Vietnam to see highest trade, income gains among RCEP members: WB

To estimate the economic and distributional impacts of RCEP in Vietnam, the World Bank constructed a baseline and four alternative scenarios. The baseline reflects the business-as-usual conditions, where the tariff schedules of previous agreements, including the most recent CPTPP, have been implemented, in parallel with the US-China trade war.

In the baseline, between 2020 and 2035, the average trade weighted tariff imposed by Vietnam declines from 0.8 per cent to 0.2 per cent, while the tariffs faced by Vietnam are reduced from 0.6 per cent to 0.1 per cent. To measure the effects of RCEP, the policy scenario was compared against this baseline.

The first scenario, the tariffs scenario, is exclusively the implementation of tariffs according to the RCEP tariffs’ reduction schedules. In the second, the RCEP scenario, the World Bank implemented reductions of tariffs and of non-tariff measures, including the tariff reduction of 35 per cent on agricultural goods; 25 per cent on manufacturing goods; and 25 per cent on services. The final productivity kick scenario assumes an increase in productivity, as the result of a higher degree of openness and falling trade costs.

Only when tariff reductions are combined with lower non-trade barriers (NTBs), are exporters able to take full advantage of the preferential rates under liberal rule of origin (ROO).

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, according to the World Bank report.

“In the productivity kick scenario, where a productivity shock is included, Vietnam has the highest gains of all RCEP member countries. Real income increases by 4.9 per cent relative to the baseline, higher than the gains for the bloc as a whole, where real income increases by 2.5 per cent,” the white paper said.

“Trade also increases the most in this scenario, with exports expanding by 11.4 per cent and imports by 9.2 per cent, relative to the baseline,” Vietnamese media reported quoting the document.

In the baseline, which incorporates long-term trends and accounts for all the current tariff liberalisation commitments within the region (except RCEP), real income in Vietnam is expected to grow by 112.7 per cent between 2020 and 2035, with exports and imports increasing by 155.5 per cent and 134.8 per cent 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 per cent between 2020 and 2035.

The benefits of the implementation of these measures are also reflected in trade, with exports and imports growing by 182.5 per cent and 155.5 per cent respectively, and between the same period.

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 per cent.

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

Fibre2Fashion News Desk (DS)