tiểu luận kinh tế học quốc tế II TPP, CPTPP AND THEIR IMPACTS ON THE ECONOMY OF VIETNAM

Scenario development To analyze the impact of the TPP and CPTPP agreement on the economy of Vietnam, this paper does a number of simulations by investigating two trade agreement scenario

I INTRODUCTION

The Trans-Pacific Partnership (TPP), sealed by 12 Pacific Rim nations, appears to meet the target of promoting trade and strengthening the relationships between the twelve member countries To reach that target, TPP creates free trade zone between 12 countries in the Pacific by reducing and eliminating tariffs and non-tariff barriers, fostering competition and creating greater opportunities for local businesses Confronting the withdrawal of U.S decided by President Trump in 2017, the 11 TPP parties (“the Eleven”) continued going ahead with the agreement, which now owns a new name as Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)

With the attendance of US or not, TPP - CPTPP is still set to be the biggest multilateral free trade agreement ever attempt on the world 12 members of TPP had combined GDP of $28 trillion, or 40 percent of world GDP, and accounted for $5.3 trillion in exports, or 23 percent of the world total After the US leaving, despite reducing in number, the agreement still covers nearly 13.5 percent of global GDP and

15 percent in total world trade This is thanks to the large numbers of TPP members, which up to 12, including the U.S, Australia, Brunei-Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam

What makes TPP so significant is its comprehensive rules Although it aims at deepening the economic ties among countries then boost their economic growth, its scope is not limited in the field of trade Having 30 chapters, TPP also covers a range

of legal provisions in investment, service, electronic commerce, government procurement, intellectual property and environment beside many other aspects of global trade such as tariff To be more specific, some areas are applied WTO rulebook but meanwhile tightening the disciplines and creating new mechanisms to improve implementation Furthermore, in this version of agreement, intellectual property rights are more aware of and strengthened by enforceable rules as well as labor or environment In other new areas to the prior agreements, which are related to internet

and technology, TPP has it own actions toward It sets rules and standards to access to telecommunication network, put impacts on electronic commerce, limits restrictions

on cross-border transfer, and tightens up the data localization requirement Adding to that, the agreement also supports state-owned enterprises and small - medium enterprises to make regulations simpler by enforcing new dispute settlement mechanism

Defined as “a landmark 21st - century agreement”, TPP contains 5 features: comprehensive market access, regional approach to commitments, addressing new trade challenges, inclusive trade and platform for regional integration It indicates a huge ambition of TPP members in launching international cooperation on so-called next-generation trade rules, that cannot be assessed at this time, but may prove to be its most valuable contribution in the long run However, this wide range covered has its pros and cons On the one hand, it ensures the diversity in aspects in which nation members can support each other and gain benefits On the other hand, because the agreement was set up among unusually diverse, comprising low-, middle-, and high-income countries with varied economic systems, it puts kind of a pressure on big developed countries to help the smaller developing ones This is what happened in the case of US’s exit, when President Trump believes that TPP would worsen the trade deficit and, thereby, have negatively affected U.S employment and wages

TPP did not die out just because the absence of such a major player like U.S, instead,

it was reborn as CPTPP In term of the agreement after several summit of negotiating, most of the commitments related to goods, services, procurement, and investment remain unchanged Meanwhile, 22 original provisions were suspended on account of the fact that they were priorities for the United States in the original negotiations but did not enjoy similar support among the other TPP countries Of all, changes appear mostly in the investment and intellectual property (IP) chapters Besides, there are 4 issues need renegotiation, including: a cultural exception for Canada; exceptions regarding trade sanctions for Vietnam; exceptions for state-owned enterprises in

Though US exit is a big lost, it is understandable why the rest members decided to proceed TPP The economic illustration demonstrates that 11 remaining signatories are better off with a TPP11 than without one, in spite of the decline in gain The benefits are brought up to every single member of CPTPP, not evenly However, there

is one certain thing that the movement of US took a huge change in the amount of benefit each country can gain through the agreement According to a previously published report, Vietnam is one of the countries influenced the most

This paper will illustrate the change in economy of Vietnam under TPP and CPTPP,

in order to see how much Vietnam is affected by the withdrawal of US from TPP The rest of this paper is organized as follows: method used in analysis, impacts on Vietnam’s economy, finally, conclusions and recommendation to Vietnam

II METHODOLOGY

1 Model specification

In this paper, we examine the impacts of TPP and CPTPP on the economy of Vietnam

in the computable general equilibrium (CGE) model This is an economic model which is applied to examine how the economy might react to changes in policy, technology or other external factors using actual economic data Shaikh etal (2012) shows that the CGE model is capable of capturing the interactions as well as the inter-linkages between sectors in the economy, which is particularly useful for analyzing the impact of changes in trade policy Savard (2003) states that the CGE model is a widely used and a suitable tool in the analysis of welfare, particularly income and poverty In order to distribute the macroeconomic results of the CGE model to households, we also use the Global Income Distribution Dynamics (GIDD) modeling framework that provides the database for the implementation of the CGE model GIDD is a global macro-micro global model which can assess growth and distribution effects of global policies such as multilateral trade liberalization These two models allow to analyze the complex interactions among producers, households and

governments across several countries with productivity differences as well as changes

in comparative advantage and trade flows following trade liberalization While household behavior is determined from an aggregate utility function, the two models are connected mainly through changes of skill formation, reallocation of labor and real earnings

In terms of supply or labor, the macro and micro models generate perfect mobility across sectors within a country Meanwhile, on the side of earnings, the GIDD incorporates the CGE-based simulated changes in skilled wage, income growth, and changes in relative consumer prices

In our model, demography and education are part of the baseline scenario and play a vital role in allocation the relative supply of skilled versus unskilled labor Factor endowments are also a strong determinant of comparative advantage across countries

2 Scenario development

To analyze the impact of the TPP and CPTPP agreement on the economy of Vietnam, this paper does a number of simulations by investigating two trade agreement scenarios as followings:

• Baseline scenario: key macro indicators such as GDP, export and import

including the future reduction of tariffs as a result of existing FTA commitments up to 2030 with the data

base of the International Trade Centre (2016) Tariffs are calculated for each FTA using current and projected trade flows between Vietnam and its trading partners

• CPTPP and TPP-12: implementation of the TPP agreement among its

members with and

without the USA begins in 2018, based on the data set provided by International Trade Center, including all TPP members FTA commitments up

to 2030 (ITC and MAcMap, 2015) Tariff reductions follow estimates from Petri et al (2016) based on actual TPP tariff commitments

III IMPACTS OF TPP & CPTPP ON VIETNAM

Using data from World Bank, we analyze the effects of TPP and CPTPP in five dimensions: Output, Export, Import, Welfare change, Income & poverty reduction

1 Output

Free trade agreements often affect output growth by changing both supply and demand As shown in the below graph, Vietnam’s GDP gains from integration would

be higher in TPP The estimated gains by 2030 would be a GDP increase of 3.6% and 1.1% compared to be baseline scenario under TPP and CPTPP respectively As a result, it can be concluded that Vietnam significant loses when the USA exits the Trans-Pacific agreement

In terms of specific affected sectors, TPP would bring the largest benefits to the Wearing apparel and leather sector, and Textiles, while F&B gains the most under CPTPP by 2030 However, similar to the big picture of the whole economy, output growth of these sectors dramatically affected when the USA quits For example, output of textiles and apparel are about 40 and 80 billion USD different from the baseline, respectively, with the USA participating in the TPP whereas the corresponding figures are reduced to only around 3 and 10 billion USD, respectively, under CPTPP

2 Export

Trade growth is the most prospective economic macroeconomic indicators since FTAs usually tend to reduce trade barriers between member countries

Table 1 Vietnamese and foreign tariffs and non-tariff measures ad valorem

equivalents (trade-weighted) before and after trade liberalization, for markets included in each FTA, %

Tariff s faced by Vietnam on

4.2 FTA markets

Tariff s imposed by Vietnam

3.2

on FTA members

NTB faced by Vietnam on

9.4 FTA markets

NTB imposed by Vietnam on

10.3 FTA members

Source: World Bank

As of 2030, under TPP, Vietnam’s export value would be 59.2 billion USD higher with respect to baseline and 13.1 billion USD higher under CPTPP

FTAs tend to increase export flows toward member countries For instance, under CPTPP exports to these countries would climb from 54 billion USD to 80 billion USD

by 2030, reaching 25% of total Vietnam’s export value

Vietnam’s export value to CPTPP members would see an increase in F&B, Wearing apparel and leather, and Textiles of 10.1 billion USD, 6.9 billion USD and 0.5 billion USD in that order On the other hand, also with this FTA, Agriculture would experience the largest net decline of 1.6 billion USD Under TPP the USA would double its share in Vietnam’s exports reaching 37% by 2030 Under TPP the export portfolio across sectors will recognize the domination of Wearing apparel and leather with an increase of US$54.4 billion, along with another focus - Textiles

Vietnam is the second largest apparel supplier in the US market, making up almost 13% of total US’s import value of textiles and apparel With the withdrawal of USA in TPP, Vietnam could boost their export of these products with greater market access in other CPTPP member countries or non-members like Japan, Australia, Canada, Mexico and Chile

So, absence of the USA in the TPP will obviously have an negative effect on the export of Vietnam but at the same time, we would also enjoy a positive export growth rate even without getting any preferential access into the US market through the TPP, and expand our access to new and promising markets This below graph since the USA drops out from TPP, the share of CPTPP member countries in our country’s export structure will grow from 18% to a quarter in 2030

3 Import

Vietnam will experience substantial growth in import of 21.7% and 5.3% compared to the baseline in 2030 under TPP and CPTPP, respectively In FTAs, the developing

countries usually gain most from their own tariff liberalization (Cimino-Isaacs and Schott 2016)

The United States is not one of our top import markets, so its withdrawal would have

no significant impact on import growth The most outstanding beneficiary under TPP

is Textiles while under the latter FTA, benefited sectors are more evenly distributed, including Chemical, rubber, plastic products; Wearing apparel and leather; Textiles; Food, beverages, tobacco; Natural resources/mining and Agriculture,

4 Welfare

For Vietnam, welfare levels reach a substantial extent If the USA would have been in the agreement, then the welfare change for Vietnam would be 5927.1 million USD which would be reduced to $ 1209.1 million without the USA in TPP, that is, the welfare of the country would lose by almost 80%

5 Income and poverty reduction

Sectoral expansion determines demand for labor and equilibrium wages A more ambitious and wider reaching trade agenda (TPP-12), despite its larger gains, would tend to increase the skill wage premia and concentrate benefits on the more educated and wealthier segments of the population By 2030 and under TPP-12, there will be a 5.8% difference between the growth in the rich’s income and the poor’s, while this gap under CPTPP is only 2%

Impact on poverty reduction is expressed in millions of people from poverty CPTPP would have lifted from poverty (at PPP$5.50/day) 0.6 million of people by 2030 -half of the effect obtained with TPP

TPP-12 exhibits the largest effects on poverty reduction due to biggest boost to growth By 2030, it would have lifted from poverty (at PPP$5.50 a day) 1.4 million people in addition to baseline conditions Using a poverty line of $3.20 a day, it can be seen that differences in poverty impacts between scenarios are more moderate in comparison

IV SUMMARY AND DISCUSSION

To sum up, this paper has been focused on the formulation and the impact of the TPP agreement and CPTPP agreement Moreover, this paper also aims to investigate the effect of the withdrawal of the USA and how it would affect the TPP - ASEAN economies, especially Vietnam

To understand about the effect, the paper compare two baseline scenarios: first developed considering the USA as a member of TPP and then as a non-member of the agreement

In the scenarios with the tariff reduction when the USA is a member, all of the TPP-ASEAN countries enjoy positive growth in total output and export as well as in import Vietnam registers the more significant growth in total output and total import compared to the other countries because the USA is the biggest partner of Vietnamese international trade As the TPP agreement comes into effect, the global welfare would

be expected to increase when all the members of the TPP agreement will gain benefits

On the other hand, when the USA is omitted in the list of TPP members, the growth rates appear to fall considerably in all respects However, the remained countries of the TPP agreement would face a positive output and export growth rates despite the absence of the USA As a result, the global welfare also reduces when the CPTPP is implemented Without the presence of America, Canada and Japan will become the beneficiaries enjoying more gain in welfare because they would become the major players in the CPTPP agreement The other economic factors like income also experience positive growth rates with tariff reduction even when the USA is not in Absolutely, the growth rates are considerably less than when the TPP agreement is applied

TPP is an opportunity to make a big leap for the TPP-ASEAN nations in many aspects such as economic development, export promotion, improving services industry and so

on because the USA is the biggest partner of Asian countries

Even though not attractive as TPP, the CPTPP agreement is still needed to consider