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A Quantitative evaluation of Vietnam's accession to the ASEAN Free Trade Area

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  • Fukase, Emiko
  • Martin, Will

Abstract

Vietnam's accession into the ASEAN Free Trade Area (AFTA) has been an important step in its integration into the world economy. The authors use a multi-region, multi-sector computable general equilibrium model to evaluate how different trade liberalization policies of Vietnam and its main trading partners affect Vietnam's welfare, taking into account the simultaneous impacts on trade, output, and industrial structure. They conclude that: A) The static economywide effects of the AFTA liberalization to which Vietnam is currently committed are small. On the import side, the exclusion of a series of products from the AFTA commitments appears to limit the scope of trade creation, and the discriminatory nature of AFTA liberalization would divert Vietnam's trade from non-ASEAN members. B) Vietnam's small initial exports to ASEAN make the gains from improved access to partner markets relatively modest. Since Singapore dominates Vietnam's ASEAN exports and initial protection in Singapore is close to zero, there are few gains from preferred status in this market. C) When Vietnam extends its AFTA commitments to all of its trading partners on a most favored nation basis, its welfare increases substantially - partly because of the greater extent of liberalization partly because the broader liberalization undoes the costly trade diversion created by the initial discriminatory liberalization, and finally, because of the more efficient allocation of resources among Vietnam's industries. D) AFTA, APEC, and unilateral liberalizations affect Vietnam's industries in different ways. AFTA appears to benefit Vietnam's agriculture by improving its access to the ASEAN market. E) Broad unilateral liberalization beyond AFTA is likely to shift labor away from agriculture and certain import-competing activities toward relatively labor -intensive manufacturing. Reduced costs for intermediate inputs will benefit domestic production. These sectors conform to Vietnam's current comparative advantage, and undertaking broad unilateral liberalization now seems a promising way to facilitate the subsequent development of competitive firms in more capital- and skill- intensive sectors. By contrast, more intensive import competition may lead some import substitution industries (now dependent on protection) to contract. F)The higher level of welfare resulting from more comprehensive liberalization implies that the sector protection currently given to capital-intensive and strategic industries is imposing substantial implicit taxes on the rest of the economy. G) All of the above suggests that AFTA should be treated as an important initial step toward broader liberalization. Binding international commitments in AFTA and, in due course, at the World trade Organization can provide a credible signal of Vietnam's commitment to open trade policies that will help stimulate the upgrading of existing firms and investment in efficient and dynamic firms.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2220.

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Date of creation: 30 Nov 1999
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Handle: RePEc:wbk:wbrwps:2220

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Keywords: Environmental Economics&Policies; Agribusiness&Markets; Economic Theory&Research; Trade Policy; Labor Policies; Environmental Economics&Policies; Economic Theory&Research; TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT; Trade Policy; Trade and Regional Integration;

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  1. Martin, W. & Winters, L.A., 1995. "The Uruguay Round and the Developing Countries," World Bank - Discussion Papers, World Bank 307, World Bank.
  2. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 1-118.
  3. Diego Puga & Anthony J. Venables, 1995. "Preferential Trading Arrangements and Industrial Location," CEP Discussion Papers dp0267, Centre for Economic Performance, LSE.
  4. Martin,Will & Winters,L. Alan (ed.), 1996. "The Uruguay Round and the Developing Countries," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521586016.
  5. Puga, Diego & Venables, Anthony J., 1998. "Agglomeration and Economic Development: Import Substitution Vs. Trade Liberalization," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1782, C.E.P.R. Discussion Papers.
  6. Huff, Karen & Thomas W. Hertel, 2001. "Decomposing Welfare Changes in GTAP," GTAP Technical Papers 308, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  7. Martin, Will J. & Warr, Peter G., 1994. "Determinants of agriculture's relative decline: Thailand," Agricultural Economics, Blackwell, Blackwell, vol. 11(2-3), pages 219-235, December.
  8. Martin, Will J. & Warr, Peter G., 1994. "Determinants of agriculture's relative decline: Thailand," Agricultural Economics: The Journal of the International Association of Agricultural Economists, International Association of Agricultural Economists, International Association of Agricultural Economists, vol. 11(2-3), December.
  9. W. E. G. Salter, 1959. "Internal And External Balance: The Role Op Price And Expenditure Effects," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 35(71), pages 226-238, 08.
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Cited by:
  1. Nielsen, Chantal Pohl, 2002. "Social accounting matrices for Vietnam 1996 and 1997," TMD discussion papers, International Food Policy Research Institute (IFPRI) 86, International Food Policy Research Institute (IFPRI).
  2. Wilson, John S., 2002. "Liberalizing trade in agriculture : developing countries in Asia and the post-Doha agenda," Policy Research Working Paper Series 2804, The World Bank.
  3. Auffret, Phillipe, 2003. "Trade reform in Vietnam : opportunities with emerging challenges," Policy Research Working Paper Series 3076, The World Bank.

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