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The effect of the United States'granting Most Favored Nation status to Vietnam

Author

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  • Fukase, Emiko
  • Martin, Will

Abstract

Since the U.S.embargo on trade with Vietnam was lifted in 1994, exports from Vietnam to the United States have risen dramatically. However, Vietnam remains one of the few countries to which the United States has not yet granted most favored nation (MFN) status. The general tariff rates that the United States imposes average 35 percent compared with 409 percent for the MFN rate. Granting MFN status to Vietnam would improve its terms of trade and help improve the efficiency of resource allocation in the country. Better access to the U.S. market would increase the volume of Vietnamese exports to the United States and the prices received for them while also reducing their costs to U.S. users. The authors use a computable general equilibrium model to examine the effects of reducing U.S. tariffs on Vietnamese imports from general rates to MFN rates. They estimate tariff changes using the U.S. tariff schedule for 1997 weighted by Vietnam's exports to the United States. The results suggest that after a change to MFN status for Vietnam, its exports to the United States would more than double, from the 1996 baseline of $338 million to $768 million. By conservative estimates, welfare gains in Vietnam would be about $118 million a year, or a 0.9 percent increase in real income per capita. Sixty percent of that gain would come from improved terms of trade and the other 40 percent from gains in efficiency. Because Vietnam's exports to the United States have been growing rapidly since the lifting of the embargo in 1994, the trade expansion resulting from MFN status may be larger by the time Vietnam obtains it. Based on 1998 values, the increase in exports would have been around $750 million a year. For the United States, lowering the high tariffs on imports from Vietnam would improve consumer welfare by lowering prices and increasing the volume of those imports. The direct welfare gains in the United States are estimated to the $56 million a year. There are likely to be significant additional gains to both countries from the liberalization Vietnam will undertake as a result of the negotiation for MFN status and for entry into the World Trade Organization.

Suggested Citation

  • Fukase, Emiko & Martin, Will, 1999. "The effect of the United States'granting Most Favored Nation status to Vietnam," Policy Research Working Paper Series 2219, The World Bank.
    • Handle: RePEc:wbk:wbrwps:2219
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    References listed on IDEAS

    as
    1. James Riedel, 1993. "Vietnam: On the Trail of the Tigers," The World Economy, Wiley Blackwell, vol. 16(4), pages 401-422, July.
    2. Hertel, Thomas, 1997. "Global Trade Analysis: Modeling and applications," GTAP Books, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, number 7685, December.
    3. Martin, W. & Winters, L.A., 1995. "The Uruguay Round and the Developing Countries," World Bank - Discussion Papers 307, World Bank.
    4. Martin,Will & Winters,L. Alan (ed.), 1996. "The Uruguay Round and the Developing Countries," Cambridge Books, Cambridge University Press, number 9780521586016.
    5. James E. Anderson & Will Martin, 1996. "The Welfare Analysis of Fiscal Policy: A Simple Unified Account," Boston College Working Papers in Economics 316., Boston College Department of Economics.
    6. P. J. Lloyd, 1999. "International Trade Opening and the Formation of the Global Economy," Books, Edward Elgar Publishing, number 1623.
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    Cited by:

    1. Abbott, Philip & Bentzen, Jeanet & Tarp, Finn, 2006. "Vietnam’s Accession to the WTO: Lessons from Past Trade Agreements," MPRA Paper 61679, University Library of Munich, Germany.
    2. Keshab Bhattarai & Dung Thi Kim Nguyen & Chan Van Nguyen, 2019. "Impacts of Direct and Indirect Tax Reforms in Vietnam: A CGE Analysis," Economies, MDPI, vol. 7(2), pages 1-36, May.
    3. Dimaranan, Betina & Ianchovichina, Elena & Martin, William J., 2007. "China, India, and the future of the world economy : fierce competition or shared growth?," Policy Research Working Paper Series 4304, The World Bank.
    4. Jibran Hussain & Ahsan Ali & Muhammad Haseeb, 2017. "Regional Trade Between India and Pakistan: Prospect of Most Favourite Nation (MFN)," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 7(12), pages 1179-1196, December.
    5. Nielsen, Chantal Pohl, 2002. "Social accounting matrices for Vietnam 1996 and 1997," TMD discussion papers 86, International Food Policy Research Institute (IFPRI).

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