labour – increasing returns occur when
output grows more than proportionate to inputs. Rising demand in the markets
where trade takes place helps to encourage specialisation, higher productivity and
internal and external economies of scale. These long-run scale economies give regions
and countries a significant advantage.
 Investment in research & development which can drive innovation and invention
 Fluctuations in the exchange rate, which then affect the relative prices of exports and
imports and cause changes in demand from domestic and overseas customers.
 Import controls such as tariffs, export subsidies and quotas – these can be used to
create an artificial comparative advantage for a country's domestic producers.
 The non-price competitiveness of producers - covering factors such as the standard of
product design and innovation, product reliability, quality of after-sales support.
Many countries are now building comparative advantage in high-knowledge
industries and specializing in specific knowledge sectors – an example here is the
division of knowledge in the medical industry, some countries specialize in heart
surgery, others in pharmaceuticals.
 Institutions – these are important for comparative advantage and important for
growth too. Banking systems are needed to provide capital for investment and export
credits, legal systems help to enforce contracts, political institutions and the stability
of democracy is a key factor behind decisions about where international capital flows.
6. What is meant by labor-intensive commodity ? Capital-Intensive commodity? What is
meant by Capital-Abundant nation ? Suppose that there: Airplane is Capital-Intensive
commodity and Rice is labor-intensive commodity, and we have 2 nations : France is rich
and Capital-Abundant nation ; Somali is a labor abundant country. Hàng hóa thâm dụng lao
động nghĩa là gì? Hàng hóa thâm dụng vốn? Quốc gia dồi dào vốn có nghĩa là gì? Giả sử ở đó: Máy bay là
mặt hàng thâm dụng vốn và Gạo là mặt hàng thâm dụng lao động, và chúng ta có 2 quốc gia: Pháp giàu có
và Quốc gia thừa vốn; Somali là một quốc gia dồi dào lao động
 Labor-intensive commodity: The demand for labor relative to capital is assumed to be
higher in shoes than in computers, LS/KS > LC/KC. These two curves slope down just
 like regular demand curves, but in this case, they are relative demand curves for labor
(i.e., demand for labor divided by demand for capital
 Capital-Intensive commodity: The term "capital intensive" refers to business
processes or industries that require large amounts of investment to produce a good
or service and thus have a high percentage of fixed assets, such as property, plant,
and equipment (PP&E). Companies in capital-intensive industries are often marked by
high levels of depreciation.
Capital intensive refers to the production that requires higher capital investment such
as financial resources, sophisticated machinery, more automated machines, the latest
equipment, etc. Capital intensive industries pose higher barriers to entry as they
require more investment in equipment and machinery to produce goods and services.
An industry, firm, or business is considered to be capital intensive taking into
consideration the amount of capital that is required in comparison to the amount of
labor required. Good examples of capital intensive industries include the oil refining
industry, telecommunications industry, airline industry, and public transport
authorities that maintain the roads, railways, trains, trams, etc.
 Capital-Abundant nation: The U.S., therefore, is capital abundant and Mexico is labor
abundant. Letting K measure the quantity of capital and L the quantity of labor,
(K/L)US>(K/L)MEX, or the amount of capital per laborer in the U.S. exceeds that of
Mexico. (Verify that it is possible for LUS to be greater than LMEX and (K/L)US>(K/L)MEX ).
Now invert the ratios, which reverses the inequality, so (L/K)US<(L/K)MEX, which says
that Mexico is labor abundant relative to the U.S. If one country is capital rich (more
capital relative to labor) then the other is labor rich (more labor relative to capital).
 France vs Somali
- A country has comparative advantage in those commodities that use its abundant
factors intensively
- Factor Endowments:
+ Notation: K=capital, L=labour, r = price of capital, w = price of labour
+ Physical definition: (K/L)1 > (K/L)2  France is capital abundant (labour-scarce),
Somali is labour-abundant (capital-scarce)
+ Price definition: (r/w)1 < (r/w)2  France is capital-abundant, Somali is labour-
abundant
- In this case, the apparent contradiction of the Heckscher-Ohlin model could be
explained by factor-intensity reversal. In the France , Aviation industry belongs to
TOP most developed industry in France, production utilizes considerable capital
and, thus, many commodities such as airplane are relatively capital-intensive. In
Somali , however, agricultural production uses relatively much more labor than
capital and, in all likelihood, is a labor-intensive product. Since there is
considerable substitutability between capital and labor in the production of, for
 example, rice, it would not be surprising to find that rice is a labor-intensive
product in a labor-abundant country such as Somali and capital-intensive in a
capital-abundant country such as the France . Consequently they both end up
exporting the product because it is intensive in their respective abundant factors.

What can we say from the Trade pattern between two countries ?
 Trade is the exchange of goods and services between countries. Goods bought
into a country are called imports, and those sold to another country are called
exports. Developed countries have a greater share of global trade than developing
countries .
 Trading globally gives consumers and countries the opportunity to be exposed to
goods and services not available in their own countries, or which would be more
expensive domestically.
 The importance of international trade was recognized early on by political
economists like Adam Smith and David Ricardo.
 To better understand how modern global trade has evolved, it’s important to
understand how countries traded with one another historically. Over time,
economists have developed theories to explain the mechanisms of global trade.
The main historical theories are called classical and are from the perspective of a
country, or country-based. By the mid-twentieth century, the theories began to
shift to explain trade from a firm, rather than a country, perspective. These
theories are referred to as modern and are firm-based or company-based. Both of
these categories, classical and modern, consist of several international theories.

What does Heckscher and Ohlin theory postulate ? Thuyết Heckscher và Ohlin định đề gì?
 The Heckscher-Ohlin theory argues that trade occurs due to differences in labor,
labor skills, physical capital, capital, or other factors of production across
countries.
- Countries have different relative abundance of factors of production.
- Production processes use factors of production with different relative intensity.
 They wanted to explain this increase in trade during the “golden age” of
international trade.
 - Definition: A nation will export the commodity whose production requires the
intensive use of the nation’s relatively abundant and cheap factor and import the
commodity whose production requires the intensive use of the nation’s relatively
scare and expensive factor.
- Or: the relatively labor-rich nation exports the relatively labor-intensive
commodity and imports the relatively capital -intensive commodity.
 Heckscher-Ohlin theorem: An economy has a comparative advantage in
producing, and thus will export, goods that are relatively intensive in using its
relatively abundant factors of production, and will import goods that are relatively
intensive in using its relatively scarce factors of production.
 In summary, the capital-abundant country exports the capital-intensive
commodity, and the labor-abundant country exports the labor-intensive
commodity.

PART 2 :
7. What is primary function of tariffs in industrial nations ? What are the advantages and
disadvantages of Ad valorem and Specific Tariff ? Chức năng chính của thuế quan ở các nước
công nghiệp là gì? Ưu điểm và nhược điểm của Định giá quảng cáo và Biểu thuế cụ thể là gì?
 Tariffs have three primary functions: to serve as a source of revenue, to protect
domestic industries, and to remedy trade distortions (punitive function).
- The revenue function comes from the fact that the income from tariffs provides
governments with a source of funding. In the past, the revenue function was
indeed one of the major reasons for applying tariffs, but economic development
and the creation of systematic domestic tax codes have reduced its importance in
the developed countries. For example, Japan generates about 90 billion yen in
tariff revenue, but this is only 1.7 percent of total tax revenues (fiscal 1996). In
some developing countries, however, revenue may still be an important tariff
function.
- Tariffs is also a policy tool to protect domestic industries by changing the
conditions under which goods compete in such a way that competitive imports are
placed at a disadvantage. In some cases, “tariff quotas” are used to strike a
balance between market access and the protection of domestic industry. Tariff
quotas work by assigning low or no duties to imports up to a certain volume and
then higher rates to any imports that exceed that level.
- Punitive tariffs may be used to remedy trade distortions resulting from measures
adopted by other countries.
 The advantages and disadvantages of Ad valorem and Specific Tariff Ưu điểm và nhược
điểm của Định giá quảng cáo và Biểu thuế cụ thể
 AD VALOREM
Advantages - Automatic adjustment for
inflation. Since the tax is tied to
the product price, the tax
automatically adjusts with
inflation.
- Higher profit margin is taxed. Ad
valorem tax reduces the industry - Raises all product prices. Since the
profit margin since a part of any
price/profit increase goes to the
government as tax revenue.
Disadvantages - Less predictable revenue
stream. As ad valorem taxes are
based on value, it is difficult to
predict tax revenue over time
- Difficult to determine the
amount of tax.
- Leads to large price differences
between products. Ad valorem
taxation widens the gap in prices
between cheap products and
more expensive products.
- Difficult to administer.
SPECIFIC TARIFF
- Predictable. The government
revenue is therefore protected
against industry price wars or price
manipulations. For example the
government can predict tobacco tax
revenue based on tobacco demand.
tax is applied to all products at the
same rate, a higher tax usually
results in similar prices increase
across the board, regardless of
product. Specific taxes reduce the
gap in prices between cheap and
more expensive products.
- Easy to determine the amount of
tax.
- Easier to administer.
- Inflation erodes its value. Because
the tax rate is not tied to the
product price, it does not
automatically adjust with inflation.
Instead, the government must
periodically implement additional
rate increases, or add into the tax
law that the specific excise tax rate
will automatically adjust with
inflation.
- Can be reduced by changing
products characteristics.

What is meant by the Consumption, Production, Trade, Revenue, and Redistribution effects
of a tariff ? Tác động của Tiêu dùng, Sản xuất, Thương mại, Doanh thu và Phân phối lại của thuế quan có
nghĩa là gì?

 Consumption Effect: Imposition of tariff raises the price, and as a result, the demand
for the commodity falls. Total outlay on consumption of the commodity is larger or
smaller depending upon whether demand is inelastic or elastic.
 Production Effect: When a tariff or other price-increasing policy is put in place, the
effect is to increase prices and limit the volume of imports.
  Revenue Effect: Tariff brings revenue to the government. The revenue to the
government is equal to the amount of the import duty multiplied by the quantity of
imports.
 Redistribution Effect refers to the transfer of real income from the consumers to the
producers as a result of tariff.
 Trade Effect:
- When a country imposes a tariff duty, its willingness to receive imports is
reduced. For a given quantity of exports, the country now demands a larger
quantity of imports because a part of these imports are to be surrendered to
the customs authorities in the form of tariff payment. Or, putting the same
thing differently, the country is now willing to offer less of exports in exchange
for a given quantity of imports.
- Thus, the tariff reduces the country’s offer of exports for imports. This
increases the country’s terms of trade or the rate at which exports are
exchanged for imports.

8. What is an Import Quota ? How are they similar to and different from the effects of an
equivalent Import Tariff ? How does the revenue effect of an import quota differ from that
of a tariff ? Hạn ngạch nhập khẩu là gì? Chúng giống và khác nhau như thế nào so với tác động của Biểu
thuế nhập khẩu tương đương? Tác động thu nhập của hạn ngạch nhập khẩu khác với thuế quan như thế
nào?
 Meaning of Import Quotas: A limit on the quantity of imports
- Can be mandatory or voluntary, and can be legislated or negotiated with
foreign governments
- 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.
- The import quota means physical limitation of the quantities of different
products to be imported from foreign countries within a specified period of
time, usually one year. The import quota may be fixed either in terms of
quantity or the value of the product. Can be mandatory or voluntary, and can
be legislated or negotiated with foreign governments.For instance, the
government may specify that 60,000 colour T.V. sets may be imported from
Japan. Alternatively, it may specify that T.V. sets of the value of Rs. 50 crores
can be imported from that country during a given year.
- Tariff rate quotas (TRQs) allow products imported within a certain quota to
enter the European Union's market at a lower tariff rate than for quantities
outside the quotas. They allow more variety to consumers whilst also
encouraging non-EU countries to open up their markets to European goods.
 They similar to and different from the effects of an equivalent import tariff:
Similar
 Firstly, both tariffs and quotas have the same objectives such as reduction in
-
the volume of imports, protection of home industries, expansion of
employment and economic activities and correction of balance of payments
deficit.
- Secondly, a certain rate of tariff causes reduction in the quantity by a specified
extent and, therefore, it has a quota equivalent. The import quota, on the
other hand, while restricting the quantity, causes a rise in import price. It has,
therefore, an import tariff equivalent.
- Thirdly, tariff and quota both have similar price, protection, consumption,
redistribution, welfare, balance of payments and income effects.
Different
- A tariff is a tax on imports. It is normally imposed by the government on the
imports of a particular commodity. On the other hand, quota is a quantity
limit. It restricts imports of commodities physically. It specifies the maximum
amount that can be imported during a given time period.
- The main difference is that quotas restrict quantity while tariff works through
prices. Thus, quota is a quantitative limit through imports.
- A tariff raises revenue for the government, whereas an import quota creates
surplus for those who obtain the licenses to import.The profit for the holder of
an import licenses is the diferrent between the domestic price ( at which they
sell the emported good) and the world price ( at which they buy it)
- All the benefits of quotas go to the producers and to the lucky importers who
manage to get the scarce and valuable import permits. In such a situation,
quotas differ from tariff
- As a tax , triffs bring in revenue for the government. A quota, on the other
hand, benefits the sellers because they can now sell the imported product for
more money
- In assessing the costs and benefits of an import quota , it is crucial to
determine who gets the rents
When the rights to sell in the domestic market are assigned to
governments of exporting countries , the transfer of rents abroad
makes the costs of a quota substantially higher than the equivalent
tariff
 How does the revenue effect of an import quota differ from that of a tariff?
- A tariff is a tax on import able whereas an import quota is a direct quantitative
restriction on trade which places an absolute limit upon the volume of imports
that can be imported within a fixed time span.
- 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. Quotas will benefit for the Quota
License holder They become temporary monopoly in importing the product. It
cause deadweight losses.
 - The Lessons for Trade Policy : Both tariffs and import Quota
o Raise domestic prices.
o Reduce the welfare of domestic consumers.
o Increase the welfare of domestic producers.
o Cause deadweight losses.
9. What is meant by dumping? What are the different types of dumping? Why is dumping
undertaken? Why does dumping usually lead to trade restrictions? Analyze one case study
many government have used: solar panel Bán phá giá có nghĩa là gì? Các loại bán phá giá khác nhau
là gì? Tại sao lại thực hiện bán phá giá? Tại sao bán phá giá thường dẫn đến các hạn chế thương mại? Phân
tích một nghiên cứu điển hình mà nhiều chính phủ đã sử dụng: bảng điều khiển năng lượng mặt trời
 Dumping is a term used in the context of international trade. It's when a country or
company exports a product at a price that is lower in the foreign importing market
than the price in the exporter's domestic market. Because dumping typically involves
substantial export volumes of a product, it often endangers the financial viability of
the product's manufacturers or producers in the importing nation.
 The different types of dumping
 Sporadic dumping: Manufactures practice sporadic dumping to get rid of
excess merchandise. A manufacturer with unsold inventories avoids starting a
price war in the home market to preserve his competitive position. Excess
supplies are destroyed. Example, Asian farmers dumped small chickens into
the sea. Another method is to have the excess supply dumped in a foreign
market where the product is normally not sold. Thus, sporadic dumping is
aimed at liquidating excess stocks that may arise occasionally.
 Predatory dumping: While sporadic dumping is occasional, predatory dumping
is permanent. Predatory dumping is also known as intermittent dumping. It
involves sale of goods in overseas markets at a price lower than the home
market price. This is selling at a loss to gain access to a market and eliminate
competition. After the competition is eliminated, the company becomes a
monopolist. Monopoly position is then used to increase the price. Anyway,
there is a disadvantage that former competitors may rejoin the market
because of high profit margins.
Example
Hitachi was accused of following predatory dumping for its EPROM (electrically
programmable read only memory) chips.Zenith in USA accused Japanese
Television manufacturers of using predatory dumping. A charge was leveled
against Japanese manufacturers for false billing and secret rebates to set low
predatory prices on T.V. sets in U.S markets. It was argued that they tried to
drive U.S firms out of business in order to gain a monopoly.
 Persistent dumping (Long period dumping): It involves consistent selling at
lower prices in one market than in the rest of the market. This practice is based
 on the fact that markets vary in terms of overhead costs and demand
characteristics. In persistent dumping, the firm may use marginal cost pricing
abroad while using full cost pricing (covering fixed costs at home) in domestic
market. Japan, for example, sold consumer electronics at high prices in its own
country. This is because it has no foreign competition. But it lowered prices in
the U.S market in order to maintain market share.
 Objective of Dumping
- To find a Place in the Foreign Market: Due to perfect competition in the foreign
market lowers the prices of commodity in comparision to the other
competitors so that the demand for commonly may increase.
- To sell surplus commodity: When there is excessive production of a
monopolist’s commodity and he is not able to sell in the domestic market, they
wants to sell the surplus at a very low price in the foreign market. But it
happens occasionally.
- Expansion of Industry: The cost of production of commodity is reduced and bt
selling more quantity of the commodity at a lower price in the foreign and
domestic market, they earns larger profit.
- New trade relations: They sells their commodity at a low price in the foreign
market, thereby establishing new market relations with those countries.
 Dumping usually lead to trade restrictions :
- Dumping often condemned as “unfair trade practice” which accords exporters
a competitive advantage over producers of similar goods in the market of
importation.
- The problem with dumping is that it's expensive to maintain. It can take years
of exporting cheap goods to put the competitors out of business. Meanwhile,
the cost of subsidies can add to the export country's sovereign debt.
- The second disadvantage is retaliation by the trade partner. Countries may
impose trade restrictions and tariffs to counteract dumping. That could lead to
a trade war.
- The third is censure by international trade organizations. These include the
WTO and the European Union.
 China with solar panel industry
- 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
- 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.
- 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.
- 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.
- China accuses firms from the two sectors of selling their products below cost
to win market share and eliminate competitors.
- 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.

10. Why do nations subsidize exports? To what problems do these subsidies give rise ? What
are the main function of subsidy? What are the major forms of subsidies that governments
grant to domestic producers?
A subsidy may provide import-competing producers the same degree of protection as tariff
or quota but at a lower cost in terms of national welfare. It could have long-term benefits
for the economy. Explain. Tại sao các quốc gia trợ cấp cho hàng xuất khẩu? Những vấn đề gì khiến các
khoản trợ cấp này phát sinh? Chức năng chính của trợ cấp là gì? Các hình thức trợ cấp chính mà chính phủ
dành cho các nhà sản xuất trong nước là gì?
Trợ cấp có thể cung cấp cho các nhà sản xuất cạnh tranh nhập khẩu mức độ bảo hộ tương tự như thuế
quan hoặc hạn ngạch nhưng với chi phí thấp hơn về phúc lợi quốc gia. Nó có thể mang lại lợi ích lâu dài
cho nền kinh tế. Giải thích.
 Nations subsidize exports because:
- Export subsidies are foreign trade policies undertaken
by domestic governments that are intended to "protect" domestic production
by restricting foreign competition. In general, a quota is simply a quantity
restriction placed on a good, service, or activity. For example, employers often
face hiring quotas for different demographic groups and sales representatives
often have quotas for sales activities.
 - Domestic Employment: Because foreign imports are produced in other
countries by foreign workers, subsidizing exports and increasing domestic
production also increases domestic employment.
- Low Foreign Wages: Subsidizing the exports of domestic production "levels the
competitive playing field" compared to imports produced by foreign workers
who receive lower wages.
- Infant Industry: If foreign imports compete with a relatively young domestic
industry that is not mature enough nor large enough to benefit
from economies of scale, then export subsidies protect the "infant industry"
while it matures and develops.
- Unfair Trade: Foreign imports might be sold at lower prices in the domestic
economy because foreign producers engage in unfair trade practices, such as
"dumping" imports at prices below production cost. Export subsidies once
again seek to "level the competitive playing field."
- National Security: Export subsidies can also encourage domestic production of
goods that are deemed critical to the security of the national economy.

 The main function of subsidy

A subsidy is a direct or indirect payment to individuals or firms, usually in the form of
a cash payment from the government or a targeted tax cut. In economic theory,
subsidies can be used to offset market failures and externalities in order to achieve
greater economic efficiency.

 Problems do these subsidies give rise

- If demand is elastic, then a subsidy causes a bigger percentage rise in demand.
There is only a small fall in price. In this case, producers benefit from the
subsidy because their producer surplus increases more than consumer surplus
- If demand is price inelastic, then a subsidy causes a substantial fall in price,
however there is only a small increase in demand.
- Quantity restrictions imposed by the government of one nation on imports
from other nations. The primary goal of export subsidies is to reduce imports
and increase domestic production. Because the quantity of imports is
restricted, the price of imports increases, which thus encourages domestic
consumers to buy more domestic production. Export subsidies are one of three
common foreign trade policies designed to discourage imports and/or
encourage exports.
The major forms of subsidies that governments grant to domestic producers

 Domestic and export subsidies, low interest rate loans and insurance arrangements.
 • Cash subsidies.
• Tax concessions, such as exemptions, credits, or deferrals.
• Assumption of risk, such as loan guarantees.
• Government procurement policies that pay more than the free-market price.
• Stock purchases that keep a company's stock price higher than market levels.
Explain Because : Potential benefits of subsidy
 Export subsidies help create more jobs
 Capital support for newly established small businesses that lack capital
 Help companies confidently invest in risky technology industries in the future
 Invest in new technologies, potential job creation in new growth area like 5G, Solar
panel
 Support/ Protect future of key technology.

11. What are the benefits and arguments against Protectionism ?

Give some examples and trade tools that developed Nations : US, EU, Japan used to
protect their Industry | Agricultural Những lợi ích và lập luận chống lại Chủ nghĩa Bảo hộ là gì? Cho
một số ví dụ và các công cụ thương mại mà các Quốc gia phát triển: Hoa Kỳ, EU, Nhật Bản đã sử dụng để
bảo vệ ngành công nghiệp của họ | Nông nghiệp
 The benefits of protectionism:
- An advantage of protectionism is that it keeps the domestic economy rolling. Since
there is a decrease in imports, domestic firms have less competition, and so are
able to continue. The domestic economy will also be strengthened because
unemployment will be down due to the domestic firms and they will be able to
produce and sell more goods with a lot less difficulty, giving firms less reason to
decrease its costs by decreasing its workforce. Those with jobs will continue to
consume while allowing the economy to flow.
- Protectionism permits the new and upcoming firms to work and develop at an
acceptable rate, because they will not be pressured by foreign, more experienced
firms. The new firms can grow until they themselves are big enough to compete in
international markets, encouraging positive features for the domestic economy in
the future.
- Protectionism can also prevent dumping, this is where foreign and bigger
economies enter an economy and sell their goods at a price lower than the costs
of production.
It can be seen that trade protection offers the following advantages:
- Reduce the competitiveness of imported goods
- Protection of domestic producers; help them to strengthen their strengths in the
domestic market
 - Help manufacturers increase their competitiveness to penetrate foreign markets
- Help to regulate the international payment balance of the country, reasonable use
of foreign currency payment of each country.
 Arguments Against Protectionism.
- Various arguments are used against protectionism. These include: Inefficiency of
resource allocation in the long run - the imposition of tariffs, or other protectionist
measures, in the long run results in losses of allocative efficiency.
- Protectionism invites a retaliatory response and countries can get locked into
trade war : Risk of Retakiation , Market Distortion , Higher prices for consumers ,
Regress effect on income inequality , By-passing import controls , Higher cost for
exporters. The WTO has found it impossible to negotiate a wide ranging global
trade agreement
Besides these advantages , the following disadvantage are also mentioned:
- It hurt the process of developing international trade , causing economic isolation
in a globalized world
- Imposing dependency and stagnation in domestic businesses , resulting in
stronger protection , makes the strategic , investment and business industries less
flexible . Investment and business activities are no longer effecttive
- Cause lack of variety in design , style, quality of good , as commodity prices
become more expensive than commercial liberalization , causing damage to
consumers.
- Market distortion and loss of Economic Efficiency
- Protectionism can be an ineffective and costly of sustaining jobs and supporting
domestic economic growth
- Higher prices for Consumers
Example: In G-7, Japan and Germany particularly responded strongly to the trend of
trade protectionism. Ahead of the meeting, Japanese Finance Minister Shoichi
Nakagawa announced that Tokyo would resist any manifestation of trade
protectionism. He emphasized that the lesson from the Great Depression in the early
20th century made it clear that the closure would lead to disaster and at the G-7
Conference, Japan will discuss measures to prevent this from happening again.

PART 3 : Economic Integration : FTA – Common Market

12. What are the main drivers of Globalization? What are the benefits and challenges of
Globalization ? Những động lực chính của Toàn cầu hóa là gì? Những lợi ích và thách thức của Toàn cầu
hóa là gì?
 The main drivers of Globalization : The media and almost every book on globalization
and international business speak about different drivers of globalization and they can
basically be separated into five different groups:
1) Technological drivers
 Technology shaped and set the foundation for modern globalization.
Innovations in the transportation technology revolutionized the
industry
2) Political drivers
Liberalized trading rules and deregulated markets lead to lowered
tariffs and allowed foreign direct investments in almost all over the
world.
3) Market drivers
As domestic markets become more and more saturated, the
opportunities for growth are limited and global expanding is a way most
organizations choose to overcome this situation
4) Cost drivers
Sourcing efficiency and costs vary from country to country and global
firms can take advantage of this fact. Other cost drivers to globalization
are the opportunity to build global scale economies and the high
product development costs nowadays
5) Competitive drivers
With the global market, global inter-firm competition increases and
organizations are forced to “play” international.
 Benefits of Globalization
- Improved Living Standards
One of the main benefits of globalization is the massive rise in living standards in
developing nations. These same countries also have access to huge technological
improvements without going through the difficulties that developed nations have
experienced.
- Increased Creativity and Innovation
Global competition can encourage creativity and innovation, helping companies to
stay one step ahead of competitors. This drive toward quality and price can
improve products and keeps costs low. The free movement of labor and capital
means that ideas from developing nations can drive innovation around the world.
Before globalization, getting funding for an idea in an underdeveloped country
was extremely difficult. Since communications have evolved, individuals without
access to funding can still make a difference in both their home market and
around the world.
- Lowered Costs for Goods and Services
Lowered costs help people in both developing and developed countries live better
on less money. Huge cost reductions from inexpensive manufacturing and logistics
have lowered the cost of living for everyone around the world
- Easy Access to Foreign Culture
 Globalization has also made it easier to access foreign culture, including food,
movies, music, and art

 Challenges of Globalization
- Job Mobility
One of the most common critiques of the global trade system is how it ships jobs,
especially manufacturing jobs, from less developed countries to developing
countries. Lower-skilled workers who lose manufacturing jobs in developed
countries often have a difficult time finding new, comparably compensated work.
- Western Dominance
Despite huge growth in emerging markets, the Western developed world still
holds the reigns on international order and on how capital flows from country to
country
- Loss of Cultural Identity
While globalization has made foreign cultures easier to access, it has also begun to
meld cultures together. The success of certain cultures throughout the world have
caused other countries to emulate these lifestyles and culture
13. What is the globalization? Describe the benefits and challenges of current wave of
Globalization for Vietnam’s economy Toàn cầu hóa là gì? Mô tả những lợi ích và thách thức của làn
sóng Toàn cầu hóa hiện nay đối với nền kinh tế Việt Nam
 Globalization is the connection of different parts of the world resulting in the
expansion of international cultural, economic, and political activities. It is the
movement and integration of goods and people among different countries. There are
advantages and disadvantages to globalization, all of which have economic, social,
political, and cultural impacts.globalization describes mainly trade practices,
extending also to the communication patterns and cultural system that underlie these
practices.
 Benefits of current wave of Globalization for Vietnam’s economy
- Increasing export revenues
As a result of integrating into the regional and global market, export revenues
have increased continually since 1990, speeded up sine 1995 when Vietnam joined
ASEAN and grew sharply since Vietnam joined WTO in 2007.
- Rapid increase in foreign direct investment (FDI)
As a WTO member, Vietnam has become an attractive destination for foreign
investors. Registered FDI surged to US$71 billion in 2008, compared with only $12
billion in 2006. During the three years of WTO membership, total registered FDI
into Vietnam reached more than $114 billion, 4.5 times higher than the target set
for the 2006-2010 period. Of this, $29.5 billion was disbursed in the five years
- Increase in enterprises’ awareness, adaptation and performance
 Joining WTO means that Vietnam has entered a large “play ground” where
Vietnamese enterprises have to compete with many giant players-big foreign
corporations with strong financial power and experience. This is also a chance for
state-owned enterprises pending on the Government protection and subsidies
restructure their operation. Otherwise they will be defeated even in the domestic
market. So under the competition pressure, the Vietnam’s enterprises will become
more effective and competitive.
- More favorable legal system for trading activities
Global economic integration and accession to the WTO have given Vietnam a
chance to refine its policy and legal system to be more transparent, sustainable
and predictable to be in line with WTO regulations and to attract more foreign
investors.
Moreover, as a WTO member, Vietnam is treated as a full WTO membership.
Vietnamese enterprises have a healthy environment for development in foreign
markets. If there are trade disputes, they can be treated under WTO’s Dispute
Settlement Mechanism.
 Challenges of current wave of Globalization for Vietnam’s economy
- Low competitiveness of nation, enterprises and products
Vietnamese enterprises are mainly medium and small-sized. None of Vietnam’s
state-owned enterprises was on the list of 1000 world biggest corporations,
neither its commercial trademarks in the list of 1000 most prestigious global
trademarks. If we want to gain strong competitiveness in international market, we
must have many strong enterprises like Sony, Toyota of Japan, or Hyundai,
Samsung of South Korea
- Issues relating to macro policies and administrative procedure
A widening trade deficit, an overheating economy, and a global rise in commodity
prices caused inflation to shoot up to 23 percent in 2008.This in turn triggered a
crisis of confidence, big swings in interest rates, and a sharp fall of the dong, the
local currency”. Although this issue was over and the government has performed
better when dealing with the global financial crisis, it is an important lesson that
because the Vietnamese economy has integrated deeply into the global economy,
the exchange rates, inflation, balance of payment and budget deficit will develop
unpredictably.
- Difficulties in agricultural sector
Agriculture [1] is the main sector in the economy, accounting for 20 percent of
GDP and 66 percent of the national population. However, it is confronting with
vigorous competition in the global market. Farmers lack knowledge and
professional skills. Production technology is small and backward, which increases
the production costs compared to those of other countries and makes the quality
 of the products low. Agricultural enterprises are often of small size and disperse.
As a result, they have weak financial capacity to improve production technology
and labor productivity.

14. What are the benefits and challenges of ASEAN Economic Community ?
Describe the opportunities and economic benefits of Vietnam in the AEC ? Những lợi ích và thách
thức của Cộng đồng Kinh tế ASEAN? Mô tả các cơ hội và lợi ích kinh tế của Việt Nam trong AEC?
 The benefits of ASEAN Economic Community:
Trade
- Concerning the free flow of goods: as of 2010, duties were eliminated on 99.2% of
tariff lines for the ASEAN-6 Member States (Brunei Darussalam, Indonesia,
Malaysia, Philippines, Singapore and Thailand).
- In the other member states (Cambodia, Lao PDR, Myanmar and Viet Nam), 97.52%
of tariff lines have been reduced to 0-5%. Measures to reduce technical barriers to
trade are also being implemented.
Investment
- ASEAN is committed to building an investment environment to attract businesses:
it created the ASEAN Comprehensive Investment Agreement (ACIA), which
includes commitments towards the liberalization and protection of cross-border
investments operations, together with best practices for the treatment of foreign
investors and investments
- For the free flow of capital, stock exchanges from Indonesia, Malaysia, Philippines,
Singapore, Thailand and Viet Nam are working together to form the ASEAN
Exchanges, aiming to promote ASEAN capital markets and to offer more
opportunities to investors in the region.
Labor
- ASEAN works towards facilitating the free flow of skilled labor: the ASEAN
Agreement on the Movement of Natural Persons (MNP) provides a legal
framework to ease temporary cross-border movements of people engaged in the
trade in goods, services and investment.
Competitive Economic Region : By creating a competitive economic region, the
AEC wants to foster a culture of fair competition, which includes protection of
consumers and guarantees for intellectual property rights. It also requires
infrastructures (highways, airports and rail links, power grids and gas pipelines)
under planning and development.
Equitable Economic Development : The AEC will enhance competitiveness and
expansion of SMEs in ASEAN through various projects under the Strategic Action
Plan for ASEAN SME Development (2010-2015).
Integration into the Global Economy
 - Thanks to various “ASEAN+1” free trade agreements with the People’s Republic of
China, Japan, the Republic of Korea, Australia, New Zealand and India, ASEAN is
positioned in the middle of global supply chain, developing strong trade
connections with the major Asian economies and generating new business
opportunities.
- Increased business interest in the AEC ASEAN is benefiting from a steady increase
in Foreign Direct Investment (FDI), with an average growth of 14% since 2000.
 Challenges of ASEAN Economic Community:
- The Trump administration's 'America first' policy injected ambiguity in economic
activities.
- The risk intensified as the trade war between the US and several countries - China,
India, Russia, Mexico, Canada, the European Union - became effective. These have
long-term implications in terms of reconfiguration of manufacturing supply-chains
and confidence in the multilateral trading framework of the WTO.
- Simultaneously, the world economy is witnessing the process of Brexit, an
outcome of a referendum when Britain decided to leave the European Union.
- While it marked the rise of populist policies, it also criticised globalisation,
particularly trade and immigration, for income inequality and economic insecurity.
- The ASEAN countries are not aloof from these adverse global developments. There
are concerns over how AEC 2015 has benefitted individual ASEAN members and its
businesses and people
- Low awareness of AEC often lead to debates of uneven benefit of economic
integration and conflicts of interest between the 'winners' and 'losers'.
- These are limiting the governments from committing to bold measures and
compelling them to undertake populist policies to raise their future political
prospects.
- As a result, the pace of ASEAN economic integration may be slowed.
Implementation could be uneven and attention might be paid to more inclusive
and people-centric trade and investment measures.
- However, trade will remain at the core of AEC. Although tariffs have been almost
eliminated for flow of goods in the region, facilitation initiatives, such as the
ASEAN Single Window and Self-Certification Scheme, will gain importance.
 The opportunities of Vietnam in the AEC
- Opportunity to get a wider market
This is a good opportunity for Vietnamese businesses to expand their markets. The
AEC creates a unified market and manufacturing area, which leads to the economy
of many countries to become more prosperous, resulting in increased income and
formation of a new amount of middle-income consumers with high incomes – also
the very potential customers of businesses.
 -Extended Export Opportunities
When participating in AEC, the export market for goods in Vietnam will be
increasingly expanding. When AEC is formed, Vietnamese enterprises can sell
goods to ASEAN countries almost domestic sales. This is one of the advantages for
the flow of goods of businesses. The import and export procedures will be more
cumbersome and the reform of the procedure of origin, towards allowing
enterprises to certification of origin will also facilitate the business customs
clearance of goods to the market ASEAN.
- Opportunity to enhance competitiveness for Vietnam's exports
When AEC is established, Vietnamese enterprises will have a wider market. In
addition, when the tax rate in ASEAN is reduced to 0%, Vietnamese enterprises
will have conditions to reduce costs, lower prices for exports, contribute to
increasing competitiveness.
- Opportunity to attract investment sources
AEC will also help Vietnam to better improve the business environment from
customs clearance, administrative procedures to create more balanced
investment incentives.
 The benefits of Vietnam in the AEC
- Reduce the risks in export-imports from minimizing dependency to the Chinese
market, increasing the replacement of the ASEAN market for the Chinese market.
- Creating opportunities for Viet Nam to be deeper into the value chain and the
regional supply chain is firstly the supply chain value agricultural products and
intermediate products.
- To promote the process of implementing strategic breakthroughs to Vietnam to
basically become industrialization in the modern direction in 2020
- Strengthening the comprehensive understanding between Vietnam and other
AEC member countries, expanding socio-cultural exchanges across countries,
facilitating the development of Vietnamese values and identity in AEC

Why Vietnam actively participates in many FTAs ?

What are the benefits and costs of Vietnam when we sign FTAs and joint WTO ? Tại sao Việt
Nam tích cực tham gia nhiều FTA? Việt Nam sẽ có những lợi ích và chi phí gì khi chúng ta ký kết các hiệp định
thương mại tự do FTA và gia nhập WTO?

 Vietnam actively participates in many FTAs because

- Having better trade relations with some other partners in other regions
contributed to helping Vietnam balance its trade deficit
 Tranfers the knowledge and technology
-
Take advantage of reduced tariff
-
Enable vietnam is economic develpment to continue to shift away from exporting
-
low tech manufacturing products to high tech goods
- FTAs has contributed to raising Vietnamese exports
- FTAs also help Vietnam improve its infrastructure, attract more investment
capital; accelerate administrative reform; abolish barriers for the market access.
 Benefits and cost of Vietnam when we sign FTAs
o Benefits
- Enable Vietnam’s economic development to continue to shift away from
exporting low-tech manufacturing products and primary goods to more
complex high-tech goods
- Sophisticated business practices and technology will help boost
Vietnamese labor productivity and expand the country’s export capacity.
- Trade agreements will allow Vietnam to take advantage of the reduced
tariffs, both within the ASEAN Economic Community (AEC) and with the EU
and US to attract exporting companies to produce in Vietnam and export to
partners outside ASEAN.
- Vietnam's participation in trade agreements will also ensure compliance
with national standards, from employee rights to environmental
protection.
o Cost
- Such agreements are likely to trigger aggressive competition from foreign
rivals on local businesses – particularly in the agriculture sector including
meat and dairy products from the EU, Australia and Canada
- If local firms do not adapt, make use of new market opportunities and
potential partnerships with foreign firms – they could find competing in the
market challenging.
- The Vietnamese government would also need to continue on its path of
reforms – strengthening the banking sector, removing corruption, refining
legal and tax structures, and improving trade facilitation.

 Benefits and costs of Vietnam when we joint WTO

o Benefits
- Vietnam has access to markets for goods and services in all member
countries with reduced import tariffs and non-discriminatory service
sectors.
 -When participating in WTO, Vietnam's business environment is increasingly
improved.
- Vietnam has the same status as other members in global trade policy
making, has an opportunity to fight to establish a fairer, more reasonable,
conditional economic order. to protect the interests of the country, the
business.
- Integration into the world economy also promotes the domestic reform
process, ensuring that Vietnam's reform process is more synchronized and
more effective.
- WTO accession will enhance our position in the international arena,
creating conditions for Vietnam to effectively implement foreign policies.
o Costs
- Competition will be fiercer, with more "competitors", on a wider and
deeper scale
- In the world, the "distribution" of benefits of globalization is uneven.
Countries with low developed economies benefit less
- International economic integration in a globalized world, interdependence
among countries will increase. In the context of limited potential of the
country, incomplete legal system, limited experience in operating a market
economy, this is not small difficulty.
- International economic integration raises new issues in protecting the
environment, protecting the national security, preserving the fine cultural
identity and traditions of the nation, against pragmatic lifestyles and
pursuing coin.

15. Present the different level of Economic Integration ? What is the advantage and benefit of
FTA and Custom Union for one country ? Trình bày các mức độ khác nhau của Hội nhập kinh tế? Ưu
điểm và lợi ích của FTA và Liên minh thuế quan đối với một quốc gia là gì?
 The different level of Economic Integration : Economic integration can be classified in
five additive levels

- Free trade. Tariffs (a tax imposed on imported goods) between member

countries are significantly reduced, some abolished altogether. Each
member country keeps its own tariffs in regard to third countries.
- Custom union. Sets common external tariffs among member countries,
implying that the same tariffs are applied to third countries; a common
trade regime is achieved.
 - Common market. Services and capital are free to move within member
countries, expanding scale economies and comparative advantages.
However, each national market has its own regulations such as product
standards.
- Economic union (single market). All tariffs are removed for trade between
member countries, creating an uniform (single) market. There is also free
movements of labor, enabling workers in a member country is able to
move and work in another member country. Monetary and fiscal policies
between member countries are harmonized, which implies a level of
political integration.
- Political union. Represents the potentially most advanced form of
integration with a common government and were the sovereignty of
member country is significantly reduced.
 Advantage of Free Trade Agreements (FTA) : Free trade agreements are designed to
increase trade between two or more countries
- Increased Economic Growth
- More Dynamic Business Climate: Often, businesses were protected before
the agreement. These local industries risked becoming stagnant and non-
competitive on the global market. With the protection removed, they have
the motivation to become true global competitors.
- Lower Government Spending: Many governments subsidize local industry
segments. After the trade agreement removes subsidies, those funds can
be put to better use.
- Foreign Direct Investment: Investors will flock to the country. This adds
capital to expand local industries and boost domestic businesses.
- Expertise: Global companies have more expertise than domestic companies
to develop local resources. When the multinationals partner with local
firms to develop the resources, they train them on the best practices. That
gives local firms access to these new methods.
- Technology Transfer: Local companies also receive access to the latest
technologies from their multinational partners.
 Benefits of Free Trade Agreements (FTA )
- Contribute to greater economic activity and job creation in the country ,
and deliver opportunities for big and small businesses to benefit from
greater trade and investment.
- Reduce and eliminate tariffs, improve rules that affect issues like
intellectual property.
 - Free trade agreements give businesses and consumers improved access to
a wider range of competitively priced goods and services, new
technologies, and innovative practices.
- Free trade agreements help obtain more benefits from foreign investment.
- Promote regional economic integration and build shared approaches to
trade and investment between one country and trading partners.
- Support stronger people-to-people and business-to-business links that
enhance Australia’s overall bilateral relationships with FTA partners.
- Free trade agreements can continue to provide additional benefits and
trading partners over time, including via in-built agendas that encourage
ongoing domestic reform and trade liberalisation.
 Advantages of Custom Union
- Increase in trade flows and economic integration
The main effect of a free-trade agreement is that it increases trade
between member countries. It helps improve the allocation of scarce
resources that satisfy the wants and needs of consumers and boosts
foreign direct investment (FDI). Customs unions lead to better economic
integration and political cooperation between nations and the creation of a
common market, monetary union, and fiscal union.
- Trade creation and trade diversion
The effectiveness of a customs union is measured in terms of trade
creation and trade diversion. Trade creation occurs when the more
efficient members of the union sell to less efficient members, leading to a
better allocation of resources.
Trade diversion occurs when efficient non-member countries sell fewer
goods to member countries because of external tariffs. It gives less efficient
countries in the union the opportunity to capitalize on their position and
sell more goods within the union.
- Reduces trade deflection: One of the main reasons a customs union is
favored over a free trade agreement is because the former solves the
problem of trade deflection. This occurs when a non-member country sells
its goods to a low-tariff FTA (free trade agreement) country, which then
resells to a high-tariff FTA country, leading to trade distortions. The
presence of a common external tariff in customs unions helps avoid
problems that arise from tariff differentials.
 Benefits of Custom Union
a) To Producers :
- Producers get a larger and wider market and can thus produce more goods.
 - The Custom Union lowers cost of production
- It offers equal protection to all manufacturers against third country imports
and minimizes the possibility of transshipment or trade deflection.
- It levels the economic environment and promotes fair competition by
reducing disparities in production costs for manufacturers in the various
countries with regard to taxes on imported raw materials and intermediate
goods from third countries.
b) To Traders within the CU:
- Traders get wider source of goods therefore, bargaining power in dealing
with suppliers resulting in cost savings for their customers.
c) To the Importers:
- Because the CU removes border controls and trade barriers, importing
goods becomes faster since traders do not have to go through so many
customs procedures in different countries. This reduces transaction costs
and results in timely deliveries.
d) To Consumers:
- Consumers get a wider choice of goods and they also benefit from the
advantages of increased productivity which leads to lower prices.
e) To the CU Members:
- In a CU with a Free Trade Area, intra-regional trade is enhanced as there
are no tariffs or quotas on goods originating from within the region,
- It seeks to maintain a price advantage for regionally produced goods over
goods produced outside the Customs Union.
f) To Land locked Countries:
- Land locked countries that are neighbours to CU members who have access
to the sea, will in actual terms no longer be landlocked, given that their
goods will be cleared at first port of entry and will have free circulation
rights when moving to such, countries as all customs formalities would
have been discharged at the port of entry.
g) To the Region as a Whole (CU Members):
- A customs union promotes cross-border investment and serves to attract
investment, both Foreign Direct Investment (FDI) and domestic investment,
as the enlarged market is more attractive to investors than the previously
small individual national markets.

What are the principles of WTO and how ist differ a FTA ?
 The principles of WTO
- Trade without discrimination
Under the WTO agreements, countries cannot normally discriminate
between their trading partners. Grant someone a special favour (such as a
lower customs duty rate for one of their products) and you have to do the
same for all other WTO members.
Imported and locally-produced goods should be treated equally — at least
after the foreign goods have entered the market. The same should apply to
foreign and domestic services, and to foreign and local trademarks,
copyrights and patents
- Freer trade: gradually, through negotiation
Lowering trade barriers is one of the most obvious means of encouraging
trade. The barriers concerned include customs duties (or tariffs) and
measures such as import bans or quotas that restrict quantities selectively
- Predictability: through binding and transparency
Sometimes, promising not to raise a trade barrier can be as important as
lowering one, because the promise gives businesses a clearer view of their
future opportunities. With stability and predictability, investment is
encouraged, jobs are created and consumers can fully enjoy the benefits of
competition — choice and lower prices. The multilateral trading system is
an attempt by governments to make the business environment stable and
predictable.
In the WTO, when countries agree to open their markets for goods or
services, they “bind” their commitments. For goods, these bindings amount
to ceilings on customs tariff rates. Sometimes countries tax imports at rates
that are lower than the bound rates. Frequently this is the case in
developing countries. In developed countries the rates actually charged
and the bound rates tend to be the same.
- Promoting fair competition
The rules on non-discrimination — MFN and national treatment — are
designed to secure fair conditions of trade. So too are those on dumping
(exporting at below cost to gain market share) and subsidies. The issues are
complex, and the rules try to establish what is fair or unfair, and how
governments can respond, in particular by charging additional import
duties calculated to compensate for damage caused by unfair trade.
- Encouraging development and economic reform
The WTO system contributes to development. On the other hand,
developing countries need flexibility in the time they take to implement the
 system’s agreements. And the agreements themselves inherit the earlier
provisions of GATT that allow for special assistance and trade concessions
for developing countries.
 Differ from a FTA
The WTO includes many agreements in different areas of trade (goods, services,
intellectual property, investment, etc.). These agreements are aimed at unifying rules
for global trade and reducing trade barriers. However, the WTO has only succeeded in
reducing but not reaching the level of removing barriers to the majority of trade as in
FTAs. Therefore, there is no FTA agreement in the WTO.
BENEFITS OF RCEP
The RCEP Agreement is identified as a priority content in Vietnam's integration strategy. After the
RCEP Agreement is signed and put into effect, Vietnam will become one of the leading countries in
the world participating in deep and broad integration into all three of the world's largest free trade
agreements. Agreement (CPTPP), (EVFTA) and (RCEP).
RCEP is the largest region to facilitate Vietnam to take advantage of intra-regional tariff preferences,
so Vietnamese businesses can expect the Agreement to further improve tariff preferences, rules of
origin. the internal block is more harmonious, easier to respond. Customs procedures will be agreed
to facilitate trade.
RCEP also brings Vietnam a market with a strong standard of living and economic growth with huge
consumer demand but not too high requirements for product quality. Along with opening up a large
consumer market, the RCEP Agreement will help Vietnam reduce transaction costs, create a more
friendly business environment by harmonizing existing regulations, and applying regulations. within
the framework of various ASEAN FTAs. At the same time, contribute to strengthening technical
cooperation and position of Vietnam in the settlement of trade and investment disputes.
BENEFITS OF EVFTA
The EVFTA will enhance broad and expanding relationships in many key areas, resulting in the
creation of jobs, development of expertise, and the transfer of innovative knowhow, the generation
of tax revenues, and the introduction of cutting-edge technology, as well as the provision of many
new goods and services to benefit consumers. The agreement’s strong commitment to open, fair,
and rules-based trade will widen export markets for Vietnam. The improved regulatory co-operation
and coherence through this EVFTA will bring advantages to Vietnam which will not only attract
foreign investors but bring advantages to the Vietnamese society to access high-quality products.
The EVFTA will create considerable opportunities for Vietnam’s agriculture as it will boost
agricultural exports, improve the sector’s competitiveness and promote Vietnam’s international
economic integration. The EU is currently the second-largest market for Vietnamese exports of key
produce and commodities such as coffee, cashew nuts, and pepper.
EU will truly commit to promote Vietnam’s advantages and potentials in the agricultural and
healthcare sectors.