Vietnam's Trade Policy Dilemmas

Vietnam faces alternative options in opening its economy to trade. It is about to join the World Trade Organization; as a member of the ASEAN Free Trade Area it is contemplating extending the regional trade area to include China, Korea and Japan; and it has recently concluded a bilateral agreement with the United States. Opening up to trade is a two-edged sword, with the beneficial effects of improved market access and resource allocation liable to be partially or totally offset by adverse terms of trade effects and significant, albeit one-off, cost of structural adjustment. Simulations of unilateral, bilateral, regional and multilateral liberalization reform and a tariff harmonization scenario are undertaken using a general equilibrium model, GTAP. Results indicate that significant welfare benefits could be obtained from unilateral liberalization without the need to negotiate with others. Harmonization of tariffs at the current average also shows to be beneficial in raising tariff revenues with little need for adjustment. The extension of AFTA brings moderate benefits, as does a multilateral reform which reduces applied tariffs by 50 per cent. There are only limited gains in the agricultural and resources sectors, as these major exports face low tariff barriers. However, the market for Vietnam's textiles and apparel is crucially important.