Group midterm assignment course international economics

NTBs also include unjustified and/or improper application of Non-Tariff Measures NTMs such as sanitary and phytosanitary SPS measures and other technical barriers to Trade 1.. Non-tariff

1 Lê Nguyễn Minh Châu 100%

2 Nguyễn Thị Phương Quỳnh 100%

3 Nguyễn Thị Nguyên Thảo 100%

4 Trần Hồ Trúc Vy Question 2, Part 3: 100%

6 Võ Phương Như Question 2, Part 2 100%

Question 1: (HIEN)

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

Export subsidy policies are implemented when local producers can't afford to compete with foreign producers as the price of foreign goods is lower In such a case, the government steps in and supports local companies with regulatory, monetary, or tax incentives to bring the price down

to the level of foreign companies

Exports are an important part of a growing economy as they reduce unemployment levels and contribute to an increase in a country's Gross Domestic Product (GDP) Think about it, if companies were to export more, they would need more labor to produce the goods that they are sending outside More labor hired means more salaries paid, which leads to more spending, which stimulates the economy

When countries can't compete with foreign suppliers, the government makes sure to grow their export volume through export subsidies

[For instance, the government of India has made policy changes that provide support and assistance to sugarcane farmers and sugar manufacturers in order to grow the export of these goods In addition to that, it has provided rice exporters with a significant interest-payment

Because subsidy has many benefits:

1 Lowering prices and controlling inflation

They are especially applicable in the area of production cost inputs such as fuel prices, particularly when global crude oil prices are rising Many countries subsidize fuel costs in order to keep prices from ballooning

2 Preventing the long-term decline of industries

There are many industries that should be kept alive and functional, such as fishing and

farming because they are essential to support a population Many new and fast-growing industries may also benefit from being subsidized

3 A greater supply of goods

Governments want to increase the access of their population to Goods & Services such as

Water, Food, and Education They, therefore, provide an incentive that could be in the form

of a tax credit or even straight up cash Markets that have positive externalities are usually the ones that receive such benefits

To what problems do these subsidies give rise?

The effect of a subsidy is to shift the supply or demand curve to the right by the amount of the subsidy If a consumer is receiving the subsidy, a lower price of a good resulting from the marginal subsidy on consumption increases demand, shifting the demand curve to the right If a supplier is recetving the subsidy, an increase in the price resulting from the marginal subsidy on production results increases supply, shifting the supply curve to the right Assuming the market is

in a perfectly competitive equilibrium, a subsidy increases the supply of the good beyond the

Deadweight loss from a subsidy is the amount by which the cost of the subsidy exceeds the gains

of the subsidy The magnitude of the deadweight loss is dependent on the size of the subsidy

Analyze a few industries that China uses the exports to subsidize

-In 2009, the Ministry of Finance of China implemented an increase in tax reimbursement

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 TaxAdministration 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

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 to 0%, applied from July 2009, include:

¢ Light industrial products for consumption: Audiovisual electronics, household electrical goods, children's toys,garments,shoes,plastic products, wooden products

¢ Goods and materials: Chemical fertilizers, pesticides and preservatives for fruits and vegetables,food, roofing 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 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 for30% 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

1 What are the technical, administrative, and other non-tariff barriers to trade? How

do they restrict trade?

NON-TARIFF

¢ Non-tariff barriers (NTBs) refer to restrictions that result from prohibitions, conditions,

or specific market requirements that make the importation or exportation of products difficult and/or costly NTBs also include unjustified and/or improper application of Non-Tariff Measures (NTMs) such as sanitary and phytosanitary (SPS) measures and other technical barriers to Trade

1 Definition Tariffs are taxes imposed by a

government on imported goods

They are typically expressed as

a percentage of the total value

of the item or as a fixed fee per unit

Non-tariff measures are a variety of regulatory and policy tools other than tariffs that countries use to control the volume of trade across their borders Examples include quotas, import licenses,

subsidies, standards, and customs

procedures

2 Purpose

The primary objectives of tariffs

are to generate revenue for the government and to protect domestic industries from foreign competition by making imported goods more expensive NTMs can serve a range of purposes, such

as protecting consumers’ health and safety, preserving the environment, or controlling the volume of imports and exports for strategic industries

3 Impacton

Price

Tariffs directly increase the cost

of imports, making them less competitive in comparison to domestic products

Non-tariff measures can restrict imports or exports by making it more

bureaucratically challenging or costly to engage in international trade They do not directly affect the price like tariffs, but they can increase the cost of trade in other ways

4 Transparency Tariffs are relatively

straightforward and transparent forms of trade protectionism

They are clearly defined and published by governments and

are, therefore, predictable

Non-tariff measures can restrict imports or exports by making it more

bureaucratically challenging or costly to engage in international trade They do not directly affect the price like tariffs, but they can increase the cost of trade in other ways

Regulations

The World Trade Organization

(WTO) oversees international

trade rules, and tariffs are

subject to its regulations

Countries negotiate tariff rates

they can be harder to monitor and negotiate due to their diverse and

sometimes vague nature Some NTMs are

permitted under WTO rules if they serve legitimate policy objectives and are not merely protectionist measures in disguise

ADMINISTRATIVE

e¢ Administrative barriers are rules, regulations, and standards applied to imports of goods and services from foreign firms, to reduce the imports

¢ It complicates and raises the costs of imports, and hence favors domestic producers

¢ However, it will negatively affect consumers, as they will have less choice and experience higher prices

¢ Similarly to other trade protections, it may upset other countries who retaliate with their

e Barriers therefore protect domestic industry but hamper market efficiency

TECHNICAL

e A technical barrier to trade (TBT) is any regulation, standard or procedure that could make exporting goods to another country more difficult TBTs are often greater obstacles to exporters than tariffs (import fees)

e Testing and Certification: Requirements for product testing and certification can vary, and obtaining the necessary certifications for different markets can be time-consuming and expensive

¢ Conformity Assessment Procedures: Differences in conformity assessment procedures, which determine whether a product meets the required standards, can create obstacles for exporters

2 What is the importance of these non-tariff trade barriers relative to tariff barriers? Explain the rise of Non-tariff measures in Global Trades

The importance of non-tariff trade barriers relative to tariff barriers lies in several key aspects:

3 Product standards and regulations:

Non-tariff barriers may be used to enforce specific regulatory standards and requirements This can ensure that imported goods meet certain safety, health, or environmental standards, contributing to consumer protection and public welfare

4 Safeguard national security interests

These measures can include export controls on sensitive technologies or restrictions on imports of certain strategic goods to prevent them from falling into the wrong hands They're used

to counteract the practice of dumping where foreign producers sell goods in a foreign market at prices below their cost of production to seize the competitive market

5 Protection of Domestic Industries:

Protection of domestic industries from foreign competition by imposing regulations and standards, governments can shield their industries from low-cost imports, thereby supporting local businesses and preserving jobs

6 Globalization and Comparative Advantage:

The rise of globalization has heightened the importance of non-tariff barriers As countries specialize in certain industries based on their comparative advantage, NTBs can affect the ability

of nations to benefit from these advantages fully

Explain the rise of Non-tariff measures in Global Trades

During the past two decades, applied tariffs in the Asia-Pacific region have halved At the same time, the number of non-tariff measures (NTMs), including sanitary and phytosanitary (SPS) measures and technical trade barriers (TBTs), has increased significantly (figure 1) In fact, a key concern is that trade tensions evolve from existing relatively transparent tariff wars to discriminatory implementation of NTMs, the impact of which is much more difficult to assess and predict

ean

+

: Figure ® Average applied tariffs and annual new notifications to WTO of SPS and TBT measures in

% 1 ¿ | the Asia-Pacific region

Since 2013, globally, about 3,000 new or changed NTMs have been reported to WTO every year, most of which have been TBTs and SPS measures In 2018, 95% of all notifications were SPS and TBT, with the rest falling within the contingent trade protection category (figure 2)

The fact that countries have set very strict technical barriers is a big challenge for Vietnam's

exports This ratio is similar to ratio of the world’s number of NTMs, although the ratio of the

world's TBT and SPS measures is more balanced in Vietnam and the number of TBT is less than the number of SPS, 40% and 41% respectively While tariffs have relatively clear and simple policy goals and implementation methods, the implementation goals of NTMs are quite abstract,

so countries (especially developed countries and countries with experience in trade disputes) can

be used to make it difficult for Vietnam to export goods

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

a Compliance with standards and regulations

One key issue for SMEs is the compliance with multiple standards and complex regulations imposed by different nations Safety, quality and environmental standards vary globally, and are put in place by all countries for imported products because of protecting public health and safety, ensuring the quality of goods, and mitigating the environmental impact of products so understanding and complying to these can be complex and costly

SMEs often lack the resources (about limited human, finance, technical barriers and capacity

constraints) and expertise to navigate the complexity of regulations and standards in foreign markets

Meeting specific product standards and certifications can be particularly demanding, affecting their ability to compete in the international marketplace This can lead to process delays, trade impediment, and lost opportunities for SMEs that cannot afford to invest in expensive compliance measures

They struggle with the financial burden associated with diverse NTMs For example the costs of adapting products, processes, testing and obtaining necessary certifications

Complex customs procedures and clearance requirements can lead to delays, affecting the timely delivery of goods and potentially increasing costs

Investment expenditure for technology, infrastructure, and certification, which can be

difficult for small and medium-sized businesses with limited resources Meeting different regulatory requirements can be expensive, time-consuming and cause competitive disadvantage

Example:

With a manufacturing company producing high-quality goods, when they seek to export their products to various international markets, they may encounter complex and costly tariff barriers Initially, the company may need to comply with export regulations related to product quality, chemical regulations, and safety standards This compliance may necessitate a significant investment in upgrading production processes to meet the quality and safety standards of the importing countries Adhering to these requirements can entail considerable costs, including the improvement of production processes, the use of high-quality raw materials, and potentially constructing new manufacturing facilities or upgrading existing ones In addition, other tariff barriers may manifest in the form of requirements for packaging and shipment of goods This could mean that the company needs to have diverse packaging materials and comply with transportation regulations which may demand a complex and costly transportation system

b Information

Finally, SMEs may have difficulty in accessing information about NTBs Many NTBs are not transparent and non-public, and SMEs may not be aware of the requirements until they encounter them during the export process

Finding relevant and up-to-date information and accessing guidance documents This reduces their risk understanding and preparation when participating in the international market, especially in resource-constrained environments

Example:

With a small food manufacturing company seeking to expand its international business operations During this process, they may encounter challenges in gathering information about tariff rates, food safety regulations, and customs procedures in the target countries to export their products Small businesses may lack the resources or access to authoritative sources of

information regarding tariffs and foreign market regulations This presents difficulties, particularly when understanding and complying with the requirements related to production, packaging, transportation, and importation of their products Moreover, SMEs may struggle with understanding and navigating complex customs procedures, especially when faced with delays or unclear communication from local customs authorities This lack of accessible and clear information may hinder the business's ability to accurately calculate the total cost of exporting its products, including the applicable tariffs and duties Without access to reliable information, the business may struggle to navigate the complex regulatory landscape, leading to potential delays or efrors in customs clearance processes Furthermore, language barriers and differing interpretations

of trade regulations between the exporting and importing countries can add to the challenge of accessing accurate information The small business may not have the resources to employ multilingual staff or legal experts with expertise in international trade regulations, making it difficult to interpret and comply with the specific requirements of the target market

In general, the three main issues above reflect challenges that SMEs deal with Solving these problems will require a coordinated effort between governments, trade organizations and SMEs aimed to create favorable conditions for them to compete in global trade

4 Why NTMs, SPSs, are on the rise in recent years in trading activities? Give some

examples: in the Industrial sector, export activities

CBAM chỉ áp dụng cho phát thải trực tiếp ở CBAM áp dụng cho cả phát thải trực tiếp và

giai đoạn đầu gián tiếp

(Dữ liệu là trung bình của 5 năm từ 2017 đến 2021)

Nguồn: Greencic

The EU sets up barriers on green standards related to regulations prohibiting the import of goods originating from deforestation, considering high taxes on imported products with high emissions

Specifically, for the production of iron, steel, aluminum, fertilizer, cement, electricity and

hydrogen The EU issued a carbon pricing mechanism and the Cross-Border Carbon Adjustment Mechanism (CBAM) In particular, CBAM is a new EU policy tool that allows additional taxes to

be levied on these imports belonging to the group of industries with high emission levels So this additional tax is called carbon tax and 1s calculated based on the product's emission level during production

Production and export of iron, steel, aluminum, cement and fertilizer products from

developing countries, including Vietnam, will face difficulties when competitive advantage comes from cheaper electricity prices and environmental protection costs The lower market will decline because of the new cross-border carbon tax costs

For exported agricultural and forestry products, the European Parliament has approved an agreement with EU member states on controlling certain agricultural and forestry products exported to the EU related to deforestation and forest degradation

The European Commission (EC) proposed a bill to prevent the import of goods that cause deforestation and forest degradation The bill, officially known as the European Deforestation-free

Regulation (EUDR - EU Deforestation-free Regulation), will ban the import of agricultural and forestry products whose production process on land originates from deforestation and causes degradation forest

Thus, it can be seen that wood and wood products, coffee, and rubber are Vietnam's main

export industries affected when this regulation is applied

With this European regulation, we have no choice but to seriously implement their requirements because this is an important market For example, for coffee alone, Europe imports more than 40% of Vietnam's output each year

Some example

« CBAM

The EU's approval of the Carbon Border Adjustment Mechanism (CBAM) has had a significant impact on global trade:

- Russia: In light of the conflict in Ukraine, Russia is expected to be the country hardest hit

by border tariffs The country has exported a large amount of products such as steel, fertilizer and aluminum to the EU However, EU sanctions imposed on Russia have caused imports of these items from Russia to be suspended

- Vietnam: The additional carbon tax will increase prices, thereby reducing the competitiveness of Vietnamese products in the EU market It is estimated that it is possible to reduce the export turnover of 4 key commodity groups of Vietnam (iron and steel, cement, aluminum, fertilizer) to about 400 million USD If CBAM is expanded, many other goods could

face additional carbon tariffs, which could erase some of the benefits Vietnamese businesses

received when the EU- Vietnam Free Trade Agreement (EVFTA) was signed

- Non-tariff barriers to agriculture, forestry, and fisheries in Vietnam are increasing Regulations on food hygiene and safety and phytosanitary (SPS), label standards, quality of goods, regulations on traceability of origin, as well as trade remedies are becoming the main barriers in the process of exporting food from Vietnam These restrictions are particularly focused on processing technology products and agricultural products, creating challenges for Vietnam's export industry

In addition, the testing of ethoxyquin in shrimp imported from Vietnam also sets a strict limit of 0.01 ppm, equivalent to the Japanese level All these restrictions contribute to increasing challenges for Vietnam's agricultural export industry to the Korean market

uncooked and unprocessed shrimp products must be tested and certified by Vietnamese authorities without white spots and yellow head disease Shipments arriving at the port of Australia will be tested by the local authorities and will only be allowed to be imported when the results are satisfactory

https://nld.com vn/kinh-te/ung-pho-voi-hang-rao-phi-thue-quan-ha-thue-nang-hang-rao-ky- thuat-20201018214355638 htm

https://moit gov vn/tin-tuc/quoc-te/cac-bien-phap-phi-thue-quan-giai-phap-thuc-day-xuat- khau-non html

2 Agricultural production

Vietnam has established the Plant Protection Department to carry out animal and plant quarantine to ensure food safety and meet the Food and Plant Safety (SPS) requirements of the World Trade Organization (WTO) and other international regulations Establish strict control systems at ports, border gates, and national control points to monitor animal and plant goods Animal and plant products exported from Vietnam require quarantine certification before export Cooperate with other countries’ quarantine authorities to ensure animal and plant import and export processes are carried out efficiently and consistently

For the strategic agricultural sector "Farm to Fork" with important directions on reducing the number of pesticides used and the maximum allowable residues of substances in agricultural and food products; reducing the number of antibiotics allowed for use on animals and residues in meat and seafood; Strengthen green requirements on design and materials of food packaging; Adjust the labeling method and label position, increase the information that must be provided to consumers about the green characteristics of the product, Change requirements on how to keep, transport, and slaughter livestock

Regarding import policy, according to commitments with the WTO and bilateral and

multilateral free trade agreements, Vietnam must eliminate non-tariff barriers such as import

licenses, quantitative restrictions, and import tax reductions items, including agricultural products according to the roadmap Currently, most agricultural products only have to go through export and import procedures at the customs office and do not have to apply for an export or import license However, they must comply with regulations, standards, and regulations Current regulations on quality management, food hygiene and safety, and animal and plant quarantine

In the current context, many international markets are imposing new green standards in trade contracts for the import of Vietnamese wood and wooden products For instance, Japan requires wood products exported to its market to have sustainability certifications Germany has implemented mandatory business assessments throughout the supply chain, indirectly affecting Vietnamese manufacturers German importers demand certifications related to product origin,

labor conditions, wages, and waste management from Vietnam

Soon, stringent importing markets such as the United States, Europe, South Korea, and

Japan will likely take action to control and evaluate the carbon footprint of imported wood products Consequently, only environmentally friendly, non-deforestation, and greenhouse gas emission-free products during production will meet the criteria for export to these demanding markets Therefore, whether willingly or not, wood processing and export businesses must address challenges to undergo a green transformation