Estrades, Maliszewska, Osorio-Rodarte, and Seara E Pereira. (2021) In the baseline, which incorporates long-term trends and accounts for all the current tariff liberalization commitments within the region (except RCEP) in line with the ITC MacMap database, real income in Vietnam is expected to grow 112.7 percent between 2020 and 2035, with exports and imports increasing by 155.5 percent and 134.8 percent, respectively. With implementation of RCEP, when rules of origin and productivity are included on top of tariffs and non-tariff measures reductions, real income grows faster, with an increase of 123.1 percent between 2020 and 2035. The benefits of the implementation of these measures are also reflected on trade, with exports and imports growing 182.5 percent and 155.5 percent, respectively, and between the same period.

Vietnam’s real income and trade expand faster than the baseline in the scenarios with tariffs, non-tariff measure reductions and rules of origin, and in the productivity kick scenario (see Figure 17). In the productivity kick scenario, where a productivity shock is included, Vietnam has the highest gains of all RCEP member countries. Real income<sup>16</sup> increases by 4.9 percent relative to the baseline, higher than the gains for the bloc as a whole, where real income increases by 2.5 percent (Figure 8). Trade also increases the most in this scenario, with exports expanding by 11.4 percent and imports by 9.2 percent, relative to the baseline.

In the scenario where only the tariff reduction is implemented, the impact on Vietnam’s economy is negligible, with real income close to zero. Trade too sees a small reduction relative to the baseline, with both exports and imports declining by 0.3 percent. Vietnam is already deeply integrated into the region; therefore, any additional tariff reductions yield only negligible impacts. Like many other RCEP member countries, Vietnam is also part of the CPTPP and ASEAN. Vietnam has had an FTA with Korea, the Vietnam-Korea Free Trade Agreement, since 2015. China is the only country within the RCEP that Vietnam does not have a trade agreement with. All these treaties are accounted for in the baseline; thus, the difference of tariffs between the respective shock and baseline, in 2035, are small, resulting in a meager impact.

Figure 17. Macroeconomic impacts: Percentage change relative to business-as-usual scenario, 2035 <!-- Start of picture text --> 12.00<br>10.00<br>8.00<br>6.00<br>4.00<br>2.00<br>0.00<br>Real Income Real Exports Real Imports<br>-2.00<br>Tariffs alone RCEP ROO liberalization Productivity kick<br><!-- End of picture text -->

# Source: World Bank staff calculations using ENVISAGE model

A progressive liberalization increases trade with RCEP member countries, sometimes at the expense of trade with non-members. As a direct consequence of the implementation of the RCEP, trade with RCEP member countries expands faster than trade with non-member countries in most scenarios (Figure 18). In the productivity kick

> 16 Real income is the expenditure to attain utility in year t in any given simulation using base year prices. It is similar in magnitude to real private consumption.

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