ECEE600017 Meeting 9
2026-05-04
Three blocks plus the data:
The instruments and the logic – quotas, VER, LCR, standards, subsidies, anti-dumping, export restrictions; why governments reach for them.
The WTO – why a multilateral rulebook was built, what it disciplines, and why it is in trouble.
What countries actually do – evidence from Global Trade Alert (53,000+ measures since 2009).
Government caps the quantity that can be imported.
Effects in a small open economy with a binding quota:
Three rent destinations:
Tariff and quota look equivalent in a static, perfectly-competitive textbook. They diverge when:
Demand grows. Quota stays fixed → implicit protection rises. Tariff rate stays fixed → protection erodes.
Domestic firm has market power. Quota gives the domestic monopolist a guaranteed protected market; tariff still leaves contestability from imports.
Rent allocation matters politically. Quota allocations are administratively granted – a magnet for rent-seeking.
Voluntary Export Restraint (VER): quota administered by the exporter. Japan-US autos, 1981. The quota rent flows abroad. Strictly worse than a tariff for the home country – yet politically convenient. Banned by the WTO Safeguards Agreement Art. 11 (1995).
UNCTAD MAST classification (2019) – 16 chapters, hundreds of categories.
Stylised fact: as average tariffs fell from ~30% (1980s) to ~10% today in developing countries, the count of NTMs has risen.
Hard to compare across countries because:
Mandate: a minimum share of the value (or of specified components) must be sourced domestically.
Indonesia uses LCRs heavily:
Static cost: forces use of more expensive / lower-quality domestic inputs → tariff-equivalent often double-digit.
Claimed dynamic benefit: linkages, learning, technology transfer.
WTO status: TRIMs Agreement (1995) prohibits LCRs in goods. Honoured selectively; many WTO members maintain creative variants.
Legitimate roles: information asymmetry (consumer cannot observe quality), externalities (pesticide residue, emissions), network compatibility.
Protectionist temptation: a strict standard no foreign supplier can meet today keeps competitors out, perfectly legally.
Evidence for Indonesia (Elisabeth & Verico, 2022, JITLP): TBT measures have a non-trivial dampening effect on Indonesia’s manufacturing exports – the same instruments work both ways.
Trade-off:
In GTA, subsidies (financial grant + state loan + state aid + trade finance) are the single largest distortive category by count.
Post-2020 surge driven by:
WTO disciplines (SCM Agreement) cover subsidies for goods, but actionability is high-bar and the dispute pipeline is jammed.
The “WTO-legal” way to raise protection after the schedules are bound:
Anti-dumping (AD) – duty if foreign firm sells “below normal value” and causes injury. ~4,000 distortive measures in GTA. Procedure-heavy, easy to abuse, the most-used trade defence worldwide.
Anti-subsidy (CVD) – countervailing duty against subsidised imports. ~850 measures.
Safeguards – emergency duty/quota against an import surge causing serious injury. Non-discriminatory in principle, time-limited, requires compensation to affected exporters.
Indonesia uses all three; Indonesia is also a target of dozens of foreign AD cases (palm-oil derivatives, paper, steel).
Export taxes, bans, licensing, price benchmarks. Why does an exporter restrict its own exports?
Revenue. Easy tax base on commodities (Indonesia palm-oil export levy → BPDPKS / CPO Fund).
Domestic price stabilisation. Crisis bans on rice, cooking-oil exports (2022).
Downstream development. Indonesia nickel-ore export ban (2014, then 2020) → smelter and battery investment.
Strategic / geopolitical. Critical-minerals controls (rare earths, gallium, germanium).
Welfare logic: a large supplier can shift world prices to its favour – a terms-of-trade gain. A small supplier just loses revenue.
Downstream story works only if the downstream industry is genuinely viable – otherwise it is a transfer to a subsidised loss-maker.
Tariffs sit in a public schedule – consumers, downstream users and trade partners can read them.
NTMs are opaque:
Concentrated benefits, dispersed costs (Olson, 1965): the gainers organise, the losers do not.
Indonesia food-NTMs estimated ~49% tariff-equivalent (The Conversation, 2022) – a number no parliament would approve as an explicit tariff.
Some NTMs address real market failures:
Information – product standards, labelling.
Externalities – emissions, pesticide residue, financial-stability spillovers. Carbon Border Adjustment (EU CBAM) is the canonical recent case.
Strategic competitiveness / appropriability – subsidies for R&D-intensive industries where private investment under-delivers.
Resilience – post-COVID supply-chain redundancy; pandemic stockpiles; semiconductors.
The honest version of the infant-industry argument lives here too. The catch from last week still applies: a domestic policy is almost always a better instrument than a trade policy for a domestic problem.
US export controls on advanced semiconductors to China (2022 Oct, 2023 Oct).
Inward FDI screening: CFIUS (US), EU FDI Regulation, UK NSI Act, Indonesia DNI revisions.
“Friend-shoring”, “de-risking”, critical-minerals partnerships.
US 2025 tariff package (broad, escalatory, partly outside WTO process).
The policy paradigm has tilted from “open by default, intervene if needed” to “managed by default, liberalise if convenient”. The 2022-25 distortive count in GTA confirms it.
The cautionary tale of the 1930s:
Smoot-Hawley Tariff Act (US, 1930) – average tariff on dutiable imports raised to ~59%.
Retaliation – Canada, France, UK, others raised their tariffs in turn.
World trade collapsed by roughly two-thirds, 1929-1933.
Beggar-thy-neighbour devaluations and import controls deepened the Depression.
Lesson taken at Bretton Woods (1944): tie hands collectively so no single government’s domestic politics can unleash a global trade war.
Three Bretton Woods siblings designed: IMF (money), World Bank (reconstruction), ITO (trade).
ITO Charter (Havana, 1948) was rejected by the US Senate in 1950 → ITO never born.
Its tariff-negotiation chapter survived as the General Agreement on Tariffs and Trade (GATT) – signed by 23 contracting parties, applied “provisionally” from 1 January 1948.
“Provisionally” until 1995.
Four principles still anchor today’s WTO:
Most-Favoured Nation (Art. I). Any concession granted to one member is granted to all members. (Exceptions: FTAs, GSP, balance-of-payments.)
National Treatment (Art. III). Once an import has cleared customs, it must be treated no worse than a like domestic product (taxes, regulations).
Tariff bindings. Each member has a schedule of bound (ceiling) rates; applied rates can be lower but not higher.
Reciprocity. Concessions are exchanged, not given away – liberalisation is a negotiated political deal.
8 GATT rounds, 1947-1994. Early rounds: tariff cuts on industrial goods.
Tokyo Round (1973-79): first serious push on non-tariff measures – voluntary “codes” on subsidies, AD, standards, government procurement, customs valuation.
Uruguay Round (1986-94): the big bang.
Member-driven. 164 members, ~98% of world trade. Indonesia is a founding member.
Three legs:
Plus a Dispute Settlement Body – panels + Appellate Body, with binding rulings and authorised retaliation. For 25 years, the “crown jewel”.
No real legislative capacity: change the rules only by member consensus.
Launched November 2001, Doha Ministerial – two months after 9/11, framed as a deliberate signal that the world could still cooperate.
Called the “Development Round” in response to developing-country complaints about the Uruguay outcomes:
Built on the single undertaking – “nothing is agreed until everything is agreed” – forcing cross-issue trade-offs.
Eight negotiating tracks: agriculture, NAMA (industrial tariffs), services (GATS), TRIPS & public health, Singapore issues (investment, competition, procurement, trade facilitation), rules (AD/SCM, FTAs), environment, special & differential treatment.
Cancún 2003 (MC5): collapsed. Singapore issues + the cotton initiative (4 West African states demanding the end of US cotton subsidies). Birth of the G20 trade bloc – Brazil, India, South Africa, China – as a counterweight to the US-EU duopoly.
Hong Kong 2005 (MC6): agreed to phase out agricultural export subsidies.
Geneva July 2008 mini-ministerial: very close to a deal. Broke down over the Special Safeguard Mechanism (SSM): India insisted on a low trigger to protect subsistence farmers from import surges; US refused. One issue, one deal-breaker.
Bali 2013 (MC9): salvaged the Trade Facilitation Agreement – first multilateral deal born under the WTO.
Nairobi 2015 (MC10): end of agricultural export subsidies formally agreed, but the US and EU declined to recommit to the Doha mandate. Post-Doha era begins.
Three deeper reasons for failure: (i) single undertaking made a deal infeasible; (ii) China’s 2001 accession transformed the negotiating arithmetic; (iii) the US pivoted to mega-regionals.
Members responded by going bilateral / regional:
Plurilateral Joint Statement Initiatives inside the WTO: e-commerce, services domestic regulation, investment facilitation.
For Indonesia: founder of ASEAN Economic Community; member of RCEP; IEU-CEPA after 19 negotiation rounds (2016-2025).
Cost of multilateral failure: a “spaghetti bowl” of overlapping FTAs with different rules of origin – compliance burden falls on firms.
Appellate Body paralysed since 11 December 2019. US (under both parties) has blocked new appointments since 2017, citing judicial overreach.
Without a functioning AB, a losing party can appeal “into the void” and the ruling never becomes binding.
Workaround: 26 members (incl. EU, China, Australia) joined the Multi-Party Interim Appeal Arrangement (MPIA). Indonesia and the US have not joined.
US 2025 tariff package proceeded largely outside WTO-consistent process.
The discipline that took 50 years to build is being eroded faster than it can be defended.
DS592 – Indonesia (Nickel ore export ban), 2019 -.
Other live or recent disputes: chicken (DS484, won by Brazil), bioethanol AD, several palm-oil disputes against the EU.
Indonesia is both a beneficiary of the rules and a frequent test case for their limits.
Independent monitoring database of unilateral trade and industrial policy interventions, run from St. Gallen.
Scope:
Each record is coded by instrument, sector, affected partner, and an “initial assessment” (distortive vs liberalising).
Used today: April 2026 inventory, 53,102 measures.
Tariffs lead, but subsidies (financial grant + state loan + state aid + trade finance) dominate when summed. Anti-dumping is the largest single trade-defence tool.
Inflection points: 2009 (post-GFC), 2018 (US-China), 2020 (COVID), 2022+ (industrial-policy revival – IRA, CHIPS, EU CBAM).
The big interveners are big and rich, not poor. Industrial policy is a rich-country game; developing countries follow.
Note the export side – export tax, export price benchmark, export ban, export licensing. Distinctive for a resource-exporting economy.
Of 502 Indonesian measures since 2009: ~66% distortive, ~34% liberalising. Notable: 2009 commodity-boom export controls; 2014 mineral-ore export ban; 2020 nickel ore ban; 2024-25 hilirisasi continues.
Tariffs are visible. The real action is everywhere else – subsidies, LCRs, standards, contingent protection, export controls.
NTMs have legitimate uses (information, externalities, resilience) and high abuse potential (opacity, rent-seeking).
The WTO was the post-war answer to 1930s-style trade collapse. Its negotiation function stalled in 2008; its adjudication function broke in 2019; its rule-book still binds, weakly.
For Indonesia the question is not whether to intervene – we already do, ~30 measures a year on average – but whether to intervene well or badly. That is what this course is for.
Balance of Payments and the data of international economics.
The current account, the financial account, why the BOP must balance.
Reading data: BPS, Bank Indonesia SEKI, IMF BOP, World Bank.
Hand-on: pulling and plotting Indonesia’s BOP series.
