Can Thuy Lien M.A Student : Khuong Thi Linh Chi Class : K17 - ATCC Student ID : 17A7510019 Hanoi, May 2018 BANKNG ACADEMY Foreign Languages Faculty GRADUATION THESIS THE IMPACTS OF CO
Research rationale
Vietnam's accession to the World Trade Organization (WTO) marked a significant step in its integration into the global economy through free trade agreements The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is the latest of these agreements and is regarded as a model treaty for the 21st century due to its extensive scale and influence compared to other trade agreements This pact is set to establish one of the largest free trade blocs in the world, encompassing a market of 499 million people and a combined GDP of approximately $10 trillion, which represents 13.5 percent of the global GDP.
The official signing of CPTPP took place in Santiago de Chile on March 8 th 2018 (local time), with the participation of representatives from 11 member countries In spite of the
Despite the US withdrawal, the trade pact continues to offer significant economic benefits for Vietnam, driving economic growth, job creation, and poverty reduction It is anticipated to elevate living standards, foster innovation, enhance labor productivity and competitiveness, and promote transparency and good governance, while also improving labor and environmental standards.
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) offers both opportunities and challenges for Vietnam As the country works to fulfill its commitments under the agreement, it is essential for the Vietnamese government and businesses to develop comprehensive strategies to leverage these opportunities while effectively addressing the associated challenges.
As a result, the topic “The impacts of Comprehensive and Progressive Agreement of
Trans – Pacific Partnership on Vietnamese economy” is chosen for this graduation thesis.
Research questions and objectives
This research focuses on three main questions:
What is Comprehensive and Progressive Agreement for Trans-Pacific Partnership?
How will the trade pact affect Vietnamese economy when it comes into effect?
What will Vietnam do to take full advantages and get over disadvantages from the pact?
This research examines three key areas: it establishes a foundational theoretical framework for the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), analyzes its positive and negative impacts on the Vietnamese economy across six distinct aspects, and provides targeted recommendations for the Vietnamese government and relevant stakeholders to leverage opportunities and address challenges effectively.
Research subject and scope
The thesis concentrates on analyzing the impacts of CPTPP on Vietnamese economy when the pact comes into force.
Research methodology
This thesis employs a quantitative research method that emphasizes the collection and analysis of numerical data and statistics Additionally, it incorporates qualitative research to capture the perspectives and attitudes of various authors The qualitative data is gathered through the monitoring and analysis of written sources.
Research structure
Coupled with the introduction and conclusion, the thesis includes three main chapters:
Chapter 1: Theoretical framework of Comprehensive and Progressive Agreement for Trans-Pacific Partnership
Chapter 2: The impacts of Comprehensive and Progressive Agreement for Trans-
Pacific Partnership on Vietnamese economy
Chapter 3: Recommendations for Vietnam to utilize opportunities and overcome challenges
In recent years, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) has significantly influenced the Vietnamese economy, drawing the attention of numerous economists and analysts Researchers have examined this impact from both positive and negative perspectives, highlighting the multifaceted effects of the agreement on Vietnam's economic landscape.
Pham Thi Hong Yen (2017) from the Central Economic Commission of Vietnam analyzed the pros and cons of Vietnam's participation in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and proposed solutions for its effective implementation Additionally, the World Bank released a report on March 5th, further contributing to the discussion on Vietnam's international economic integration.
2018 titled “Economic and Distributional impacts of Comrehensive and Progressive
Agreement for Trans-Pacific Partnership: the case of Vietnam”, which is conducted by
In a comparative analysis by Maryla Maliszewska, Zoryana Olekseyuk, and Israel Osorio-Rodarte, the potential impacts of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) on Vietnam are evaluated against those of the Regional Comprehensive Economic Partnership (RCEP) and the original Trans-Pacific Partnership (TPP-12) using scenario analysis Articles from VietnamNet Bridge highlight a promising outlook for foreign investment in Vietnam during the CPTPP period, while also emphasizing that Vietnamese farmers anticipate increased profits due to the trade agreement Additionally, reports indicate that the livestock sector is significantly affected by the CPTPP, and the textile and garment industry is projected to sustain a growth rate of USD 3 to 3.5 billion as a result of the agreement.
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is significantly influencing various sectors in Vietnam, as highlighted by multiple sources VnExpress (2016) emphasizes the strong development prospects of the Vietnamese footwear industry, while Vietnamnews (2018) discusses the potential benefits for the fishery sector under CPTPP Additionally, reports from Vietnam Investment Review (2018) and VOV (2018) indicate that the timber and wood industries are poised for growth due to this trade agreement Furthermore, the textile industry is expected to reduce its reliance on raw material imports, as noted by Magazine (2018) Hoang Anh and Quynh Lan from Customs News (2018) underscore the CPTPP's role as both a motivation and a pressure for necessary institutional reforms in Vietnam, showcasing its broader impact on the nation's agricultural and industrial landscape.
Despite previous research highlighting significant advantages in specific fields, it fails to address the associated disadvantages, leading to an incomplete analysis Additionally, the recommendations provided are overly broad and do not offer targeted solutions for individual sectors, focusing instead on the overall economy rather than the critical component of the economy—enterprises.
This thesis aims to address gaps in previous analyses by providing a comprehensive examination of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) It will assess the impact of the CPTPP on Vietnam's economy and offer practical recommendations for the Vietnamese government and businesses to optimize benefits while navigating associated challenges.
THEORETICAL FRAMEWORK OF COMPREHENSIVE AND
Overview
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) was established following the United States' withdrawal from the original Trans-Pacific Partnership (TPP) agreement Initially, the TPP aimed to expand trade and economic cooperation among its member countries.
The Strategic Economic Partnership Agreement (TPSEP or P4) was originally signed by Brunei, Chile, New Zealand, and Singapore in 2005 In 2008, the agreement expanded discussions to include Australia, Canada, Japan, Malaysia, Mexico, Peru, the United States, and Vietnam, increasing the negotiating countries to twelve However, the agreement could not be implemented after the United States withdrew in January 2017.
In May 2017, the remaining 11 countries of the Trans-Pacific Partnership (TPP) decided to revive the agreement, culminating in a consensus reached in January 2018 Subsequently, on March 8, 2018, the revised Comprehensive and Progressive Agreement for Trans-Pacific Partnership was officially signed in Santiago, Chile.
Membership
Twelve countries, including Singapore, Brunei, New Zealand, Chile, Australia, Vietnam, Peru, Malaysia, Mexico, Canada, Japan, and the United States, engaged in negotiations for the Trans-Pacific Partnership (TPP) On February 4, 2016, all twelve nations officially signed the TPP agreement.
On January 23 rd 2017, US President Donald Trump signed a presidential memorandum to withdraw the United States' signature from the agreement
As of 2010, several countries and regions expressed interest in joining the Trans-Pacific Partnership (TPP), including APEC members, South Korea, Taiwan, the Philippines, and Colombia By 2012, Thailand and Laos joined the list of interested nations, followed by Indonesia, Cambodia, Bangladesh, India, and Sri Lanka in 2013.
History
Brunei, a member of the Asia Pacific Economic Cooperation (APEC) since 1989, has significantly contributed to the development of trade agreements that culminated in the Trans-Pacific Partnership (TPP) established in 2005 The nation hosted a crucial APEC meeting in 2000, which initiated discussions leading to the ASEAN Regional Forum (ARF) in July 2002.
In 2001 New Zealand and Singapore joined in the New Zealand/Singapore Closer Economic Partnership (NZSCEP) The Trans-Pacific Strategic Economic Partnership Agreement (Trans-Pacific SEP) built on the NZSCEP
In 2002, Prime Ministers Helen Clark of New Zealand, Goh Chok Tong of Singapore, and Chilean President Ricardo Lagos initiated discussions on the Pacific Three Closer Economic Partnership (P3-CEP) in Los Cabos, Mexico.
In April 2005, the agreement was renamed the Trans-Pacific Strategic Economic Partnership (TPSEP) following Brunei's full participation Negotiations among Brunei, Chile, New Zealand, and Singapore were completed on June 3, 2005, and the agreement took effect on various dates: May 28, 2006, for New Zealand and Singapore, July 12, 2006, for Brunei, and November 8, 2006, for Chile.
The original TPSEP agreement is a detailed framework that influences various aspects of trade, including goods, rules of origin, trade remedies, and sanitary measures It also encompasses technical barriers to trade, services, intellectual property, government procurement, and competition policy Notably, the agreement mandated a 90% reduction in tariffs among member countries by January 1, 2006, with the ultimate goal of eliminating all trade tariffs by a specified year.
In January 2008, the United States initiated discussions with the Pacific 4 (P4) nations to enhance trade liberalization in financial services On September 22, 2008, U.S Trade Representative Susan C Schwab declared that the U.S would lead negotiations to join the Trans-Pacific Partnership (TPP), with the first round of talks scheduled for early 2009 Subsequently, in November 2008, Australia, Vietnam, and Peru expressed their intention to join the P4 trade bloc.
In 2010, Canada became an observer in the TPP talks, and expressed interest in officially joining In October 2010, Malaysia announced that it had also joined the TPP negotiations
In June 2012, Canada and Mexico expressed their intention to join the Trans-Pacific Partnership (TPP) negotiations Initially, Mexico's customs policies raised concerns among TPP negotiators However, both countries officially became participants in the TPP negotiations in October 2012, after completing the necessary domestic consultations with the other nine member nations.
On July 23 rd 2013, Japan officially joined the TPP negotiations
During a speech on the 2016 presidential campaign, Republican Party nominee Donald Trump vowed to withdraw the United States from the Trans-Pacific Partnership if elected
On November 21, 2016, Trump unveiled his "America First" economic strategy, which included a commitment to withdraw the United States from the Trans-Pacific Partnership (TPP) On his first day in office, January 23, 2017, President Trump signed a memorandum officially initiating the U.S withdrawal from the TPP.
The TPP's future was uncertain after the United States' withdrawal However, several signatories signaled their intention to rework TPP without US participation
In January 2018, the remaining 11 countries agreed on a revised TPP, now renamed as the
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) retains most of its original structure while incorporating 20 "suspended provisions" that were initially included at the request of the United States but are now non-binding These provisions mainly address areas such as investment, government procurement, and intellectual property.
The formal signing ceremony was held on March 8 th 2018 in Santiago, Chile (local time).
Content
The legally verified text of the CPTPP was released on February 21 st 2018, including 30 chapters The content of CPTPP was basically unchanged from the original TPP with
The CPTPP spans 8000 pages and establishes stringent standards across various sectors, including labor, environment, intellectual property, digital economy, and cybersecurity, while temporarily suspending the implementation of 22 provisions primarily related to intellectual property This agreement introduces new regulations for online commerce, outlines the treatment of foreign investors, provides comprehensive intellectual property protections, and sets forth labor codes, along with ensuring neutrality for state-owned enterprises.
The agreement eliminates more than 18,000 tariffs and streamlines customs procedures for express shipments It also prohibits customs duties on electronic transmissions, enhancing privacy, security, and consumer protections for online transactions Additionally, it promotes the publication of online customs forms, which is anticipated to greatly benefit small businesses.
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) boasts the strongest enforceable environmental commitments of any trade agreement to date, as highlighted by the Office of the United States Trade Representative (USTR) This agreement mandates signatories to adhere to the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), ensuring the protection and conservation of iconic species Additionally, the CPTPP is pioneering in its prohibition of harmful fisheries subsidies that exacerbate overfishing, marking a significant step towards sustainable trade practices.
CPTPP signatories must adhere to the United Nations Convention against Corruption (UNCAC) by criminalizing bribery of public officials, implementing a code of conduct for these officials, and taking steps to reduce conflicts of interest Additionally, they are required to enforce anti-corruption laws effectively and engage private organizations in the battle against corruption.
The CPTPP prohibits exploitative child labor and forced labor; ensures the right to collective bargaining; and prohibits employment discrimination The USTR asserts that
Research conducted by the International Labor Organization and the World Trade Organization indicates that enhancing trade opportunities alongside robust worker protections can facilitate the transition of workers from informal jobs to formal employment in regulated export industries This shift not only provides access to minimum wages but also offers essential benefits and safety programs.
"research also shows that trade improves human rights conditions by fostering pluralistic institutions and increasing open exchanges of information."
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is set to drive innovation by mandating member countries to implement robust patentability standards and enforce stringent copyright protections Additionally, the harmonization of copyright regulations among signatories will necessitate substantial amendments to the copyright laws of participating nations.
The CPTPP agreement includes an investor-state dispute settlement (ISDS) mechanism, allowing investors to sue foreign governments for violations of the treaty While ISDS cannot invalidate local laws, it can award monetary damages to investors who are negatively impacted by those laws.
The CPTPP specifically excludes tobacco industries from the ISDS process The carve- out came as a response to concerns about ISDS cases against anti-smoking laws
The CPTPP establishes binding obligations for its signatories to safeguard the right to unionize and engage in collective bargaining, while also committing to the eradication of exploitative child labor and forced labor, as well as protecting against employment discrimination Additionally, it mandates the implementation of laws that ensure acceptable working conditions, which encompass minimum wage standards, regulated working hours, and occupational safety and health measures.
The agreement establishes enhanced regulatory cooperation for agriculture that surpasses existing frameworks within the WTO, fostering engagement and trust among regulators from various CPTPP signatories.
Economic impact
Nobel Prize-winning economist Joseph Stiglitz cautioned that the trade deal primarily benefits the wealthiest individuals Organized labor in the U.S contended that the agreement favors corporations, negatively impacting workers in manufacturing and service sectors Research from the Economic Policy Institute and the Center for Economic and Policy Research suggests that the CPTPP may lead to job losses and reduced wages for American workers.
Economists Peter A Petri and Michael G Plummer dispute the notion that the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) will only benefit the wealthy, revealing that the gains from the agreement are equitably distributed Their analysis indicates that labor will benefit more than capital, with cost reductions favoring low-income households While some workers may need to transition to new jobs, this group represents a small portion of the normal job turnover each year, and the overall national benefits warrant generous compensation for their adjustment costs Additionally, the agreement is expected to positively impact workers in the poorest member countries of the CPTPP.
Z Lawrence found that the "percentage gains for labor income from the CPTPP will be slightly greater than the gains to capital income Households in all quintiles will benefit by similar percentages, but once differences in spending shares are taken into account, the percentage gains to poor and middle-class households will be slightly larger than the gains to households at the top."
The World Bank estimates that the ratification of the CPTPP could enhance GDP in member countries by an average of 1.1 percent by 2030, while also boosting trade among these nations by 11 percent This agreement is expected to significantly contribute to regional trade growth and elevate real wages across all signatory countries For instance, in Vietnam, unskilled workers could see their real wages rise by over 14 percent by 2030, driven by a shift in production towards labor-intensive sectors such as textiles.
Office of the Chief Economist at Global Affairs Canada report
A report from the Office of the Chief Economist at Global Affairs Canada highlights that ratifying the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) could boost Canada's GDP by $4.3 billion by 2040, primarily through enhanced access to Asia-Pacific markets Conversely, if Canada does not ratify the agreement, it could incur GDP losses estimated at $5.3 billion by 2040.
Effects on the European Union
Since 2013, the European Union has engaged in discussions to establish a free trade agreement with Japan, marking a significant step in its efforts to forge trade agreements with CPTPP member countries In 2015, the EU unveiled its "Trade for All" strategy, aimed at enhancing trade relations in the Asia-Pacific region.
An analysis by the Cato Institute reveals that among the chapters of the TPP, 15 promote liberalization, 5 are protectionist, and 2 have a neutral effect Overall, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is characterized as net liberalizing.
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) has sparked debate over its effectiveness in enhancing trade liberalization among member nations While some proponents argue that CPTPP membership provides a practical approach to achieving new trade liberalization, there is ongoing discussion about whether this leads to a net positive or negative outcome Scholars Peter Petri and Michael Plummer characterize the CPTPP as a "dynamic process" and a model of competitive liberalization, suggesting that it could foster a new governance framework for transnational trade in the Asia-Pacific region.
Key differences between CPTPP and TPP
First, the TPP has been renamed as the CPTPP, which includes “Comprehensive” and
The recent adoption of the name "Progressive" for the new agreement has garnered widespread approval from member countries, highlighting its quality and regulatory direction Japanese Economy Minister Toshimitsu Motegi emphasized that this comprehensive agreement encompasses multiple sectors beyond just trade, investment, and intellectual property, marking it as a more advanced and progressive initiative compared to previous free trade agreements (FTAs).
The group consists of 11 member economies, contributing 13.5% to global GDP and 15.2% to total global trade turnover This is significantly smaller than the Trans-Pacific Partnership (TPP), which accounted for 38.2% of global GDP and 26.5% of trade turnover, primarily due to the substantial influence of the United States.
Despite the U.S withdrawal, the CPTPP encompasses significant markets such as Japan, Australia, Canada, and Mexico, leading to a notable reduction in pressure to enforce certain provisions As a result, Vietnam stands to benefit greatly from the agreement, enhancing regional linkages and collaboration.
The signing of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and China's strategic movements have intensified pressure on the United States to reconsider its membership In this context, China is at the forefront of economic integration in the Asia-Pacific region, actively participating in initiatives such as the Regional Comprehensive Economic Partnership (RCEP), the ASEAN-China Free Trade Agreement, and the China-Japan-South Korea Free Trade Agreement.
The effectiveness of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) has evolved following the United States' withdrawal, which accounted for 60% of the original TPP's total GDP Initially, the TPP required member countries to collectively represent 85% of the GDP of the 12 signing nations for the agreement to take effect Now, with at least six nations' approval, the CPTPP can be implemented 60 days after signing Furthermore, the revised agreement introduces new regulations concerning withdrawal processes, participation, and flexible future reviews of the CPTPP.
The CPTPP has temporarily postponed 22 articles, including 11 related to intellectual property, which were previously emphasized by the US This delay means that member countries will not be required to amend their laws and practices immediately Additionally, the agreement suspends the extension of copyright terms, preventing unreasonable licensing delays and maintaining the current protection period at 50 years instead of extending it to 70 years.
The remaining postponed articles focus on investment, specifically the investor-state dispute settlement (ISDS) mechanism within the CPTPP This agreement has limited the options available for foreign investors to initiate lawsuits against host member states Additionally, the CPTPP stipulates that each party involved in the ISDS Arbitration Panel will appoint one member, with a third member appointed jointly by both parties.
The TPP has been successfully revitalized through regulatory adjustments and the collaborative efforts of its eleven member countries The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is recognized as a comprehensive and progressive trade agreement that upholds high standards while promoting openness, promising significant benefits for all member nations.
IMPACTS OF COMPREHENSIVE AND PROGRESSIVE
Macroeconomic impact
Table 1: Macroeconomic impact of CPTPP on Vietnamese economy by 2030 (percent derivations from the baseline)
According to the report, “Economic and Distributional Impacts of Comprehensive and
The World Bank's article, "Progressive Agreement for Trans-Pacific Partnership: The Case of Vietnam," published on March 5, 2018, projects that Vietnam's GDP could rise by 1.1% by 2030 With the implementation of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and a modest productivity boost, this increase is expected to reach 3.5%.
The CPTPP aims to eliminate or gradually reduce nearly all tariffs and non-tariff barriers on industrial and agricultural products, resulting in lower trade costs that will enhance both export and import activities.
Table 2 outlines the projected changes in market access for Vietnam under the CPTPP, highlighting significant reductions in both tariffs and non-tariff measures (NTMs) The average trade-weighted tariff faced by Vietnam when exporting to CPTPP economies is anticipated to drop from 1.7% to just 0.2% Similarly, the tariffs imposed by Vietnam on other countries are expected to decrease from 2.9% to 0.1% While these tariff reductions are substantial, NTMs are expected to remain a critical factor in market access Specifically, NTMs faced by Vietnam in foreign markets are projected to decline by an average of 3.6 percentage points in ad-valorem equivalent terms, while Vietnam's own NTMs imposed on foreign goods will decrease by 2.9 percentage points.
Tariffs faced by Vietnam on CPTPP market 1.7% 0.2%
Tariffs imposed by Vietnam on CPTPP members 2.9% 0.1%
NTB faced by Vietnam on CPTPP market 9.4% 5.8%
Tariffs imposed by Vietnam on CPTPP members 7.9% 5.0%
Table 2: Vietnamese and foreign tariffs and NTMs ad valorem equivalents (trade- weighted) before and after trade liberalization, for market included in CPTPP, %
The report of the World Bank also estimates that exports would grow by 4.2%, and imports by 5.3% Assuming productivity gains, there will be larger increases by 6.9% and 7.6% respectively (Table 1)
According to the article titled “Vietnam expects stronger foreign investment inflow in
In the context of the CPTPP, economists express optimism regarding foreign investment in Vietnam, anticipating growth in both foreign direct investment (FDI) and foreign portfolio investment (FPI) throughout 2018 and beyond.
The CPTPP is anticipated to significantly boost foreign direct investments aimed at enhancing export capacity, particularly in upstream suppliers within industries like textiles and garments that adhere to stringent rules of origin.
South Korean companies are intensifying their investment plans in Vietnam in anticipation of South Korea's potential accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) this year Notably, Lotte has unveiled initiatives to enhance its operations in Vietnam, including a cocoa cultivation project aimed at exporting to South Korea and the construction of an EP factory in Dong Nai province to supply products to Samsung Vietnam Additionally, Lotte is developing a smart city in the Thu Thiem urban area of Ho Chi Minh City and the Lotte Mall project in Hanoi These ventures span agriculture, retail, infrastructure, and supporting industries, aligning with Vietnam's efforts to attract foreign direct investment (FDI).
Japan, Australia and New Zealand have recently boosted investment in Vietnam, which is expected to increase in the time to come, especially from Australia and New Zealand
In 2017, the stock market experienced significant foreign portfolio investment (FPI), with net purchases by foreign investors totaling $1.7 billion, including $1 billion in stocks and $700 million in bonds, marking a substantial increase from 2016 The outlook for FPI in Vietnam is expected to improve even further in 2018, driven by positive macroeconomic indicators and the signing of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), with projected net purchases anticipated to reach between $2.5 billion and $3 billion.
The recently released report of the National Finance Supervisory Council (NFSC) showed that the Vietnamese stock market has recovered from the sharp fall in early February
In 2018, NFSC reported a net purchase of foreign investors totaling $573 million, comprising $542 million in stocks and $31 million in bonds, with February alone accounting for $151 million The report highlighted strong FPI potential for the year, driven by favorable macroeconomic indicators such as a stable dong/dollar exchange rate, low inflation, and an anticipated GDP growth rate of 6.8 percent, with the CPTPP agreement also significantly contributing to this positive outlook.
Figure 1: Sectoral changes in CPTPP (billions)
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is projected to drive significant output growth in sectors such as food, beverages, tobacco, clothing, leather, and textiles, alongside moderate increases in various manufacturing and service industries Notably, export growth is anticipated to be robust in food, beverages, tobacco, clothing, leather, chemical products, and machinery, while imports are expected to rise across all sectors.
In the article "Vietnamese Farmers Expect Higher Profits with CPTPP Trade Agreement," published by Vietnamnet Bridge on March 18, 2018, Mr Nguyen Do Anh Tuan, director of the Institute of Policy and Strategy for Agriculture and Rural Development, highlighted the advantages for Vietnamese farmers under the CPTPP He noted that the technical barriers and import requirements are less stringent compared to the previous TPP with the US As a result, Vietnam's wooden furniture, seafood, coffee, pepper, cashew nuts, and rice products will have enhanced opportunities to penetrate markets in Australia, Canada, Mexico, and Japan.
The CPTPP offers Vietnam a strategic opportunity to replace imports from China with those from member countries, enhancing economic integration with major global economies According to a World Bank report, the benefits of CPTPP for Vietnam surpass those of RCEP, indicating that broader integration will help decrease the country's reliance on China.
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is poised to positively impact Vietnam's livestock industry by prompting domestic enterprises to adopt improved management practices With reduced taxes on imported animal husbandry equipment, production costs are expected to decline, enhancing overall efficiency Furthermore, the agreement facilitates the export of Vietnamese products, such as Mong Cai pork and H'mong chicken, to international markets, significantly shortening the export timelines for these animal products.
The livestock sector is expected to face significant challenges with the implementation of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), as highlighted by Mr Tran Toan Thang, Head of the World Economy Department at the National Center for Socio-Economic Information and Forecasting (NCIF) He noted that the sector's competitiveness is relatively weak, and with current tariffs on livestock products being low in participating countries, the reduction of tariffs under CPTPP will have minimal impact on exports.
Mr Hoang Thanh Van, Director of the Department of Livestock Development (MARD), highlighted that despite the animal husbandry sector's efforts to enhance breeds and lower production costs, animal product prices remain high With the upcoming 0% tariff rate, livestock products from countries like Canada, Japan, and Australia are expected to flood the Vietnamese market, including both raw and processed items The implementation of the CPTPP allows only products registered with the national brand to be exported to member countries without quotas This influx of diverse foreign livestock products is likely to alter consumer behavior and negatively affect domestic production.
Dr Nguyen Do Anh Tuan, Director of the Institute for Policy and Strategy for Agriculture and Rural Development, highlighted that despite high tariffs on animal products, their import value continues to rise due to insufficient domestic production capacity meeting consumer demand He emphasized that the quality and pricing of local products are not competitive with imports As tariff barriers are lifted, Vietnamese livestock products will encounter intensified competition from imported goods, particularly beef and milk from Australia and New Zealand, as well as pork and chicken from Canada.
Trade diversion and creation
The World Bank highlights that the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) will enhance Vietnam's export diversification, focusing on export-oriented manufacturing Vietnam has shifted its export structure by decreasing raw material exports and increasing manufactured goods, which currently make up approximately 58% of total export turnover This figure is expected to rise by an additional 30%, while sectors such as agriculture, petroleum, mining, and services may see slight declines.
Vietnam's exports are projected to increase by 4.32% annually, driven by a diverse range of export markets By 2030, total exports are expected to reach $311.1 billion, significantly higher than the $179.5 billion forecasted in previous simulations.
By 2030, the United States is projected to account for 17.4% of Vietnam's total exports, while China is expected to receive 13.2% The implementation of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is anticipated to significantly boost Vietnam's export volume, increasing it by over US$13.1 billion compared to baseline estimates.
Under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), exports to member countries are projected to rise from $54 billion to $80 billion by 2030, accounting for 25% of total exports Notably, there will be significant growth in exports of "Food, Beverages, and Tobacco" as well as "Wearing Apparel and Leather" to CPTPP nations.
The textiles sector is projected to experience a significant boost in exports, with increases of US$10.1 billion, US$6.9 billion, and US$0.5 billion across related categories Conversely, the agriculture sector is expected to face the largest net decline in exports, decreasing by US$1.6 billion, followed by other manufacturing, which will see a reduction of US$1.2 billion.
“Electronic equipment” (-US$0.5b), and “Metals” (-US$0.4b) Simulation results indicate that under CTPPP the export portfolio across sectors will concentrate favoring the
“Wearing apparel and leather” and “Food, beverages, and tobacco” sectors that would increase their export share to 22.6% and 13.6% or 1.3 and 2.8 percentage points respectively
Figure 2: Exports by destination, baseline conditions (US$, billions)
Export diversification is assessed using the Herfindahl Index, which measures concentration levels from 1, indicating absolute concentration, to 0, representing minimal concentration Vietnam boasts a well-diversified export portfolio across various markets and sectors compared to its trading partners In the context of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), simulations indicate that export diversification will experience a moderate impact, with a 6.5% rise in sectoral concentration alongside a 10.6% increase in the diversity of export destinations.
Figure 3: Export concentration in Vietnam in the baseline in 2015, Herfindahl index
Poverty reduction and distributional impacts
The reduction of trade barriers and the growth in consumption, production, and exports contribute to economic gains from each Free Trade Agreement (FTA) This sectoral expansion drives demand for labor and influences equilibrium wages According to the World Bank's report, a more ambitious trade agenda like the TPP-12, while generating greater overall gains, is likely to elevate skill wage premiums and disproportionately benefit the more educated and affluent segments of society.
By 2030, under TPP-12, the top decile of households is projected to see an 8% increase in income compared to baseline conditions, which is 5.8 percentage points higher than the growth expected for the poorest decile In contrast, the income growth differences for CPTPP and RCEP are 2 and 1 percentage points, respectively, indicating that while CPTPP and RCEP are relatively more beneficial for low-income households, the overall income gains are significantly smaller.
In the report of the World Bank, researchers analyses the potential poverty impact of CPTPP, in comparison with TPP-12 and RCEP It uses poverty lines of $3.20/day and
Vietnam's poverty line has been set at $5.50 per day, reflecting its status as a country on the path to becoming an upper-middle-income nation, in contrast to the global extreme poverty line of $1.90 per day While the absolute poverty line of PPP$1.90 is suitable for many low-income countries, middle-income nations like Vietnam require more nuanced definitions to accurately assess poverty levels Research indicates that as countries achieve higher per capita income, they tend to either raise the minimum poverty threshold or adopt relative poverty measures, highlighting the need for tailored approaches to poverty assessment.
In 2011, the World Bank established new poverty lines, setting the threshold at PPP$3.20 per day for lower-middle-income countries and PPP$5.50 for upper-middle-income countries This report anticipates that Vietnam will achieve upper-middle-income status under current trends, prompting us to assess poverty levels using these two updated poverty lines.
Figure 4: Income distribution in Vietnam
In Figure 4, the distribution of per capita income in Vietnam for the years 2015 and 2030 under business-as-usual conditions is illustrated The data indicates that as per capita income increases, the income distribution not only shifts to the right but also undergoes a transformation in shape due to projected changes in demographics and educational attainment Additionally, the area beneath each distribution line and to the left of the poverty line signifies the proportion of the population living below the poverty threshold.
In 2014, the World Bank reported a poverty rate of 11.6% based on a daily threshold of PPP$3.20, which aligns closely with Vietnam's national poverty line of 13.5% However, when applying a higher poverty line of PPP$5.50, the poverty rate significantly increases to 36.3% Projections indicate that, under current trends, poverty rates could decline to 4.5% using the $3.20 line and 15.0% with the $5.50 line by 2030 Notably, the poverty line that aligns with the upper income distribution optimizes the growth elasticity of poverty reduction, making the years 2025 and 2030 critical for assessing poverty impacts.
Figure 6: People lifted from poverty due to FTAs, standard productivity
Impacts on poverty reduction, in millions of people lifted out from poverty by 2025 and
By 2030, trade agreements such as the CPTPP are projected to yield positive outcomes for the poor, particularly at the $3.20 and $5.50 daily poverty lines The CPTPP is expected to lift approximately 0.9 million people out of poverty by 2025 and 0.6 million by 2030 at the $5.50 threshold, though this impact is modest compared to RCEP and significantly lower than the TPP-12, which could lift 1.4 million individuals out of poverty by 2030 While the CPTPP creates opportunities in sectors where the poor are employed, the differences in poverty reduction effects are less pronounced at the $3.20 line, where RCEP matches CPTPP's gains by 2025 These findings underscore the necessity of examining the broader implications of trade agreements on income distribution, rather than focusing solely on absolute poverty levels.
Without the implementation of gender-inclusive policies, the gender gap is expected to widen moderately due to rising skill wage premiums By 2030, skilled households in the top 60% of the income distribution will experience significantly larger wage increases compared to the less-skilled households in the bottom 40%, resulting in an absolute difference of 4.3%.
By 2030, the benefits of the CPTPP are expected to disproportionately favor male workers, who generally have higher starting wages than their female counterparts The agreement may lead to a slight worsening of the gender gap, particularly affecting the bottom 40% of households, where skilled workers could see an increase of 0.25 percentage points in household consumption per capita compared to baseline conditions In contrast, the impact on the top 60% of the income distribution is minimal.
Higher-income individuals stand to gain more from the agreement than those in poverty, as it generates increased economic opportunities for skilled workers Growth incidence curves, illustrated in Figures 9 and 10, reveal absolute income gains per capita across different income percentiles relative to baseline conditions for each Free Trade Agreement (FTA) Figure 9, based on standard productivity assumptions, indicates lower gains compared to Figure 10, which employs productivity kick assumptions These gains are derived from a microsimulation applied to the Vietnamese Household Living Standards Survey (2012), capturing macroeconomic shocks for each FTA and simulating their effects on labor sector reallocation, wage changes, and real household consumption adjustments.
Figure 7: Gender-gap in 2017 and
Figure 8: Gender-gap effects of CPTPP, Deviations with respect to baseline
While TPP-12 and CPTPP generally yield greater income gains for the top 60% of the population, RCEP is expected to benefit the bottom 40% more significantly by promoting sectors like agriculture and food products, which employ a higher concentration of lower-income individuals Consequently, if RCEP achieves its anticipated outcomes, it could provide more substantial advantages for the poor compared to the benefits from CPTPP or the potential gains from TPP.
Figure 11 illustrates the incidence curve segmented by each sequential micro-simulation step The analysis reveals that alterations in relative wages significantly impact the distribution of benefits In all scenarios examined, the influence of relative wages is regressive compared to baseline conditions, indicating that higher relative income primarily advantages the more educated and affluent segments of society The degree of this increase in relative income plays a crucial role in shaping these outcomes.
Figure 9: Growth Incidence curves of
Figure 10: Growth Incidence curves of FTAs, productivity kick
According to the World Bank (2018), there is a positive correlation between wages, household consumption, and trade openness, indicating that more ambitious trade agendas can drive faster economic growth However, this growth often leads to an increased demand for skilled labor, which may exacerbate income inequality To address these challenges, it is crucial to implement adjustment policies that support those adversely affected, foster domestic backing for ambitious trade initiatives, and invest in human capital Additionally, facilitating the transition of workers from slower-growing sectors to those with greater economic opportunities is essential for ensuring inclusive growth.
Figure 11: Growth Incidence Curves for each FTA
Economic restructure and Institutional reform impacts
Vietnam is poised for significant economic restructuring, driven by strong political commitment and strategic reforms set by the Party and Government These initiatives create substantial pressure to expedite the implementation of integration commitments and the restructuring roadmap, presenting the country with unique advantages and opportunities for accelerated economic transformation.
New generation agreements like the CPTPP significantly influence the restructuring and reform of economic institutions by enhancing the professionalism and transparency of planning, implementation, and management in both state and business sectors These agreements foster the development of democratic and market-oriented institutions that ultimately benefit businesses and the general public.
Economic restructuring is a crucial and pressing matter for Vietnam, particularly as the country seeks to innovate its growth model to achieve rapid and sustainable development for its people.
Vietnam faces a complex challenge that encompasses various aspects such as mindset, vision, perspective, and institutional resources Achieving rapid and sustainable development requires strong determination and motivation to drive effective restructuring Without this commitment, the country will struggle to meet its development objectives.
A long-term benefit of the CPTPP is the push for institutional reforms at home thoroughly and comprehensively to create an open and transparent business environment
The article “CPTPP - Motivation and Pressure for Institutional Reform” by Hoai Anh and Quynh Lan, published on March 24, 2018, emphasizes that institutional reform is crucial within the CPTPP framework, which includes commitments from member countries on tariff reductions, market access for services, intellectual property, and trade-related technical barriers, along with new areas like labor, environment, and government procurement Vietnam stands to gain significant advantages from the CPTPP, which will intensify the need for institutional reform However, realizing these benefits through effective reform is a complex process that demands considerable effort in implementation.
Mr Sebastian Eckardt, a World Bank Economics Specialist in Vietnam, anticipates that the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) will drive significant reforms across various sectors, including competition management, financial services, telecommunications, customs, e-commerce, environmental standards, government procurement, intellectual property, investment, labor standards, market access, rules of origin, non-tariff measures, and trade remedies.
The new agreement is set to enhance Vietnam's economy by promoting trade liberalization and improving market access Crucially, it will expedite domestic reforms across various sectors According to Sebastian Eckardt, fulfilling the commitments of the CPTPP will also advance transparency and facilitate the development of modern institutions in Vietnam.
Minister of Trade and Industry Tran Tuan Anh highlighted Vietnam's commitment to market liberalization, tariff reduction, and trade facilitation, while also emphasizing the importance of enhancing state management in market development He noted that improvements in the business investment environment, driven by institutional reforms, are essential for attracting foreign investment However, he cautioned that integration frameworks can have both positive and negative impacts, and the benefits to the Vietnamese economy will depend on effective implementation of integration commitments, sustainable growth reforms, and the ability to create added economic value.
Economic expert Mr Le Dang Doanh praised Vietnam's decision to sign the CPTPP Agreement, highlighting its commitment to institutional reforms that align with Prime Minister Nguyen Xuan Phuc's vision for a transparent and accountable government The CPTPP's provisions against bribery and corruption, along with its regulations on workers' rights and government procurement transparency, create both pressure and motivation for Vietnam to fulfill these commitments To successfully navigate these reforms, the country must prioritize implementation and equip companies with the necessary training to adapt to the new standards.
Economic cooperation
Australia stands as Vietnam's largest economic partner in Oceania, with trade between the two nations experiencing an average annual growth of 5% since the implementation of the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) In 2016, two-way trade increased by 6.5% from the previous year, resulting in a Vietnam export surplus of approximately $480 million By 2017, bilateral trade reached over $6.464 billion, marking a significant rise of 22.9% compared to 2016, with Vietnam's exports to Australia totaling $3.23 billion, a 12.5% increase year-on-year.
Import turnover from Australia to Vietnam reached more than $3.17 billion, increasing 29.7% over the same period in 2016
Australia presents a significant market opportunity for Vietnam to enhance its export activities The demand for seafood in Australia has surged, reaching approximately 1 million tons annually, while local production stands at only 220,000 tons Consequently, Australia imports over 700,000 tons of seafood each year, positioning Vietnam as the third-largest seafood exporter, following China and Thailand Additionally, cashew nuts represent another lucrative export item, with Vietnam being the leading supplier to Australia, capturing around 74% of the market share.
Australia recognizes Vietnam as a vital partner within ASEAN, highlighting their effective collaboration in regional and international platforms, including the East Asia Summit (EAS), APEC, and the United Nations.
New Zealand is one of the biggest trading partners of Vietnam Bilateral trade turnover has grown sharply to approximately $1 billion in 2017, more than 32% in 2016
Until now, New Zealand has 28 valid projects in Vietnam with a total registered capital of
Vietnam has established six joint venture projects in New Zealand, with a total registered capital of $25.62 million These ventures primarily focus on key sectors including processing, manufacturing, hospitality, and agriculture, forestry, and fisheries.
Vietnamese mangoes and dragon fruits have successfully entered the New Zealand market, paving the way for the potential import of other tropical fruits like rambutan, longan, and milk in the near future.
The CPTPP presents New Zealand with a valuable opportunity to enhance collaboration in various sectors, including education and training, food safety, organic agriculture, smart agriculture, infrastructure, and other mutually beneficial areas.
Steward Beck, President and CEO of the Asia-Pacific Fund Canada, emphasizes the significance of the pact for Canada, as it opens doors to crucial markets like Vietnam He points out Vietnam's promising potential, noting that its youthful population, with half under the age of 25, is well-educated and ready to contribute to economic growth.
Beck highlighted several areas for potential collaboration between the two nations, including technology, e-commerce, financial technology, and services, while also emphasizing Vietnam's opportunity to increase its exports of seafood and other products to Canada.
“In the next two-three years, once the agreement is enforced, we will see more engagements with Vietnam in areas important for Vietnam and Canada”, Beck believed
Japan is set to continue as the largest investor in Vietnam, focusing on the manufacturing and hi-tech agriculture sectors while sustaining its ODA support for infrastructure By facilitating Vietnam's exports, particularly in agriculture, Japan anticipates that imported agricultural products will satisfy 86% of its domestic demand This positions Vietnam as a potential key supplier of agricultural goods to Japan's 120 million consumers, presenting a significant opportunity for transformative growth in Vietnamese agriculture.
Vietnam is committed to enhancing bilateral economic cooperation with Japan, while Japan will continue to support infrastructure development in Vietnam and the Mekong sub-region, particularly focusing on the East-West Economic Corridor.
RECOMMENDATIONS FOR VIETNAM TO UTILIZE
Government
As Vietnam engages in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), it is crucial to evaluate both the opportunities and challenges that arise To ensure successful integration into the global economy while maintaining political and social stability, Vietnam should actively implement the solutions outlined in Resolution 4 of the XIIth Central Committee This proactive approach will be essential as the country navigates the complexities of new free trade agreements.
Continuing to properly handle the relationship between independence, self-reliance and international economic integration; building a highly self-reliant economy, responding to international economic changes, macroeconomic stability and economic security
The completion of the growth model renovation, aligned with economic restructuring, is essential for successful international economic integration This process not only serves as a foundation for global engagement but also as a crucial strategy to leverage opportunities while addressing challenges in the evolving international landscape Key economic indicators for evaluating the impact of this integration include export growth, the volume and quality of foreign direct investment, overall economic growth quality, labor productivity, and national competitiveness Monitoring these criteria is vital for effective management of international economic integration and the successful execution of new free trade agreements.
To foster international economic integration, it is essential to implement policies focused on three strategic breakthroughs that create a favorable business investment environment Recognizing businesses, entrepreneurs, and intellectuals as key drivers of this integration will be crucial, alongside the application of innovative solutions to enhance the collective strength and creativity of the business community.
Focusing on leveraging international commitments is essential for market expansion and boosting exports It is crucial to develop effective trade remedy mechanisms and policies to prevent and resolve international disputes Additionally, establishing technical barriers and preventive measures in line with international practices and requirements will further enhance trade relations.
In addition, specific guidelines and policies to be implemented include:
Strengthening ideological awareness, especially of enterprises and entrepreneurs for the opportunities and challenges of the implementation of the CPTPP and other new free trade agreements such as EVFTA
Improving the legal system and law enforcement capacity, especially international law and international trade
Enhancing competitiveness, accelerating the renovation of the growth model, restructuring the whole sector, and developing the private economy as the core force in international economic integration
Focusing on the business community, placing the business in the center position, and continue to take practical measures to reduce unreasonable business conditions
Implementing institutional reform, in other words, changing management and governance, operating a transparent competitiveness environment and creating a breakthrough momentum in line with the new situation as committed to CPTPP
The integration of agricultural development with new rural initiatives is essential for Vietnam's growth This involves enacting policies that promote land accumulation and concentration, while prioritizing clean and organic agriculture that yields high value and supports exports Additionally, it is crucial to adapt agricultural practices to address climate change and environmental sustainability A diversified agricultural approach that leverages regional advantages, alongside a comprehensive master plan for Vietnam's key commodities, will enhance productivity Furthermore, utilizing the transition roadmap outlined in international commitments can stimulate new opportunities for agricultural and rural development, attracting investment from enterprises in the sector.
Enterprises
Following the signing of the CPTPP, it will be submitted to the National Assembly for ratification before taking effect This agreement presents significant opportunities for domestic businesses to engage in global value chains and acquire advanced technologies from international partners However, challenges may arise if integration commitments are not adequately addressed Consequently, the period between signing and implementation offers domestic enterprises a crucial opportunity to prepare and maximize the benefits of this trade deal.
To fully leverage the advantages of the CPTPP while addressing existing challenges, Vietnamese enterprises should prioritize several key strategies Firstly, it is essential to actively seek out information regarding the CPTPP to thoroughly understand Vietnam's commitments and the expectations of partner markets This includes focusing on tariff preferences for commodities that have strong export potential under this agreement in the near future.
Enterprises should have a comprehensive view of the agreement instead of focusing on the field directly related to their production and business
In addition, businesses also need to change their business mindset in the new context Taking the pressure on competition is the driving force for innovation and development
The CPTPP presents a significant opportunity for businesses to adapt to the evolving international economic landscape by revising their medium- and long-term business plans, ultimately enhancing the flow of goods into promising partner markets.
To effectively attract direct investment in Vietnam, businesses must proactively collaborate with partner markets, leveraging capital and technology transfer from major corporations.
Focusing on making processed products rather than raw materials
Developing products with competitive advantages such as pork, poultry for eggs, and honey and products in the less competitive segment such as milk, chicken feathers, and waterfowl
Promoting the construction of closed value chain from production to consumption in order to improve quality, reduce costs, and increase competition with imported products
Having good quality, timely delivery and reasonable price
Properly investing in the technology and automation
Improving productivity not only through the skills of workers but also through the production system, management and computerization in administration
Continuing to reduce the production cost by lowering other costs such as logistic, on the way, customs, inspection, etc
Creating new input material resources for sustainable export growth
Addressing the high costs of labour by moving factories to areas with an abundant supply of labour so as to lower production costs
Producing medium and high-value products instead of low-end products, in the aim of improving their competitive advantage in this segment, compared to other manufacturers
To boost the added value of leather and footwear products, it is essential to attract both domestic and foreign investment in supporting industries This approach will enhance the localization rate of products, empower companies to take proactive measures in their production processes, and promote sustainable development.
Expanding production and improving product quality by investing in upgrading equipment, machinery, and adopting new technologies to meet the requirements of more sophisticated markets
Improving their business administration, including technological administration to master cutting-edge equipment
Carefully studying the content of the deal and rules to avoid unnecessary risks
Increasing the application of technology in products along with productivity and environmental protection
Continuing to do outwork for foreign partners or entering joint ventures to access technology, management know-how and markets
Focusing on development targets to take action and solve difficulties for businesses, including auto assemblers and parts suppliers
Restructuring businesses’ operation, selecting key products, reducing production costs, improving quality and cutting product prices
Prioritising to develop the part supply industry by pushing co-operation between domestic businesses and international enterprises, expanding markets and implementing policies to attract investors
Improving technology and product quality, joining the regional supply chain and diversifying materials supply sources
Building business plans for medium and long term to join the global value chain for sustainable growth
Focusing on developing potential services such as tourism, insurance, aviation, finance, banking, auditing, telecommunications communication, construction, etc
Accelerating the restructure of service sector and increasing the proportion of services in the country's GDP
Upgrading and modernizing the infrastructure, especially the transportation, telecommunications, tourism, finance and banking to improve the quality of products, services and competitiveness of enterprises
Carrying out the equitization process business restructure to mobilize the resources for development of services
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) serves as a model for 21st-century global cooperation, offering significant advantages to Vietnam through trade liberalization and enhanced market access This agreement is poised to drive economic growth, generate jobs, reduce poverty, and improve living standards in the country Additionally, it promotes transparency and supports the establishment of modern institutions However, Vietnam faces several challenges in implementing the CPTPP, necessitating proactive measures from both the government and enterprises By committing to necessary reforms and fulfilling CPTPP obligations, Vietnam can elevate its economic development and lay a solid foundation for becoming a modern, industrialized upper middle-income nation.
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