(Tiểu luận) why do nations subsidize exports (identify the main functions of subsidy) explain why subsidy is morepopular and is preferred trade policy in many countries to what problems do these subsidies give rise

MINISTRY OF EDUCATION AND TRAININGUNIVERSITY OF ECONOMICS AND FINANCE

FALCUTY OF ECONOMICS

GROUP MIDTERM ASSIGNMENT COURSE: INTERNATIONAL ECONOMICS

LECTURER: Nguyễn Anh Duy Class: 231.ECO1103E.B09E - Group: TOPIC 3

Leader : Lê Quang Linh

No.Full nameStudent IDTasks

Part 1: Question 1 & 2

+ Synthesize, correct grammar and

Part 1/ (4) points)

Question 1: Why do nations subsidize exports (identify the main functions of subsidy) ? Explain why Subsidy is more

popular and is preferred trade policy in many countries To what problems do these subsidies give rise? Answer:

1 Why do nations subsidize exports (identify the main functions of subsidy)?

Because the quantity of imports is restricted, the price of imports increases, which encourages domestic consumers to buy more domestic production Export subsidies are one of three common foreign trade policies designed to discourage imports and encourage exports.

The imposition of export subsidies on foreign imports, as well as other foreign trade policies, are commonly justified for at least five reasons:

 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 the domestic production of goods that are deemed critical to the security of the national economy.

2 Explain why Subsidy is more popular and is preferred trade policy in many countries To what problems dothese subsidies give rise?

Export subsidies are a more popular and preferred trade policy in many countries because they are seen as a way to boost economic growth and employment They can also be used to protect domestic industries from foreign

 Short-Term Political Gains: Subsidies can deliver quick results, making them attractive to politicians seeking immediate positive impacts on domestic industries and employment

 Competitive Advantage: In the short term, subsidies can provide a competitive advantage to domestic industries, helping them penetrate or maintain a strong position in international markets.

 Addressing Market Failures: Governments may use subsidies to correct market failures or to counteract practices such as dumping (selling goods in another country at a price below their production cost).

However, subsidies also give rise to several problems:

 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.

3 Analyze few industries that China use the exports subsidize

- In 2009, the Ministry of Finance of China implemented an increase in tax reimbursement for 553 mechanical and electronic products from 14% to 17% for robotic equipment for industrial use, from 11% and 13% to 14% for sewing machines and motorcycles In addition, the Ministry of Finance, the General Department of Customs, and the China Tax Administration have approved the pilot project of "tax refund at the Export Port", which was officially implemented in Shanghai City.

- To encourage businesses to export, the Ministry of Finance of China has applied incentive tax policies for more than 600 items exported Export taxes are discounted on products including shoes, toys and souvenirs in the 5-17% range The Chinese government has also implemented a policy of promoting the export of consumer goods by quota Accordingly, the items subject to export tax of 0%, applied from July 2009, include:

 Light industrial products for consumption: Audiovisual electronics, household electrical goods, children's

Too long to read on your phone?

Save to read later on your computer

Save to a Studylist

sheets (corrugated iron, plastic), raw wood products (wood)Laminated pine, veneer, MDF).

 Agricultural products: Fruits, vegetables.

- In terms of loans, Chinese commercial banks have provided short-term loans to exporters that enjoy the rates of Preferential interest rates, with interest rates currently only at 4-5% / year With low interest rates, the volume of Chinese goods exported is increasing Foreign businesses only need to buy Chinese goods and materials to enjoy 0% interest rate support for 30% of the order value.

- In addition, Chinese commercial banks also provide loans with interest rates of only 1-2% to encourage exporters to invest in building factories and workshops These conditions have enabled Chinese enterprises to produce products in large quantities at the lowest cost.

Question 2: What are the technical, administrative, and other nontariff barriers to trade ? How do they restricttrade? (you just focus on key issues such as: NTMs are not always aimed at curbing imports (for instance, safety, quality

and environmental standards are put in place by all countries for imported products), What is the importance of these non-tariff trade barriers relative to non-tariff barriers? Explain the rise of Non-non-tariff measures in Global Trades.

Explain the key issues for SMEs in dealing with the non-tariff trade barriers

Ex: Vietnam have suffered these barriers when we export our goods| agricultural products to China, EU countries! Why NTMs, SPSs, are on the rise in recent years in trading activities? Give some examples : in Industrial sector, export

Answer:

1 What are the technical, administrative, and other nontariff barriers to trade ?

- Non-tariff barriers to trade (NTBs) sometimes called "Non-Tariff Measures(NTMs)" are trade barriers that restrict imports or exports of goods or services through mechanisms other than the simple imposition of tariffs The SADC says, "A Non-Tariff Barrier is any obstacle to international trade that is not an import or export duty They may take the form of import quotas, subsidies, customs delays, technical barriers, or other systems preventing or impeding trade." According to the World Trade Organisation, non-tariff barriers to trade include import licensing, rules for the valuation of goods at customs, pre-shipment inspections, rules of origin ('made in'), and trade-prepared investment measures.

- There are several different variants of a division of non-tariff barriers Some scholars divide between internal taxes, administrative barriers, health and sanitary regulations government procurement policies Others divide non-tariff barriers into more categories such as specific limitations on trade, customs and administrative entry procedures, standards, government participation in trade, charges on import, and other categories.

- Standards take a special place among non-tariff barriers Countries usually impose standards on the classification, labeling, and testing of products to be able to sell domestic products, but also to block sales of products of foreign manufacturers These standards are sometimes entered under the pretext of protecting the safety and health of local

(for instance, safety, quality and environmental standards are put in place by all countries for imported products) - Technical trade barriers (TBT) refer to technical regulations and voluntary standards that set out specific product

characteristics, such as its size, shape, design, functions, and performance, or the way a product is labeled or packaged before it enters the marketplace Included in this set of measures are also the technical procedures that confirm that products fulfill the requirements laid down in regulations and standards Product specifications are often written in such detail that a fair chance of winning a contract might mandate extensive product modification The product-testing process might take several months to several years Such tactics become market entry barriers especially when domestic firms do not require them.

3 What is the importance of these non-tariff trade barriers relative to tariff barriers?

- As against tariff barriers, non-tariff barriers are government policies and administrative practices that regulate or restrict foreign trade Non-tariff barriers are quantitative restrictions that influence the volume of trade unlike tariff barriers, tariff barriers impose absolute limitations upon foreign trade and inhibit market responses The non-tariff barriers are numerous Following are some common excuses offered by a country to impose non-non-tariff barriers:

 European Union (EU)—The EU has adopted a series of directives that establish essential requirements for a whole variety of equipment including telecommunications equipment Equipment must be labeled with the CE mark to indicate that it has complied with all relevant directives Other countries U.S and Japan have their own standards for telecommunications and equipment The purpose of such regulations include electrical safety, electromagnetic compatibility, user safety, and quality of communications

 Japan—Access to Japan’s value chain network creates market barriers since there are tight corporate and cultural ties among original equipment manufacturers (OEM), wholesalers and retailers Keiretsu are large groups of Japanese companies linked together often through one main affiliated bank

4 Explain the rise of Non-tariff measures in Global Trades.

- The rise of non-tariff measures (NTMs) in global trade shows the growing importance of regulations and policies beyond traditional tariffs that influence international trade While tariffs are taxes on imports or exports, non-tariff measures include a range of regulations, standards, and policies that can impact trade flows Below are some of the

increased focus on ensuring product quality and safety NTMs are often implemented to address health and safety issues, environmental standards, and consumer protection.

 Technical Barriers to Trade (TBT): Technical regulations and standards, such as product specifications and labeling requirements, fall within the scope of the TBT These measures are often implemented to protect consumers, preserve the environment or ensure product compatibility However, they can also become a barrier for foreign manufacturers that have to comply with different sets of standards for different markets.

 Sanitary and phytosanitary measures (SPS): SPS measures are designed to protect human, animal and vegetable life and health These measures include regulations related to food safety, disease control and ecological protection Countries can implement strict SPS measures, which can affect the ability of certain products to enter their markets.

 Differences in regulations: Countries may have different regulatory frameworks and standards, leading to differences in rules and requirements This can create challenges for businesses trying to navigate and comply with multiple sets of regulations in various markets.

 Regional integration and trade agreements: Trade agreements often involve harmonizing standards and regulations among member countries However, as regional integration progresses, new standards and regulations may emerge, affecting trade with non-members.

 The nature of trade development: The nature of commerce has evolved to encompass a wider range of products and services, including those in the digital economy As a result, new types of regulations and standards could be introduced to address issues such as data protection, intellectual property, and e-commerce.

 Political and geopolitical elements: Political considerations, geopolitical tensions, and national security concerns can also contribute to the implementation of non-tariff measures Governments can use such measures as tools to achieve broader policy objectives.

 Consumer perception and preference: Increasing consumer awareness and preferences for certain production methods, sustainability, and ethical practices can influence the implementation of NTM Governments can meet public demands for higher standards in areas such as environmental protection and labor rights - The rise of non-tariff measures reflects the changing dynamics of international trade and the increasing importance of

regulatory considerations beyond traditional tariffs While these measures are intended to address legitimate concerns, they may also pose challenges for businesses in terms of compliance costs and market access.

5 Explain the key issues for SMEs in dealing with the non-tariff trade barriers

specifically, the inadequacy of property rights protection, the high costs of customs administration, and the presence of restrictive health, safety, and technical standards controls have all been identified as significant barriers encountered by SMEs The inadequacy of property rights protection refers to the issues associated with an inadequate legal framework to protect the ownership, use, control, benefit, transfer or sale of both physical and intangible property, especially intellectual property (OECD, 2009) The high costs of customs administration refer to the costs related to different interpretations of customs valuation rules by different customs administrations, the delay in customs clearance procedures, the lack of procedures for prompt review, and the lack of transparency (OECD, 2009) Finally, the presence of restrictive health, safety, and technical standards refers to the difficulties associated with meeting high, non-transparent, inconsistent, and discriminatory country-specific standards for imported products (OECD, 2009) Empirically, it has been shown that the implementation of non-tariff barriers by a country reduces imports of affected products from targeted exporters by up to 12%(Kinzius et al., 2019) When looking at the specific types of non-tariff barriers, Kinzius and colleagues (2019) have shown that import controls significantly reduce trade between two countries by 2-8 %, so that imports fall on average by 2-11 % if implemented This indicates how relevant non-tariff barriers are for the economy in general Moreover, it is worth noting that while tariff barriers have been lowered over time, non-tariff barriers have become more prominent, both in terms of how they are perceived by companies and in terms of prioritization in international trade policy discussions (World Trade Organization, 2016) Therefore, additional efforts to harmonize standards and technical regulations should be made to help SMEs and incentivize their participation in the global market Particular attention to SMEs is justified since non-tariff barriers affect SMEs disproportionately due to fixed compliance costs that do not vary with the amount of traded products and the already mentioned inability of SMEs to spread these compliance costs over large export quantities One proven solution to reduce the impact of non-tariff barriers is the implementation of FTAs Indeed, it has been empirically shown that the trade-dampening effect of non-tariff barriers is strongly reduced if the importer and the exporter are operating in countries covered by an FTA (Kinzius, 2019)

6 Why NTMs, SPSs, are on the rise in recent years in trading activities? Give some examples : in Industrialsector, export activities

- The increase in non-tariff measures (NTMs) and sanitary and phytosanitary measures (SPS) in recent years can be attributed to a variety of factors, reflecting the increasingly evolving nature of the development of global trade activities Some of these factors include health and safety concerns, environmental protection and changing consumer preferences Here are some examples of the growing use of NTM and SPS in the industrial sector and export activities:

 Food Safety Standards (SPS): Many countries have strengthened food safety standards and regulations to

agricultural exports production.

 Environment standards: Some countries impose strict environmental standards on imported goods to address pollution and resource conservation concerns For example, products with a high carbon footprint or those made with certain materials may face increased scrutiny The EU regulations on energy efficiency and eco-labeling are examples of such measures.

 Technical Standard (NTM): Technical regulations and standards often vary across regions, creating challenges for exporters For example, electronic devices may need to comply with specific technical standards regarding safety and electromagnetic compatibility in different markets, adding complexity to the supply chain worldwide.

 Pharmaceuticals and Healthcare Products (SPS): The pharmaceutical and healthcare industries must adhere to strict SPS measures to ensure the safety and effectiveness of medical products Regulatory approval processes, quality standards and labeling requirements can vary significantly, impacting the export of pharmaceuticals and medical devices.

 Automobile Industry (NTM): The auto industry faces many different technical barriers to trade Different countries may have specific safety standards, emissions requirements, and quality certifications for vehicles and auto parts Complying with these standards is essential to accessing global markets.

 E-waste and recycling regulations (SPS): With growing concerns about electronic waste (e-waste), several countries have implemented SPS measures to regulate imports of electronic products and ensure appropriate recycling practices Exporters of electronics need to comply with these regulations to access certain markets.

 Labor Standard (NTM): A number of countries have introduced non-tariff measures related to labor standards This includes requirements for fair labor practices, occupational safety and health and compliance with certain employment standards Failure to meet these standards may result in limited market access.

 Consumer protection and product responsibility (NTM): Non-tariff measures related to consumer protection such as product labeling requirements and liability have become more common For example, regulations on product labeling and accurate disclosure of information can affect exports of consumer goods.

 Digital economy regulations (NTM): In the digital economy, regulations related to data protection, privacy, and cybersecurity have come to the fore Restrictions on cross-border data flow and data localization requirements are examples of non-tariff measures that affect exports of digital services.

- These examples illustrate the diverse range of non-tariff and SPS measures that have become more prominent in recent years As countries prioritize different policy objectives and respond to changing global dynamics, businesses