A Comparison of the Impacts of Vietnam’s Free Trade Agreements

Abstract As a member of ASEAN, Vietnam has negotiated a number of bilateral and regional trade agreements with Australia and New Zealand, China, India, Japan and Korea. It is also currently negotiating agreements with the European Union, Turkey and Chile. However, to date no systematic analysis has been undertaken to compare the impacts of these various agreements. China, Japan and Korea are the countries of major interest to Vietnam. Average tariffs on Vietnam’s exports are low, around five per cent, but very high peaks exist. Vietnam has relatively high average tariffs and in particular supports motor vehicles and garments. A static version of a general equilibrium model, GTAP version 7, is used to estimate the trade and welfare impacts of the various agreements. When the negotiated agreements are fully implemented, annual welfare increases amount to an estimated $2400 million per year, assuming flexible capital markets and the existence of some surplus unskilled labour. The agreements with India and Australia-New Zealand do very little for Vietnam because it has little trade with these countries. Liklewise, the pending agreement with Chile will contribute little to national welfare. Vietnam should focus on its upcoming agreement with the European Union, in which there is much at stake. These agreements are difficult to negotiate. An alternative approach, which has worked well for Vietnam in the past, is further unilateral liberalisation. This could generate large welfare gains of $1,738 million, almost as much as the sum of the various free trade agreements already negotiated.