Vietnam Economy:
FTAs and Impacts
Vo Tri Thanh

Tokyo, 10 November 2015

30 Years of Doi Moi and Integration■ Impressive achievements
 VN became a (low-) middle income (GDP/pc 1990: <USD 100; 2014: USD
2050 in 2014; GSO-WB poverty incidence 1993: 57%; 2014: 13%)
 VN became more industrialized (Agriculture share of GDP 1991: 41%; 2014:18%)
 VN became a very open economy (Economic openness 2014: (X+M)/GDP ≈160.2%; FDI sector: 20.1% GDP; >65% export value; 21.7% of totalinvestment)■ … but not outstanding: Still low quality of growth (inefficient SOE
sector and public investment; high business costs; distorted production factormarkets); limited spill-over from FDI; weak position in the global/regional
value chains; widening income/asset gap; polluted and deteriorated
environment

■ and challenges
 Getting out of “low cost labour trap” and laying down fundamental
foundations for overcoming “middle-income trap”?
 Achieving (rather) high economic growth while ensuring social andenvironmental sustainability?

On the way of catching up: VN vs. some other economies

Source: Penn World Tables 8.0.

■ International (economic) integration is an integral part of Doi

Moi (together with market-oriented reforms. They are reinforced each other) Milestones: Unilateral liberalization in the earlier 1990s; ASEAN membershipand VN-US relation normalization 1995; APEC 1998; VN-US BTA 2000; WTOmembership 2007; FTAs, especially AEC, TPP; VN-EU FTA; RCEP) “3 pillars”: (1) The world & WTO; (2) Dynamic Asia Pacific region (2 tracks:
ASEAN integration & AEC  ASEAN + 1 FTAs  RCEP; VN-US BTA TPP); Bilateral comprehensive/strategic cooperation (with the majorpartners; beyond the economic, trade, and investment arrangements)

FTAs and Impacts on Vietnam Economy
M ilestones

StatusASEAN – China FTA
ASEAN – Korea FTA

Signed in 1992 (ASEAN-6); Vietnam participatedin 1995
Signed in 2000 and implemented in 2001.
Signed in 2004
Signed in 2006; (Thailand signed in 2009)

WTO

Accession in 2007

ASEAN – Japan CEP
Vietnam – Japan CEPASEAN – India CEP
ASEAN -Australia- New Zealand ECP
Vietnam – Chile FTA
Trans- Pacific Partnership (TPP)
Vietnam – European Union (EU) FTA
Regional Comprehensive Economic
Partnership (RCEP) (ASEAN+6)
Vietnam-European Free Trade Association
Vietnam – Korea FTA
Vietnam - Eurasian Economic Union FTA
ASEAN- Hong Kong FTA

Signed in 2008
Signed in 2008
Signed in 2009
Signed in 2009
Signed in 2011
Negotiation concluded
Negotiation concluded

AFTA (ATIGA) (then AFAS; AIA/ACIA, AEC)

Vietnam - US BTA

Negotiation in progress
Negotiation in progress
Signed in 2015
Signed in 2015
Negotiation in progress■ Rational for joining FTAs Expansion of and easier access to major markets
 Expansion of investment (especially FDI)
 A pressure/catalyst for institutional reforms & improvement of businessenvironment (Esp. TPP & VN-EU FTA)
 Geo-political considerations (TPP offers an environment to test Vietnam’s
capacity in handling and advancing, both economically and institutionally,
through the complexities in relation with the key partners)■ Despite challenges and several technical issues, the commitments
under FTAs, especially TPP & VN-EU FTA, basically consistent withthe reforms VN would like to and/or should follow in her new stageof development)

Signed and pending FTAs involving Vietnam■ TPP: Population: 900mill.; 28% world trade &37% world GDP■ RCEP: 48% world
population; 30% world
trade; 30% world GDP■ EU: Population: 500 mill.;
20% world trade; 26%world GDP■ ASEAN (2013)
Population: 625 mill.
GDP: USD 2400 bill.
Trade: USD 512 bill
FDI inflow: USD 122 bill.

■ Impacts on VN economy (Some estimations: very significant)Economic Impacts of Development of ASEAN++ FTA (RCEP)
16.0
13.4

14.0
12.0
9.5

10.0

8.3

8.0
5.8

6.04.0

2.3

5.0
3.0

3.3

2.9

2.00.0ASEAN
Coexistence of Five ASEAN+1 FTAs
Coexistence of Five ASEAN+1 FTAs and CJK FTAs
ASEAN+6 FTA

Note: Cumulative Percentage Point, deviation from baseline, 2011-15; NA for Myanmar due to data
availability. Source: Itakura (2013)

Impacts of TPP on GDP and export
Impact on GDPAmerica
United States
Asia
Japan
Malaysia
Singapore
Viet Nam
Australazia

Impact on export

GDP%- change
Change2025
compared(USD bill.
(USD bill.
to base2007)
2007)
scenario

Export2025(USD bill2007)

24,867
20,27334,901
5,338
431
415
340
1,634

4,163
2,813
10,403
1,252
336
712
239
392

101.7
76.6
125.2
104.6
24.2
7.9
35.7
10.7

Source: Petri and Plummer (2013)

0.41
0.38
0.36
1.96
5.61
1.90
10.52
0.65

%changeChangecompare(USD billd to2007)base
scenario
4.0
166.1
123.5
4.4
186.6
1.8
139.7
11.2
40.0
11.9
-4.0
-0.6
67.9
28.4
15.2
3.9

■ The simulations may over-estimate the actual (net) benefits due to: (i) theoverlapping of FTAs; and (ii) maximal liberalization commitments may nothappen in practice■ But the benefits could also be larger since the domestic (institutional) reforms
accompanying the implementation of FTAs are hardly captured in the modelbased quantitative analysis(Note: Most quantitative assessments underestimated the impacts of VN-US BTA and WTO
membership on VN’s trade and GDP growth. The outcomes of income gap even have beenless certain)

■ Some observations (so far) (Nearly) all key trading partners & investors are in FTAs. There are also
many industries under cooperation (i.e. VN-Japan: 6 sectors)
 A surge of FDI: since 2013 billions of USD have been invested in T&G andelectronic sectors, taking advantages of market access, ROOs; productionnetworks ) It is expected that US will become No 1 investor in VN

■ There are also new opportunities for investments in many

sectors/industries
 Exports of those sectors having comparative advantages (T&G, footwear,furniture, rice, coffee, aquaculture,..) (Note: ASEAN and VN are considered
as a resource-based economies) Consumption goods (distributions; pharmacy; tourism & entertainment) Infrastructure and real estate development
 Logistics (ASEAN MPAC and APEC connectivity) Participation (esp. of SMEs) in production networks/industrial clusters ledby TNCs (development of supporting industries & business-link services) Emerging new sectors: “green” industry; IT (“smart”) and e-commerce;creative industry

Concluding remarks■ VN is at a decisive point of time fortransforming the paradigm/pattern ofdevelopment by establishing foundations forovercoming “middle-income trap”■ VN needs to have a new impetus for reforms.
Interaction between domestic reforms andintegration (TPP; RCEP; VN-EU FTA;…) becomesmuch more profound■ The key issue is to realize the people’s
potentials, institutional reforms and promote
innovation (together with taking advantages andminimizing risks in context of integration
deepening and a changing world and region)

Thank you!