(TIỂU LUẬN) THE RELATIONSHIP BETWEEN EXCHANGE RATE AND INTERNATIONAL BALANCE OF PAYMENT (THEORY AND PRACTICE IN VIETNAM)

NATIONAL ECONOMICS UNIVERSITY SCHOOL OF ADVANCED EDUCATION PROGRAMS  GROUP PRESENTATION TOPIC: THE RELATIONSHIP BETWEEN EXCHANGE RATE AND INTERNATIONAL BALANCE OF PAYMENT (THEORY AND PRACTICE IN VIETNAM) GROUP Nguyễn Thị Ngọc Hân Chu Nguyễn Khánh Vân 11195706 Trần Thùy Trang Lê Hạnh Trang Trần Hoàng Yến Lê Cẩm Chi Nguyễn Hương Quỳnh CLASS: CORPORATE FINANCE EEP 61A Hanoi, 2022 CONTENT I THEORICIAL BASIS 1.1 Equation of relationship between exchange rate and trade balance .3 1.2 Quantitative model II RESULTS .7 II CONCLUSION REFERENCE…………………………………………………………… I THEORY ON INTERACTIVITY AND NEGATIVE EXTERIOR Concept Another case of market inefficiencies requiring government intervention are externalities When the actions of one person (be it an individual or a firm) have a direct effect on the welfare of another, but those effects are not reflected in market prices, that effect is are called externalities An externality is the effect of a production or consumption process on a third party not directly involved in that production or consumption process Characteristics Externalities occur when a process of production or consumption of certain goods or services affects (causes damage or brings benefits) to objects directly or not directly involved in transactions., but these impacts are not fully reflected in the costs or benefits from a societal point of view Then, the social benefits or costs of producing or consuming a certain quantity of a good will not coincide with the benefits or costs of individuals (we call it private benefits or costs) Market prices not fully represent and reflect costs or benefits from a social point of view The distinction between positive and negative properties of externalities is relative: Same externality, but it is judged as good or bad depending on the point of view of those affected For example, a toaster oven can create a positive externality for a neighbor, if the neighbor can take advantage of the oven's heat for his or her own laundry detergent business But it can also be a negative externality if the other side deals in frozen goods Influential externalities of economic activities lead to disparities between individual and societal costs or benefits because externals are not reflected in the market for commodity prices, not necessarily true values its society Consequently, market regulation has resulted in either producing too much or producing too little relative to society's needs, causing external costs while market prices not reflect all production costs It results in a market failure Classification 3.1 Negative externalities and inefficiencies of negative externalities 3.1.1 Definition: A negative externality is an externality where the actions of one party cause costs to the other party A negative externality has an adverse effect on the affected object Negative externalities (also known as external costs) exist when a third party incurs some kind of cost or loss as a result of a buyer-seller transaction to which the third party is not involved One of the best-known negative externalities is pollution An organization can pollute the environment by burning fuel and releasing toxic fumes that can cause public health problems Example: Negative externalities can occur when a smelter discharges its wastes into a river on which downstream fishermen rely for their daily living The more waste the smelter produces, the less fish it can catch Firms have no incentive to take into account the exogenous costs incurred by fishermen when making their production decisions And consumption activities create negative externalities that can be clearly seen through tobacco consumption when smokers feel good and pleasant, although harmful to health, but for those around them, they will feel discomfort from cigarette smoke 3.1.2 Inefficiency of negative externalities Since externalities are not reflected in market prices, they can be the cause of economic inefficiencies In the presence of negative externalities, the marginal social cost of MSC is higher than the private cost of MC That difference is called the marginal external cost MEC In this case, the firm will maximize its profit by producing at output Q1 when price equals marginal cost MC The socially efficient quantity of production is Q*, where the price is equal to MSC The price of steel is P1, at the intersection of the supply and demand curves The MC curve is the marginal cost of production for a typical firm As the firm's output changes, so does the exogenous cost to downstream fishermen This exogenous cost is represented by the MEC curve This line usually slopes upward for most forms of pollution because as the firm produces more output and discharges more waste into the river, the additional damage to the fishing and aquaculture industries also increases society, the firm is producing too much Efficient output is the level at which price equals the marginal social cost of production – the marginal cost of production plus the marginal external cost of discharge On the graph, the marginal social cost curve is determined by adding the marginal and external costs at each level of output: MSC = MC + MEC The marginal social cost curve intersects the price curve at the output level Q* As we can see from the graph, the industry's efficient level of output is the level at which the marginal benefit of each additional unit of output equals the marginal social cost Since the demand curve represents the marginal utility of consumers, the efficient output is Q*, located at the intersection of the MSC marginal social cost curve and the D demand curve But the industry's competitive output level is at Q1 and is reached at the intersection of the demand and supply curves MC Obviously the output of the firm (industry) is too high When producing, each unit of output will cause a certain amount of waste to be released Therefore, no matter what kind of pollution we consider the pollution of any firm or industry, economic inefficiency remains a state of affairs Overproduction causes a lot of waste to be discharged into the river The cause of inefficiencies is the incorrect pricing of the product The price of the above product is too low – it reflects the marginal private cost of the firm's production, not the marginal social cost Only at a higher price P* will the firm (industry) produce the efficient level of output The price paid to society by overproduction: for each unit of production higher than Q* The price to society is the difference between marginal social cost and marginal benefit Comment: When there was a negative externality, the situation led to: (1) Market efficiency remains in excess of desired social efficiency because marginal market costs differ from social costs because negative externalities generate marginal external costs (2) The market output exceeds the required output, and the market price is below the social price (3) In the absence of appropriate interventions, markets tend to produce beyond what society generally requires That causes economic losses as market production exceeds the overall efficiency of society 3.2 Positive externalities and inefficiencies of positive externalities 3.2.1 Definition A positive externality is one when the action of one party benefits the other Positive externalities have a good effect on the affected objects 3.2.2 Ineffectiveness of a positive externality: When there is a negative externality, it has resulted in: (1) Market efficiency remains below the desired level of social efficiency (2) The market output is below the required output and the market price is above the social price (3) Causes Economic loss because the market produces below the socially efficient level Solutions to restore externalities 4.1 Private-Sector solutions 4.1.1 Property rights: Property rights are legal provisions that describe what people or firms are entitled to with their property Assume that the company has the right to use the river for dumping, and the fisherman has no property right to the water that is "free to pollute" As a result, the company has no incentive to include waste costs in its output calculations In other words, the company has externalized the costs arising from the discharge Assume the fisherman owns the river, that is, has property rights to the clean water They can then ask the company to pay for the waste The company has to stop production or accept the cost of dumping waste These costs will be internalized, and an efficient allocation of resources will be achieved 4.1.2 Bargaining and economic efficiency: Economic efficiency can be achieved without government intervention when externalities affect a small number of parties and when property rights are well defined For example, suppose that smelter waste reduces fisherman's profits The plant can install a filtration system to reduce its waste, or the fisherman can pay to install a water treatment plant 4.1.3 Costly bargaining – the role of strategic behavior: Negotiating can take time and money, especially when property rights are not well defined At that point, neither side can know for sure how hard it will be to get the other to accept a common solution Negotiations can also fail when communication and monitoring are costly, if both sides believe they can gain a greater advantage Each side demanded more and refused to negotiate, mistakenly thinking that the other side would have to accept it anyway This strategic behavior can lead to an uncooperative and ineffective outcome 4.1.4 Legal solution – claim for compensation: In many situations where there are externalities, one party that is harmed by the other party has a legal right to action If successful, the plaintiff may be entitled to monetary damages equal to the amount of damage suffered Complaints for damages are different from discharge fees because the aggrieved party, not the government, will be paid * Coase's theorem: When the parties can negotiate inexpensively and to the mutual benefit of both, the outcome produced will be efficient, regardless of how property rights are determined ⇒ The private solution may fail The private solution group is not binding but depending on the goodwill of the parties to perform, when one party does not have the goodwill to implement it, it will lead to the failure of the party this hypothetical group Therefore, in some cases, government intervention is required 4.2 Public-Sector Remedies solutions 4.2.1 Group of legal administrative solutions: - The Government can make regulations to prohibit or restrict an act by means of legal systems and sub-law documents detailing the implementation of the law Specifically, the emission standard TCVN 5945 - 2005 applied by Vedan company (will be presented in chapter II on negative externality practices in the case of Vedan company) - The Government will apply this measure when it considers that the negative externality is much larger than the benefit of the person causing the externality However, the prohibition is not simple in practice For example, it is not possible to ban vehicles even though all of them cause pollution 4.2.2 Group of economic measures: 4.2.2.1 Impact of taxes and subsidies: From the graph we see that the industry's efficient level of output is Q*, reached at the intersection of the marginal social cost curve MSC and the demand curve D But the industry's competitive output is at Q1, at the intersection point of the demand and supply curves MC Clearly the firm's (industry) output is too high ⇒ Therefore, the Government will tax the tax at a rate exactly equal to the marginal externality benefit MEB so that the firm (industry) will produce the efficient level of output Q* From here, we can see that the impact of taxes has the following benefits on overcoming negative externalities: - Raise the price of steel and reduce output to an efficient level - Reduce but not eliminate pollution caused by steel production - Efficiency gains for the commune assuming that the tax rates are set correctly - Fair benefits for people living near steel mills * Impact of subsidies: Similar to the effect of taxes, the effect of subsidies has the opposite effect of lowering prices and increasing output to a level where the effect is significant for positive externalities (This section does not go into depth analysis chosen by the group is to analyze the impact of negative externalities) 4.2.2.2 Emission standard (emission norm): An emissions standard is a legal limit on how much emissions a company is allowed to emit If the company discharges beyond the limit, it can be fined, even prosecuted for criminal liability, in the picture above the effective emission standard is 12 units at point E* The company will be severely fined if the emissions are larger than this Emission standards ensure that the manufacturer is efficient The company complies with emission standards by installing waste reduction equipment An increase in abatement costs will result in an increase in the firm's average cost If there are enough firms and licenses, a competitive license market will be formed At market equilibrium, the price of a license equals the marginal abatement cost of all firms; otherwise, the company will find it more profitable to buy more licenses The emissions selected by the government will be achieved at the lowest cost Firms with relatively low marginal cost abatement curves will reduce emissions the most, and firms with relatively high marginal abatement cost curves will purchase more permits and reduce emissions the least Transferable discharge permits have created a market for externalities This market-type approach is attractive because it combines the advantages of a discharge system with the cost advantages of a discharge fee system The agency operating the system determines the total number of permits and thus the total emissions, just as the emission standard system does But the ability to trade waste permits allows emissions reductions to be achieved at the lowest cost, like the fee system II ANALYSIS THE CASE: VEDAN COMPANY POLLUTES THI VAI RIVER AND FINANCIAL TOOLS OF GOVERNMENT TO CONTROL NEGATIVE EXTERNALITIES Introduction to Vedan Vedan Vietnam Joint Stock Company (Vedan Vietnam) was established in 1991 in Phuoc Thai commune, Long Thanh district, Dong Nai province, east of Vietnam's largest city - Ho Chi Minh City about 70 km, on a land area of 120 ha, is a modern biotech and food processing general industrial park, which has now put into operation production and use works including Crystal factory powdered sugar, monosodium glutamate, modified starch factory, caustic soda plant, lysine plant, steam generator plant, PGA factory, Vedagro mineral organic fertilizer plant in pellets, system wastewater treatment system with advanced technology, Phuoc Thai Vedan Specialized Port, specialized asphalt roads, and works and infrastructure in administrative areas, employee welfare, amusement parks entertainment Since its establishment in Phuoc Thai commune - Long Thanh - Dong Nai, up to now, Vedan Vietnam Company has expanded investment in the development and expansion of branch facilities in provinces and cities across the country such as there are 04 applications branches in Hanoi, Phuoc Long (Binh Phuoc), Binh Thuan, Ha Tinh, and 02 subsidiaries, ORSAN Vietnam Co., Ltd in Ho Chi Minh City Ho Chi Minh City and VEYU Co., Ltd in Gia Lai province In the process of expanding the scale of investment and business development, Vedan Vietnam has also built a series of agent systems and distribution channels throughout the country In the international market, Vedan Vietnam is the leading advanced manufacturer in Asia in the field of using biotechnology and fermentation technology to produce Amino Acid products, food flavor enhancers , starch, modified starch, feed additives, and supply products for other industries Vedan Vietnam's products are consumed in Vietnam and exported to food distributors, international trading companies, food industries, papermaking, textiles, chemicals in the international market countries such as China, Japan, Taiwan, Southeast Asian countries, and countries in Europe Most of the company's products are branded "VEDAN" In terms of competitive advantages, since its inception, because Vietnam's electricity supply has not yet fully met the demand for production, Vedan has developed a steam-extraction power generation system, which is a trend energy development of the world Thanks to the power plant, Vedan Vietnam Company not only stabilizes the amount of electricity for production but when not used up, the power source will connect to the grid system of the Vietnam Electricity Company, to provide electricity for other businesses to use On the other hand, because the company is located next to the Thi Vai River, it is very convenient for transporting raw materials and products of the company by waterway Through the process of investment expansion efforts, with great attention and support from the Government of Vietnam, and more than two years of striving, the company has completed the investment in building Phuoc Thai port to become an important specialized port in the international water transport system - 2010: ISO / IEC certification 17025: 2005 - 2009: + Achieve ISO 14001: 2004 certification issued by BSI International Organization in England + Achieving OHSAS 18001: 2007 certification issued by BSI International Organization in England - 2008: Achieve certification B2 - 2007: Achieve OHSAS 18001 certification - 2006: Established Ha Tinh noodle starch factory - 2005: + Established Vayu Company Limited + Achieve HACCP certification - 2004: Receiving Vietnam Quality Gold Award 2004 awarded by the Ministry of Science and Technology - 2003: + Established Binh Thuan wheat starch processing factory + Vedan International Company officially went to the stock exchange in Hong Kong - 2002: Receiving Vietnam Quality Gold Award 2002 awarded by the Ministry of Science and Technology - 2001: + ISO 9001 certification + Established Orsan Vietnam Company Limited - 2000: Achieve Halal Certification In 2000: Honored to receive the third-class Labor Medal awarded by the President - 1999: Get Kosher Certification - 1998: ISO 9002 certification - 1997: Established Phuoc Long noodle starch factory - 1996: Complete Lysine Factory - 1995: Complete plant meal fermentation - 1994: Completion of construction facilities for production equipment in phase and jumping infrastructure equipment - 1994: Establishing a Branch of CPHH Vedan Vietnam Company in Hanoi - 1991: officially established Vedan Vietnam Limited Joint Stock Company The progress of event: Vedan pollute Thi Vai River - In September 2008, Vedan was discovered discharging into the environment of the Thi Vai River The level of discharge according to Vedan from 1994 to present: 44,800m3/month (according to Vedan's report); according to the statistics of the environmental management agency: 70,400 m3/month 2.1 10 acts of Vedan: - Specifically, Vedan Company has discharged wastewater over the permitted standard ten times or more in the amount of wastewater from 50 m³/day to less than 5000 m³/day at factories: Modified starch factory; MSG Factory and Lysin Factory, violating Clause 8, Article 10, Decree 81/2006 ND-CP - The company does not register its commitment to environmental protection, does not make an environmental impact assessment report; discharges unpleasant odors directly into the environment without using devices to limit environmental pollution; improperly managing the transportation and handling of hazardous waste… In particular, the company discharges wastewater into the water source at the wrong location specified in the permit, violating Clause 4, Article 9, Decree No 34/2005 of the Government on sanctioning of administrative violations in the field of law water resource sector - According to the analysis results of the interdisciplinary inspection team, after taking samples of wastewater at Vedan, it showed that many indicators exceeded thousands of times the allowed regulations such as color index exceeded 2,600 times, oxidation content exceeded nearly 3,000 times and many other standards exceeded hundreds of times - It is the untreated waste that Vedan secretly discharges through the underground system that has contributed to "killing" the Thi Vai River for the past 14 years - Also according to the calculation of the interdisciplinary inspection team, Vedan Company's installation of the wastewater discharge system into the Thi Vai River has avoided paying the wastewater fee of 91 billion VND - Regarding the fraudulent practice of building a very sophisticated "underground" water treatment system to discharge untreated wastewater into the Thi Vai River during the past 14 years, the interdisciplinary inspection team decided to switch to the investigation to clarify If you violate the Criminal Law, you will be prosecuted - There are signs of erasing the scene - After making a record of administrative violations, the inter-sectoral task force took administrative preventive measures to ensure the sanction Specifically, suspending the act of discharging wastewater that does not meet the allowable standards into the environment (Thi Vai river) - In October 2010, Vedan agreed to compensate: 53.6 billion for BRVT, 45.7 billion for HCMC, 119.6 billion for Dong Nai Due to environmental discharge causing damage to aquaculture and fishing households => Vedan causes negative externalities for aquaculture and fishing households in the Thi Vai river basin in provinces of Dong Nai, Ba Ria - Vung Tau, and Ho Chi Minh 2.2 Causes: - Vedan saves investment in waste treatment system - Not operating the system properly to save costs: According to calculations, with the total daily wastewater volume of more than 4,000 m3 of Vedan, if not treated a day, it is possible to pocket hundreds of millions of DONG - Liquid management of the school administration agency 2.3 Impacts: According to the results of the investigation and survey of the Department of Environmental Protection, Dong Nai River water, the section from Thien Tan water plant to Long Dai, has started to contaminate organic matter and suspended solids, notably detected lead levels exceeding TCVN 5942-1995 standards Here, suspended solids usually exceed the standard 3-9 times, COD value exceeds 1.82.8 times, DO value is below the permissible limit Meanwhile, the river water quality of the downstream area, the value of DO decreased very low, SS exceeded from 2-2.5 times TCVN 5942- 1995 (type B) The area has also been severely contaminated with salt, and the river water in this area cannot be used for living and irrigation A recent survey by the Department of Natural Resources and Environment of Ho Chi Minh City also gave similar figures on the pollution level of the Saigon River system (in Dong Nai basin) According to the results of this survey, other rivers throughout the basin, water quality is also in serious decline For example, water quality in some tributaries such as Be River, Da Nhim-Da Dung downstream is also progressing in a bad direction The River Andm Grass has been contaminated with organic pollution The most polluted of the entire basin is the Thi Vai River, which has a stretch of river over 10 km long called the "dead river" This is the section of the river from the end of The Suoi - Thi Vai River confluence area about km to My Xuan industrial park Here, the water is severely contaminated with organic, black-brown and stinks day and night, even at high tide According to the survey results of the Ministry of Natural Resources and Environment, the DO value here is regularly less than 0.5 mg/l, where only 0.04 mg/l With such a DO value of almost zero, species are virtually incapable of living, scientists have called this section of the river "characteristic of death" 2.4 Consequences: - The aquaculture of people along the Thi Vai river basin is damaged by polluted water sources - Households working in fishing continue to work due to the depletion of fisheries in the river due to pollution - Other consequences: the health of people around the area, Analyzing the negative impact of Vedan's discharge on households farming and fishing in the Thi Vai river With its discharge, Vedan causes out-of-work costs for society: TEC Social cost of Vedan's production: TSC TSC = TC + TEC TEC: Total external costs caused by Vedan's production to society (in this model, external consideration is caused to farming and fishing households on the Thi Vai river basin in Ba Ria Vung Tau, Dong Nai and Ho Chi Minh City) See TEC = 53.6 + 119.6 + 45.7 = 218.9 (billion) TEC = f(Q) (with Q as Vedan's output) Vedan's pollution causes external costs for society, with MEC-> marginal CP increasing society's marginal costs: MSC = MC + MEC For society, the effective output is Q* at MSB=MSC, but Vedan has produced in excess of this output at Q (Q > Q*) causing in vain losses to society III FINANCIAL TOOLS OF GOVERNMENT TO HANDLE NEGATIVE EXTERNALITIES FROM VEDAN Private-sector solutions: - Regulation of property ownership: + If the factory owns the river: The factory is ready not to produce more goods if farmers compensate them for an amount not less than the net benefit they get from production (MB – MPC) And farmers are willing to compensate if the amount they have to spend is not greater than the loss they suffer from the production of the factory (MEC) + If the farmer owns the river (Vedan case): The factory is ready to compensate the farmer if the compensation is not greater than the benefit they get from production (MB – MPC) And farmers are willing to accept compensation if it is not less than the damage they suffer => Conclusion: In this case, private sector solution is not possible, need government intervention Government solutions 2.1: Group of legal and administrative measures - Legal system on environmental management: We have the Law on Environmental Protection promulgated on November 29, 2005 and guiding documents - The management and supervision of management agencies: Ministry of Natural Resources and Environment, Department of Environmental Protection under MONRE; provincial management agencies (DONRE), district (Department of Natural Resources and Environment) Needs close supervision and management - Our environmental protection law is still sketchy, simple, does not pay attention to the extent of environmental destruction of businesses, has not kept up with the pace of economic development and international integration State management also has a great responsibility in letting businesses not protect the environment Administrative sanctions are too light, not sharp in the preparation and appraisal of environmental impact assessment reports, not tight in the licensing stage as well as overlapping and delaying in the inspection and inspection stage, creating many slots open for many businesses to violate the environment - The decision to impose an administrative fine of 200 million VND for Vedan seriously polluting the Thi Vai River for 14 years is considered the highest penalty today, but many people think that "it is not worth it" - Vedan's administrative sanctioning acts: + Fine 33,000,000 VND for the following acts: discharging wastewater in excess of the permitted standard ten times or more in case of discharge of wastewater from 50 m3/day days to less than 5,000 m3/day for the Company's modified starch factory; violate Clause 11 Article 10 of Decree No 81/2006/NDCP + Fine 23,000,000 VND: discharge of wastewater in excess of the permitted standard from five times to less than ten times in the case of discharge of wastewater from 50 m3/day to less than 5,000 m3/day for a manufacturing plant export MSG and Lysine of the Company; violate Clause Article 10 of Decree No 81/2006/ND-CP + Fine of 23,000,000 VND: discharge of wastewater in excess of the permitted standard from five times to less than ten times in the case of discharge of wastewater from 50 m3/day to less than 5,000 m3/day for factories Other companies discharge wastewater into double culverts in the wharf area; violate Clause Article 10 of Decree No 81/2006/ND-CP + Fine 3,000,000 VND: incomplete submission of investigation, survey, monitoring data and other relevant documents to the competent State agency; violating Clause 4, Article 27 of Decree No 81/2006/ND-CP + Fine 500,000 VND: discharge of stench and unpleasant odors directly into the environment without using equipment to limit environmental pollution; violating Point b, Clause 1, Article 11 of Decree No 81/2006/ND-CP; + Fine 10,000,000 VND: hazardous waste management is not in accordance with regulations on environmental protection (hazardous waste storage area does not have enough safe roof, has not been managed according to the set of documents hazardous waste issued by the Ministry of Natural Resources and Environment); violate Clause 3, Article 15 of Decree No 81/2006/ND-CP + Fine 6,000,000 VND: discharging wastewater into water sources at the wrong location specified in the permit; violating Point d, Clause 4, Article of Decree No 34/2005/ND-CP + Fine 33,000,000 VND: discharge of wastewater (liquid waste after monosodium glutamate fermentation has pollution parameters exceeding the permissible standards many times including: color level exceeds 3,675 times, COD exceeds 2,957 times, BOD5 exceeds 1,057 times, suspended sediment exceeds 136 times, ammonia exceeds 26 times, total N exceeds 339 times and total P exceeds 31 times) exceeds the permissible standard by ten times or more in the case of wastewater discharge from 50 m3/day arrival day is less than 5,000 m3/day at wharf No or wharf No of the Company; violate Clause 11 Article 10 of Decree No 81/2006/ND-CP; + Fine 33,000,000 VND: discharge of wastewater (Lysin fermentation liquid waste has pollution parameters exceeding the permissible standards many times, including: color level exceeds 2,600 times, COD exceeds 195 times, BOD5 191 times, suspended sediments 101 times, ammonia 116 times, total N 77 times and total P 10 times) exceeding the allowable standard by ten times or more in case of discharge of wastewater from 50 m3/day to less than 5,000 m3/day at wharf No or wharf No of the Company; violate Clause 11 Article 10 of Decree No 81/2006/ND-CP + Fine 33,000,000 VND: discharge of sludge wastewater in excess of the permitted standard ten times or more in case of discharge of wastewater from 50 m3/day to less than 5,000 m3/day for the starch factory and water treatment; violate Clause 11 Article 10 of Decree No 81/2006/ND-CP + Fine 20,000,000 VND: discharge of wastewater in excess of the permitted standard from five times to less than ten times in case of discharge of wastewater less than 50 m3/day for the Company's Pig Farm; violate Clause Article 10 of Decree No 81/2006/ND-CP + Fine 50,000,000 VND: Failure to pay environmental protection fee for industrial wastewater valued at 300,000,000 VND or more (post-fermentation wastewater and industrial wastewater discharged directly into the environment) Thi Vai river does not go through the treatment system); violate Item 6, Point b, Clause 2, Article 10 of Decree No 106/2003/ND-CP 2.2 Financial measures: Environmental tax; Waste discharge norms through discharge permits; fees and fines for polluting; discharge permits - Tax: Taxing on negative externalities: most effective when t = MEC When subject to this tax, the factory's MPC curve will shift upwards to MPC + t To maximize profit the factory will produce at output such that MB = MPC + t, it means decrease in output Q' = Q* when t = MEC there will be no social loss Then the government will collect an additional tax of t.Q *, which will be used by the government to compensate farmers - Directly controlled by emission standards: In this way, each manufacturer will be required to only discharge at a certain level, called the emission standard, otherwise it will be shut down Proposing environmental management agencies to set emission standards for each industry to facilitate management and emission standards Important is the close supervision of environmental protection agencies at all levels in the implementation of enterprises - The discharge fee: According Articles 130 to 134, Section 2, Chapter XIV of the Law on Environmental Protection The inspector of The environmental resources Ministry also asked Vedan to pay arrears for the collection of environmental protection fees for industrial wastewater with a total payable fee of over 127.26 billion VND + Discharge fee: discharge fee charged per unit of discharge + Penalties: it is necessary to impose heavy fines when enterprises cause pollution We have applied the discharge fee but Vedan still avoids paying the discharge fee up to about 100 billion The environmental protection agency needs to closely inspect and monitor the level of emissions to avoid enterprises evading fees When enterprises evade fees and cause pollution, the management agencies need to impose serious fines (greater than the late fees they evade and the profits they gain from the discharge) so that enterprises no longer have the incentive to evade fees and pollute - Discharge permit: Vietnam applied for the discharge permit for the first time in 2006 Vedan was granted a license to discharge wastewater into water sources on April 23, 2008 according to Vedan's application for a permit on March 29, 2007, with commitment about the quality of wastewater before discharge into the river meets the standard TCVN5945-2005 type B (contents are according to the attached appendix) and the implementation of automatic daily monitoring of wastewater flow and quality According to the permit, Vedan is allowed to discharge wastewater into the water source at discharge gates on Thi Vai river and Nuoc Lon canal in Long Thanh district (Dong Nai) What needs to be done is the close supervision of the management agency for the licensed enterprises to ensure that the enterprises strictly comply with the issued licenses Other measures - Using public opinion: In the case of Vedan, the power of public opinion has brought into full play its effect The proof is that all Vietnamese people – as authorities, media, lawyers, and even consumers – are on the side of the farmers The media constantly publishes information about this pollution incident, the authorities at all levels seek to provide evidence to give the highest penalty frame for Vedan, and the lawyers advise the people sue Vedan, consumers boycott Vedan's products At that time, Vedan was forced to accept the penalty frames and accept 100% compensation for the people Vedan Company stops discharging wastes that not meet prescribed standards into water sources, and at the same time has to process and overcome serious environmental pollution caused by the Company and maintain production , doing business, creating jobs, ensuring the interests of employees - Compensation: Affirming that the claim of compensation by farmers for damage caused by environmental pollution of Thi Vai river is very legitimate, the report states the view of the Ministry is consistent with the principle that "whoever pollutes, he must pay compensation" The Prime Minister has asked the People's Committees of the relevant provinces and cities to clarify the extent of damage caused by Vedan company and businesses in the Thi Vai river basin in order to reasonably address the people's request not let the case arise complicated for long The report also said that the ministry will continue to work with relevant agencies to coordinate to resolve this issue In the immediate future, it is requested that Vedan has goodwill to actively negotiate with farmers, agree on an assessment of the damage, agree on the level of compensation, and ensure compensation for farmers' losses Resolved 213/ 439 establishments causing serious pollution + Ba Ria - Vung Tau Province: On April 9, 2010, the Provincial People's Committee issued Official Letter No 2059/UBND-VP requesting Vedan Company to compensate 1,255 households in the province with the amount of 53,619 billion VND/216.8 billion VND of damage + Ho Chi Minh City: On June 1, 2010, the People's Committee of the city issued Document No 2537/UBND-ĐTMT requesting Vedan Company to compensate for damage to 839 households in Can Gio district with the amount of money is 45.74 billion VND/107 billion VND in damage + Dong Nai Province: The implementation of the Provincial People's Committee is very slow, so far the province has not directed specialized agencies to implement, people self-declared and the Department of Natural Resources and Environment statistics the amount of damage in report No 184/BC-TNMT dated May 27, 2010 is 1,601 billion VND/5,064 households - To overcome the consequences, the inspector of The environmental resources Ministry made a tough decision: Prohibit the discharge of waste (postfermentation wastewater, wastewater, sludge solution) that not meet Vietnamese standards into the environment; temporarily suspending production activities that generate wastewater and post-fermentation wastewater from factories (producing modified starches, monosodium glutamate (MSG) and Lysine; pig farms and other Vedan factories discharging wastewater environment in Phuoc Thai commune, Long Thanh district, Dong Nai) until there are measures to treat wastewater and post-fermentation wastewater up to the national technical regulation on waste Vedan can only resume operation when it has dismantled the entire underground sewer system and pumping equipment from the company's production area to the Thi Vai river; renovating the entire system of liquid waste collection and treatment (post-fermentation wastewater, industrial wastewater, domestic wastewater, liquid sludge), automatic and continuous monitoring and flow measurement system Some typical pollution parameters in wastewater after treatment such as: pH, color, TSS, COD, ammonia, ensure technical regulations on waste as prescribed The inspector also requested that before rebuilding the sewage ditches, discharge gates, electrical systems , Vedan must send design documents to the Ministry of Natural Resources and Environment for review, assessment and approval before build After completing the construction and trial operation of the waste treatment system, Vedan is only allowed to put the work into official operation when there is a written inspection and confirmation of completion of the contents and maintenance requirements environmental protection according to regulations - Restore the environment: Mr Ao Van Thinh, Vice Chairman of Dong Nai People's Committee, said that Dong Nai set targets in 2009, which will force all industrial zones to complete the centralized wastewater treatment system According to Mr Thinh, it is imperative that all enterprises must treat wastewater to grade A before discharging it into the Thi Vai River; Because currently, wastewater discharged into Thi Vai river is class B, but Thi Vai river is a dead-end river, subject to the semi-diurnal tidal regime, so the ability to wash and clean is zero According to Professor Phung Chi Si, Deputy Director of the Institute of Science, Technology and Environment, about solutions to improve water pollution in Thi Vai river, it is advisable to immediately start restoring mangrove forests in the Thi Vai river basin Strengthen the planting of new vegetation along the riverbank with trees such as cork, mangrove, reed to increase the self-cleaning capacity of Thi Vai river besides other mechanical solutions Conclusion: The Vedan case has come to an end with an ending in which the victory is in favor of justice, correctness and enforcement This result is a great success of Vietnamese authorities, public and people However, this incident also left a lesson for many sides As Mr Le Hoang Quan - Chairman of Ho Chi Minh City People's Committee summed up: “Environmental problem in Vedan is a lesson learned, experience of building a legal system to deal with and handle violations environmental violations, experience in licensing, inspection and supervision of domestic and foreign enterprises in environmental protection Violators of the law will be strictly handled by a civilized legal system, by competent, clean and unexceptional judicial agencies IV SOME OTHER CASES ABOUT FINANCIAL TOOLS TO GOVERNMENT CONTROL THE NEGATIVE EXTERNALITIES IN VIETNAM - Emissions from vehicles are a negative externality because it creates smoke and other people have to breathe As a result, drivers tend to pollute the most Governments try to solve this problem by setting emission standards for cars The government also levies a petrol tax to reduce the number of people driving - Case study: Why is gasoline so highly taxed? In many countries, petroleum is one of the most taxed goods in the economy In the United States, for example, taxes account for nearly half of the fuel costs that drivers pay In many European countries, taxes are higher and gasoline prices are 3-4 times higher than in the US Why is this tax popular? The answer is that a gasoline tax is a waste tax that aims to reduce three negative social externals related to driving: + Traffic jams: If you've ever been stuck in long lines of cars, when then you would expect fewer cars on the road Petrol taxes reduce traffic congestion by encouraging people to travel by public transport more often, to live closer to work + Accident: When a person buys a large vehicle or a sport utility vehicle, he or she becomes safer, but poses a greater danger to others Gasoline tax is an indirect way to force people to pay more tax when using large cars, "emissions" from gasoline increase the danger for others From there, they will have to consider this risk when choosing a means of transport Pollution: The process of burning fuels such as gasoline and oil is considered the cause of the global warming process Experts disagree on how dangerous this is, but it's clear that a gasoline tax reduces this risk by reducing gasoline consumption So the fact that gasoline taxes don't lead to social costs (like most taxes do), makes the economy work better That means less traffic congestion, safer roads and a cleaner environment ... located at the intersection of the MSC marginal social cost curve and the D demand curve But the industry''s competitive output level is at Q1 and is reached at the intersection of the demand and supply... Chi Minh City and VEYU Co., Ltd in Gia Lai province In the process of expanding the scale of investment and business development, Vedan Vietnam has also built a series of agent systems and distribution... equals the marginal social cost of production – the marginal cost of production plus the marginal external cost of discharge On the graph, the marginal social cost curve is determined by adding the