The study was conducted to evaluate and elucidate the impact of the RegionalComprehensive Economic Partnership Agreement RCEP on export activities of woodand articles of wood, wood charc
INTRODUCTION
Rationale
Vietnam's economic integration into the global economy is underscored by recent agreements on bilateral and international economic cooperation, including seven free trade agreements (FTAs) signed in the past six years Currently, negotiations are underway for three additional FTAs: one between Vietnam and the European Free Trade Association (EFTA), another between the Association of Southeast Asian Nations (ASEAN) and Canada, and a third between Vietnam and the United Arab Emirates (UAE).
The establishment of the Regional Comprehensive Economic Partnership (RCEP) has strengthened Vietnam's trade relations, particularly with the Republic of Korea, which is projected to be the third-largest importer of Vietnamese goods in Northeast Asia, with an export turnover of 24.3 billion USD in 2022, reflecting a 10.7% increase from the previous year Notably, exports to the Republic of Korea constituted 6.5% of Vietnam's total export value, with wood and wood products accounting for 328 million USD, or 32.2% of the country's exports to this market Furthermore, despite declining exports to major markets like the US and Europe, the demand for Vietnamese wood and articles of wood in the Republic of Korea is expected to rise significantly, highlighting the sustainability of this export sector.
Due to a shortage of natural trees in the Republic of Korea, environmental concerns are influencing the increasing demand for wood products This trend is further driven by issues related to carbon emissions and health risks associated with non-wood construction methods Vietnam has emerged as a leading exporter of wood products to Korea, reflecting the success of its wood industry in meeting the preferences of Korean consumers With competitive advantages such as abundant domestic raw materials, favorable pricing, and high quality, Vietnamese wood products are poised to strengthen their presence in the market, particularly as tariff barriers are gradually lifted under RCEP.
Exporters to the Republic of Korea are expected to face significant challenges due to stringent import and consumption standards The wood and articles of wood sector is hindered by outdated processing methods, a lack of initiative in sourcing raw materials, and designs that fail to align with modern trends Additionally, as the Vietnamese wood industry contends with strong competition from other RCEP member nations benefiting from the agreement, the competition for market share in Korea's wood industry is projected to intensify.
The authors emphasize the need for further research to accurately assess the bidirectional effects of the RCEP on Vietnam's wood and wood product exports to the promising market of South Korea This study, titled "Impact of the RCEP," aims to provide a detailed evaluation of these potential impacts.
The Regional Comprehensive Economic Partnership Agreement (RCEP) facilitates the export of wood, wooden products, and wood charcoal from Vietnam to the Republic of Korea, promoting trade and economic cooperation between the two nations.
Research objectives
First, to clarify, systematize and develop theoretical bases related to FTAs as well as RCEP and the overall impact of RCEP on wood and articles of wood export activities.
The article examines the current state of wooden product exports from Vietnam to the global market, with a specific focus on The Republic of Korea It evaluates the effects of the Regional Comprehensive Economic Partnership (RCEP) on these exports, utilizing both qualitative and quantitative research methods to provide a comprehensive analysis.
To enhance wood and wood product exports to the Republic of Korea, it is essential for businesses and relevant authorities to implement strategic solutions and recommendations, particularly in light of the RCEP Agreement's recent enactment.
Research questions
Question 1: How has the situation of exporting wood and articles of wood from Vietnam to The Republic of Korea been taking place?
Question 2: What are the impacts of RCEP, especially the tariff reduction, on the export of wood and articles of wood from Vietnam to The Republic of Korea?
Question 3: How can the export of wood and articles of wood from Vietnam to The Republic of Korea be further promoted in the context of the effective RCEP?
Research subject
This research examines the impact of the Regional Comprehensive Economic Partnership (RCEP) on the export of wood and wooden products between Vietnam and the Republic of Korea It focuses on the coding of wood and wood articles exported from Vietnam to the Republic of Korea, utilizing the World Customs Organization's classification system.
Customs Organization's (WCO) system, including 19 four-digit HS codes (4401,4402,
4418, 4420, 4421) and 04 six-digit HS codes (940330, 940340, 940350, and 940360).
Scope of the research and data collection
The research utilized secondary data from official sources spanning 2011 to 2022, including the International Trade Center's Trade Map, UNCTAD, WTO, and various Vietnamese governmental bodies such as the Ministry of Agriculture and Rural Development, the Ministry of Planning and Investment, the General Department of Forestry, the Vietnam Timber and Forest Products Association (VIFORES), and AGROINFO.
Spatial scope: Considering the implementation of the RCEP, the research examined Vietnam’s exports of wood and articles of wood to the Republic of Korea's market.
Methods of Research
The qualitative method employs analytical, statistical, and synthesizing techniques alongside real-world observations and data to assess and evaluate various factors related to the research subject.
Quantitative method: utilizing the RCA - Revealed Comparative Advantage, and SMART-WITS model.
Research contribution
This study analyzes and enhances the theoretical framework regarding the impact of the Free Trade Agreements (FTAs) between Vietnam and the Republic of Korea on the export of wood and wooden products.
This study focuses exclusively on the export of wood and wood products from Vietnam to the Republic of Korea, providing a detailed insight into the economic relationship between the two countries in this sector The authors propose specific management and policy recommendations tailored to enhance the wood industry.
This study provides empirical evidence and scholarly insights into the trade dynamics of wood and wooden products between the Republic of Korea and Vietnam, highlighting the impact of the Regional Comprehensive Economic Partnership (RCEP) on these trade relations.
This study enhances quantitative research by integrating the SMART model with qualitative techniques, resulting in detailed and scientifically grounded insights into the impacts of RCEP These findings serve as a valuable resource for policy planners and corporate governance, aiding informed decision-making.
The structure of the research
Chapter 3: Research methods and data
Chapter 4: RCEP impact on export activities of wood and articles of wood, wood charcoal between Vietnam and The Republic of Korea
Chapter 5: Conclusions and policy implications
Conclusion of Chapter 1
Chapter 1 has provided readers with a summary of the subject and the primary findings of the study The topic was chosen in part because it covers a variety of contents, such as the evolution and significance of FTAs in general and the RCEP in particular, the position of the Vietnamese wood and articles of wood industry in the Republic of Korea’s market, the potential growth of this industry in The Republic of Korea’s market, and potential challenges that may arise when the RCEP goes into effect This highlights the urgency of implementing the project.
The research objectives and questions serve as a crucial framework that guides the entire study, outlining the goals and inquiries that must be addressed by the conclusion of the research process.
The research object section clarifies the main research object - the group of wood and articles of wood, including 19 four-digit HS codes and 04 six-digit HS codes.
Regarding the scope of the research and data, including time and space, the study took possession of data from 2011 to 2022.
Next, the research methods section introduces two methods used in assessing the impacts of RCEP, including quantitative methods and qualitative methods.
This study enhances the theoretical understanding of the impact of Vietnam's Free Trade Agreements (FTAs) with the Republic of Korea on the country's wood and wood products exports It provides a comprehensive analysis of the current landscape and examines the effects of the Regional Comprehensive Economic Partnership (RCEP) on Vietnam's wood export market to Korea.
THEORETICAL BASIS
International trade theories
International trade has been integral to the economies of nations and regions, fostering collaboration to enhance societal welfare Although it gained prominence in the 16th century, the exploration of its benefits and origins has evolved significantly Prominent economists such as Adam Smith, David Ricardo, Eli Heckscher-Bertil Ohlin, and Michael Porter have developed various theories on international trade, each grounded in their unique perspectives However, these theories also have limitations, as they were formulated within different contexts.
Table 2.1 Overview of some international trade theories Criteria Adam Smith David Ricardo Heckscher- Michael Porter
Content century Foreign trade plays a particularly great role in the growth and expansion of countries’
Early 19th century Mutual benefits can arise from trade between nations, particularly when liberalization of economies trade is pursued and
In the late 19th century, international trade experienced significant liberalization, which brought substantial benefits to countries involved This shift marked a key phase in the process of globalization, as protectionist measures that hindered foreign trade were gradually removed, fostering a more interconnected global economy.
Benefits of Based on international trade taking use of country's absolute
Based on taking use of nation’s comparative advantages.
Taking use of a nation's advantages. comparative advantages by using its available labor, competitive edge through the interaction of several business capital, and land environment resources factors.
Pros - Interpreting the direction of trade flows between countries.
- Providing a partial explanation of the drivers behind international
- Explaining the origins of international trade by staling that nations trade with one another to benefit from production scale differences and to obtain
Explaining the nature of trade as the exchange of surplus factors for scarce factors.
04 elements (Diamond Model) that produce national competitive advantage. trade in benefits.
Cons certain products between developed and developing nations.
Trade persists between nations, even when one nation excels in all products or only in certain categories, highlighting a complex economic dynamic that lacks a clear explanation.
- Explaining how comparative advantage contributes to the advantages of global trade
- The theory only clarifies that comparative advantage exists due to differences in labor productivity between countries.
- There is no explanation for why opportunity costs vary
Despite the complicated evolution of international trade today, theoretical flaws still exist.
Only goods from industries where all four Diamond
Model components are in advantageous conditions should be exported, and only goods from sectors where those components are not in favorable throughout nations. conditions should be imported.
Based on the summary of theories from Table 2.1, it can be concluded that:
(i) The aforementioned theories acknowledge the significance of international trade in the global economy throughout all eras.
(ii) According to Adam Smith, absolute advantage; David Ricardo and
Heckscher-Ohlin, comparative advantage; and Michael Porter, national competitive advantage arc the 03 factors that contribute to the advantages of international trade.
International trade theories explain the key factors that drive the exchange of goods between countries They emphasize that trade arises from the competitive advantages of nations, which can leverage economies of scale by trading abundant resources for scarce ones Additionally, these theories highlight the importance of national competitive advantages in today's globalized economy, where international commerce significantly shapes the world economic landscape.
The effectiveness of any theory is largely influenced by its context, as no single theory can comprehensively account for the complex dynamics present in the real global economy.
Overview of RCEP Agreement
East Asia exhibits a lower level of integration and development compared to Western Europe and North America, with bilateral agreements dominating its trade system since the stagnation of the Doha round Despite the signing of numerous bilateral Free Trade Agreements (FTAs) by East Asian governments since the 2000s, many have proven ineffective due to their reliance on geopolitical considerations rather than purely economic objectives These FTAs often overlook sensitive issues, resulting in a fragmented and redundant network of agreements As the shortcomings of these bilateral arrangements become increasingly apparent, several East Asian nations are beginning to shift their focus towards multilateral FTAs as a potential solution.
The Regional Comprehensive Economic Partnership Agreement (RCEP) is a free trade agreement that includes 10 ASEAN nations, such as Vietnam, along with five non-ASEAN partners: China, South Korea, Japan, Australia, and New Zealand.
Decades of evidence highlight the robust trade and investment connections between Vietnam and RCEP member countries, which serve as Vietnam's primary import sources and key foreign direct investment partners The RCEP Agreement offers greater liberalization and higher standards across various sectors, along with more comprehensive obligations compared to other ASEAN FTAs Consequently, the implementation of RCEP is expected to significantly impact Vietnam's import and export activities, as well as its overall economy.
In November 2012, the RCEP discussions got underway in Phnom Penh, Cambodia There were 31 rounds of negotiations for this agreement But on November
On November 15, 2020, after eight years of negotiations, the Regional Comprehensive Economic Partnership (RCEP) was signed online, marking a significant milestone in international trade Indian Prime Minister Narendra Modi announced India's exit from the RCEP on April 4, 2019 The agreement came into effect on January 1, 2022, for several countries, including Brunei, Cambodia, Laos, Singapore, Thailand, Vietnam, Australia, China, Japan, and New Zealand, followed by South Korea on February 1, 2022, and Malaysia on March 18, 2022.
The Regional Comprehensive Economic Partnership (RCEP), hosted by ASEAN, aims to connect the economies of 16 Asia-Pacific nations, reducing their reliance on struggling Western markets Once signed and implemented, RCEP will become the world's largest free trade agreement, encompassing 15 countries that represent 32% of the global GDP, valued at approximately 32 trillion USD The GDP growth for the 15 RCEP member countries is projected to reach 137 billion USD This agreement signifies a crucial step for member nations in revitalizing their economies, particularly in the wake of the Covid-19 pandemic.
The Regional Comprehensive Economic Partnership (RCEP) is recognized as a modern Free Trade Agreement (FTA) due to its broad coverage of both established and emerging trade issues However, it notably lacks commitments regarding state-owned enterprises, labor standards, environmental concerns, and principles of sustainable development.
RCEP member countries exhibit varying levels of economic development and GDP sizes, encompassing both developed and developing economies Consequently, the commitments established under RCEP are crafted to promote cooperation and liberalization while acknowledging these differences This strategy is often termed the “progressive approach” by many experts.
All member nations of the RCEP are required to comply with the overarching obligations set forth in the Agreement However, the RCEP also offers a diverse array of solutions to address emerging challenges, allowing member countries the flexibility to choose implementation strategies that align with their specific levels of development, progress, and individual circumstances.
(ii) The commitments made by RCEP on a range of topics are intended to offer each member country group a flexible and suitable implementation plan;
The RCEP acknowledges certain aspects but requires further negotiations to clarify the specifics of its commitments After the Agreement is implemented, member nations will regularly assess and enhance their obligations, typically every five years, unless alternative arrangements are made Trade ministers from each RCEP member will convene to discuss implementation strategies, with the inaugural meeting occurring the year after RCEP's implementation Subsequent RCEP Ministerial Meetings will take place annually, unless decided otherwise, with all decisions requiring the consensus of all RCEP Ministers.
The RCEP Joint Committee was established to ensure the effective implementation of the RCEP Agreement, with each participating country appointing senior officials as members This Committee is co-led by a representative from ASEAN nations and another from non-ASEAN nations, facilitating collaborative oversight of the agreement's execution.
The Agreement Document comprises 20 chapters and 4 appendices, with the establishment of RCEP contingent upon fulfilling WTO obligations Unlike previous ASEAN+ FTAs, RCEP introduces more extensive obligations and higher standards, promising greater liberalization in specific sectors Vietnam has ratified recent new generation FTAs, such as the Vietnam-EU Free Trade Agreement (EVFTA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) However, the market access levels and commitment criteria in RCEP are generally considered lower or comparable to those in these agreements.
The RCEP primarily addresses trade in goods, services, and investment, with a specific focus on wood and wood products within the realm of tangible goods This article will provide a detailed analysis centered on this particular sector.
2.2.2 Content of the RCEP Agreement related to Vietnam and The Republic of Korea
The RCEP acknowledges the significant disparities in development levels among member nations, particularly between Vietnam and the Republic of Korea It emphasizes the necessity for cooperation across various sectors and includes specific provisions for technical support measures among countries in Chapter 15, while also noting reservations about the commitment schedules of certain members.
RCEP emphasizes the importance of member countries' autonomy in resource allocation for technical cooperation activities, allowing them to determine specific mobilization methods By leveraging resources from other nations during the funding approval process, RCEP creates a supportive framework for developing countries, such as Vietnam, to enhance their integration Additionally, agreements may also be established with countries outside of RCEP or through global and regional international organizations.
The RCEP prioritizes technical cooperation between developed and less developed member countries, with the Republic of Korea committed to offering multi-sectoral support to Vietnam, particularly in the wood and wood products industry This initiative is crucial as Korea enhances its bilateral relations with Vietnam while implementing RCEP agreements.
The impact of the RCEP Agreement on Vietnam’s wood and articles of
Static effects lead to long-term consequences known as spillover or dynamic effects, primarily driven by intensive integration efforts that eliminate trade barriers and address behind-the-border obstacles In Free Trade Agreements (FTAs), the three key outcomes of dynamic effects include market expansion, enhanced investment promotion through spillover effects, and a stimulating effect on economic growth.
The removal of tariff barriers within a free trade bloc enables tax-free cross-border trade, leading to increased GDP, income, and higher import and export turnover Free Trade Agreements (FTAs) leverage economic benefits of scale to improve production processes, open markets to all businesses, and enhance overall productivity.
2.3.1.2 Spillover effect in investment promotion
When a Free Trade Agreement (FTA) is implemented, it not only opens up the goods market but also relaxes various investment regulations This creates significant opportunities for investors to identify efficient investment locations and offers manufacturing enterprises enhanced access to investment capital resources.
Free Trade Agreements (FTAs) stimulate economic growth by addressing non-tariff barriers linked to institutions, policies, and laws They enhance productivity through economies of scale, foster competition and specialization, and promote efficiency Additionally, FTAs encourage investment, job creation, and sustainable development while harmonizing macroeconomic policies and pressuring legal reforms The stimulating effects of FTAs are evident in three key areas: market expansion, increased competition, and attraction of investment (Tran Thi Trang and Do Thi Mai Thanh, 2019).
The static effect, or trade effect, arises when a Free Trade Agreement (FTA) is implemented, enabling member countries to enjoy benefits such as reduced or eliminated tariffs This effect is illustrated by two key components: the trade creation effect, which boosts trade among member nations, and the trade diversion effect, which shifts trade from non-member to member countries.
In 1950, Jacob Viner conducted pivotal research on trade creation and trade diversion, highlighting how tariff preferences among Free Trade Agreement (FTA) member countries can significantly impact market dynamics Viner posited that if trade creation surpasses trade diversion, economic integration enhances the welfare of the member countries Conversely, if trade diversion outweighs trade creation, overall welfare diminishes as imports shift to less efficient producers.
Figure 2.1 The impact of tariff reduction on trade creation
In the context of trade liberalization in country A's import market for product X, the demand curve (DA) illustrates consumer demand, while the supply curve (Sa) reflects the production capabilities of local producers.
In market A, product X is imported from country B to satisfy domestic demand, incurring a 50% import tax per unit Consequently, if the global price of product X is pi, the effective price in market A rises to 1.5pi per unit, or P2 per unit, due to this tax.
At this price, the quantity demanded for product X in market A is q3 units, but the domestic supply only reaches q2 units Therefore, to meet the domestic demand, country
Country A will import (q3 - q2) units of product X from country B following the implementation of the Free Trade Agreement (FTA), which eliminates tariffs on product X As a result, the price of product X from country B in country A will drop to pi per unit, leading to an increase in demand for product X.
In market A, the demand for product X rises to q4 units, while domestic production reaches qi units, prompting country A to import (q4 - qi) units from country B, an increase from the previous import level of (q3 - q2) units prior to the FTA Before the FTA, the price of product X in market A was q2 per unit, leading to imports of (q3 - q2) units However, following the FTA and the commitment to eliminate tariffs, the price drops to pl per unit, resulting in increased import demand from (q3 - q2) units to (q4 - qi) units, with (q2 - qi) units substituting for domestic production.
When a Free Trade Agreement (FTA) is implemented, member countries lower tariffs, resulting in reduced prices for imported goods compared to domestic products This leads to a trade creation effect, where a member country opts to import cheaper goods from another member nation rather than producing them locally at higher costs.
The economic welfare of countries participating in a Free Trade Agreement (FTA) improves as they optimize their production structures, eliminate inefficient sectors, and leverage their comparative advantages When country A raises the price of goods from pi to P2 due to an import tax, the consumer surplus diminishes, represented by area ABHF Meanwhile, domestic producers benefit from a surplus of area ABJC due to the price hike, and the government collects a surplus of area CKGF from import tariffs on product X However, a portion of the consumer surplus loss does not get redistributed to domestic producers or the government.
In market A, the deadweight loss represented by area JCK and GFH occurs due to the import tax on product X Once the tariffs are eliminated, consumers in country A experience a consumer surplus equal to area ABHF This surplus is divided into two parts: area ABJC, which reflects the surplus transferred from producers to consumers, and area KCFG, representing the surplus transferred from the government to consumers Ultimately, the removal of tariffs leads to a significant welfare gain for the country.
When the import tariff on goods entering market A is eliminated, consumers in country A experience a consumer surplus represented by the area ABFH Additionally, the welfare of country A improves by the areas JCK and GFH, which corresponds to the societal deadweight loss incurred from the previous import tariffs This change leads to a more efficient allocation of resources.
While reduced tariffs can lead to decreased government revenue and increased competition for domestic businesses, potentially resulting in market share loss or bankruptcy, the overall trade creation effect benefits the country This is primarily due to the surplus value generated from heightened consumer consumption, which outweighs the impact of lower tax revenues (Viner, 1950).
Figure 2.2 The impact of tariff reduction on trade diversion
From Figure 2.2, consider an example with country A as the importer of product
X, and both countries B and c are exporters of X to market A Product X imported into market A is subject to a 50% tariff per unit of product Suppose the production cost of
Overview of the research status
2.4.1 Studies related to the impact of FTAs on Vietnam's wood and articles of wood exports
Nguyen Van Nen (2020) employed the gravity model to analyze the factors influencing Vietnam's wood and wood product exports to CPTPP countries, assessing the implications of the United States' participation in the agreement Utilizing a Random Effect Model (REM) with panel data from 1996 to 2015, the study identified key determinants of exports, including raw material supply, import tariffs from CPTPP partners, and Vietnam's economic and trade openness Notably, the findings indicated that Vietnam continues to reap benefits from the Agreement, even in the absence of U.S involvement.
A study by Tran Le Huy et al (2020) examined the effects of the EVFTA on Vietnamese wood product exports to Europe, utilizing Excel for data analysis The findings indicated that, although the Agreement introduced new tariff preferences, it would not significantly enhance the competitive capacity or market expansion for these products in Europe in the near future Additionally, the study highlighted that the EVFTA would not affect specific wood product categories that already benefitted from a 0% tariff rate prior to the Agreement's implementation.
Nguyen Van Nen (2020) explored the factors influencing Vietnam's wood and wood product exports using a trade gravity model and qualitative research The study identified key elements affecting export supply and demand, while excluding several initially proposed factors due to Vietnam's specific conditions Significant influences on exports included raw material supply, interest rate policies, and trade openness through Free Trade Agreements (FTAs) Additionally, the analysis revealed that participation in the WTO and FTAs, along with exchange rate policies, would have long-term effects on exports Despite recent progress in the wood export sector, challenges remain regarding raw material sourcing, production scale, manufacturing technology, and product branding in market access.
In her 2020 study, Dang Thu Huong examined the export of wood products and wood charcoal from Vietnam to Japan within the framework of the CPTPP The findings indicated that the removal of tariffs would provide Vietnamese wood enterprises with enhanced opportunities for international market expansion However, the study also highlighted significant challenges that persist, including the need for a long-term development strategy for the industry, sustainable growth in the wood raw material sector, improved competitiveness, higher product quality, and elevated skill levels among the workforce, all of which are critical for the success of Vietnam's wood sector exports to Japan.
Nguyen Tien Hoang and Mai Lam True Linh (2021) researched the effects of the EVFTA Agreement on Vietnamese wood product exports to Europe, employing the SMART method with detailed data on wood exports and tariffs Their analysis revealed a modest increase in exports of wood and related products following the EVFTA's implementation Furthermore, the CPTPP is anticipated to positively influence Vietnam's wood exports, particularly with market expansion opportunities in Mexico and Peru Vietnamese exporters of wood products are expected to gain a competitive edge over non-CPTPP members, although this advantage is not derived from resource allocation.
2.4.2 Studies related to the impact of the implementation of FTAs between Vietnam and The Republic of Korea
Nguyen Tien Dung (2011) utilized the gravity model to assess the effects of the ASEAN-Korea Free Trade Agreement (AKFTA) on Vietnam's trade, analyzing data from 18 key trading partners between 2001 and 2009, which represented 80% - 90% of Vietnam's trade volume The study revealed that the ASEAN-China Free Trade Agreement (ACFTA) and the ASEAN-Japan Comprehensive Economic Partnership (AJCEP) did not positively influence Vietnam's exports Conversely, the implementation of AKFTA significantly boosted both Vietnam's exports and imports with the Korean market.
Nguyen Thu Thuy (2016) examined the effects of the Vietnam-Korea Free Trade Agreement (VKFTA) on Vietnamese fruit and vegetable exports to Korea, focusing on the characteristics of the Korean market and the current export situation The study revealed that while exports have been growing, they still account for a small share of Korea's overall consumption demand The VKFTA offers advantages such as improved competitive pricing, enhanced quality, increased production, and a wider range of export items, along with faster market entry However, it also presents challenges, including reduced government support and greater reliance on foreign direct investment from Korea These factors complicate the ability of Vietnamese exporters to improve competitiveness and maintain a consistent supply of quality products to penetrate the Korean market effectively.
Ho Huu Linh (2019) examined the effects of the Vietnam-Korea Free Trade Agreement (VKFTA) on Vietnam's fisheries exports to Korea through a combination of qualitative and quantitative methods The study revealed both positive and negative impacts stemming from tariffs, non-tariff measures, and investment commitments The qualitative analysis emphasized these factors, while the gravity model identified key influences on export activities, highlighting positive contributors such as Korea's GDP, foreign direct investment (FDI) in Vietnam, import tariffs, and commodity prices Conversely, negative influences included Vietnam's GDP, the geographical distance between the two countries, and various non-tariff measures.
Van Thi Quynh Anh (2020) conducted a study aimed at enhancing shrimp exports from Vietnam to the Republic of Korea under the VKFTA The research analyzed the current situation by examining key criteria, including export quantity and value, product structure, shrimp quality, and pricing The findings highlighted both achievements and limitations, serving as a foundation for recommendations to increase shrimp exports to the Republic of Korea within the framework of the VKFTA.
In their 2021 study on the ASEAN-Korea Free Trade Agreement (AKFTA), Jha et al analyzed the effects on key macroeconomic variables such as GDP, welfare levels, and commodity prices, while also examining the interactions among economic actors The research quantified the benefits and drawbacks for Vietnam and Korea post-AKFTA implementation, highlighting its significant influence on welfare, output, trade flows, wages, and employment levels for both unskilled and skilled workers Additionally, the study outlined the sectors that faced both positive and negative consequences due to the AKFTA.
A study by Thai Thi Hong Nhung et al (2022) examined the VKFTA's impact on Vietnam's textile and garment industry, highlighting both opportunities and challenges Key opportunities include increased export value, access to essential raw materials for manufacturing, enhanced standards for exported goods, and improved investment and technology transfer Additionally, the VKFTA promotes social welfare and diversifies export markets However, challenges persist, such as the competitive Korean market, stringent technical barriers, and the need for improved management capacity.
Despite extensive research on the effects of Free Trade Agreements (FTAs) on global trade and Vietnam's exports, a review of existing literature reveals significant gaps in this field of study.
The wood and articles of wood industry has seen prior research focusing on the EVFTA and CPTPP, particularly regarding Vietnam's significant market in Europe and the new Trans-Pacific market created by the CPTPP However, the ASEAN countries and five non-regional nations within the RCEP play vital roles in international trade, with Vietnam leading in exports and the Republic of Korea as a key importer Notably, the Republic of Korea has consistently ranked among the top four countries for the value of wood and articles exported from Vietnam Thus, it is crucial to conduct in-depth research on the RCEP's impact on Vietnam's wood industry and the Republic of Korea's market, especially since this new generation FTA, effective since 2022, aims to enhance the export value of Vietnamese wood products and align with the evolving global trade landscape.
Research on the effects of Free Trade Agreements (FTAs) that Vietnam has signed, particularly with the Republic of Korea, has primarily focused on older bilateral agreements like the AKFTA (2005) and VKFTA (2015) The recent implementation of the RCEP presents significant challenges for data collection and analysis, resulting in limited research on its impacts However, in an era of intensified international trade, examining the trade dynamics between Vietnam and the Republic of Korea within the framework of a multilateral FTA is crucial This analysis is especially pertinent for understanding the competitiveness of Vietnam's wood industry against direct competitors, particularly regarding wood product exports to the Republic of Korea and the advantages provided by equivalent trade preferences.
In Vietnam's export market to the Republic of Korea, research primarily focuses on macroeconomic variables related to trade, often overlooking the specific impacts on the wood industry While studies typically examine key export sectors like fruits, vegetables, and fisheries, there is a noticeable gap in analysis regarding the effects of Free Trade Agreements (FTAs), particularly the Regional Comprehensive Economic Partnership (RCEP), on Vietnam's wood exports.
Conclusion of Chapter 2
Chapter 2 has reviewed theories on international trade that serve as a foundation for the study over a timeline Although conducted at different times, based on the hypotheses of various countries, and presenting diverse advantages and limitations, renowned economists have all reached a common conclusion that: international trade helps maximize the welfare of the entire society and emphasizes its essential role in the economy.
The RCEP significantly influences Vietnam's wood and wood articles export sector to South Korea through dynamic effects, static effects, and demand elasticity Dynamic effects involve market expansion, investment spillovers, and stimulation of trade Static effects include trade creation and trade diversion Additionally, the application of tariff preferences reduces the price of Vietnamese wood exports, thereby increasing demand among South Korean consumers.
The Regional Comprehensive Economic Partnership (RCEP) is set to become the largest free trade agreement (FTA) globally, addressing both traditional trade matters and emerging issues A key highlight of this agreement is its tariff strategy, particularly concerning the importation of wood products.
The Republic of Korea and Vietnam have established a 20-year tariff schedule, where 30% of tariff lines are eliminated immediately upon the agreement's implementation, and a total of 81.8% of tariff lines will be removed by the conclusion of the schedule.
The authors concluded the chapter by examining various studies on Vietnam's wood and wood products export industry, particularly in relation to the Free Trade Agreements (FTAs) signed with the Republic of Korea Research in this sector predominantly emphasizes the EVFTA and CPTPP, while investigations into FTAs concerning Vietnam mainly focus on the VKFTA and AKFTA As a result, there is a notable gap in research regarding the wood export industry between Vietnam and the Republic of Korea, especially following the implementation of the RCEP.
RESEARCH METHODS AND DATA
Qualitative research method
This research method involves gathering and synthesizing information and documents to assess the potential impacts on Vietnam's wood and wood articles export sector following the signing of the RCEP The evaluation considers both the positive and negative effects of the RCEP on this industry.
This method relies on secondary data sourced from credible and official organizations, including the Trade Map of ITC, UNCOMTRADE, WTO, the General Department of Customs, the Ministry of Agriculture and Rural Development, the Ministry of Planning and Investment, the General Department of Forestry, VIFORES, and AGROINFO.
3.2 Quantitative research method and data
The World Integrated Trade Solution (WITS) offers four models for analyzing partial equilibrium: SMART, the Global Simulation Analysis of Industry-specific Trade Policy (GSIM), the Trade Reform Impact Simulation Tool (TRIST), and the Agricultural Trade Policy Simulation Model (ATPSM) In this study, SMART was chosen as the primary analytical model.
3.2.1 Theory of the SMART model
SMART (Software for Market Analysis and Restriction on Trade) is a partial equilibrium simulation tool within the WITS program, designed to analyze tariff adjustments between countries based on the Armington assumption, which views imported goods from different nations as imperfect substitutes This tool primarily examines the import market and its export partners, evaluating the effects of tariff changes by estimating variables such as trade creation and diversion effects, welfare, total tariff revenue, and changes in consumer surplus Vu Thanh Huong (2017) indicates that these assumptions align well with the Vietnamese market, making the SMART model a valuable resource for assessing the impact of the RCEP on Vietnam's wood and wood product exports.
3.2.2 Assumptions of the SMART model
The SMART tool utilizes the theoretical foundation of the partial equilibrium model to assess changes in trade flows resulting from tariff adjustments linked to Free Trade Agreements (FTAs) and the trade value of specific sectors in a chosen year By establishing a counterfactual scenario, SMART effectively answers the question, “How would trade flows change if future tariff cuts were implemented today?” This analysis is grounded in key assumptions regarding the export supply curve and the import demand curve.
(i) The elasticity of export supply is assumed to be infinite with a value of 99, as
Vietnam and other wood-exporting countries to the Republic of Korea are classified as small players in the market The Armington assumption highlights the substitutability among suppliers, indicating that consumer preferences for imported products vary Consequently, import flows are unlikely to favor a single exporting country, even if that country enjoys advantageous tariff rates.
(ii) The elasticity of import demand (at the HS 6-digit level) is taken from a World
A bank survey by Jammes and Olarreaga (2005) emphasizes the need to update import demand elasticity to effectively simulate tariff reductions in the SMART model, as the original elasticity coefficients were derived from Stern's calculations.
(1976) no longer reflect current economic and trade conditions.
The accuracy of the SMART model's results is heavily influenced by the choice of elasticity coefficients used to assess trade value changes linked to tariff fluctuations In this study, an elasticity of substitution for imports is set at 1.5, indicating that products from various countries are considered imperfect substitutes.
TCịjk: Trade creation for good / imported from country k to country j;
Mijk: Import of good i to country j from exporting country k; rj: Elasticity of import demand in the importing country;
Atijk: Tariff rate on good i to country J from exporting country k; p: Elasticity of export supply.
(ii) Trade diversion model ijk MỈe + Mr\,w + Mr\>w((^ '
TDijk: Trade diversion for good i imported from country k to country /;
MyOW: Imports from the rest of the world; tn: Tariff rate (ti and to are the tariff rates after and before integration, respectively); Ẳ: Elasticity of substitution.
The net trade effect is the aggregate of the total trade creation impact and trade diversion effect.
3.2.4 Advantages and disadvantages of using SMART model
This model's primary benefit lies in its requirement for simpler input data compared to full equilibrium models, while effectively capturing the effects of tariff policy changes on trade creation, trade diversion, and social welfare.
The SMART model quantifies the effects of tariff reductions on trade value with precision, reaching the HS 6-digit level and minimizing bias in analyses This enables policymakers to concentrate their observations and derive significant insights for particular commodities.
The SMART model has notable limitations, including its failure to account for indirect trade policy behaviors, the interactions between markets, and the economic dynamics among various sectors within an economy Additionally, it does not consider constraints on production factors such as labor, capital, and land, nor the movement of these factors between sectors, which is essential for understanding intersectoral behaviors and responses However, these limitations may be less significant when research is concentrated on the primary impacts within a specific sector.
3.2.5 Data of the SMART model
The SMART model leverages secondary data from the World Integrated Trade Solution (WITS), a freely accessible platform developed by the World Bank in collaboration with international organizations WITS integrates trade information from the UN COMTRADE database and the Trade Map platform, along with MFN tariffs from UNCTAD, and offers access to the WTO's Integrated Database (IDB) For the 2021 tariff trade data of Vietnam and the Republic of Korea, the authors utilized information sourced from the World Bank's WITS.
The study focuses on the main groups of wood and articles of wood exported to The Republic of Korea, including 19 headings under Chapter 44 according to HS codes:
4401, 4402, 4403, 4404, 4405, 4407, 4408, 4409, 4410 4411, 4412, 4413, 4414, 4415, 4416,4417,4418,4420,4421; and 04 sub-headings under Chapter 94: 940330, 940340
3.2.6 Steps for data analysis through SMART
With the full implementation of the RCEP, all tariffs will be reduced to zero, significantly impacting the Vietnamese wood industry This agreement includes a specific 20-year commitment schedule for exports to the Republic of Korea, enhancing trade opportunities and market access for Vietnamese wood products.
• Step 2: Performing SMART model simulation:
According to the 2021 tariff schedule, the authors projected a scenario where tariffs on wood and wood products are eliminated under the RCEP, resulting in a 0% tariff rate Utilizing the SMART model, the study specifically examines Vietnam's exports of 19 headings and 4 subheadings of wood products to the Republic of Korea, aiming to assess the import volume, trade diversion rate, and trade creation rate following complete trade liberalization.
The authors utilized the SMART model to collect and analyze data related to Vietnam's export trade to the Republic of Korea Additionally, they conducted supplementary calculations to enhance the clarity of their data analysis.
Conclusion of Chapter 3
This chapter outlines the research methods employed, highlighting both quantitative and qualitative approaches The qualitative analysis utilized secondary data to evaluate and compare the potential impacts of the RCEP on the Vietnamese wood industry beyond just tariff considerations In contrast, the quantitative method applied the SMART index to assess the tariff effects of the RCEP on Vietnamese wood exports to South Korea, grounded in the partial equilibrium model theory Despite certain limitations, such as neglecting some interactions within the international trade landscape, the SMART index remains a premier tool for evaluating the potential impacts of free trade agreements.