Impacts of food safety regulations on vietnam seafood export

UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE VIETNAM THE NETHERLANDS VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS IMPACTS OF FO

UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES

HO CHI MINH CITY THE HAGUE

VIETNAM THE NETHERLANDS

VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

IMPACTS OF FOOD SAFETY

REGULATIONS ON VIETNAM

SEAFOOD EXPORT

BY

DANG THI LY LY

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

HO CHI MINH CITY, February 2016

UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES

HO CHI MINH CITY THE HAGUE

VIETNAM THE NETHERLANDS

VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

IMPACTS OF FOOD SAFETY REGULATIONS ON VIETNAM

SEAFOOD EXPORT

A thesis submitted in partial fulfilment of the requirements for the degree of

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

By

DANG THI LY LY

Academic Supervisor:

Dr NGUYEN HOANG BAO

HO CHI MINH CITY, February 2016

ABSTRACT

This paper employs gravity model to analyze the bilateral seafood trade between Vietnam and 17 countries from 1997 to 2012 The panel data is taken from Vietnam General Statistics Organization, International Monetary Fund, World Bank and Centre d'Etudes Prospectives et d'Informations Internationales The Hausman Test indicates that fixed effects model is suitable for estimating the regression The estimation results show that food safety regulations and exchange rate significantly affect seafood export On the other hands, importing GDP and distance is statistically insignificant Also the trade potential result reveals that Vietnam has many opportunities to develop trade with Europe partners

Key words: Gravity Model, seafood export, Vietnam

ACKNOWLEDGEMENT

I have made great efforts to finish this thesis; nevertheless, it would have not been finished without support of many individual and organizations I highly appreciate their full support during this hard time

Iwould like toespecially thank all of my academic supervisors, the Scientific Committee, and staff of Vietnam- Netherlands Program for their guidance and support with this thesis

Finally,I would like to express my special appreciation to my whole family and classmates for helping me complete this thesis

TABLE OF CONTENTS

ABSTRACT iii

ACKNOWLEDGEMENT iv

LIST OF FIGURES viii

LIST OF TABLES viii

LIST OF APPENDICES viii

ABBREVIATIONS ix

CHAPTER 1 INTRODUCTION 1

1.1 Problem statement 1

1.2 Significance of study 3

1.3 Research objective 3

1.4 Research question 3

1.5 Scope of study 3

1.6 Structure of thesis 3

CHAPTER 2 FOOD SAFETY AND VIETNAM SEAFOOD EXPORT 5

2.1 Food safety and policy context 5

2.1.1 Food safety 5

2.1.2 Hazard Analysis and Critical Control Points (HACCP) 5

2.1.3 European laws 6

2.1.4 Japan laws 7

2.2 Overview of vietnam seafood sector in vietnam 7

2.3 Evidence of food safety standards (sps agreement and technical barrier) impact on vietnam exports 9

CHAPTER 3.LITERATURE REVIEW 12

3.1 Theoretical review of gravity model 12

3.2 Different origin of a product 13

3.3 Trade and monopolistic competition 13

3.4 Trade and differing factor endowments 14

3.5 Trade and differences in production technologies 14

3.6 Empirical literature 15

CHAPTER 4.RESEARCH METHODOLOGY AND DATA 18

4.1 Data collection 18

4.2 Methodology 24

4.2.1 Model specification 25

• Theoretical gravity model with importer fixed effects ……… 26

• Theoretical gravity model with time and importer fixed effects………… 26

• Theoretical gravity model with random effects……… 26

4.2.2 Dependent variables 26

4.2.3 Independent variables 26

• Vietnam’s output of seafood 26

• Population 27

• Exchange rate 27

• Food safety regulations between importing and exporting country 27

• Importing country’s GDP 27

• Distance 28

4.2.4 Estimation method 29

CHAPTER 5 EMPIRICAL RESULTS 30

5.1 Results of Breusch-Pagan Lagrange Multiplier test, the Huasman Test, and checking of Heteroskedasticity 30

5.2 Gravity model’s estimation result 31

5.3 Trade potential 33

5.3.1 Vietnam trade potential evaluation 34

CHAPTER 6 CONCLUSION 36

6.1 Findings 36

6.2 Policy implications 37

6.3 Limitations and recommendations for future research 37

REFERENCES 39

LIST OF APPENDICES 45

LIST OF FIGURES

Figure1.1: Vietnam seafood export (1997-2012) 1

Figure 2.1: Total Vietnam aquaculture export (1999-2011) 8

Figure 4.1: Average Vietnam seafood export volume (1997-2012) 18

Figure 4.2: Relationship between Vietnam seafood export and output 19

Figure 4.3: Relationship between Vietnam seafood export and importing countries’ GDP 20

Figure 4.4: Relationship between Vietnam seafood export and Japan’s GDP 21

Figure 4.5: Relationship between Vietnam seafood export and USA’s GDP 21

Figure 4.6: Relationship between Vietnam seafood export and EU15’s GDP 22

Figure 4.7: Relationship between Vietnam seafood export and distance 23

LIST OF TABLES Table 2.1: Violations of seafood hygiene standards by Vietnamese Exports, 2002-2007 9

Table 3.1: Summary of Empirical Studies 16

Table 4.1: Descriptive statistics of variable in the model 24

Table 4.2: Definition and measurements of all variables in this study 28

Table 5.1: Estimation results of gravity model (aggregate seafood) 31

Table 5.2: Trade potential between Vietnam and USA, Japan and EC-15 34

Table 5.3: Time of convergence 35

LIST OF APPENDICES Appendix 1: List of 15 European countries 45

Appendix 2: Regression Results 46

ABBREVIATIONS

CEPII Centre d'Etudes Prospectives et d'Informations Internationales

EU European Union

FAO Food and Agriculture Organization of the United Nations

FDA Food and Drug Administration

HACCP Hazard Analysis and Critical Control Point Certification System

MOIT Ministry of Industry and Trade

NAVIQAFED National Fisheries Quality Assurance and Veterinary Directorate

SPS Sanitary and Phytosanitory Standard

TPP Trans Pacific Partnership Agreement

TQM Total Quality Management

VASEP The Vietnamese Association of Seafood Exporters and Producers

WTO World Trade Organization

CHAPTER 1 INTRODUCTION

1.1 Problem statement

Since 1984 the record of world seafood export has increased remarkably and achieved USD 102.5 billion in 2010 (FAO, 2012) The top three largest markets have been EU, Japan and United States 49 percent of world exportvalue has been from many developing countries such as Vietnam, China, Africa, etc., (FAO, 2012)

Source: GSO (2015)

Figure 1.1: Vietnam seafood export (1997-2012)

The value of seafood export has recently had a great contribution to Vietnam GDP, about 4-5% Its aquatic product export has become one of four major export products in terms of value In 2014, export value of seafood was USD 7.84 million, 16.5% higher than 2013 (FAO, 2012) According to Vietnam Association of Seafood Exporters and Processors (VASEP), in 2014 Vietnam exceeded the target of USD 7

Japan U.S.A

EU-15

0 2e+08

million However, problems of food safety in Vietnam still exist For instance, (i) illegal food additives are widely sold; (ii) residue of antibiotics and prohibited chemicals remain in processed food; (iii) there is less understanding of SPS standards due to no linkage between government agencies and private firms; (iv) current SPS legislation is not as equivalent as the international standard Awareness of seafood quality and safety has risen tremendously over the last decade Many countries have established food-safety-policy agenda and regulatory bodies that monitor the standard

of imported and exported food which producers have to comply (Kim, 2009)

The new food safety standards such as the Agreement on the Application of Sanitary and Measures (SPS Agreement), USA Hazard Analysis and Critical Control Points regulation (1997), EU zero tolerance for residues (2001-2002), Russia, Ukraine restricted import control (2010-2013), Japan’sstringent uniform limit (0,01ppm Ethoxyquin, 0,001ppm for Trifluralin in shrimp) in 2010-2013 etc has become a major issue for Vietnam in the global market For example, in order to meet EU zero tolerance of imported seafood requirement, Vietnam must apply for (i) Good agriculture practice (GAP), (ii) authorized antibiotics, (iii) analysis competence and harmonization (Phung, 2015).The strict standard of food safety, sanitary and environmental standards of EU, Japan, the United States and other countries makes Vietnam face many difficulties to comply with.If Vietnam continues to produce frozen seafood regardless of its quality and food safety regulations imposed by importers, it will lose the market share sooner or later Especially, Vietnam is preparing to join Trans Pacific Partnership Agreement (TPP), requirements of sanitary and phytosanitary standards become higher and higher Because of 18,000 different kinds of tax cut, TPP ensures that all of their partners better protect health and food safety through a science-based regulation which mirrors U.S food and agriculture safety policy In addition to TPP requirements, the more free trade, the more non-tariff methods are applied to protect local manufacturers, farmers, ranchers in other countries Therefore, Vietnam

should better control its supply chain, upgrade its food safety and quality assurance systems, learn the best practices from other countries,and have a good development strategy for seafood field This paper aims to study the impacts of food safety regulations on Vietnam seafood export In particular, it will look at the Vietnam export situation from 1997 to 2012 to see how the food safety regulations of importing countries affect the seafood export and how Vietnam can overcome this barrier The export markets to be observed are U.S.A, E.U 15 and Japan

1.2 Significance of study

The results of this paper might be helpful for Vietnamese Government in identifying which factors affect Vietnamese seafood export significantly Based on this, they can adjust the policy to enhance future export activities In particular, exporter companies will enjoy the most benefit of this paper because they can follow changes in food safety regulations and other determinants

1.3 Research objective

This paper aims to investigate the effect of food safety regulations on Vietnam seafood export with contribution of other aspects including distance, economic size and exchange rate

1.6 Structure of thesis

This thesis is divided into six chapters with structure as below:

After the first introduction chapter, chapter two will deal with the concept of food safety and several food safety law imposed by importing countries to see how seafood export is affected Also, a brief review of Vietnam seafood export situation is discussed Chapter three will present literature review of gravity model It will start from the traditional gravity model to the theoretical one with different assumption ranging from product origin, trade and monopolistic competition, factor endowment to technologies Chapter four will describe how gravity model is relevant to this study Five hypothesis and testing methods will be mentioned in details in this chapter Chapter five presents the empirical results of regression Based on the empirical evidence, the effects of food safety regulations, economics size, population, exchange and distance will be discussed The trade potential of Vietnam seafood export is also discussed Chapter six will conclude main findings from chapter five and provide policy recommendations It also draws out limitation of thesis and gives recommendation for future research

CHAPTER 2 FOOD SAFETY REGULATIONS AND VIETNAM

SEAFOOD EXPORTS

This chapter attempts to define the concept of food safety and present the main regulations in the United States, Japan and Europe The overview of Vietnam seafood sector will be described, especially, several Vietnam violation cases and their effect

2.1 Food safety and policy context

2.1.1 Food safety

Food safety has attracted attention of both consumers and producers and led to the establishment of new regulation in the last few decades Consumers considered food is safe if it is not contaminated with any bacteria or harmful additives Hartman (2005) defined it as being free from pesticide residues, growth hormones, antibiotics and artificial ingredients This perspective might have negative influence on the food supply chain As a result, producers and marketers have faced critical problem of managing safe food production chain and cost of restoring consumer confidence

Food safety hazards include biological pathogens such as bacteria, viruses, fungi and e-coli They relate to chemical substances such as pesticides, food additives, antibiotics, heavy metals and cleaners It can also come from foreign objects in food such as timber, glass, dirt, dust, bones, etc

2.1.2 Hazard Analysis & Critical Control Points (HACCP)

Because about 15% of an estimate 76 million case of foodborne illness occurring every year are related to seafood products (Anders & Caswell, 2006), in

1997, United States set up a preventive system to control biological, chemical and physical hazards in food from early production stage to end users which call Hazard Analysis Critical Control Point (HACCP) This is a new approach of controlling quality of imported seafood Different from the Quality Circles (1970),Total Quality

Management (TQM 1980) and ISO 9000 (1980s), HACCP requires all stakeholders to take responsibility of seafood quality including farmers, fishers, food processors, transport operators, distributors, importers and governments (Ababouch et al., 2005) All the processors who comply with HACCP have to design their quality management system of the entire food chain to meet five fundamental principles including risk analysis-assessment, management and communication; traceability; harmonization of safety and quality standards; equivalence in food safety systems; and ‘risk avoidance or prevention at source’ (Ababouch et al., 2005) All the imported goods into USA are controlled by approved antibiotics list in Federal Regulation 21 Food and Drugs, or antibiotic residues According to FAO, only six pathogens are permitted, the rest is banned by default (Le & Pham, 2010)

2.1.3 European laws

European countries have a very comprehensive standards and regulations of food safety to ensure food is traded properly They are applied for both domesticand imported goods Especially for imported seafood, chloramphenicol and nitrofuran antibiotics are banned by default No maximum residue limits (MRL) and/or acceptable daily intake (ADI) is granted The minimum required performance limit (MRPL) is ‘a specified minimum concentration of a detectable residue’ (Nguyen & Wilson, 2009) In 2002, Commission Decision 2003/181/EC to set out MRPL for substances in food of animal origins was passed According to this Decision, for poultry and aquaculture products, limit of chloramphenicol is 0.3 micrograms/kg and one of nitrofuran metabolites is 13 micrograms/kg (EC, 2003) In addition, under the

EU Regulation 178/2008 (“General Principles to Guarantee Food Safety for Consumers) and Regulation 8522004 (“Special Principles for Products Originated from Animals), all imported goods have to be tested for antibiotics or chemical residues Ten antibiotics were banned and another ten antibiotics were put the limitation under EU’ Food Law (Le & Pham, 2010)

2.1.4 Japan laws

Similar to USA, too many foodborne illness cases related to seafood product made Japanese Government more aware of consumer health In 2003, Japanese Government passed the Law on Food Sanitation and Safety, Law on Disease Control and Trade Law Under these laws, only foods which are totally harmless to users can

be imported A Commission with many scientific experts was established to evaluate toxicological residues in food stuff In 2006, new regulations on using antibiotics in aquaculture and processing were passed Fifteen substances are banned and another sixty one substances are regulated with maximum residue level (Le & Pham, 2010)

2.2 Overview of seafood sector in Vietnam

Vietnam possesses abundant natural resources including Red River Delta, Mekong Delta, and the 1650 km coastlines It has a great potential to develop the seafood industry In 2010, Decision No 332/QD-TT stated the Fisheries Development Strategy toward 2020 was issued by Prime Minister Nguyen Tan Dung Its main content can be summarized as below By 2020, seafood industry will contribute to 30-35% of the agro-forestry-fisheries sectors’ GDP, with a growth rate of 8-10% annually Total fisheries output amounts will reach 6.5- 7 MT and aquaculture production will account for 70-75% of it Seafood industry will create more than 5 million jobs and the income will be three times higher than the current one 40% of labor will be trained and resident communities along coastlines will be developed with high intensively spiritual identities The four major targeted sections will be (1) fishing and fisheries resources protection, (2) aquaculture, (3) seafood processing and trading, (4) shipbuilding and fisheries logistic services

Based on Decision No 332, seafood industry plays a very important role in Vietnam economy According to FAO (2012), the aquaculture products in Vietnam increases over time (Figure 2.1); however, the amount of seafood export only accompanies 15% of total production volume Currently, the seafood sector creates

about 5 million jobs for the labor market and about 8 million people earn income from fisheries sector

Source: FAO (2012)

Figure 2.1: Total Vietnam Aquaculture Export (1999-2011)

Recently there are 534 firms having been licensed to export seafood (VASEP, 2012) Among of them, there are 400 freezing company with a daily capacity of 7,500 tones Most of these companies are state-owned and joined-stock A few private companies has risen recently such as Binh An, Hung Ca, etc (Dujin, Arie Pieter van, Beukers, Rik, & Pijl, Wilem van der, 2012)

Vietnam exports seafood to 105 markets around the world including US, EU, Japan, China, Korea, China, Asean, etc The three major markets are US, EU, Japan from which earnings accounts for 70% of total value fisheries export (Phuong & Minh, 2005) The peak of seafood export to US was from 2001-2003 after a bilateral contract with U.S was signed After that the exporting amount has dropped due to dumping dispute (Nguyen, 2004) The export volume to EU and Japan has been fluctuated due

to impact of sanitary and safety standards

01E+092E+093E+094E+095E+096E+097E+09

2.3 Evidence of food safety standards (SPS Agreement and technical barrier) impact on Vietnam exports

Vietnam aquatic product exports have been burdened by SPS Agreement and other technicaltrade barrier issued by importing countries Exporters have struggled to meet up the requirement of imported foods; for example, re-installation the production line, investing in research and development, inability to catch up with day-to-day changes of importer’s requirement Among top three markets in the world, Vietnam exporters find EU the toughest market due to its strict requirements of food product All foods exported to EU have to go through of antibiotic and chemical residues testing

to ensurethey are free of 10 specified antibiotics and residue, because these drugs are harmful to health and environment From 2001 to 2003, Vietnam exporters encountered problems of antibiotics detected in EU due to low technical barriers After being discovered to violate the antibiotic residue regulations, 76 shipments were destroyed at a loss of USD 15 million (Le & Pham, 2010)

Table 2.1: Violations of seafood hygiene standards by Vietnamese Exports, 2002-2007

Number of cases by year

Sources: NAVIQAFED (2006); MOIT (2008)

Similarly to EU, all Vietnam aquatic product shipments have to be tested antibiotic residues when importing under FDA’s regulations Due to repeating violations, the import and consumption of Vietnamese fish was banned in Alabama,

Louisiana and Mississippi Vietnamese exporters bore a loss of USD 300,000 in 2005 (Duong, 2005)

In Japan market, Vietnamese exporters were warned to stop export seafood if continuing to violate antibiotic residue regulations as in 2007 Potential loss is USD 1 millions in export revenue if Vietnam aquatic products were banned (Le & Pham, 2010)

Table 2.1 is a number of violation cases in the main market of Vietnam In summary, the U.S.A, EU-15 and Japan put strict requirement on the content of antibiotic and chemical residues of imported food Among of them, EU-15 is the toughest market for Vietnam exporters

Especially, Vietnam is under negotiation of joining Trans-Pacific Partnership which has a strong effect on Vietnam economy It will bring Vietnam more and more opportunities to expand export markets, increase FDI, and ease import restriction measures imposed by importing countries Top trading commodities are garment, footwear, seafood, and agricultural products because they enjoy the most tax reduction However, Vietnam also faces many challenges in preparing for participation in TPP including more competitors, high requirement of SPS and TPT standard etc Chapter 7

of TPP is designed for Sanitary and Phytosanitary Measure All TPP partners are required to apply modern science-based food safety regulation which mirrors U.S food policy This aims to create a fair play market for U.S farmers and ranchers and other TPP partners, and also ensure the most health and safety food (United States Trade Representative, 2015) In addition to TPP, in 2015 free trade agreements between Vietnam and Europe are effective This is a dream market of Vietnam because of 501 million consumers and USD 17,000 billion of GDP Currently, Vietnam export only accounts for 0.75% of the bloc’s total import (VCCI, 2015) The elimination of nearly all tariffs is the key to boost export; however, Vietnam still faces with many barriers For instance, seafood must satisfy the Sanitary and Phytosanitary requirements to

protect human and animal health Textile and footwear must prove the origin of commodities Wooden products must meet the requirements of Forest Enforcement Law Since seafood will be focused on this paper, below are several general conditions which imported seafood must comply with (1) Rules on food hygiene and official food control- Regulation (EC) No 178/2002; (2) rules on residues, pesticides and contaminants on food; (3) marketing and labeling requirement (“European Commission : Trade : Export Helpdesk : Sanitary and phytosanitary requirements,” n.d.) In short, Vietnam should better control its supply chain, upgrade the food safety and quality assurance systems, learn the best practices from other countries and have a good development strategy for seafood field in order to match the requirements of imported countries as well asto boost export

CHAPTER 3 LITERATURE REVIEW

This chapter will provide concept of Gravity Model and different study approaches to it It will start from the traditional gravity model to the theoretical one with different assumption ranging from product origin, trade and monopolistic competition, factor endowment to technologies

3.1 Gravity model:

Based on the law of gravity invented by Isaac Newton in 1687, gravity model in international economics is developed (Tinbergen, 1962) Trade between country i and country j is considered as Xij , economics masses are Y iand Yj Then trade flows can be expressed as below:

where Xij is defined as the export volume from country i to country j Yi, Yj is interpreted as GDP of each country Dij is distance between the two countries ‘capital cities (Keith, 2003) A is a constant Because of its explanatory power of trade flows, many scientists have applied this model in their study regardless of its shortage of theoretical foundation Tinbergen (1962) first applied this model to study international trade flows In the paper “Shaping the World Economy—Suggestions for an International Economic Policy”, he assumed the GDP of each country and distance has the elasticity due to unnecessary implication of direct proportionality between explanatory variables

He concluded that the income of trading countries can positively affect the export of goods and distance can have negative effect on export

3.2 Different origin of a product

In 1970s, scientist stated that the classic gravity model lacked of economic theory foundation Anderson (1979) first developed a theoretical foundation of gravity model by Armington assumption where products were differentiated not only by their kind but also by their place of origin (Armington, 1969) In other words, product differentiates by its supplier’s residence In the gravity model, he added kinds of goods, number of tradable goods and distance to consider all the possible trade flows between two countries Therefore, the gravity model does not reflect the absolute construction

of bilateral trade any more It describes the comparative analysis between two countries under multiple trade flows In the model of Anderson (1979) trade is explained by the economic distance

3.3 Trade and monopolistic competition:

Helpman and Krugman (1985) approached an assumption of increasing returns

to scale and monopolistic competition between firms In their study, they focused on intra-industry trade In this study, after doing cross country analysis, they found out that the share of bilateral intra-industry trade and dispersion of per capita income were negatively correlated with each other In another word, when different countries had similar factor compositions, they tended to share the larger intra-industry trade with each other than the one who did not have similar ones The finding of Helpmand and Krugman confirmed the hypothesis of Lindner (1961) which was countries with similar factors tended to concentrate on the same industries

To understand how this idea is linked to gravity model, we look into the study

of Bergstrand (1989) His model considered both factor endowments and constant elasticity of substitution which referred to Lindner’s assumption The exporter’s income changes could be linked with the capital-labor ratio of each country The

importing countries’ income could be linked with consumer’s expenses which reflected consumer’s taste preference changes It implied the Helpmand and Krugman model Bergstrand (1989) concluded that firms produced differentiated products on the stage

of increasing returns to scale

3.4 Trade and differing factor endowments:

Heckscher-Ohlin model describes trade as a result of factor endowments including labor and capital between two countries It is assumed that trade countries differentiate because of different factor endowments Deardorff (1982) made proof of the validity of Heckcher-Ohlin theorem; however, in 1998, he refuted it and assumed model under frictionless trade and trade with impediments to develop a theoretically founded gravity equation In his study, he referred to the multilateral terms which is gravity equation not only takes into account of geographical distance but also incorporate prices In this case, gravity equation can be influenced by either elasticity

of substitution or transportation cost It means that the higher elasticity of substitution, the more trade among countries which are close to each other Similarly, a reduction in transportation costs lead to higher trade between distant countries while close trading partners lose their proximity advantage

3.5 Trade and differences in production technologies

Eaton and Kortum (2002) developed a Ricardian model with approach of production technology differences They consider the absolute advantage which is state

of technology, comparative advantage which is heterogeneity technology and geographical barrier In this case, labor factor was assumed to not mobile internationally People tended to purchase the worldwide cheapest good and maximized a constant elasticity of substitution function In his model, price reflects the comparative advantage, cost of production and transportation cost

In short, theoretical gravity model is not accredited to one theory It’s approached by multiple assumptions Whereas Anderson (1979) explained trade

differences due to economic distance, Deardorff (1998) and Eaton and Kortum (2002) accounted for price levels due to a CES preference Recently, motivated by border puzzle, Anderson and van Wincoop (2003) continue to study gravity model with multilateral resistance terms(Anderson & van Wincoop, 2003)

3.6 Empirical Literature

Because gravity model is the most common tool of analyzing trade, many

empirical studies has been conducted to measure the effect of food safety standards Otsuki, Wilson, & Sewadeh(2001)studied therelationship between agricultural exports and EU standards Using data of 15 EU countries and 31 importing countries from

1989 to 1998 and applying gravity model with fixed effects, they found thatagricultural export was negatively affected by EU standard Disdier, Fontagné, & Mimouni

(2008)used cross-sectional data in 2004 to examine the effect of sanitary and

phytosanitary (SPS) and technical barriers to trade (TBT) on agricultural trade Result showed that SPS and TBT standard was negative on trading commodity, especially from developing countries.With the same view of food safety regulation issue on

seafood trade, Nguyen and Wilson (2009) examined whether foodsafety regulations weighed export down Estimating gravity model with fixed effects and using data of 75 exporting countries and 17 importing countries from 1992 to 2005, they made a

conclusion that food safety regulation in the US, EU and Japan resulted in the negative effects on the world trade flow of seafood.The study also showed that different

regulations had different effects on different products and varied over time

Furthermore, Anders and Caswell (2009) investigated the effects of HACCP on

seafood import of top 33 countries and concluded that mandatory HACCP made the value of import seafood drop about 0.05% These results supported the argument of food safety regulations’ standard hindering international trade In addition, regression results also presented that effects of HACCP varied from one country to another due to

its different development status Developed countries less suffered from food safety regulations than developing countries Nevertheless, after analyzing trade in the

individual country level, they found thatHACCP effects were positive to large seafood exporters and negative to small ones regardless of its development status Its findings supported the view that technical issue was not only barriers but also catalysts As long

as exporters could enhance their food safety and quality systems, they could generate more sales Summary of these empirical studies is presented in Table 3.1 De Frahan and Vancauteren (2006) applied gravity model to measure theeffect of harmonization

of EU food regulations on intra – EU in the period 1990 – 2001 They concluded that stricter EU harmonization of food safety regulations has positive effect on intra-EU trade In common, most of researchers used data of a pair of exporting and importing countries to study the effects of food safety standard In this paper, the data will be a little bit different Vietnam is the only one exporting country and importing countries will be variable The results of regresion might be different from other papers

On the other hand, there were several papers studying the impacts of food safety standards on food export Mangelsdorf et al (2012) came up with result which was standard having positive impacts on export performance because it signaled to

customers that products had reached certain quality standard Not only mandatory standard, but also voluntary standard was used in this paper This was a different point from other paper Morevover, researchers did not apply gravity model in this paper, but used Heckman two-steps and threshold Tobit to measure the effects Interesting results was that export performance experienced a positive effect from food safety standard

Inspired by these empirical studies, this paper will employ gravity model to study the effect of food safety regulations on Vietnam seafood export

Table 3.1: Summary of Empirical Studies Empirical

Studies

Otsuki, Wilson &

Sewadeh (2001)

Gravity model with fixed effects, survey data for 15

EU countries and 31 exporting countries from

1989 to 1998

Effect of implementation of the new aflatoxin standard was negative on African agricultural export

2004

- HACCP had a negative and significant impact on import products

- Effects of HACCP varied

in different countries and technical barriers were not only barriers but also catalysts

Different seafood regulations had different effects on seafood products

Source: Author’s analysis

CHAPTER 4 RESEARCH METHODOLOGY AND DATA

Chapter four consists of the following sections Section one is data collection Section two is the methodology of this paper It will describe model specification, variables, estimation method and hypothesis testing

4.1 Data collection

The dependent variables (EXP) for the model are the export value of seafood

The period of the study is from 1997 to 2012 during which the data is available Below chart is the average volume of seafood in term of USD Vietnam traded with Japan, USA and EU 15 from 1997 to 2012 We can see that Japan has currently been the biggest market, then USA and the smallest market is EU 15 Why does Vietnam trade less with EU 15? Is it because of food safety regulation, distance, economic size barriers or other reason? We will investigate the results of regressions of this study to answer this question

Source: GSO (2015)

Figure 4.1: Average Vietnam seafood export volume (1997-2002)

The output of seafood in exporting country (OPT) is used as a mass factor in the model since it catches the effect on supply sides of seafood The data of aquaculture production is from FAO STAT Database Its sign is expected to be positive in this

0 20000000

study Other people argued that output in current year might have been endogenous due

to seasonal effect To avoid this problem, output is lagged one year

Source: FAO (2015)

Figure 4.2: Vietnam Seafood output from 1998-2012

The chart above is the volume of Vietnam seafood export and its output from

1998 to 2012 We can see that our volume of production increased sharply; however, the volume of seafood export did not increase at the same rate It can be explained by market demand, economic size and effect of food safety regulations For some years like 2004 and 2009 when foreign partners passedthe new regulations, the export volume declined

Another mass factor is gross domestic product of importing country (GDP) which is defined as the market value of all goods and services of a country within a given period (Parkin, 2010) It catches the purchasing power and demand size of seafood in importing country Data is obtained from International Monetary Fund It is expected to have positive effect on exporting seafood

0 1E+09

Figure 4.3: Relationship between Vietnam seafood export and importing

Above chart is the relationship between GDP and Vietnam seafood export We can see that the volume exported is small compared with GDP There are still lots of potential for Vietnam to develop this industry Each country will be described in details as below

Source: FAO (2015), IMF (2013)

Figure 4.3: Relationship between Vietnam seafood export and importing

countries’ GDP

Above chart is the relationship between GDP and Vietnam seafood export We can see that the volume exported is small compared with GDP There are still lots of potential for Vietnam to develop this industry Each country will be described in details as

Source: FAO (2015), IMF (2013)

Figure 4.3: Relationship between Vietnam seafood export and importing

Above chart is the relationship between GDP and Vietnam seafood export We can see that the volume exported is small compared with GDP There are still lots of potential for Vietnam to develop this industry Each country will be described in details as