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Trade Policies in Developing Country Course 12

Trade Policies in Developing Country Course 12. Pos M.Hutabarat, PhD Jakarta, April 2 0 , 2010 Graduate School, Economic Department University of Indonesia. The role of government in the country. Protect citizen from external threat Maintain law and order

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Trade Policies in Developing Country Course 12

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  1. Trade Policiesin Developing CountryCourse 12 Pos M.Hutabarat, PhD Jakarta, April 20, 2010 Graduate School, Economic Department University of Indonesia Pos M. Hutabarat, PhD

  2. The role of government in the country • Protect citizen from external threat • Maintain law and order • Provide public utilities and services(electricity, gas, water, basic education, hospital, tittles, etc) • Provide infrastructures(roads, harbors, airports, telecommunication, etc) Pos M. Hutabarat, PhD

  3. The role of government in the economy • Market economy • (a) Protect free market competition (assumptions: free entry, free access to resources, many buyers and sellers) • (b) Selected intervention for market failure (minimum wages, low income house, subsidy (energy, agricultural, school, etc) • 2. Planning economy • (a) Set economic target • (b) Promote selected sectors Pos M. Hutabarat, PhD

  4. Government’s economic objectives • Economic growth(sufficient to double welfare in one generation) • Economic stability (inflation, exchange rates) • Employment creation(sufficient to absorb increasing new labor force) • Poverty reduction Pos M. Hutabarat, PhD

  5. High economic growth • Increasing investment(domestic and foreign)(favorable economic environment : transparency, consistency, predictable) • Allocation of resources from low productivity sector to high productivity sector (agricultural industrial services) • Increasing skills of workers Pos M. Hutabarat, PhD

  6. Sectoral Target • Agricultural and bio technology(food, raw material, energy substitute) • Labor Intensive(labor absorption) • Supporting Industries(SME’s) • Vocational School(sufficient technical skills) Pos M. Hutabarat, PhD

  7. Cluster Industry • Palm oil sector(plantation, machinery, marketing, financing, R&D, university) • 2. Furniture(forest, wood processing, design, marketing, financing, schooling) • 3. Textiles(specialization for synthetic, machinery, marketing, financing, university) Pos M. Hutabarat, PhD

  8. Trade Policies 1. Developed countries 2. Developing Countries Pos M. Hutabarat, PhD

  9. Developing Countries (Main Problems) • Low income per-capita (incident of poverty) • Low economic growth (some experienced negative growth for years) • Unequal Income distribution (income of lowest 40% population is less than 15% GDP, and highest 20% received more than 50% GDP) • High population growth (more than 1,5% annually) • Exports are concentrated on primary commodities (generally, the price of primary commodities are unstable) • High corruption (because weak governance and law system) Pos M. Hutabarat, PhD

  10. Poverty pictures Pos M. Hutabarat, PhD

  11. Country Current US$ 1. Luxemburg 65 630 2. Norwegia 59 590 7. Amerika Serikat 43 740 11. Jepang 38 980 21. Australia 32 220 29. Singapura 27 490 49. Korea 15 830 71. Meksiko 7 310 82. Malaysia 4 960 124. Thailand 2 230 128. China 1 740 138. Philipina 1 300 139. Indonesia 1 280 160. India 820 Country Current US$ 161. Pakistan 690 166. Vietnam 620 167. Rep. Yemen 600 169. Nigeria 560 171. Kenya 530 172. Uzbekistan 510 175. Bangladesh 470 176. Ghana 450 178. Laos 440 183. Cambodia 380 188. Tanzania 340 190. Tajakistan 330 194. Uganda 280 197. Rwanda 230 202. Ethiopia 160 Income Per-capita(Country comparison, 2005) Pos M. Hutabarat, PhD

  12. Population under Poverty Line(2005, %) Country < US$ 1,0/day < US$ 2,0/day • Argentina 3,3 14,3 • Bangladesh 36,0 82,8 • Brazil 8,2 46,7 • China 16,6 31,1 • India 34,7 79,2 • Indonesia 7,5 52,4 • Malaysia 2,0 9,3 • Pakistan 13,4 65,6 • Philippine 15,5 47,5 • Thailand 2,0 32,5 • Vietnam 12,0 33,4 Pos M. Hutabarat, PhD

  13. Poverty Comparison Country lowest 40% High 10% Gini • Argentina 10,3 38,9 52,2 • Bangladesh 21,5 26,7 31,8 • Brazil 8,3 46,9 59,3 • China 13,7 33,1 44,7 • India 21,2 28,5 32,5 • Indonesia 20,3 28,5 34,3 • Malaysia 12,5 38,4 49,2 • Pakistan 21,3 28,3 33,0 • Philippine 14,2 36,3 46,1 • Thailand 15,6 33,8 43,2 • Vietnam 18,7 29,9 37,0 Pos M. Hutabarat, PhD

  14. Lorentz Curve B Income Gini Index : shadow area divided by triangle OAB A O population Pos M. Hutabarat, PhD

  15. Population Pos M. Hutabarat, PhD

  16. Primary Commodities Pos M. Hutabarat, PhD

  17. Country rank on Corruption (2008) • No. Country Score • Denmark 9.3 • 4. Singapore 9.2 • 7. Netherlands 8.9 • 12. Hong Kong 8.1 • 18. Japan 7.3 • 19. USA 7.3 • 23. Chile 6.9 • 33. Israel 6.0 • 35. Uni Arab Emirates 5.9 • 40. Korea 5.6 • 43. Bahrain 5.4 No. Country Score 47. Malaysia 5.1 57. Italy 4.8 58. Poland 4.6 72. Mexico 3.6 80. Saudi Arabia 3.5 81. Thailand 3.5 82. India 3.4 115.Egypt 2.8 128 Indonesia 2.8 134 Pakistan 2.5 141.Philippines 2.3 Pos M. Hutabarat, PhD

  18. Trade policies • Internal(Trade policies implemented internally for export oriented and to develop industrialization: infant industry argument) • (a) Tariff • (b) Non-Tariff (quota, subsidies, etc) • 2. External(Trade policies implemented by a group of developing countries to increase exports through agreement on commodities) Pos M. Hutabarat, PhD

  19. Internal Trade Policies Industrialization Pos M. Hutabarat, PhD

  20. Trade and Industrialization Export Promotion model: Develop industrial sector through export oriented industry with example of Korea, Taiwan, RRC, Malaysia and Thailand (instrument : duty draw back, tax incentives, subsidies, devaluation of currency, etc) Import Substitution model: Develop industrial sector by supporting import substitution domestic industries with example of Latin America (instrument: high tariff, quota, non-tariff, etc) Pos M. Hutabarat, PhD

  21. TRADE POLICIES Tariff(percentage increase on import price) Nominal tariff Effective tariff Non-Tariff Quota (limitation of import quantity) Standards Custom procedures Dumping/Subsidy Non-economy (environment, labor and human rights, IPR, etc) Pos M. Hutabarat, PhD

  22. External Trade PoliciesExport Prices Stabilization(for Primary Commodities) Pos M. Hutabarat, PhD

  23. Commodities Agreement • Purpose: • (a) maintain price stability in international market • (b) increase foreign exchange earning from exports • (c) increase income of farmers, by reasonable prices • Instrument • (a) Buffer stock • (b) Market Operation (buying when price low and selling when price high) Pos M. Hutabarat, PhD

  24. Reference Price S D P Ceiling price P1 Floor price Q Q1 Pos M. Hutabarat, PhD

  25. Reference price S S’ D P Ceiling price P1 Floor price P2 When price decline, to P2 manager buy Q3-Q2 Q Q1 Q3 Q2 Pos M. Hutabarat, PhD

  26. Commodities Agreement • Rubber • (a) ANRPC (producers) • (b) IMT-Tripartit (exporters) • (c) INRO (exporters – importers) • 2. Pepper (IPC) • 3. Coconut (IPCC) • Coffee (ICO) • CPO (Indonesia-Malaysia) • 6. Petroleum (OPEC) Pos M. Hutabarat, PhD

  27. Theoretical Background • Infant Industry Argument (new industry must be protect from international competition) • Export Instability (price fluctuation because of supply fluctuation depend on season) • Long term Terms of Trade deterioration (Prebisch-Singer Hypothesis) • (a) Differing income elasticity's of demand • (b) Unequal market power • (c) Technical change • (d) Multinational corporation and transfer pricing Pos M. Hutabarat, PhD

  28. Transfer Pricing Pos M. Hutabarat, PhD

  29. China Government System : 1950 – 1985 : Planning system of allocation, production and distribution 1985 – now : Market economy by gradual reduction of government control China Economy: Population : 1,3 billion (2009) Income/capita : US$ 2 600 (2009) Size of GDP : No 3 (USA, Japan) GDP : US$ 3400 billion (2008) Production : camera (50% of world production); air conditioner ( 30%); washing machine (25%); refrigerator (23%) Pos M. Hutabarat, PhD

  30. China Trade Policy (industrialization): 1. Selected target sectors for exports (electronics and consumer products) 2. Selected target sectors for domestic (car industry) • Instruments: • Exchange rate control • Subsidies (direct subsidies or taxes discounts/exemption) • Export Processing Zone (Shenzhen, Dalian) Pos M. Hutabarat, PhD

  31. Terima kasih Pos M. Hutabarat, PhD

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