WB: Việt Nam will achieve the highest trade and revenue gains among RCEP members

VIETNAM, February 23 –

Production of workwear for export. With the establishment of RCEP, Việt Nam’s export market will expand, particularly to China, where Việt Nam currently has no trade agreement. VNA/VNS Photo Trần Việ

HÀ NỘI — Việt Nam is expected to register the highest trade and income gains among RCEP (Regional Comprehensive Economic) members, according to a World Bank (WB) working paper.

To estimate the economic and distributional impacts of RCEP in Việt Nam, the WB constructed a reference scenario and four alternative scenarios. The baseline reflects status quo conditions, where tariff schedules from previous agreements, including the most recent CPTPP, have been implemented, alongside the trade war between the United States and China.

In the Reference Scenario, between 2020 and 2035, the trade-weighted average tariff imposed by Việt Nam decreases from 0.8% to 0.2%, while the duties to which Việt Nam is subject are reduced by 0 .6% to 0.1%. To measure the effects of RCEP, the policy scenario will be compared to this baseline.

The four policy scenarios will progressively measure the implementation of RCEP. The first scenario, the Tariffs scenario, is exclusively the implementation of tariffs according to the RCEP tariff schedules.

In the second scenario, the RCEP scenario, the WB implemented tariff reductions and non-tariff measures, including the 35% tariff reduction on agricultural products; 25 per cent on manufactured goods; and 25 percent on services.

It is only when tariff reductions are combined with reduced non-trade barriers (NTBs) that exporters can take full advantage of preferential rates under the liberal rule of origin (ROO).

The World Bank has assumed that with the rules of origin regime, the third scenario, trade costs between its members are reduced by 1% over the implementation period 2022-2035. However, in the World Bank simulations, the implementation of the ROO policy is free, which results in upper bound estimates of potential gains.

For the final shock, the productivity boost scenario, an increase in productivity, resulting from a higher degree of openness and lower trade costs, is implemented.

Việt Nam’s real income and trade grow faster than the baseline scenario in the scenarios with tariffs, reductions in non-tariff measures and rules of origin, and in the productivity recovery scenario.

“In the productivity boost scenario, where a productivity shock is included, Việt Nam has the highest gains of all RCEP member countries. Real income increases by 4.9% from baseline, which is higher than gains for the bloc as a whole, where real income increases by 2.5%,” the WB reported.

“Trade also increases the most in this scenario, with exports increasing by 11.4% and imports by 9.2%, compared to the baseline scenario.”

In the baseline scenario, which incorporates long-term trends and takes into account all current tariff liberalization commitments in the region (except RCEP), real income in Việt Nam is projected to increase by 112.7% between 2020 and 2035, with exports and imports increasing by 155.5% and 134.8%, respectively.

With the implementation of RCEP, when rules of origin and productivity are included in addition to tariff reductions and non-tariff measures, real income grows faster, with a 123.1% increase between 2020 and 2035.

The benefits of implementing these measures are also reflected in trade, with exports and imports increasing by 182.5% and 155.5% respectively over the same period.

In the scenario where only tariff reduction is implemented, the impact on Việt Nam’s economy is negligible, with real income close to zero. Trade also sees a slight reduction from the baseline, with both exports and imports declining by 0.3%.

“With the establishment of RCEP, the Việt Nam market will expand, particularly towards China, where Việt Nam currently has no commercial agreement. The gains in the productivity revival scenario are mostly concentrated in the manufacturing sectors, particularly garments, electrical equipment and textiles,” WB reported.

“Some sectors will suffer losses with the implementation of the agreement, due to a redistribution of resources towards more productive sectors.”

The COVID-19 pandemic has wreaked human and economic havoc. RCEP could help cushion the negative effects of COVID-19 on economic growth by supporting regional trade and value chains, according to this report.

In the medium/long term, RCEP would increase the resilience of its members, making them better prepared for future shocks by strengthening regional collaboration, reducing trade costs and further diversifying their economies. RCEP provides an opportunity to drive growth and support recovery from the COVID-19 pandemic. VNS

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