ESTIMATING THE POTENTIAL IMPACTS OF A FREE TRADE AGREEMENT BETWEEN VIETNAM AND THE EUROPEAN UINON ON VIETNAM’S FISHERY EXPORTS

5.1 Conclusion Based on the assessment analysis of potential impacts of EVFTA on Vietnam’s fishery exports to the EU, the thesis draw out some following conclusions:  Regarding Vietnam – EU trade relation in fishery sector EU is one of the most important partners of Vietnam in field of trade. For the period from 2001 to 2013, Vietnam has continuously increasing surplus trade balance with the EU. The major products Vietnam exports to the EU are textiles, footwears, fisheries, coffee, computers, phones and accessories. While Vietnam imports from the EU high technology and capital products such as machinery, equipment, tools, vehicles, pharmaceuticals, dairy products, etc. EU is one of the three largest fishery export markets of Vietnam since 2005. There is an increasing trend in fishery exports turnover from Vietnam to the EU over the period from 2001 to 2011. However, the value has decreased since 2012. The major competitors of Vietnam fishery exports in the EU market are Norway, China, Ecuador, Iceland, Thailand, India, etc. In addition, most of Vietnam’s fishery exports to the EU belong to HS03 (Fish, crustaceans, molluscs, aquatic invertebrates), average account for 82.69% of total export value. The small share belongs to the products of HS1604 (Prepared or preserved fish, fish eggs, caviar) and HS1605 (Crustaceans, molluscs, etc prepared or preserved). Germany is the largest export partner of Vietnam in the EU with an average value over USD 200 million per year, followed by Italy, Netherlands, Spain, etc.  Regarding EVFTA negotiation process Up to now, EVFTA has undergone twelve official rounds and both Vietnam and the EU express the detemination to complete and come to conclusion in 2015. EVFTA is considered a comprehensive agreement on goods, services and investment, government procurement. In addition to tariffs and nontariff barriers elemination, there are other traderelated issues, regulatory issues, competition, and intellectual property rights.  Regarding the potentials to bring about benefits of EVFTA In order to figure out the potentials to bring about benefits of the forthcoming EVFTA, this thesis presents clearly with the analysis of three main trade indicators, namely, revealed comparative advantage, trade intensity index and export specialisation index. i. Revealed Comparative Advantage (RCA): RCA index of Vietnam fisheries is much greater than 1 which implies that Vietnam has great comparative advantage in producing and exporting fishery products. However, RCA index tends to decrease gradually (from 14.19 in 2001 to 5.52 in 2013) and has reduced sharply since 2009. This implies that Vietnam fisheries seem to lose their level of comparative advantages year by year in the world market. ii. Export Specialization (ES): The ES index of Vietnam fishery exports is much larger than 1 implies that Vietnam has favourable specialization opportunities in the EU market. Thus, EVFTA will help create opportunities for Vietnam to continue promoting exports to the EU market. However, the ES index of Vietnam fisheries tends to decrease (from 14.15 in 2001 to 4.88 in 2013). It decreased sharply in 2009 before increasing slightly in 2011 and continued plummet since 2012. This implies that Vietnam fisheries seem to lose their level of comparative advantages year by year in the EU market. iii. Trade Itensity (TI): The TI index of Vietnam’s fishery exports to the EU is very high and has increasing trend (from 24.35 in 2004 to 46.09 in 2013). This means larger trade flows than might be expected. In this sense, higher fishery exports value are more favourable to EVFTA. To sum up, Vietnam has comparative advantage in exporting fishery products in general and advantage in the EU market in particular. EVFTA will help create opportunities for Vietnam to continue promoting exports to the EU market.  SMART simulation results Regarding scenario 1: With unchanged tariff rate, Vietnam will reduce USD 19,537.5 thousand in export revenue, equivalently 13.23% reduction in growth of trade because of the loss market to major competitors like China, India, Norway, Thailand, Iceland, etc. Tunas (yellowfin) frozen is the product reducing the highest export revenue by USD 13,377.1 thousand and equivalent to 46.75% growth reduction. It is followed by fish fillets and other fish meat, Aquatic invertebrates nes, frozen or preserved; Scallops other than live, fresh or chilled; Crabs, frozen; Crustaceans nes, frozen; Swordfish; Snails, edible (except sea snails); Cuttle fish, squid, live, fresh or chilled). Regarding scenario 2: When Vietnam’s fishery exports receive 50% tariff reduction in the EU market, the potential change in export revenue from Vietnam to the EU will be USD 23,030.29 thousand, equivalent to 13.49% value growth. It can be said that the 50% reduction will result in significant increase in fisheries export revenue of Vietnam. On the contrary, there is a reduction in total trade and growth of export revenue from Norway, India, China, Thailand, Morocco etc. There is an opportunity for Vietnam compared with major competitors because they shall suffer trade diversion while Vietnam will have the great opportunity to create a strong trade creation with the EU. Tunas (yellowfin) fozen is the product gain the highest increae in export revenue by USD 17,415.39 thousand, equivalent to 59.1% growth rate. It is followed by Albacore or longfinned tunas; Aquatic invertebrates nes, frozen or preserved; Fish fillets and other fish meat, Cuttle fish, squid, frozen, dried, salted or in brine; Octopus, frozen, dried, salted or in brine; Dried fish, other than cod, not smoked; Scallops other than live, fesh or chilled, etc. Regarding scenario 3: Under the tariff elimination on fishery exports, Vietnam will increase USD 89,796.53 thousand in export revenue to the EU market and the potential growth of export value in this scenario is 60.8%. On the contrary, Norway and India suffer in the order USD 254.842 thousand and USD 250.727 thousand reduction of export revenue, equivalently to 0.04% and 0.09% growth rate. China and Thailand also have the export revenue fall of 0.08% and 0.07%, respectively. It can be said that tariff elemination will result in significant increase in export revenue of Vietnam. There is a great opportunity for Vietnam compared with major competitors because they will suffer trade diversion while Vietnam will have the great opportunity to create a strong trade creation with the EU. Tunas (yellowfin) frozen is the product gain the highest increase in export revenue by USD 72,808.27 thousands and equivalently 247.08% growth rate. It is followed by Cuttle fish, squid, frozen, dried, salted or in brine; Aquatic invertebrates nes, frozen or preserved; Fish fillets and other fish meat; Albacore or longfinned tunas; Octopus, frozen, dried, salted or in brine; Scallops other than live, fresh or chilled; Dried fish, other than cod, not smoked; Skipjack or stripbellied bonito; Crustaceans nes, frozen; Crabs, frozen; Smoked fish and fillets other than herrings or salmon, etc. Regarding scenario 4: Under the assumption of fishery exports from Vietnam, Thailand, India to the EU will be duty free; the potential increase of Vietnam fishery export turnover to the EU is USD 87,100.55 thousand, equivalent to 59.97% growth rate while India and Thailand increase USD 102,451.8 thousand and USD 64,092.41 thousand. This implies that other FTAs conclued by the EU and other countries will not much affect negatively on Vietnam’s fishery exports to the EU. Tunas (yellowfin) frozen is the product gains the highest increase in export revenue by USD 72,682.58 thousand, equivalent to 246.65% growth rate. It is followed by Cuttle fish, squid, frozen, dried, salted or in brine; Aquatic inverbrates nes, frozen or preserved; Albacore or longfinned tunas, Scallops other than live, fresh or chilled; Dried fish, other than cod, not smoked; Skipjack or stripbellied bonito; Tunas nes, frozen, whole, Smoked fish and fillets other than herrings or salmon; Cod (Gadus morhua, Gadus ogac, Gadus macrocephalus); Snails other than sea snails; Livers or roes of fish, dried, smoked, salted or in brine; Anchovies (Engraulis spp.); Mussel, frozen, dried, salted or in brine. In summary, the results of SMART based on four scenarios show that the fishery exports from Vietnam to the EU will significantly increase under the tariff reduction and duty free scenarios. On the basis of the analysis fishery exports from Vietnam to the EU, indicators as well as SMART simulation, we can see the opportunities and challenges of EVFTA toward Vietnam’s fishery exports.

VIETNAM NATIONAL UNIVERSITY, HANOI

UNIVERSITY OF ECONOMICS AND BUSINESS

FACULTY OF INTERNATIONAL BUSINESS AND ECONOMICS

- -

THESIS

ESTIMATING THE POTENTIAL IMPACTS OF A FREE TRADE AGREEMENT BETWEEN VIETNAM AND THE EUROPEAN UINON

ON VIETNAM’S FISHERY EXPORTS

Supervisor: MA Vu Thanh Huong

Student: Nguyen Thi Huong

Honor class: QH-2011-E CLC

Hanoi, 2015

TABLE OF CONTENTS

TABLE OF CONTENTS i

ABBREVIATIONS iii

LIST OF FIGURES v

LIST OF TABLES v

DECLARATION vii

ACKNOWLEDGEMENT viii

CHAPTER 1: INTRODUCTION 1

1.1 Background 1

1.2 Research objective 2

1.3 Research question 3

1.4 Research scope 3

1.5 Synopsis of the thesis 4

CHAPTER 2: LITERATURE REVIEW 5

2.1 Overview of FTA 5

2.1.1 Concept 5

2.1.2 Effects of FTA 6

2.1.2.1 Static effects 6

2.1.2.2 Dynamic effects 9

2.2 The EU-Vietnam FTA (EVFTA) 10

2.2.1 EVFTA negotiation rounds 10

2.2.2 Review of related studies 13

CHAPTER 3: METHODOLOGY AND DATA 17

3.1 Evaluating impacts of FTA methods 17

3.1.1 Computable General Equilibrium Model (CGE) 17

3.1.2 Partial equilibrium 20

3.1.3 Gravity model 23

3.2 Methodology 25

3.2.1 Trade indicators 26

3.2.2 SMART model 28

3.3 Data 28

CHAPTER 4: RESULTS AND DISCUSSION 30

4.1 Overview of Vietnam and EU trade relation 30

4.2 Overview of Vietnam fishery exports to the EU 34

4.3 EU's fisheries import tariffs on Vietnam 40

4.4 Diagnosing the likely impacts of EVFTA on Vietnam's fishery exports to the EU 42

4.4.1 Revealed comparative advantage (RCA) 43

4.4.2 Export specialization (ES) 44

4.4.3 Trade intensity (TI) 46

4.5 SMART simulation results 47

4.5.1 Scenarios for Vietnam fishery exports 47

4.5.2 SMART results and findings 49

CHAPTER 5: CONCLUSION AND IMPLICATIONS 62

5.1 Conclusion 62

5.2 Implications 68

Refferences 70

ABBREVIATIONS

ADB Asian Development Bank AFTA ASEAN Free Trade Agreement APEC Asia-Pacific Economic Cooperation ASEAN Association of South East Asian Nations

CGE Computable General Equilibrium

ES Export Specialization

EU European Union EVFTA EU-Vietnam Free Trade Agreement FTA Free Trade Agreement

GATT General Agreement on Tariffs and Trade GDP Gross Domestic Product

GTAP Global Trade Analysis Project

HS The Harmonized Description and Coding System MOIT Ministry of Trade and Industry

MUTRAP The EU multilateral trade project with Vietnam PTA Preferential Trade Agreements

RCA Revealed Comparative Advantage RTA Regional Trade Agreement

Development USD US Dollar

LIST OF FIGURES

Figure 2.1: Trade creation of joining FTA 7

Figure 2.2: Trade diversion of joining FTA 8

Figure 4.1: The EU and Vietnam trade balance from 2001-2013 31

Figure 4.3: Major markets of Vietnam fishery exports in 2013 (%) 34

Figure 4.4: Vietnam fishery exports turnover to the EU from 2001 to 2013 35

Figure 4.5: Major partners in the EU of Vietnam’s fishery exports in period 2009-2013 40

LIST OF TABLES Table 4.1: Top export partners of Vietnam in 2013 31

Table 4.2: Major Vietnam commodites exported to the EU 2007-2013 32

Table 4.3: Major commodites Vietnam imports from the EU 33

Table 4.4 : Vietnam’s fishery product codes to EU from 2001-2013 36

Table 4.5: Vietnam’s export turnover of HS03 with 4 digit 37

Table 4.6: Major fishery exporters to the EU market 38

Table 4.7: Weighted average tariff rates applied by the EU on HS03 from some countries 41

Table 4.8: Weighted preferential tariff applied by the EU on the HS4 digit Vietnam fishery products from 2011 to 2013 42

Tabe 4.9: RCA index of Vietnam and EU fishery exports 43

Table 4.10: ES index of Vietnam fisheries exports 44

Table 4.11: Trade intensity index of Vietnam HS03 export to the EU 46

Table 4.12: Overview of trade effects in 4 scenarios 49

Table 4.13: Top countries gain most in scenario 1 51

Table 4.14: Major countries lose the market in scenario 1 52

Table 4.15: Vietnam’s fishery products lose most 53

Table 4.16: Top countries lose the market in the scenario 2 54

Table 4.17 : Vietnam products gain most in scenario 2 55

Table 4.18: Top countries lose total trade effect in scenario 3 57

Table 4.19: Top Vietnam’s products gain most in scenario 3 57

Table 4.20: Total trade effects of some countries in scenario 4 59

Table 4.21: Vietnam’s products gain most in scenario 4 59

DECLARATION

“I hereby declare that the work contained in this thesis is of my own and has not been previously submitted for a degree or diploma at this or any other higher education institution The thesis is not previously published or written by another person”

1st May, 2015

ACKNOWLEDGEMENT

First of all, I would like to express my sincere thanks to MA Vu Thanh Huong for her enthusiastic support during the period of implementing the thesis Thank to her supervison and guidance, I not only gain knowledges but also sharpen skills that are helpfull in the process of my working and further learning

in the future

I would like to give thanks to the Falculty of International Business and Economics, University of Economics and Business and Vietnam National University, Ha Noi for teaching and giving me a chance to complete this thesis

Finally, I would like to express my gratitude to my family and friends who always stand by me to support and encourage me to fulfill this thesis

Because of research time limitation, the thesis can not avoid faults and drawbacks Thus, I am looking forward to receiving comments, feedbacks and suggestions to more complete this thesis

Respectfully hope the best wishes to my lectures

Student

Nguyen Thi Huong

CHAPTER 1 INTRODUCTION

1.1 Background

Growing integration of economies and societies around the world is evident via multilateral and bilateral efforts However, the Doha Round of the WTO has not progressed as expected while Free Trade Agreement (FTA) is becoming a strong trend, especially in the Asia – Pacific region, which is expected to have the most dynamic development all over the world in coming decades (MUTRAP, 2014) As an active member of ASEAN, Vietnam does not stand apart from this trend Specifically,Vietnam has participated in eight Free Trade Agreements including both regional and bilateral ones as well as actively involved in negotiating severals agreements The increasing and extensive participation in international economic integration plays an important role for export and import activities Compared with USD 789.1 million in 1986, the export turnover in 2013 increased by about 167 times (USD 132.2 billion) Vietnam is playing an increasingly significant role in global merchandise exports After having trade deficit in many years, Vietnam has trade surplus in

2012 of USD 287 million; USD 9 million in 2013 and USD 1.9 billion for first

10 months of 2014 (General Department of Vietnam Customs, 2014)

Diplomatic relation between the European Union (EU) and Vietnam was set up for the first time in October 1990 and from here, Vietnam has become one

of the main partners of the European Union in ASEAN One of the first milestone of bilateral relation was the signing of Cooperation Framework Agreement (FCA) in 1995 Then, the Comprehensive Partnership Agreement

EU - Vietnam (PCA) was signed in June 2012 which expresses the commitments of the EU to the conduction of modern, broad-based and mutually beneficial relationship with Vietnam The PCA broadens the scope of Vietnam-

EU cooperation in trade, enviroment, energy, science and technology, the fight against corruption (European External Action Service EEAS) Especially, the year 2015 marks the 25th anniversary of the establishment of diplomatic relationship between the EU and Vietnam And the most recently, the Free Trade Agreement between Vietnam and the EU (EVFTA) is in the process of negotiation which were started in 2012 and is expected to be completed in 2015

EU – a huge market with 28 members is one of the most important trade partners of Vietnam Top 5 export commodities exported to the EU in 2013 are footwears (USD 2,941 million), garments (USD 2,694 million), fisheries (USD 1,104 millions), computers (USD 2,200 million), telephones (USD 8,073 millions), coffee (USD 1,061 million) (Minitry of Trade and Industry, 2013) For the fisheries sector in particular, the EU market is not only one of the most important markets of Vietnam but also one of the largest importers of fishery products in the world with annual volume reach to 13 million tons According to preliminary data of the General Department of Vietnam Customs, for the first ten months of 2014, while Vietnam fishery exports turnover reached USD 6.55 billion the value exported to the EU market is up to USD 1.19 billion

The assessment of the potential effects of the FTA between Vietnam and the EU (EVFTA) on Vietnam’s fishery exports is a pressing issue in both theory and practice Therefore, to study and understand the possible outcomes of EVFTA on Vietnam fishery exports, I have chosen the theme:

“ESTIMATING THE POTENTIAL IMPACTS OF A FREE TRADE AGREEMENT BETWEEN VIETNAM AND THE EUROPEAN UNION ON VIETNAM’S FISHERY EXPORTS”

1.2 Research objective

The thesis aims to estimate the potential impacts of EVFTA on Vietnam's fishery exports, identify possible opportunities as well as challenges and draw

out some implications for enhancing Vietnam - EU trade relations in fisheries sector when EVFTA is concluded

1.3 Research question

The thesis aims to answer the main research question:

"What are the potential impacts on Vietnam's fishery exports to the

EU if EVFTA concludes?"

In order to clarify the above question, following sub-questions will

be answered:

(i) “What are the trade flows of Vietnam’s fisheries to the EU?”

(ii) "What are the possibilities to bring about benefits of EVFTA

on Vietnam's fishery exports to the EU?"

(iii) “What are the potential impacts of EVFTA on exporting of Vietnam’s fisheries to the EU?”

(iv) “What are the opportunities and challenges of EVFTA on Vietnam’s fishery exports?

(v) What are implications for Vietnam to enhance exporting fisheries to the EU?

1.4 Research scope

Time: thesis research the EU - Vietnam trade relations from 2001-2013 Space: Vietnam and the EU

Content:

 Trade relations between Vietnam and the EU in fisheries sector

 Potential impacts of EVFTA on Vietnam's fishery exports

 Fishery products include HS03 (Fish, crustaceans, molluscs, aquatic invertebrates), 1604 (Prepared or preserved fish, fish eggs, caviar), 1605 (Prepared or preserved crustaceans, molluscs)

 In the framework of this thesis, the author only assesses the potential impacts of tariff reductions and not mention non-tariff barriers on Vietnam's fishery exports

1.5 Synopsis of the thesis

The thesis includes 5 chapters:

 Chapter 1: Introduction

Chapter 1 provides general introduction including background, research objectives and questions, research scope, synopsis of this thesis

 Chapter 2: Literature review

Chapter 2 includes overview of FTA, impacts on trade relations, FTA between Vietnam and the EU, overview of some related studies as well

 Chapter 3: Methodology and data

Chapter 3 represents methodology used for analyzing impacts of FTA, introduction of SMART model which are applied in this thesis and source of data

 Chapter 4: Results and discussion

Chapter 4 deeply analyzes results of trade indicators and SMART estimated results

 Chapter 5: Conclusion and some implications

Chapter 5 provides outcomes from results and suggests some implications relating to enhance trade relation between Vietnam – the EU in fishery sector when EVFTA will be signed

CHAPTER 2 LITERATURE REVIEW

2.1 Overview of FTA

2.1.1 Concept

In 8b-Article XXIV in GATT 1947, Free Trade Agreement (FTA) “shall

be understood as an agreement between groups of two or more customs territories in which the duties and other restrictive regulations of commerce are eliminated on substantially all the trade between the constituent territories in products originating in such territories”

FTA negotiation process often lasts for a long time and even occurs in many years It is not limited to the traditional areas of trade such as tariffs and quotas, but can also includes other commitments relating to the institutional improvement, sustainable development (environment, labor), government procurement, intellectual property protection, etc (Vietnam Trade and Industry Review, 2014) In other word, these FTAs are called “new age FTAs” Particularly, in the last months of 2014, Vietnam has basically completed negotiations with the EU, Republic of Korea and Customs Union Russia - Belarus – Cazekstan which are “new age FTAs”

Regional Trade Agreement (RTA) is onde made between two or more contracting parties that share some common denomination known conceptually

as “region” (Oxfordbibliographies) In 7th April 2015, there are 612 notifications

of RTAs (counting goods, services and accessions separately) had been received

by the GATT/WTO and 406 ones were in forced Of these RTAs according to

data from WTO, Free Trade Agreement (FTAs) and partial scope agreements account for 90%, while customs unions account for 10% 1

2.1.2 Effects of FTA

The establishment of a FTA will impact on society and economy of its member countries The two most important effects are static effects and the dynamic effects These effects can encourage one country to participate in the process of trade liberalization through the benefits that it brings about

2.1.2.1 Static effects

The static effects of FTAs generally refer to the effects on price changes induced by preferential tariff and nontariff liberalization (ADB, 2008) Price changes induce one-time effects, and are called “static” for that reason The static effects include trade creation effects and trade diversion effects

 Trade creation effects

To examine the effects of FTA we firstly consider the effects of tariff reductions upon forming or joining an FTA These main effects are trade creation and trade diversion, which are shown in Figure 2.1

1

WTO, access on 18th April, available at https://www.wto.org/english/tratop_e/region_e/region_e.htm

Figure 2.1: Trade creation of joining FTA

The above figure represents that before joining FTA, there are two coutnries Country A is exporter and country B is importer Country A pay the export price plus export tariff, P1 At price P1, country A produce quantity of Q2, consume Q1, thus the import quantity is (Q1-Q2) Then, country A và B join FTA With the removal of tariff, the price of country B decrease to P2 Consumption quantity increases to Q3 and domestic production decrease to Q4 therefor import increase to Q3-Q4

The gain in welfare as the result of tariff reduction can be demonstrated

on this diagram There is an increase in consumer surplus of a+b+c+d On the contrary, there is a reduction in the producer surplus of area a and loss in government tariff revenues of area c This implies that there will be always be a net gain of b+d when trade creation occurs when a country joins a FTA

In general, trade creation is understood that low cost FTA members’ exports replace higher cost domestic producers Trade creation effects of an FTA refers to a shift from consuming products in countries with a higher cost to products lower cost from the countries member in this FTA Due to the reduction or elimination of tariff barriers, prices of imported goods is lower than

the cost of producing goods domestically in the country This shift will result in the reduction of domestic production by importing goods from partner countries

 Trade diversion

According to Savaltore (2004), “This effect occurs when country member

of a FTA has the imported goods at low cost from countries not members of the FTA is replaced by the imported goods with detailed higher of FTA’ members” This is caused by the preferential trade treatment given to member nation

Figure 2.2: Trade diversion of joining FTA

Afer joining FTA, the tariff removal of country A makes the product of member country (Country B) become cheaper than a country that is not member

of FTA (Country C)

In the above diagram, before joining FTA, country A imports product at price P1 (price with tariff of country C) At this price, country A consume Q1, produce domestically Q2 and thus import (Q1-Q2)

When country A and country B join FTA, country A removes tariff barrier on imports from B The price in country B is Pb < P +tariff (this is above

the country C tariff free price of P3) There is an increase in consumer surplus of area a+b+c+d

The reduction in the producer surplus of country A is area a The country

A will loss tariff revenue of area (c+e) There will be a net loss in country A welfare if b+d<e It is possible that trade diversion will lead to an increase in country A welfare if b+d>e

The trade diversion means the country member of FTA loses due to increase in imports of less effective goods, resulting in change in the structure production Similarly to the impacts of trade creation, although trade diversion effects also help consumers buy cheaper goods, domestic manufacturers and government lose partly But the difference here is that trade diversion effects make net social benefits be affected when the total benefits that consumers receive not cover all the losses that local firms and the government incurs

2.1.2.2 Dynamic effects

On the contrary of static effects, dynamic effects refer to the medium and long term implications of regional integration and, as such, tend to be more significant Some of the most important dynamic effects in the context of FTAs are economies of scale, techonology transfer and foreign direct investment (FDI), structural policy change and reform Dynamic effects are also more pervasive, affecting almost all areas that relate to an economy’s competitiveness (ADB, 2008) When become member of FTA countries have the opportunity to expand trade, achieve efficient production and distribution from the tariff reduction and redistribute resources more effectively The impacts on competition promotion is that the removal of tariffs and non-tariffs make efforts

of local companies to improve productivity and quality of product to reduce prices and compete with foreign commodity FTA also help to attract FDI as investment barriers are removed In general, dynamic effects will stimulate the economic growth of the FTA country member

2.2 The EU-Vietnam FTA (EVFTA)

2.2.1 EVFTA negotiation rounds

EU - a huge market with 28 member states - is one of the most important trade partners of Vietnam The EU and Vietnam launched bilateral FTA negotiations in Brussels in June, 2012 Vietnam is the thirth country in ASEAN after Singapore, Malaysia to negotiate FTA with the EU Thereafter, Thailand and the EU also started to launch negotiation process in 2013 Both Vietnam and the EU parties are currently seeking an ambitious and comprehensive agreement

on goods, services and investment, and government procurement Up to now, negotiations process have undergone twelve official rounds and both Vietnam and the EU express the detemination to complete and come to conclusion in

2015

The first ever EVFTA negotiation round officially took place on 8thOctober, 2012 and lasted until 12th October in Ha noi with the participation of sixty experts Tran Quoc Khanh - Vietnamese Vice Minister for Industry and Trade is chief negotiator of Viet Nam and Mauro Petriccione - Deputy Director General in the European Commission’s Directorate General for Trade is chief negotiator of the EU Both parties shared how to conduct the next negotiation rounds in the spirit of building.2

Then, the second EVFTA negotiation round was organized on 22nd and ended on 25th January, 2013 in Brussels, Belgium In this round, the chief negotiator of Viet Nam along with twelve negotiation groups started to discuss issues such as trade of goods and services, investment, intellectual property rights, labor, enviroment (Industry and Trade newspapers, 2013)

The third negotiation round of EVFTA took place from 23rd to 26th April,

2013 in Ho Chi Minh City Twelve groups participated in discussions issues

2

WTO, access on 18th April, available at https://www.wto.org/english/tratop_e/region_e/region_e.htm

such as trade in goods and services, investment, customs cooperation, SPS, TBT, sustainable development, institution and legislation.3

The fourth negotiation round of EVFTA was held from 01st July to 05thJuly, 2013 in Brussels, Belgium Three previous rounds are considered to determine the roadmaps to unify the basic content of the agreement framework and clarify the requirements as well as expectation to each other Thus, this forth round was very important in the transition from negotiation to clarify the benefits and requirements to open each other’ market Therefore, this round focus on the most important issues that both two sides pay attention such as trade in goods and services, investment, government procurement as well as protection of intellectual property rights.4

The fifth negotiation round of EVFTA took place from the 04th to 08thNovember, 2013 in Hanoi This negotiation round marks one year that EVFTA has been starting negotiations officially Negotiation round took place at the chief, vice delegation and 11 negotiating teams including trade in goods, services, investment, customs cooperation, SPS, TBT, competition, sustainable development The groups continued discussing the synthesis text based on deep discussions and more detailed approach perspective in the specific content Beside, they introduce a system of policies, regulations to explain the proposals and requirements (MOIT, 2013)

The sixth negotiation round of EVFTA was started on 13th January and ended on 17th January, 2014 in Brussels, Belgium Both Vietnam and EU continues promoting discussion in all sectors and has achieved positive progress

on the basis of balancing the interests of both the EU and Vietnam The most positve results after finishing the sixth round are that several technical groups

basically agree with trade-related issues, namely, TBT, customs, pure competition (Vietnam Trade and Industry review, 2014)

The seventh negotiation round of EVFTA was held from 17th to 26th March, 2014 in Hanoi After this round, there are some more technical groups such as transparency, dispute resolution has basically agreeded while other groups also continued to narrow the gap in content (MOIT, 2014)

The eighth negotiation round of EVFTA took place from 23rd to 27th June, 2014 in Brussels, Belgium The negotiating groups on trade in goods, trade

in services, investment and government procurement continued to discuss the offer of market opening and the requirements for adjusting the offer in the related fields (MOIT, 2014)

The ninth negotiation round of EVFTA was held from 22nd to 26thSeptember, 2014 in Da Nang City, Vietnam The two sides have made positive progress in order to find a commons in the problems still exist and toward the conclusion of the negotiations Negotiations focused on all the areas mentioned

in the draft FTA Four chapters covering trade in goods, services, investment and state-owned enterprises has progressed particularly in technical discussions The negotiation almost complete on the areas of trade, sustainable development and cooperation.5

The eleventh negotiation round of EVFTA was held from 19th January to

23rd January, 2014 in Brussels, Belgium In this round, talks focused in particular on services, investment, government procurement, competition related aspects, and regulatory issues Chief negotiators also had intense discussions on the key areas included in the FTA Technical work was completed in three areas,

5

.WTOCentre, dinh-thuong-mai-tu-do-evfta

http://www.trungtamwto.vn/vn-eu-fta/eu-va-viet-nam-hoan-thanh-vong-dam-phan-thu-9-hiep-namely the provisions aimed at combatting fraud and the chapters on trade remedies, trade and sustainable development (European Commission, 2015)

The twelfth negotiation round of EVFTA was held from 23rd to 27thMarch, 2015 in Ha Noi When negotiation rounds went into the final stage, it is

an important one for two sides to continue discussing the content and basically forming the final commitment towards concluding the negotiations.Both teams made further progress on all outstanding issues and are working towards a swiff conclusion of the negotiations (MOIT, 2015)

Via the contents of the previous negotiation round, the EVFTA is expected to cover the following areas:

 Market access for trade in goods: elimination of tariff and non-tariff measures; agreement on standards for key sectors; addressing SPS and TBT issues; rules of origin

 Commitments for liberalization of trade in services

 Sustainable development, including labour issues

 State-owned enterprises and agreeing on market status

2.2.2 Review of related studies

 Studies on Vietnam fisheries sector

Directorate of Fishries (2012) assessed the status of fisheries sector development over the period 2001-2011 about the position and role in the national economy and represents overall plan to develop the fisheries sector with

a vision to 2030 The evaluation methods are using secondary data, surveys to collect information and statistics data in 63 provinces across the country

Vu Nguyet Anh (2013) studied Vietnam fishery industry performance, the products and market including value chain, product, major market, the operating conditions such as regulation, policy, technology, assistance and major companies of Vietnam fisheries industry

Asian Foundation and CIEM (2011) studied competitiveness of export enterprises in three sectors: garments, fisheries and electronics in Vietnam After overviewing the export activities in Vietnam over the period from 2001 to 2010 and several policies affecting directly to enterprises, the report analyzes the overall export enterprises in selected sectors with factors affecting the competitiveness of exporters to make conclusions and recommendations

Vietnam trade promotion agency (2007) overviewed the fishery sector with matters of production, export situation and import situation, domestic consumption as well The report also gives orientation and policies to develop the export of Vietnam fishery products

Vietnam Ministry of Fisheries and The World Bank (2005) reviewed the situation of the fisheries management in Vietnam and identify major areas of interventions to reduce poverty, increase production

It can be seen that there have been several studies relating to the fisheries sector in Vietnam, however, the studies only focus on the overview qualitative analysis but not assess quantitatively the impacts of EVFTA in general and fisheries exports in particular

 The study on the impacts of the EVFTA

MUTRAP III (2011) analyzed the impacts of EVFTA by using quantitative assessment Computational General Equilibrium and qualitative assessment on three Vietnamese export sectors (footwear, garments and

furniture) and three imports sectors (automotive, electronics and machinery, banking) CGE model concludes the positive results for all the variables analyzed in both scenarios, namely GDP, the trade surplus, etc This model analysis showed that tariff reduction step by step will bring positive results in the long term than tariff cut immediately

Nguyen Binh Duong and Nguyen Thu Trang (2014) analyzed the trade creation and trade diversion effects of EVFTA by using gravity model and panel data analsis The authors concluded that the tariff reduction in the framework of EVFTA will have positive impacts on bilateral trade between Vietnam and the

EU EVFTA will bring not only new opportunities as trade creation in automotive industry but also new challenges as trade diversion in electronics and machineries industry

Vietnam Chamber of Commerce and Industry (2010) analyzed EVFTA prospects and opportunities in improving the business environment such as attracting investment of Vietnam to However, this paper has not focused on analyzing tariff policy for each Vietnam’s major import sector from the EU as well as some implications about tariff policy for Vietnam in FTA negotiations

MUTRAP III (2014) assessed the sustainable impacts of the EVFTA with the preliminary results Research report includes quantitative analysis based on general equilibrium models with the assumption of liberalization commitments under the EVFTA negotiations to estimate the impacts of the agreement on the macroeconomy, society and environment Three scenarios of the report are: EVFTA may not be signed, two scenarios with signed EVFTA The study also assesses the impacts on several Vietnam sectors such as agriculture and fisheries; textiles, footwears, wood, coffee, automobiles, high technology, financial services, telecommunications services, etc The results show that the tariff reductions will increase Vietnam’ exports to the EU from 30% to 40% The sectors most likely to gain benefit from the EVFTA are textiles, footwears,

processed food (fisheries) In addition, the agreement is expected to increase welfare and have positive impact on poverty reduction A number of recommendations are EVFTA should be signed early and Vietnam need to allocate investment in productive sectors However, the report has not assessed the impacts of EVFTA integrating with other FTAs that Vietnam has signed and negotiated such as TPP, AFTA, etc

The studies listed above are very useful references to the author in the process of implementing this research However, a number of researches only focus on analyzing the impacts of EVFTA on import sectors and other sectors of economy such as footwear, garments or furniture while the trade relation between the EU and Vietnam in the fisheries export sector has not been examined and considered Therefore, in this paper author will examine the potential impacts of the EVFTA on Vietnam’s fishery exports to the EU

CHAPTER 3 METHODOLOGY AND DATA

3.1 Evaluating impacts of FTA methods

Estimating the impact of actual or potential trade liberalization can apply multiple approaches and different methodologies, mainly qualitative and quantitative methods Quantitative research concentrates on quantitative variables observation, measurement, analysis and explained the relationship between the variables in the quantitative relations Qualitative research is mentioned on various data expression In the quantitative method, there are ex-ante and ex-post evaluation Ex-ante method is used to examine the potential effects of an FTA before it is signed officially The approaches used to assess ex-ante impacts includue computable general equilibrium (CGE), gravity models, SMART etc On the contrary, ex-post evaluation is used to assess the impacts of a FTA after its implementation In the framework of this thesis, the author only annalyzes method used for assessing ex-ante impacts because the EVFTA has not yet been concluded

3.1.1 Computable General Equilibrium Model (CGE)

General equilibrium (GE) is a fundamental concept of economic theories about market behavior, happen when all markets in economic system are equilibrium simultaneously That means supply equal demand in all markets CGE model was constructed in the industrial countries from 1960s and widely used since 1980s CGE model is used to estimate the potential effects of current and future FTAs for the next years for future policies and negotiations

CGE is a multi-sector model so it describes detail sectors of economy and the interaction of sectors Data of CGE are I/O (Input/Output) or SAM (Social Accounting Matrix) One of advantages of CGE model is that it imposes

consistency on one’s view of the world such as all exports are imported by another country, all consumption are met by production or imports and this often generate empirical insights that might otherwise be overlooked in complex

policy analysis (Hertel et al., 2006)

However, CGE model has limitation, namely, although CGE model is quantitative, it is basically theoretical when bases more on economic theory that makes it depend on the assumptions of economic schools In adition to this, conclusions about trade policy respond strongly with levels assumed for trade restrictions in the base data

CGE models are often used by the World Bank, the World Trade Organization (WTO), ADB to estimate the welfare effects of FTAs and other trading agreements Particularly, it has been used widely in the World Bank’s Global Economic Prospects reports, World Bank policy papers and external publications

Nguyen Chan and Tran Kim Dung (2001) developed CGE model to assess the impact of trade liberalization (tariff reductions) for the entire economy using Input/Output of Vietnam in 1996 with 33 economic sectors Simulation results show that the economy gains benefits from trade liberalization However, the interests of different groups are not equal This can lead to increasing gap between the rich and the poor in Vietnam under the influence of international economic integration

Tu Thuy Anh và To Minh Thu (2010) used dynamic general equilibrium model to assess the impact of economic integration in East Asia toward changes

in welfare, GDP, trade and production structure of Vietnam The study finds that the production structure of Vietnam will change in the direction of increasing share of industry and declining share of agriculture

 Global Trade Analysis Project (GTAP)

CGE includes GTAP model which has multi-sector structure and has some special features such as GTAP is multi-region model including many countries with global database The model is suitable to analyze each country in

a global context and user can apply it according to his own purpose There are two types of GTAP models used commonly, namely, GTAP model developed

by GTAP center at Perdue University, Ameria and MIRAGE model jointly constructed by research institutes CERPII, France and International Trade Centre ITC In addition, there is LINKAGE model developed by World Bank

The standard GTAP model assumes perfect competition and constant returns to scale while some extensions of the model assume imperfect competition The dynamic model has features of the standard model such as consumer demands, intersectoral factor mobility and investment

Vanzetti and Pham Lan Huong (2006) apply GTAP model with database version 6 including 87 countrires/regions and 57 sectors to access the impacts of Vietnam’s WTO accession Authors have developed six scenarios with different trade liberalization level Simulation results show that unilateral liberalization can bring significant benefits without having to negotiate with other countries The agriculture and sector using natural resource gain limit benefit because the export sectors already have low tariffs

Francois J (2007) analyzed the impacts of potential FTA between the EU and Republic of Korea to trade by using computable general equilibrium model

of world trade with two scenarios The results show that both economies gain economic benefits from all analyzed levels of trade liberalization, but the gains are unevenly distributed Korea will obtain two-thirds of the total gains from

an EU-Korea FTA in all scenarios However, this study was conducted in

2007 when EU has only 25 members while there are 28 members in EU at the present

Le Quoc Phuong (1999) applied the GTAP model with database version 4

to evaluate the international economic integration process of Vietnam at different levels Database version 4 (published in 1998) consists of 45 countries/regions and 50 economic sectors Database of Vietnam in version 4 is based on the Input/Output of 1989 and updated figures for 1995 The author designed four scenarios to assess economic integration which are unilateral liberalization, implementation of AFTA commitments, APEC commitments and WTO commitments The simulation results shows trade liberalization at these levels are beneficial to Vietnam’s overall economy except for scenarios of AFTA due to competition of ASEAN’ economies The sectors gain benefits from trade liberalization are textiles, services and electronics Meanwhile, the agricultural sector will suffer the negative impact of market opening

Fukase and Martin (1999a, 1999b) applied GTAP model with database version 4 to assess impacts of AFTA integration process of Vietnam, Bilateral Trade Agreements between Vietnam and United States Simulation results of different scenarios show that AFTA may not bring many significant positive impacts on Vietnam, while Bilateral Trade Agreements between Vietnam and United States bring benefits for two countries

3.1.2 Partial equilibrium

Partial equilibrium analyzes the effects of a given policy action in the market that is directly affected It implies that it does not account for the economic interaction among various markets in a given economy (WITS Worldbank)

SMART which stands for Software for Market Analysis and Restrictions

on Trade is the market access simulation package included in World Bank’s World Integrated Trade Solution (WITS) It was developed by UNCTAD and World Bank in 1980s and is a partial equilibrium modeling tool The SMART model is used to analyze impacts of trade policy reforms in a single market on

disaggregated product lines The SMART model concentrates on the changes in imports into a particular market when there is a change in trade policy For a particular commodity on the demand side, imports from one country are an imperfect substitution for imports from another country and on the supply side, the SMART model assumes that the export supply elasticity of each country is infinite The SMART model is considered as a useful tool in measuring the impacts of changes in trade policy of a FTA on trade flows, trade creation or trade diversion, tax revenue and social welfare

The data SMART requires can be extracted from WITS, namely, the import value from each foreign partner, the tariff levied by each foreign partner, the import demand elasticity for the commodity, the export supply elasticity and the substitution elasticity SMART accepts one import demand elasticity for the commodity, not one for each national variety In addition to this, the export supply elasticity must be the same for all foreign exporters of the commodity and substitution elasticity is the same for any pair of varieties of the commodity (ADB, 2010)

The main advantage of the partial equilibrium approach is that it requires minimal data which includes only the trade flows, the trade policy (tariff), and some behavioral parameters (elasticities) All of data are available on database

of WITS The second advantage is that it allows to analyze at a detailed level However, partial equilibrium model also has some disadvantages The first one

is that the analysis is only done on a pre-determined number of economic variables that makes it very sensitive to some behavioral elasticities The second disadvantage is that the partial equilibrium model requires simple data so it may miss several important interactions between different markets, namely, the important inter-sectoral input/output linkages Besides, it also misses the existing constraints that apply to the various factors of production such as labor, capital, land and their movement across sectors (WITS Worldbank)

Sonam Choudhry, Murali Kallummal and Poornima Varma (2013) assessed the trade creation and trade diversion effects of the Indian and Sri-Lanka FTA (ISFTA) at the sectoral level, namely texttiles, base metal as well as machinery equipments The authors use SMART model to analyze the trade creation and trade diversion effects under the tariff reduction scenarios The results show that Indian and Sri-Lanka FTA would have significant trade creation effect between the member countries than trade diversion among the non-members countries

Chandrima and Biswajit (2011) used CGE and SMART model to study the impact of the FTA between India and ASEAN (AITIG) The authors point out that there is a positive impact of FTA to increase trade between ASEAN and India The most beneficial countries are India, Singapore, Philippines However, this FTA also brings about trade diversion effects due to reducing the trade proportion of other countries in the region

MUTRAP III (2011) applied quantitative analysis using the SMART model to assess the impacts of EVFTA on the export performance of Vietnamese sectors, namely, garments and textiles; footwears The SMART simulation of garments and textiles sector having three scenarios The first scenario is related to the conclusion of an FTA between Vietnam and the EU; the second one is under the the assumption that other FTA between the EU and other nations will be concluded; the third one is assumed that EVFTA will not

be concluded while other FTAs between the EU and other countries are successfully concluded The impact of EVFTA will have important effects on the export of garments from Vietnam The SMART simulation used to assess the impacts of EVFTA on the footwears, on the other hand, has four scenarios The first and the second scenarios assume that the supply elasticity, the substitution elasticity and the import elasticity equal to 1 and 1.5 respectively The third scenario assumes the inforce of main FTAs that EU has been negotiating with the main footwear export competitors of Vietnam The fourth scenario assumes

the elimination of the antidumping duty applied by the EU on footwears from Vietnam The outcomes of the SMART simulations provides convergent results

Peter Lloyd and Donald MacLaren (2008) examined the new partial equilibrium form of the Trade Restrictiveness Index recently used by the World Bank to measure the average tariffs and other restrictions on imports into a country, and the partial equilibrium form of the Mercantilist Trade Restrictiveness Index Australian and Japanese tariff data are used to illustrate the computation of the indices The first direction of the analysis examines how non-tariff measures should be incorporated in the indices It requires new concepts of the welfare-equivalent tariff rate and the import-equivalent tariff rate The second direction considers the bias due to the neglection of general equilibrium effects

Remi lang (2005) applied the partial equilibrium WITS-SMART model

in order to assess the impact of liberalization under the Economic Partnership Agreement between the West African countries and the EU The paper assesses trade creation, trade diversion as well as the impact on tariff revenues and identifies products that may have greatest impact The results show that the exports from EU to West African countries would increase and tariff revenues will decrease help the author proposes several recommendations

Stephen Tokarick (2003) applied quantitative method to estimate the impacts of removal agricultural support including tariff and subsides in both partial and general equilibrium approach The estimated results indicate that the support in industrial countries have the high distortions and tariffs have larger distortionary impact than subsidies When agricultural support is removed, the international prices of food is likely to increase

3.1.3 Gravity model

The original idea was derived from the Newton’s Law of Gravitation that implies the gravitational attraction between two objects is proportional to their

masses and diminishes with the distance The gravity model postulates that, other things equal, the larger (and the more equal in size) and the closer the two countries are, the larger the volume of trade between them is expected to be

(Krugman et al 2012) Three types of trade flows are important for an FTA are

trade flows between members, imports from countries that are not members, and exports to non-member countries In its basic form, the gravity model assumes that only size and distance are important for trade in the following way:

Dij is the distance between country i and country j

In the original model, only two dependent variables are introduced including GDP and distance however in reality, there are many other factors that affect trade between two countries Thus, the explanatory variables are added to the model depending on characteristics of each study such as: real effective exchange rate, per capita income, the per capita gap between the two countries, population, history, language etc

The gravity model was used for the first time by Tinbergen (1962) and Poyhonen (1963) to analyze international trade flows Then, many studies applied gravity model to investigate effects of FTAs

The gravity model was used by Jane Korinek and Mark Melatos (2009) to assess the trade impacts of three regional trade agreements, namely the ASEAN Free Trade Agreement (AFTA), the Common Market for Eastern and Southern

Africa (COMESA) and the Southern Cone Common Market (MERCOSUR) on the agricultural sector The authors use annual bilateral data of all agricultural products from 1981 to 2006 for all AFTA, COMESA and MERCOSUR The estimation results of gravity model show that there is an increase in trading in agriculture sector among their member countrires after the creation of AFTA, COMESA and MERCOSUR as well Along to this, there is no robust indication

of trade diversion with respect to imports from outside the region

Do Tri Thai applied gravity model to analyze bilateral trade flows between Vietnam and 23 European coutries over the period from 1993 to 2004 The author uses total trade between Vietnam and EU23 as dependent variable and GDP, population, real exchange rate, distance, history as independent variables The estimated results indicate that GDP, population and real exchange rate have impacts on trade between Vietnam and EU23 while history and distanc variables have no impacts

Nguyen Anh Thu (2012) used gravity model by using trade data of Vietnam with 39 partner countries over the period from 2004 to 2011 for the impact assessment of AFTA and Vietnam-Japan Economic Partnership Agreement (VJEPA) on Vietnam’s trade flows This study has listed four key factors affecting the export and import of Vietnam, namely GDP, AFTA, Distance, the Real Exchange Rate This paper concludes that dummy VJEPA has not impacted clearly on trade flows of Vietnam but the impacts are expected

in the future when tariffs will be reduced according to VJEPA’s roadmap

3.2 Methodology

In examining trade relations between Vietnam and the EU, besides several traditional methods such as synthetic method, statistical method, comparative method; quantitative models and trade indicators are used The revealed comparative advantages (RCA) index, Trade specialization index and Trade intensity index are applied to examine the advantage or disadvantage of

Vietnam in fisheries sector This study also applies a SMART simulation model

to estimate the trade, revenue effects of possible EVFTA tariff reduction on Vietnam’s fishery exports

3.2.1 Trade indicators

A trade indicator is an index or a ratio used to describe and assess the states of trade flows and trade patterns of a particular economy (Mikic and Gilbert, 2007) In this thesis, the author calculated indicators namely revealed comparative advantage, export specialization and trade intensity index to examine the advantage or disadvantage of Vietnam in fisheries sector

 Revealed Comparative Advantage (RCA) Index

RCA method is based on David Ricardo’s theory of comparative advantages with the assumptions of different technology While Heckscher-Ohlin theory assumed the similar technology and comparative advantages gain from the differences of comparative price (opportunity cost) due to differences

in the relative abundance of the production factors between countries (Paul K Rugman, 2012) Balassa (1965) suggested the index of revealed comparative advantage (RCA) that is used to discover the commodity a country has comparative advantage Hereby is the functions used for calculating RCA index:

RCA = (Xij/Xit)/ (Xwj/Xwt)

Where:

Xij: values of country i’s exports of product j

Xit: country i’s total exports

Xwj: values of world export of product j

Xwt: world total total exports

RCA is an index to help countries plan policy of commodity and market

so it is considered to be a basis to improve international trade policy If the ratio

is greater than 1, the country is said to have a revealed comparative advantage and vice versa, if RCA is less than 1, there is a revealed comparative disadvantage in this commodity (or export sector)

 Export Specialization (ES) Index

The export specialization (ES) index is used to examine whether the commodity (or export sector) of one country has revealed advantage or disadvantage in specific markets or in other word, it represents revealed specialization in this market or partners (WITS Worldbank) The below function shows how to calculate ES index:

ES = (xij/Xit)/(mkj/Mkt) Where:

xij: is export values of coutry i in product j

Xit: is total export values of country i

mkj: is import values of product j in market k

Mkt: is total imports in market k

The ES index is similar to the RCA but it is used for determining the potential partners of FTA The ES index is greater than 1 implies that the country has specialization opportunities in market k and on the contrary, the ES index is less than 1 means there is disadvantage in market k

 Trade Intensity (TI) Index

Trade intensity is calculated as following:

Tij=(Xij/Xit)/(Xwj/Xwt)

Where:

Xij is the value of Vietnam’s fishery exports to the EU

Xwj is the world fishery exports to the EU

Xit is Vietnam’s fishery exports to world

Xwt is total world fishery exports

TI index indicates a bilateral trade flow that is larger (smaller) than expected, given the partner country’s importance in world trade A value greater than unity indicates larger trade flows than might be expected In this sense, higher value are more favourable to an FTA (MUTRAP, 2010)

Accordingly, trade indicators require the easily accessed data to calculate However, their main limitation is that interpretation of the results may be difficult Besides, the results might be meaningless when the indicators are calculated for trade categories which are too aggregated (ADB, 2010)

3.2.2 SMART model

The thesis applies SMART simulation model to estimate the trade and revenue effects of possible EVFTA tariff reduction on fishery products

 HS codes of fishery products

The Harmonized Description and Coding System generally reffered to as

“Harmonized System” or simply “HS” is a multipurpose international product nomenclature developed by the World Customs Organization In the Harmonized Description and Coding System, the fishery products are classified into chapter 03, in other word is HS03 (Fish and crustaceans, molluscs and other aquatic invertebrates) SMART model estimates trade and export revenue effects

by product code with HS6 digit for HS03 because most of Vietnam’s fishery exports to the EU belongs to HS03 (Fish, crustaceans, molluscs, aquatic invertebrates), average accounts for 82.69% of total export value

3.3 Data

The data in this thesis have been collected from different sources such as

UN Comtrade, Trademap, WITS

The data used for trade indicators will be calculated from offical value of import and export of Vietnam’s fishery to the EU on Trademap, UN Comtrade

The data used for tariff rates will be collected from WITS for the period 3 years, from 2011 to 2013 as the data of 2014 is not available

The data utilized for SMART analysis is built in WITS along with Common Format for Transient Data Exchange (COMTRADE), Trade Analysis and Information System (TRAINS) The data required are: the import value from each foreign partner, the tariff faced by each foreign partner, the import demand elasticity and the export supply elasticity for the commodity, the substitution elasticity between varieties of the commodity

The import demand value with the default value in SMART is different

by product but is the same for all reporters and it have been empirically estimated for each country and every HS 6 digit product (WITS use’s manual, 2011) The supply elasticity in SMART is 99, which is infinite elasticity for all products and partners Besides, SMART use 1.5 as the default substitution elasticity However, it is recommended to keep 1.5 for industrial products but to increase for primary goods as the higher substitution elasticity, the higher the substitutability of the same product from different suppliers (WITS user’s manual, 2011) In this thesis, the author uses substitution elasticity equal to 2 as fisheries are primary commodity and easily replaced by other suppliers

CHAPTER 4 RESULTS AND DISCUSSION

4.1 Overview of Vietnam and EU trade relation

When European countries started to cooperate economically in 1951, only Belgium, Germany, France, Italy, Luxembourg and the Netherlands took part in

On 1st July 2013, Croatia participated and the union has its current size of 28 member countries.6 EU has the population of 507,163 thousand and GDP of USD 17,351,715 million in 2013 while the population of Vietnam is 89,709 thousands and GDP is USD 171,392 million (WTO, 2014)

The EU is a huge market for some major export commodities of Vietnam such as footwear, garments, fisheries, agricultural products, furniture, electronics, and consumer goods The EU is also a region with a highly developed economy which can meet the import requirements of technological equipment and materials source for many industries such as machinery, pharmaceuticals, chemicals, transport service for economic development, industrialization and modernization implementation of Vietnam The EU officially has become the largest export market and the second trade partner of Vietnam in 2012 In 2013, the export turnover reached USD 24.3 billion, increase by 19% compared with 2012 and import turnover was USD 9.4 billion, increase by 7.5% (MOIT, 2013)

6

They are France, Germany, Italy, Belgium, Hungary, Austria, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, Greece, Ireland, Latvia, Lithuania, Luxembourg, Malta, The Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Kindom, Croatia

Figure 4.1: The EU and Vietnam trade balance from 2001-2013

Unit: USD billions

Source : UN Comtrade database

As can be seen from Figure 4.1, EU always have deficit trade balance with Vietnam all over the period from 2001 to 2013 The trade deficit increased sharply and continuously over the years, from minus USD 2.63 billion in 2001

to minus USD 20.58 billion in 2013 Vietnam became the fourth largest trading partner of the EU in ASEAN in 2013 For Vietnam, the EU is also on the list of the top three the most important exports as illustrated in table 4.1

Table 4.1: Top export partners of Vietnam in 2013

Partners Value (EURO Millions) Share in World

European

Union