PART 1 : TRADE THEORY

1. Why do Nations Trade? What are some of the major argument for and against a Free Trade ?
What are the (Benefits and Costs) of Free Trade (Present: at Individual/Firms/Nation)? Tại sao
Thương mại Quốc gia? Một số lập luận chính ủng hộ và chống lại Thương mại tự do là gì? (Lợi ích và
Chi phí) của Thương mại Tự do (Hiện tại: tại Cá nhân / Doanh nghiệp / Quốc gia) là gì?
Nation Trade because:
 Countries trade with each other when, on their own, they do not have the resources, or capacity to
satisfy their own needs and wants. By developing and exploiting their domestic scarce resources,
countries can produce a surplus, and trade this for the resources they need.
 Goods and services are likely to be imported from abroad for several reasons. Imports may be
cheaper, or of better quality. They may also be more easily available or simply more appealing than
locally produced goods. In many instances, no local alternatives exist, and importing is essential. This
is highlighted today in the case of Japan, which has no oil reserves of its own, yet it is the world’s
fourth-largest consumer of oil and must import all it requires.
 The production of goods and services in countries that need to trade is based on two fundamental
principles, first analyzed by Adam Smith in the late 18th Century (in The Wealth of Nations, 1776),
these being the division of labor and specialization.
Division of labor:
 A division of labor means breaking down production into small, interconnected tasks, and then
allocating these tasks to different workers based on their suitability to undertake the task efficiently.
When applied internationally, a division of labor means that countries produce just a small range of
goods or services, and may contribute only a small part to finished products sold in global markets.
For example, a bar of chocolate is likely to contain many ingredients from numerous countries
Specialization
 Specialize in the manufacture and export of products that can be produced most efficiently in that
country: The exploitation of a country's comparative advantage, which means that trade encourages a
country to specialize in producing only those goods and services that it can produce more effectively
and efficiently, and at the lowest opportunity cost.
 When countries specialise they are likely to become more efficient over time. This is partly because a
country’s producers will become larger and exploit economies of scale. Faced by large global
markets, firms may be encouraged to adopt mass production and apply new technology. This can
provide a country with a price and non-price advantage over less specialized countries, making it
increasingly competitive and improving its chances of exporting in the future..
 Importing products can be produced more efficiently in other countries.
 Trade is also likely to increase employment, given that employment is closely related to production.
Trade means that more will be employed in the export sector and, through the multiplier process,
more jobs will be created across the whole economy.

The major argument for Free Trade

All countries can benefit if each country specializes in the production of those goods it can produce best
and satisfy their other wants and needs by trading for them. This will lead to an optimum and efficient
utilization of resources and, hence, economy in production.
Free trade can raise aggregate economic efficiency and aggregate economic welfare.
Because of unrestricted trade, global output increases since specialization, efficiency, etc., make
production large-scale. Free trade enables countries to obtain goods at a cheaper price. This leads to a rise
in the standard of living of people of the world. Thus, free trade leads to higher production, higher
consumption, and higher all-round international prosperity.
Free trade will benefit a country even if it is less efficient than all other countries in every industry
Accessibility of Domestically Produced Goods and Services: Free trade enables each country to get
commodities that it cannot produce at all or can only produce inefficiently. Commodities and raw
materials unavailable domestically can be procured through free movement even at a low price.
Free trade would cause world resources to be utilized most efficiently, maximizing world welfare.
Import products can be produced more efficiently in other countries
Competitive Spirit: Free Trade keeps the spirit of competition of the economy. As there exists the
possibility of intense foreign competition under free trade, domestic producers do not want to lose their
grounds. Competition enhances efficiency. Moreover, it tends to prevent domestic monopolies and free
consumers from exploitation
Greater International Cooperation: Free trade safeguards against discrimination. Under free trade, there-
is no scope for cornering raw materials or commodities by any country. Free trade can thus promote
international peace and stability through economic and political cooperation.
Free from Interference: Free trade is free from bureaucratic interferences. Bureaucracy and corruption are
very much associated with unrestricted trade.
The major argument Against Free Trade (Protectionism):
- Governments do restrict free international trade in order to protect domestic industries from foreign
competition. The restriction of international trade is called protectionism.
- Supporters of "protectionist" laws claim that keeping out foreign goods will
+ Save jobs
+ Give ailing domestic industries a chance to recover and prosper
+ Reduce the trade deficits
+ More growth opportunities: Protectionism provides local industries with growth opportunities
until they can compete against more experienced firms in the international market
+ Lower imports: Protectionist policies help reduce import levels and allow the country to
increase its trade balance.
+ More jobs: Higher employment rates result when domestic firms boost their workforce
+ Higher GDP: Protectionist policies tend to boost the economy’s GDP due to a rise in domestic
production
 +Protectionism can also prevent dumping
+Protectionism makes domestic firms less competitive in the export market
+Protectionism could improve a nations economic well-being is when a country has monopoly
power over a goods.
+Protectionism permits the new and upcoming firms to work and develop at an acceptable rate.
Because they will not be pressured by foreign, more experienced firms
Benefits of International Trade
 High prices for exports and lower prices for imports is a net gain for a country. Efficient allocation of
resources is a result of such exchanges. There’s an increase in overall welfare because of the larger
bundle of goods from such affiance.
 Trade liberalization increases real GDP. Efficient allocation of resources has a positive influence on
GDP. International trade offers the exchange of ideas and technical flow of expertise.
 Development of high quality and more effective institution’s policies encourages domestic
innovations. Domestic productivity benefits from foreign development and researchers.
 Global competition motivates companies to become more efficient because they face an open field.
Multinationals also operate on a larger scale leading to cost savings.
 Consumers access a variety of goods and services at lower prices. Hence, the living standards of
people improve. The absence of restrictions and tariffs enables production and shipment; hence,
ensuring the availability of goods and services.
 An increase in competition leads to a fall in monopoly power. Thus, the market becomes more
efficient.
 Trade encourages efficiency. Through specialization, countries have to concentrate on producing
more of the goods they could produce very well over goods they cannot produce with efficiency.

Costs of International Trade

 Loss of jobs and inequality in income caused by competition. As states concentrate on free trade, the
domestic industries adjust to this change. As a result, they exist as the main exporters. However, the
same exporters face import competition.
 Less efficient firms exit the market. The reason is that resources are reallocated according to whether
the firm is growing or contracting. As firms close, some countries can be at a loss at the expense of
other countries.
 An increase in imports causes domestic industries to compete with imports. Technology and capital
might not be as developed in some countries. As such, they cannot compete with developed countries
in some industries.

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

Gains from trade generated

 In the 1770s, Adam Smith argued that import restrictions would reduce the gains from specialization
and make a nation poorer. He used absolute advantage to explain the benefits of trade. Adam Smith
argued that a country has an absolute advantage in the production of a product when it is more
efficient than any other country in producing it
 When one nation has absolute advantage in production of a commodity, but an absolute disadvantage
with respect to the other nation in a second commodity, both nations can gain by specializing in their
 absolute advantage good and exchanging part of the output for the commodity of its absolute
disadvantage.
Policies Adam Smith advocate in International Trade
 According to Smith, countries should specialize in the production of goods for which they have an
absolute advantage and then trade these goods for the goods produced by other countries
 Specialization and trade advantage both countries.
 Adam Smith and other classical economists advocated policy of laissez-faire, or minimal government
interference with economic activity.
 Free trade would cause world resources to be utilized most efficiently, maximizing world welfare.
The function of government in the economic life of the Nation
 As one might expect from Smith’s conviction that markets were extremely efficient, he was in favor
of a government that did not hamper the working of the market
 However, Smith emphasized the fact that the government should
o + Maintain law and order
o + Ensure the defense of the nation from foreign enemies,
o + Erect and maintain public works that private citizens would not build
o + Subsidize education for those who could not afford it, and
o + Regulate international trade when free trade endangers ‘infant industries’ or compromises
national security
4. In that way was Ricardo’s law of Comparative Advantage superior to Smith’s Theory of
Absolute Advantage ?( Compare the theory of Absolute Advantage and Comparative
Advantage ?) Why this theory is more relevant to the modern trade situation ? How do gains
from Trade Arise with Comparative Advantage? Theo cách đó, định luật Lợi thế so sánh của
Ricardo vượt trội hơn Lý thuyết về Lợi thế tuyệt đối của Smith? (So sánh lý thuyết Lợi thế tuyệt đối
và Lợi thế so sánh?) Tại sao lý thuyết này phù hợp hơn với tình hình thương mại hiện đại? Làm thế
nào để thu được lợi nhuận từ Thương mại Phát triển với Lợi thế So sánh?
Ricardo’s law of Comparative Advantage superior to Smith’s Theory of absolute advantage:
 A country has an absolute advantage when it produces a large number of goods with the same
resources that other country are using, on the other hand, the comparative advantage means producing
better quality at cheaper price incurring lower opportunity cost than the other country.

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

Comparative Advantage Absolute Advantage

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

Comparative Advantage Absolute Advantage

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

Principle of comparative advantage:

Even if a nation has an absolute cost disadvantage in the production of both goods
+ The less efficient nation
  Specialize in and export the good in which it is relatively less
inefficient
o Where its absolute disadvantage is least
+ The more efficient nation
 Specialize in and export the good in which it is relatively more
inefficient
o Where its absolute disadvantage is greatest
There are gains from trade for both countries. This is the second lesson of the Ricardian model.
Countries have comparative advantage in producing different goods and hence they can get mutual
benefits from trade. This is because countries differ from each other. The more different they are, the
larger the (potential) benefits from trade
5. What are the sources of Comparative Advantage ? Các nguồn của Lợi thế So sánh là gì?
 Comparative advantage is a dynamic concept meaning that it can and does change over time. For a
country, the following factors are important in determining the relative unit costs of production:
 The quantity and quality of factors of production available for example some countries have an
abundant supply of good quality farmland, oil and gas, fossil fuels. Climate and geography have key
roles in creating differences in comparative advantage.
 Different proportions of factors of production – some countries have abundant low-cost labour
suitable for volume production of manufacturing products.
 Increasing returns to scale and the division of labour – increasing returns occur when output grows
more than proportionate to inputs. Rising demand in the markets where trade takes place helps to
encourage specialisation, higher productivity and internal and external economies of scale. These
long-run scale economies give regions and countries a significant advantage.
 Investment in research & development which can drive innovation and invention
 Fluctuations in the exchange rate, which then affect the relative prices of exports and imports and
cause changes in demand from domestic and overseas customers.
 Import controls such as tariffs, export subsidies and quotas – these can be used to create an artificial
comparative advantage for a country's domestic producers.
 The non-price competitiveness of producers - covering factors such as the standard of product design
and innovation, product reliability, quality of after-sales support. Many countries are now building
comparative advantage in high-knowledge industries and specializing in specific knowledge sectors –
an example here is the division of knowledge in the medical industry, some countries specialize in
heart surgery, others in pharmaceuticals.
 Institutions – these are important for comparative advantage and important for growth too. Banking
systems are needed to provide capital for investment and export credits, legal systems help to enforce
contracts, political institutions and the stability of democracy is a key factor behind decisions about
where international capital flows.

6. What is meant by labor-intensive commodity ? Capital-Intensive commodity? What is meant by

Capital-Abundant nation ? Suppose that there: Airplane is Capital-Intensive commodity and
 Rice is labor-intensive commodity, and we have 2 nations : France is rich and Capital-
Abundant nation ; Somali is a labor abundant country. Hàng hóa thâm dụng lao động nghĩa là gì?
Hàng hóa thâm dụng vốn? Quốc gia dồi dào vốn có nghĩa là gì? Giả sử ở đó: Máy bay là mặt hàng
thâm dụng vốn và Gạo là mặt hàng thâm dụng lao động, và chúng ta có 2 quốc gia: Pháp giàu có và
Quốc gia thừa vốn; Somali là một quốc gia dồi dào lao động

 Labor-intensive commodity: The demand for labor relative to capital is assumed to be higher in
shoes than in computers, LS/KS > LC/KC. These two curves slope down just like regular demand
curves, but in this case, they are relative demand curves for labor (i.e., demand for labor divided by
demand for capital
 Capital-Intensive commodity: The term "capital intensive" refers to business processes or industries
that require large amounts of investment to produce a good or service and thus have a high percentage
of fixed assets, such as property, plant, and equipment (PP&E). Companies in capital-intensive
industries are often marked by high levels of depreciation.
Capital intensive refers to the production that requires higher capital investment such as financial
resources, sophisticated machinery, more automated machines, the latest equipment, etc. Capital
intensive industries pose higher barriers to entry as they require more investment in equipment and
machinery to produce goods and services. An industry, firm, or business is considered to be capital
intensive taking into consideration the amount of capital that is required in comparison to the amount
of labor required. Good examples of capital intensive industries include the oil refining industry,
telecommunications industry, airline industry, and public transport authorities that maintain the roads,
railways, trains, trams, etc.
 Capital-Abundant nation: The U.S., therefore, is capital abundant and Mexico is labor abundant.
Letting K measure the quantity of capital and L the quantity of labor, (K/L)US>(K/L)MEX, or the
amount of capital per laborer in the U.S. exceeds that of Mexico. (Verify that it is possible for L US to
be greater than LMEX and (K/L)US>(K/L)MEX ). Now invert the ratios, which reverses the inequality, so
(L/K)US<(L/K)MEX, which says that Mexico is labor abundant relative to the U.S. If one country is
capital rich (more capital relative to labor) then the other is labor rich (more labor relative to capital).
 France vs Somali
- A country has comparative advantage in those commodities that use its abundant factors intensively
- Factor Endowments:
+ Notation: K=capital, L=labour, r = price of capital, w = price of labour
+ Physical definition: (K/L)1 > (K/L)2  France is capital abundant (labour-scarce),
Somali is labour-abundant (capital-scarce)
+ Price definition: (r/w)1 < (r/w)2  France is capital-abundant, Somali is labour-
abundant
- In this case, the apparent contradiction of the Heckscher-Ohlin model could be explained by factor-
intensity reversal. In the France , Aviation industry belongs to TOP most developed industry in
France, production utilizes considerable capital and, thus, many commodities such as airplane are
relatively capital-intensive. In Somali , however, agricultural production uses relatively much more
labor than capital and, in all likelihood, is a labor-intensive product. Since there is considerable
substitutability between capital and labor in the production of, for example, rice, it would not be
surprising to find that rice is a labor-intensive product in a labor-abundant country such as Somali and
 capital-intensive in a capital-abundant country such as the France . Consequently they both end up
exporting the product because it is intensive in their respective abundant factors.

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

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

PART 2 :
7. What is primary function of tariffs in industrial nations ? What are the advantages and
disadvantages of Ad valorem and Specific Tariff ? Chức năng chính của thuế quan ở các nước
công nghiệp là gì? Ưu điểm và nhược điểm của Định giá quảng cáo và Biểu thuế cụ thể là gì?
 Tariffs have three primary functions: to serve as a source of revenue, to protect
domestic industries, and to remedy trade distortions (punitive function).
- The revenue function comes from the fact that the income from tariffs provides governments with a
source of funding. In the past, the revenue function was indeed one of the major reasons for applying
tariffs, but economic development and the creation of systematic domestic tax codes have reduced its
importance in the developed countries. For example, Japan generates about 90 billion yen in tariff
revenue, but this is only 1.7 percent of total tax revenues (fiscal 1996). In some developing countries,
however, revenue may still be an important tariff function.
- Tariffs is also a policy tool to protect domestic industries by changing the conditions under which
goods compete in such a way that competitive imports are placed at a disadvantage. In some cases,
“tariff quotas” are used to strike a balance between market access and the protection of domestic
industry. Tariff quotas work by assigning low or no duties to imports up to a certain volume and then
higher rates to any imports that exceed that level.
- Punitive tariffs may be used to remedy trade distortions resulting from measures adopted by other
countries.
 The advantages and disadvantages of Ad valorem and Specific Tariff Ưu điểm và
nhược điểm của Định giá quảng cáo và Biểu thuế cụ thể

AD VALOREM SPECIFIC TARIFF

Advantages - Automatic adjustment for - Predictable. The government
inflation. Since the tax is tied to revenue is therefore protected against
the product price, the tax industry price wars or price
automatically adjusts with manipulations. For example the
inflation. government can predict tobacco tax
- Higher profit margin is taxed. revenue based on tobacco demand.
Ad valorem tax reduces the - Raises all product prices. Since the
industry profit margin since a part tax is applied to all products at the
of any price/profit increase goes to same rate, a higher tax usually results
the government as tax revenue. in similar prices increase across the
board, regardless of product. Specific
taxes reduce the gap in prices
between cheap and more expensive
products.
- Easy to determine the amount of
tax.
- Easier to administer.
 Disadvantages - Less predictable revenue stream. - Inflation erodes its value. Because
As ad valorem taxes are based on the tax rate is not tied to the product
value, it is difficult to predict tax price, it does not automatically adjust
revenue over time with inflation. Instead, the
- Difficult to determine the government must periodically
amount of tax. implement additional rate increases,
- Leads to large price differences or add into the tax law that the
between products. Ad valorem specific excise tax rate will
taxation widens the gap in prices automatically adjust with inflation.
between cheap products and more - Can be reduced by changing
expensive products. products characteristics.
- Difficult to administer.

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

8. What is an Import Quota ? How are they similar to and different from the effects of an
equivalent Import Tariff ? How does the revenue effect of an import quota differ from that of a
tariff ? Hạn ngạch nhập khẩu là gì? Chúng giống và khác nhau như thế nào so với tác động của Biểu
thuế nhập khẩu tương đương? Tác động thu nhập của hạn ngạch nhập khẩu khác với thuế quan như
thế nào?
 Meaning of Import Quotas: A limit on the quantity of imports
- Can be mandatory or voluntary, and can be legislated or negotiated with foreign
governments
- Tariff Rate Quota (TRQ)—allows a certain quantity of a good into a country at low
or zero tariff rate, but applies higher tariff to quantities exceeding the quota.
 - The import quota means physical limitation of the quantities of different products
to be imported from foreign countries within a specified period of time, usually one
year. The import quota may be fixed either in terms of quantity or the value of the
product. Can be mandatory or voluntary, and can be legislated or negotiated with
foreign governments.For instance, the government may specify that 60,000 colour
T.V. sets may be imported from Japan. Alternatively, it may specify that T.V. sets
of the value of Rs. 50 crores can be imported from that country during a given
year.
- Tariff rate quotas (TRQs) allow products imported within a certain quota to enter
the European Union's market at a lower tariff rate than for quantities outside the
quotas. They allow more variety to consumers whilst also encouraging non-EU
countries to open up their markets to European goods.
 They similar to and different from the effects of an equivalent import tariff:
Similar
- Firstly, both tariffs and quotas have the same objectives such as reduction in the
volume of imports, protection of home industries, expansion of employment and
economic activities and correction of balance of payments deficit.
- Secondly, a certain rate of tariff causes reduction in the quantity by a specified
extent and, therefore, it has a quota equivalent. The import quota, on the other
hand, while restricting the quantity, causes a rise in import price. It has, therefore,
an import tariff equivalent.
- Thirdly, tariff and quota both have similar price, protection, consumption,
redistribution, welfare, balance of payments and income effects.
Different
- A tariff is a tax on imports. It is normally imposed by the government on the
imports of a particular commodity. On the other hand, quota is a quantity limit. It
restricts imports of commodities physically. It specifies the maximum amount that
can be imported during a given time period.
- The main difference is that quotas restrict quantity while tariff works through
prices. Thus, quota is a quantitative limit through imports.
- A tariff raises revenue for the government, whereas an import quota creates surplus
for those who obtain the licenses to import.The profit for the holder of an import
licenses is the diferrent between the domestic price ( at which they sell the
emported good) and the world price ( at which they buy it)
- All the benefits of quotas go to the producers and to the lucky importers who
manage to get the scarce and valuable import permits. In such a situation, quotas
differ from tariff
- As a tax , triffs bring in revenue for the government. A quota, on the other hand,
benefits the sellers because they can now sell the imported product for more money
- In assessing the costs and benefits of an import quota , it is crucial to determine
who gets the rents
When the rights to sell in the domestic market are assigned to governments
of exporting countries , the transfer of rents abroad makes the costs of a
quota substantially higher than the equivalent tariff
 How does the revenue effect of an import quota differ from that of a tariff?
 - A tariff is a tax on import able whereas an import quota is a direct quantitative
restriction on trade which places an absolute limit upon the volume of imports that
can be imported within a fixed time span.
- If government sells import licenses for full value, the revenue would equal that
from an equivalent tariff and tariffs and quotas would have identical results.
- Otherwise, quotas are worse than tariffs. Quotas will benefit for the Quota License
holder They become temporary monopoly in importing the product. It cause
deadweight losses.
- The Lessons for Trade Policy : Both tariffs and import Quota
o Raise domestic prices.
o Reduce the welfare of domestic consumers.
o Increase the welfare of domestic producers.
o Cause deadweight losses.
9. What is meant by dumping? What are the different types of dumping? Why is dumping
undertaken? Why does dumping usually lead to trade restrictions? Analyze one case study
many government have used: solar panel Bán phá giá có nghĩa là gì? Các loại bán phá giá khác
nhau là gì? Tại sao lại thực hiện bán phá giá? Tại sao bán phá giá thường dẫn đến các hạn chế thương
mại? Phân tích một nghiên cứu điển hình mà nhiều chính phủ đã sử dụng: bảng điều khiển năng lượng
mặt trời
 Dumping is a term used in the context of international trade. It's when a country or
company exports a product at a price that is lower in the foreign importing market than the
price in the exporter's domestic market. Because dumping typically involves substantial
export volumes of a product, it often endangers the financial viability of the product's
manufacturers or producers in the importing nation.
 The different types of dumping
 Sporadic dumping: Manufactures practice sporadic dumping to get rid of excess
merchandise. A manufacturer with unsold inventories avoids starting a price war in
the home market to preserve his competitive position. Excess supplies are
destroyed. Example, Asian farmers dumped small chickens into the sea. Another
method is to have the excess supply dumped in a foreign market where the product
is normally not sold. Thus, sporadic dumping is aimed at liquidating excess stocks
that may arise occasionally.
 Predatory dumping: While sporadic dumping is occasional, predatory dumping is
permanent. Predatory dumping is also known as intermittent dumping. It involves
sale of goods in overseas markets at a price lower than the home market price. This
is selling at a loss to gain access to a market and eliminate competition. After the
competition is eliminated, the company becomes a monopolist. Monopoly position
is then used to increase the price. Anyway, there is a disadvantage that former
competitors may rejoin the market because of high profit margins.
Example
Hitachi was accused of following predatory dumping for its EPROM (electrically
programmable read only memory) chips.Zenith in USA accused Japanese
Television manufacturers of using predatory dumping. A charge was leveled
against Japanese manufacturers for false billing and secret rebates to set low
 predatory prices on T.V. sets in U.S markets. It was argued that they tried to drive
U.S firms out of business in order to gain a monopoly.
 Persistent dumping (Long period dumping): It involves consistent selling at lower
prices in one market than in the rest of the market. This practice is based on the fact
that markets vary in terms of overhead costs and demand characteristics. In
persistent dumping, the firm may use marginal cost pricing abroad while using full
cost pricing (covering fixed costs at home) in domestic market. Japan, for example,
sold consumer electronics at high prices in its own country. This is because it has
no foreign competition. But it lowered prices in the U.S market in order to maintain
market share.
 Objective of Dumping
- To find a Place in the Foreign Market: Due to perfect competition in the foreign
market lowers the prices of commodity in comparision to the other competitors so
that the demand for commonly may increase.
- To sell surplus commodity: When there is excessive production of a monopolist’s
commodity and he is not able to sell in the domestic market, they wants to sell the
surplus at a very low price in the foreign market. But it happens occasionally.
- Expansion of Industry: The cost of production of commodity is reduced and bt
selling more quantity of the commodity at a lower price in the foreign and domestic
market, they earns larger profit.
- New trade relations: They sells their commodity at a low price in the foreign
market, thereby establishing new market relations with those countries.
 Dumping usually lead to trade restrictions :
- Dumping often condemned as “unfair trade practice” which accords exporters a
competitive advantage over producers of similar goods in the market of
importation.
- The problem with dumping is that it's expensive to maintain. It can take years of
exporting cheap goods to put the competitors out of business. Meanwhile, the cost
of subsidies can add to the export country's sovereign debt.
- The second disadvantage is retaliation by the trade partner. Countries may impose
trade restrictions and tariffs to counteract dumping. That could lead to a trade war.
- The third is censure by international trade organizations. These include the WTO
and the European Union.
 China with solar panel industry
- Solar tariffs on China are ‘counter-productive’ say experts Stopping Chinese solar
‘dumping'
- The move comes after complaints by European producers to the EU Commission,
that China is flooding Europe with cheap solar panels sold at below the cost of
production. Fast growth, rude awakening
- German-based company, SolarWorld claimed Chinese manufacturers were getting
unfair support from their governments and that they were selling panels below cost.
Many European competitors — led by SolarWorld – have charged that Chinese
competitors are underpricing them in order to keep their grip on the lucrative
European market.
 - EU announces tariffs on Chinese solar panels
The European Commission on Tuesday said it would begin to apply a provisional
staggered system of duties on Chinese solar imports, in anticipation of possible
talks with Beijing. EU Trade Commissioner Karel De Gucht said that an average
levy of 11.8 percent would be applied from June 6, with the levy rising to 47.6
percent on August 6, unless a solution could be agreed.
- China retaliates despite calls to end trade row with EU China had informed the
European Commission that European chemicals companies, notably Belgian group
Solvay, were the focus of an anti-dumping investigation, France's daily newspaper
Les Echo reported Monday.
- China accuses firms from the two sectors of selling their products below cost to
win market share and eliminate competitors.
- Earlier this month, the EU Commission imposed a higher customs duty of about 47
percent on Chinese solar panels, accusing Beijing of undercutting market prices
with hefty state subsidies. In addition, EU authorities announced a probe into
Chinese manufacturers of mobile network equipment amid claims they sell their
products at a loss.

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

 The main function of subsidy

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

 Problems do these subsidies give rise

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

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

11. What are the benefits and arguments against Protectionism ?

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

PART 3 : Economic Integration : FTA – Common Market

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

 Challenges of Globalization
- Job Mobility
One of the most common critiques of the global trade system is how it ships jobs,
especially manufacturing jobs, from less developed countries to developing countries.
Lower-skilled workers who lose manufacturing jobs in developed countries often have
a difficult time finding new, comparably compensated work.
- Western Dominance
Despite huge growth in emerging markets, the Western developed world still holds the
reigns on international order and on how capital flows from country to country
- Loss of Cultural Identity
While globalization has made foreign cultures easier to access, it has also begun to
meld cultures together. The success of certain cultures throughout the world have
caused other countries to emulate these lifestyles and culture
13. What is the globalization? Describe the benefits and challenges of current wave of Globalization
for Vietnam’s economy Toàn cầu hóa là gì? Mô tả những lợi ích và thách thức của làn sóng Toàn
cầu hóa hiện nay đối với nền kinh tế Việt Nam
 Globalization is the connection of different parts of the world resulting in the expansion
of international cultural, economic, and political activities. It is the movement and
integration of goods and people among different countries. There are advantages and
disadvantages to globalization, all of which have economic, social, political, and cultural
impacts.globalization describes mainly trade practices, extending also to the
communication patterns and cultural system that underlie these practices.
 Benefits of current wave of Globalization for Vietnam’s economy
- Increasing export revenues
As a result of integrating into the regional and global market, export revenues have
increased continually since 1990, speeded up sine 1995 when Vietnam joined ASEAN
and grew sharply since Vietnam joined WTO in 2007.
- Rapid increase in foreign direct investment (FDI)
As a WTO member, Vietnam has become an attractive destination for foreign
investors. Registered FDI surged to US$71 billion in 2008, compared with only $12
 billion in 2006. During the three years of WTO membership, total registered FDI into
Vietnam reached more than $114 billion, 4.5 times higher than the target set for the
2006-2010 period. Of this, $29.5 billion was disbursed in the five years
- Increase in enterprises’ awareness, adaptation and performance
Joining WTO means that Vietnam has entered a large “play ground” where
Vietnamese enterprises have to compete with many giant players-big foreign
corporations with strong financial power and experience. This is also a chance for
state-owned enterprises pending on the Government protection and subsidies
restructure their operation. Otherwise they will be defeated even in the domestic
market. So under the competition pressure, the Vietnam’s enterprises will become
more effective and competitive.
- More favorable legal system for trading activities
Global economic integration and accession to the WTO have given Vietnam a chance
to refine its policy and legal system to be more transparent, sustainable and predictable
to be in line with WTO regulations and to attract more foreign investors.
Moreover, as a WTO member, Vietnam is treated as a full WTO membership.
Vietnamese enterprises have a healthy environment for development in foreign
markets. If there are trade disputes, they can be treated under WTO’s Dispute
Settlement Mechanism.
 Challenges of current wave of Globalization for Vietnam’s economy
- Low competitiveness of nation, enterprises and products
Vietnamese enterprises are mainly medium and small-sized. None of Vietnam’s state-
owned enterprises was on the list of 1000 world biggest corporations, neither its
commercial trademarks in the list of 1000 most prestigious global trademarks. If we
want to gain strong competitiveness in international market, we must have many strong
enterprises like Sony, Toyota of Japan, or Hyundai, Samsung of South Korea
- Issues relating to macro policies and administrative procedure
A widening trade deficit, an overheating economy, and a global rise in commodity
prices caused inflation to shoot up to 23 percent in 2008.This in turn triggered a crisis
of confidence, big swings in interest rates, and a sharp fall of the dong, the local
currency”. Although this issue was over and the government has performed better
when dealing with the global financial crisis, it is an important lesson that because the
Vietnamese economy has integrated deeply into the global economy, the exchange
rates, inflation, balance of payment and budget deficit will develop unpredictably.
- Difficulties in agricultural sector
Agriculture [1] is the main sector in the economy, accounting for 20 percent of GDP
and 66 percent of the national population. However, it is confronting with vigorous
competition in the global market. Farmers lack knowledge and professional skills.
Production technology is small and backward, which increases the production costs
compared to those of other countries and makes the quality of the products low.
Agricultural enterprises are often of small size and disperse. As a result, they have
weak financial capacity to improve production technology and labor productivity.
 14. What are the benefits and challenges of ASEAN Economic Community ?
Describe the opportunities and economic benefits of Vietnam in the AEC ? Những lợi ích và
thách thức của Cộng đồng Kinh tế ASEAN? Mô tả các cơ hội và lợi ích kinh tế của Việt Nam trong
AEC?
 The benefits of ASEAN Economic Community:
Trade
- Concerning the free flow of goods: as of 2010, duties were eliminated on 99.2% of tariff lines for the
ASEAN-6 Member States (Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore and
Thailand).
- In the other member states (Cambodia, Lao PDR, Myanmar and Viet Nam), 97.52% of tariff lines
have been reduced to 0-5%. Measures to reduce technical barriers to trade are also being
implemented.
Investment
- ASEAN is committed to building an investment environment to attract businesses: it created the
ASEAN Comprehensive Investment Agreement (ACIA), which includes commitments towards the
liberalization and protection of cross-border investments operations, together with best practices for
the treatment of foreign investors and investments
- For the free flow of capital, stock exchanges from Indonesia, Malaysia, Philippines, Singapore,
Thailand and Viet Nam are working together to form the ASEAN Exchanges, aiming to promote
ASEAN capital markets and to offer more opportunities to investors in the region.
Labor
- ASEAN works towards facilitating the free flow of skilled labor: the ASEAN Agreement on the
Movement of Natural Persons (MNP) provides a legal framework to ease temporary cross-border
movements of people engaged in the trade in goods, services and investment.
Competitive Economic Region : By creating a competitive economic region, the AEC
wants to foster a culture of fair competition, which includes protection of consumers
and guarantees for intellectual property rights. It also requires infrastructures
(highways, airports and rail links, power grids and gas pipelines) under planning and
development.
Equitable Economic Development : The AEC will enhance competitiveness and
expansion of SMEs in ASEAN through various projects under the Strategic Action
Plan for ASEAN SME Development (2010-2015).
Integration into the Global Economy
- Thanks to various “ASEAN+1” free trade agreements with the People’s Republic of China, Japan, the
Republic of Korea, Australia, New Zealand and India, ASEAN is positioned in the middle of global
supply chain, developing strong trade connections with the major Asian economies and generating
new business opportunities.
- Increased business interest in the AEC ASEAN is benefiting from a steady increase in Foreign Direct
Investment (FDI), with an average growth of 14% since 2000.
 Challenges of ASEAN Economic Community:
- The Trump administration's 'America first' policy injected ambiguity in economic activities.
- The risk intensified as the trade war between the US and several countries - China, India, Russia,
Mexico, Canada, the European Union - became effective. These have long-term implications in terms
 of reconfiguration of manufacturing supply-chains and confidence in the multilateral trading
framework of the WTO.
- Simultaneously, the world economy is witnessing the process of Brexit, an outcome of a referendum
when Britain decided to leave the European Union.
- While it marked the rise of populist policies, it also criticised globalisation, particularly trade and
immigration, for income inequality and economic insecurity.
- The ASEAN countries are not aloof from these adverse global developments. There are concerns over
how AEC 2015 has benefitted individual ASEAN members and its businesses and people
- Low awareness of AEC often lead to debates of uneven benefit of economic integration and conflicts
of interest between the 'winners' and 'losers'.
- These are limiting the governments from committing to bold measures and compelling them to
undertake populist policies to raise their future political prospects.
- As a result, the pace of ASEAN economic integration may be slowed. Implementation could be
uneven and attention might be paid to more inclusive and people-centric trade and investment
measures.
- However, trade will remain at the core of AEC. Although tariffs have been almost eliminated for flow
of goods in the region, facilitation initiatives, such as the ASEAN Single Window and Self-
Certification Scheme, will gain importance.
 The opportunities of Vietnam in the AEC
- Opportunity to get a wider market
This is a good opportunity for Vietnamese businesses to expand their markets. The
AEC creates a unified market and manufacturing area, which leads to the economy of
many countries to become more prosperous, resulting in increased income and
formation of a new amount of middle-income consumers with high incomes – also the
very potential customers of businesses.
- Extended Export Opportunities
When participating in AEC, the export market for goods in Vietnam will be
increasingly expanding. When AEC is formed, Vietnamese enterprises can sell goods
to ASEAN countries almost domestic sales. This is one of the advantages for the flow
of goods of businesses. The import and export procedures will be more cumbersome
and the reform of the procedure of origin, towards allowing enterprises to certification
of origin will also facilitate the business customs clearance of goods to the market
ASEAN.
- Opportunity to enhance competitiveness for Vietnam's exports
When AEC is established, Vietnamese enterprises will have a wider market. In
addition, when the tax rate in ASEAN is reduced to 0%, Vietnamese enterprises will
have conditions to reduce costs, lower prices for exports, contribute to increasing
competitiveness.
- Opportunity to attract investment sources
AEC will also help Vietnam to better improve the business environment from customs
clearance, administrative procedures to create more balanced investment incentives.
 The benefits of Vietnam in the AEC
- Reduce the risks in export-imports from minimizing dependency to the Chinese market, increasing
the replacement of the ASEAN market for the Chinese market.
- Creating opportunities for Viet Nam to be deeper into the value chain and the regional supply chain is
firstly the supply chain value agricultural products and intermediate products.
- To promote the process of implementing strategic breakthroughs to Vietnam to basically become
industrialization in the modern direction in 2020
- Strengthening the comprehensive understanding between Vietnam and other AEC member countries,
expanding socio-cultural exchanges across countries, facilitating the development of Vietnamese
values and identity in AEC

Why Vietnam actively participates in many FTAs ?

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

 Benefits and costs of Vietnam when we joint WTO

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

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

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

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

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