Trade Liberalisation and Rural Poverty in Vietnam

Abstract Vietnam is about to sign a path-breaking free trade agreement with the European Union. When fully implemented, this will lead to a significant increase in exports from Vietnam to the European Union. The major sectors to benefit include textiles, apparel, footwear and fish. However, tariff reductions will expose Vietnam’s less competitive agricultural sectors, such as beef, dairy, pork and sugar. This has implications for rural poverty, given that many poor people reside in rural areas. The likely effects are quantified using GTAP, a well-known general equilibrium model. The standard model is modified to account for an expanding economy since the base year (2007) and for expected growth to 2025, the period in which tariff reform is expected to be completed. To project the baseline to 2025, we first use forecasts of capital, labour, land and natural resources to 2025. Next, we use the model to find productivity growth that will generate each year’s GDP target, given the growth in factors of production. We then feed the resulting productivity changes back into the model and solve as normal to reproduce the target growth in output. The baseline takes account of known reductions in tariffs from FTAs negotiated but not fully implemented. This includes Vietnam’s FTAs with ASEAN (AFTA), China (ACFTA), Korea (AKFTA), Japan (AJCEP), India (AIFTA), and Australia and New Zealand (AANZFTA). However, it does not include agreements which have not been negotiated, such as the TPP. The EU-VNM free trade agreement is still under negotiation, but the expected tariff cuts and exemptions can be estimated by looking at the EU agreements with Korea, the Caribbean and several Latin American countries, and the Vietnamese agreement with Japan, Korea and China. These agreements specify a sensitive list, a highly sensitive list and an exclusion list, and this gives an indication of the sectors that Vietnam would like to protect and is perhaps prepared to phase out protection ov...