Tài liệu Likely dead trans pacific partnership agreement and vietnam's apparel

UNIVERSITY OF ECONOMICS HO CHI MINH CITY ERASMUS UNVERSITY ROTTERDAM INSTITUTE OF SOCIAL STUDIES VIETNAM – THE NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS LIKELY-DEAD TRANS-PACIFIC PARTNERSHIP AGREEMENT AND VIETNAM’S APPAREL By NGUYEN THI TUONG VY MASTER OF ARTS IN DEVELOPMENT ECONOMICS HO CHI MINH CITY, December 2016 UNIVERSITY OF ECONOMICS HO CHI MINH CITY VIETNAM INSTITUTE OF SOCIAL STUDIES THE HAGUE THE NETHERLANDS VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS LIKELY-DEAD TRANS-PACIFIC PARTNERSHIP AGREEMENT AND VIETNAM’S APPAREL A thesis submitted in partial fulfilment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS By NGUYEN THI TUONG VY Academic Supervisor: Dr. LE THANH LOAN HO CHI MINH CITY, December 2016 DECLARATION I hereby certify that the thesis “Likely-dead Trans-Pacific Partnership Agreement and Vietnam’s apparel” is my original work and have not been being submitted for any other degrees. This thesis was fulfilled under the instruction and supervision of Dr. Le Thanh Loan. To the best of my knowledge, all the contents that are not my own work have been acknowledged and cited in the thesis. Signature Nguyen Thi Tuong Vy Ho Chi Minh City, 2016 i ACKNOWLEDGEMENT First, I would like to express my great appreciation to my supervisor Dr. Le Thanh Loan for her patient and helpful instruction, discussion and support during the period I wrote this dissertation. I would also like to express my gratitude to Dr. Pham Khanh Nam and Dr. Truong Dang Thuy. They have shown the most willingness and enthusiasm to help when I had trouble with the research. Furthermore, I am sincerely grateful to the VNP lecturers and office staff for having provided so useful knowledge, inspiring lessons and great support during the course. Finally, I would like to show my deep thankfulness to my family, my colleagues and my friends for always accompanying and encouraging me to confront the difficulties and achieve the target. ii ABSTRACT The thesis aims to investigate the impact of the proposed Trans-Pacific Partnership (TPP) agreement on Vietnam’s apparel industry. The TPP is a not-yet-in-force agreement and is stiffly opposed by the new president of the United States (US), however it has still received supports from remaining members. Hence, the research first constructs four possible scenarios that the TPP may result in; it then analyzes the impact of the agreement on Vietnam’s apparel in each scenario through two main policies, namely tariff elimination and rule of origin. The main methodology of this study is the ex-ante partial equilibrium analysis with the global simulation model “Global Simulation Analysis of Industry-Level Trade Policy” (GISM). The research uses the 2014 trade and tariff database of Vietnam and other ten key partners in the backward and forward linkages of Vietnam’s apparel industry. The data is accessed through the World Integrated Trade Solutions (WITS). The research result shows that Vietnam apparel industry seems to benefit most from the fully implemented TPP with tariff elimination by increasing exports to the other members; yet, the origin regulation would be a huge restriction for Vietnam’s benefit optimization from the agreement. Furthermore, if the US withdraws from the TPP, export value and trade welfare of Vietnam’s apparel would also reduce as the US is the main importer of Vietnam’s apparel product. However, if the TPP is totally failed and Vietnam shifts to join in a new free trade area namely Regional Comprehensive Economic Partnership (RCEP) with such leading apparel’s input suppliers, for example China, Korea, India, the ability for Vietnam to comply this regulation of yarn-forward is quite feasible, which in turn can promote Vietnam garment export into the new free trade area. Keywords: TPP, Vietnam apparel, partial equilibrium model, GISM. iii Contents DECLARATION ....................................................................................................... i ACKNOWLEDGEMENT ....................................................................................... ii ABSTRACT ............................................................................................................. iii LIST OF TABLES................................................................................................... vi LIST OF FIGURES................................................................................................ vii CHAPTER 1_INTRODUCTION ............................................................................1 1.1. Problem statement .................................................................................................................. 1 1.2. Research objective and research questions .......................................................................... 2 1.3. Research scope and methodology .......................................................................................... 3 1.4. Expected contribution of the thesis ....................................................................................... 3 1.5. Organization of the thesis....................................................................................................... 4 CHAPTER 2_LITERATURE REVIEW ................................................................5 2.1. Theoretical literature .............................................................................................................. 5 2.1.1. Theoretical analysis of the free trade agreement’s impact .............................................. 5 2.1.1.1 Ex-post and ex-ante analyses ............................................................................................ 6 2.1.1.2. Aggregated and disaggregated analyses ......................................................................... 7 2.1.2. Partial equilibrium and the impact of free trade agreement ......................................... 10 2.1.2.1. Theoretical framework development ............................................................................ 10 2.1.2.2. Analysis models ............................................................................................................... 12 2.1.3. Rule of Origin’s impact on apparel industry................................................................... 14 2.2. Empirical reviews ................................................................................................................. 14 2.2.1. Impact of the TPP agreement ........................................................................................... 15 2.2.3. Application of GISM model .............................................................................................. 18 2.3. Logical framework ................................................................................................................ 20 CHAPTER 3_TPP AGREEMENT AND VIETNAM’S APPAREL INDUSTRY ...................................................................................................................................21 3.1. TPP agreement and the “yarn-forward” rule .................................................................... 21 iv 3.1.1. TPP agreement ................................................................................................................... 21 3.1.2. TPP regulation on apparel industry - yarn-forward” rule ............................................ 22 3.2. Vietnam’s apparel industry ................................................................................................. 22 3.2.1. Vietnam’s main export apparel products and markets .................................................. 23 3.2.2. Vietnam’s apparel main export competitors ................................................................... 23 3.2.1. Vietnam’s main import textile and apparel products and suppliers ............................. 23 CHAPTER 4_METHODOLOGY AND DATA ...................................................30 4.1. Methodology .......................................................................................................................... 30 4.2. Scenarios ................................................................................................................................ 33 4.3. Data ........................................................................................................................................ 34 CHAPTER 5_SIMULATION RESULTS .............................................................36 5.1. Impact of TPP agreement on trade value of Vietnam's apparel industry ....................... 36 5. 2. Impact of TPP agreement on trade value of Vietnam's apparel products ..................... 39 5.3. Impact of TPP agreement on trade welfare of Vietnam's apparel industry .................. 40 5. 4. Impact of TPP agreement on trade welfare of Vietnam's apparel products .................. 43 5. 5. Main competitors and export market of Vietnam's apparel products............................ 43 CHAPTER 6_CONCLUSION, POLICY IMPLICATION AND THESIS’S LIMITATION ..........................................................................................................46 6.1. Conclusion ........................................................................................................................... 466 6.2. Policy implication.................................................................................................................. 49 6.1. Thesis’s limitaion .................................................................................................................. 50 REFERENCE ..........................................................................................................51 APPENDIX ..............................................................................................................55 v LIST OF TABLES Table 3.1. Details of some main export apparel of Vietnam in 2014 .............................. 24 Table 3.1. Export shares in three leading apparel importing countries in 2014 .............. 28 Table 5.1. Change in export value of Vietnam’s apparel in different scenarios ............. 38 Table 5.2. Change in the apparel prices ........................................................................... 38 Table 5.3. Export value of Vietnam’s apparel products at HS digit 4-level.................... 39 Table 5.4. Total net welfare components of Vietnam’s apparel ...................................... 41 Table 5.5. Total net welfare components of other countries ........................................... 42 Table 5.6. Total net welfare components of Vietnam’s apparel products ....................... 43 Table 5.7. Main competitors and export markets of Vietnam apparel ............................ 44 vi LIST OF FIGURES Figure 2.1. Tariff elimination in a small country............................................................. 11 Figure 2.2. Conceptual framework ................................................................................... 20 Figure 3.1. Vietnam's export apparel in 2014 .................................................................. 23 Figure 3.2. Vietnam's main export apparel products group HS 61 and HS62 in 2014.... 24 Figure 3.3. Main apparel’s importing countries in 2014 ................................................. 25 Figure 3.4. Vietnam's main export apparel products HS61 in 2014 ................................ 26 Figure 3.5. Vietnam's main export apparel products HS62 in 2014 ................................ 26 Figure 3.6. Main apparel’s exporting countries in 2014 .................................................. 27 Figure 3.7. Vietnam main import textile and apparel in 2014 ......................................... 29 Figure 3.8. Vietnam textile’s main import markets in 2014 ............................................ 29 Figure 4.1: Producer and Consumer surplus.................................................................... 33 Figure 5.1. Change in apparel export value of countries in scenario 1 ........................... 37 Figure 5.2. Producer surplus of countries in different scenarios ..................................... 41 vii CHAPTER 1 INTRODUCTION 1.1. Problem statement Trans-Pacific Partnership (TPP) Agreement is a free trade agreement among the 12 countries1 with the aim of increasing economic integration in Asia – Pacific region. Stemmed from a tripartite agreement called Closer Economic Partnership Pacific Three (P3-CEP), the agreement quickly attracted attention and participation of the other nine countries. On the date of February 4th 2016, the TPP was officially signed and most member countries are looking forwards the parliament’s ratification with the expected enforcement by 2018. However, the TPP enforcement is a controversial issue recently. On the one hand, the agreement has faced with stiff opposition from the future incumbent president and his party of the Unites State as the most developed member in the agreement. On the other hand, many other countries have shown efforts in promoting the validation of the agreement, such as Japan, Australia, New Zealand and Peru. These events have aroused many predictions about the future of TPP. Regarding to the apparel industry, for years, it has always been one of the major trading sectors of Vietnam. Vietnam's garment exports in 2015 reached 22.81 billion US dollars, a growth rate of 8.91% higher compared to 2014. The United States is the major importer, accounting for over 48% of the total export value of the country's garment, with 10.96 billion US dollars, following by Japanese market, accounting for 12.21%. This sector also creates more than 2.5 million jobs annually. However, Vietnam's apparel sector has not be able to produce high-quality raw materials to conform with the requirements of export production, but heavily depending on imports inputs, including yarns and fibers, cottons and fabrics. Vietnam is reported of 54 per cent self-sufficiency in clothing production, according to GTAP data which is derived from the national account (Vanzetti and Pham, 2014), and the rest is imported mainly from China, Korea and Japan (for yarns and fabrics), and the U.S., India, Brazil and Australia (for cotton and fiber). Except for the U.S., Japan and Australia, most of these countries are not the members of TPP. This problem will lead to major constraints in maximizing TPP’s potential benefits due to restrictive rule of origin requirements: ‘yarn-forward’. 1 12 TPP members: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, The United State and Vietnam (https://ustr.gov/tpp/) 1 Yarn-forward rule of origin requires the TPP nations to use a TPP members-produced yarn in textiles in order to receive duty-free access. For example, under the TPP “yarn forward” rule, the yarn, fabric, sewing thread and the garment itself must be made in the region, rather than outside players such as China. At present, about 80 or 90 per cent of Vietnam’s textiles come from other countries, mostly from China, Korea and Japan. Hence, in order to benefit the tariff elimination from the TPP agreement, Vietnam may have to shift the raw material import from traditional partners to TPP members like the U.S. and Australia, or enhance the self-sufficiency capacity. Overall, if the TPP agreement enters into force, this agreement is expected to have significant impact on the apparel industry of Vietnam. First, the tariff preferences in the TPP (reducing to 0%) may create more opportunities for market access and export promotion of Vietnam’s apparel product, which results in the increase in trade value and net welfare. Vietnam garment can also occupy more market shares in the United States and Japan from the non-TPP competitors such as: China, India and Bangladesh. Next, the origin regulation ‘yarn-forward’ of the agreement on the apparel sector would be a huge restriction for Vietnam’s benefit optimization from the tariff elimination, since Vietnam's garment industry depends heavily on raw material inputs from the non-TPP countries. On the other aspect, if the TPP agreement can not take effect, or the US unilaterally withdraw from the agreement, the scenarios may also have remarkable impact on Vietnam’s apparel industry. Despite numerous studies about the impact of the TPP on its member countries, there are not many researches focus on the Vietnam’s apparel sector, especially on more specific apparel products and under different scenarios including the probability of the likely-dead TPP. Therefore, the analysis of an ex-ante partial equilibrium models to predict the impact of the TPP on Vietnam’s apparel is necessary and contributable for the economic development strategy and general policy of Vietnam under integration conditions. The analysis would provide quantitative data about the development trend of the industry, which helps the policy makers to adjust the plans and strategies for the technology and human resources development as well as the input supplier, export markets and product categories. 1.2. Research objective and research questions The thesis aims to investigate the impacts of the proposed TPP agreement on the Vietnam’s apparel industry. 2 The following questions will be answered to clarify the research objective: (i) How much are the impacts of the TPP agreement on the trade value of Vietnam’s apparel export products? (ii) How much are the impacts of the TPP agreement on the consumer and producer surplus and the tariff revenue from the industry? (iii) How does the TPP agreement change the export markets and competitors of Vietnam’s apparel products? 1.3. Research scope and methodology The ex-ante partial equilibrium analysis for the apparel industry is applied in the study with the available Global Simulation Analysis of Industry-Level Trade Policy (GISM) model. The analysis focused on the impacts on trade value, trade welfare, export markets and main competitors of Vietnam’s apparel products. The research uses the bilateral trade and tariff data in 2014 of eight sub-apparel products at HS 4-digit code of Vietnam and ten main partners in the backward and forward linkages of Vietnam’s apparel industry, including: Australia, Bangladesh, Canada, China, EU, India, Japan, Korea, Mexico, the US. The data is collected from the United Nation Comtrade and the Trade Analysis Information System (TRAINS) through the access to the World Integrated Trade Solutions (WITS). 1.4. Expected contribution of the thesis First, not stopping at the simulating the impact of the TPP’s fully implementation, the thesis takes into account two further scenarios: (i) a without-US TPP and (ii) a likely-killed TPP with a new FTA driven by China, namely RCEP. These scenarios are inspired by the fact that the TPP has been stiffly opposed during the recent US presidential election period, especially from the new US president Donald Trump. Second, with the application of the partial equilibrium GISM model, the study can evaluate at disaggregated level of the TPP’s effect on Vietnam's garment industry and with more update data in compared with the popular general equilibrium. Particularly, the subsectors will include the main 8 groups of apparel products with the classification up to HS digit-4 level. As the tariff elimination schedule is different among products, the 3 disaggregated analysis will help to estimate which group of products may benefit or lost most due to the agreement’s impact. Third, the thesis analyzes the impact on Vietnam's garment industry in the relationship with the other direct competitors like China and India, who are also the leading apparel exporters in the world. As these countries are not the TPP members, taking them into account would consider the change in the international market share Vietnam’s apparel products. 1.5. Organization of the thesis This thesis consists of five chapters.  Chapter 1 introduces the motivation and objective of the research.  Chapter 2 presents a review of theoretical and empirical studies.  Chapter 3 overviews the TPP agreement and the Vietnam’s textile and apparel industry.  Chapter 4 develops the methodology and data collection for the research.  Chapter 5 simulates the model, analyses, and discusses the simulation results.  Chapter 6 summarizes main findings, suggests policy implications and present several limitation of the study. 4 CHAPTER 2 LITERATURE REVIEW 2.1. Theoretical literature Trans-Pacific Partnership (TPP) agreement is a new-generation free trade agreement (FTA) with wider-range commitments including both trading and non-trading issues. The agreement, if enforced in 2018, would be considered as the highest level commitment FTA so far in Vietnam and most of other TPP members. Therefore, researchers have used familiar theoretical frameworks of studying an FTA for the analysis of the TPP agreement’s impacts. The following sections provide an theoretical overview of:  Theoretical review of the FTA’s impact analysis,  The partial equilibrium model for the ex-ante and industrial analysis of the FTA’s impact (such as the TPP) on a specific sector, particularly the apparel sector of Vietnam in this study,  The impact of the rule of origin, which is one of the most challenges to an FTA implementation on apparel industry. Details about specific terms of the TPP relating to apparel and the argument whether or not it may come into force as well as Vietnam’s apparel industry will be discussed in Chapter 3. 2.1.1. Theoretical analysis of the free trade agreement’s impact A multilateral FTA like TPP is a form of trade liberalization, in which trade barriers are first reduced and then eliminated among nation members (Snorrason, 2012). The most visible manifestation of this kind of trade liberalization is the mutual granting of tariff elimination among members. Among different types of regional economic integration, an FTA achieves greater integration level than a preferential trade agreement, but still has not reached such a complicated level of integration like a custom union, a common market or a monetary union (Balassa, 2013 ). Also, the FTA is one of the most popular agreements being negotiated and/or come into force (with the total of 226 agreements accumulated by February 2016)2. Therefore, it is understandable that many of international trade experts have both 2 FTAs by Status (cumulative) https://aric.adb.org/fta-trends-by-status 5 theoretically and empirically raised concerns about the impact of this kind of agreement on each member, the whole union, as well as the global economy. It would be too ambitious for the discussion of the FTA’s impact in general. Hence, within the scope of the thesis, the author will address the theoretical framework of an FTA’s effect in two aspects: (i) ex-post or ex-ante analysis and (ii) aggregated or disaggregated analysis. Accordingly, the TPP is a not-yet-in-force agreement; also, the author's research aims to analyze the impact on Vietnam's garment sector in terms of sub-sectors. Hence, the theoretical review will focus mostly on ex-ante and disaggregated analysis. 2.1.1.1 Ex-post and ex-ante analyses The major consideration that researchers may often take into account is which methodological approach is the more suitable one to assess the effects of a given policy measure, especially under given existing restraints. One of the factors affecting the selection of alternatives is the validity of agreement, by that, we have the choice between ex-post and ex-ante analysis (Bacchetta et al., 2012). The ex-post approach bases on the database of the existing agreement, while ex-ante procedure uses the simulation methods to evaluate the potential economic effects of a new or not-yet-come-into-force trade agreement. Ex-post analysis can be used when the FTA have had effects for an adequate period of time and historical data can be collected. A well-know representation for this approach is the gravity model. First introduced in 1962 by Tinbergen, the traditional gravity model has been used popularly in various studies on identifying the determinants of bilateral trade. The basic gravity equation explains the bilateral trade capacity of two countries directly relating to the economic size and the distance between them (Tinbergen, 1962). Following, a large numbers of experts have developed the theoretical background for the model. Among them, Anderson and Wincoop (2003) have estimated a theoretical gravity equation and calculates the comparative statics of trade frictions at the bilateral level (Bilateral Resistance) and Multilateral level (Multilateral Resistance). Ex-ant analysis, as mentioned above, is a more appropriate approach when we challenge a new or proposed free trade agreement with the unavailability of database. The overall process to implement this analysis is doing the simulation over a range of different scenarios with alternative input values so as to evaluate the sensitivity of the outcomes. Basic 6 assumptions to note in the model is that many of parameter values are usually obtained from prior researches, and the demand and supply functions are designed with constant elasticities. General equilibrium and partial equilibrium are the two famous demand-supply equilibrium models that are frequently applied for this kind of ex-ante analysis (Snorrason, 2012; Bacchetta M. et al., 2012; Francois and Reinert, 1997). As these two approaches are also the representatives of the aggregated and disaggregated analyses, detailed review of them will be mentioned in the next section. 2.1.1.2. Aggregated and disaggregated analyses Aggregated analysis – the general equilibrium The general equilibrium model is popular used to analyze the effects of a free trade agreement at aggregated level. The general equilibrium analysis accounts for interactions among firms, households, and governments in multiple product markets among a lot of regions of the world economy. In the Negishi format, the general equilibrium is represented through a welfare optimum subjecting to production technologies and commodity balances with nonzero welfare weights for the regions such that the consumer’s budget constraint holds (Ginsburgh and Keyzer, 2002). . Inspired from the Viner’s theory, Meade (1955), Lipsey and Lancaster (1956), Lipsey (1970) have taken into account the interaction with other markets and the change in the terms of trade of a country to further investigate the benefits gained from forming an FTA. Lipsey and Lancaster (1956) introduce the general theorem of second best 3 and state that under a general equilibrium of multiple goods, the elimination of a constraint (e.g. tariffs, subsidies, taxes, monopolies, etc.) may not lead to the overall economic welfare increase if other economic distortions remain unchanged. Also, Meade (1955) and Lipsey (1970) develop the general equilibrium theory to estimate the effects of an FTA of two countries in which each country will export one good and import the other from another country. Assuming that the two countries’ trading quantity cannot affect the world price and the FTA eliminates the intra-trade tariffs, this regional agreement is seemed to increase imports and exports volume of the members at any given terms of trade. However, when considering the change in the terms of trade, the 3 According to A. Smith and D. Ricardo, free trade with no constraints is regarded as the first best choice (Snorrason, 2012). 7 improvement is just witnessed for one country, while terms of trade of the other under the FTA is worse than when it simply reduces the constraint (e.g. tariffs) and does not enter the FTA. Wonnacott and Wonnacott (1982) improve the model by taking into account the external tariffs or high transport cost to outsiders. Under this circumstance, they find out that joining into the FTA may be a prior solution for the countries, instead of trading with the outsiders due to the trade distortions. On the other aspect, Grinols and Wong (1991), Baldwin and Venables (1995), Lloyd and Maclaren (2004) have tried to quantify the magnitude of welfare change under the FTA by developing the theoretical models with commodities and trading partners and a general equilibrium framework. With a range of assumptions and the availability of data, the models can measure the impact of the FTA relating to the change in some main indicators: trade volumes, terms of trade, production, consumption, labor force, etc. (Plummer, 2007). Furthermore, an FTA is known to have a long term impact rather than just in a short term period. Hence, Plummer et al (2010) believe that it is necessary to study the effect of the agreement under dynamics context, including: economies of scale; technological transfer; the pattern of foreign direct investment; policy adjustment and restructuring; and competitiveness and long-run growth effects. On one hand, this general equilibrium model, as being set up at aggregated level, dominants in capturing the inter-market relationship and the production factors’ constraints; furthermore, it can simulate the impact over a long period. The results are given both in macroeconomic and microeconomic aspects; with the industrial aspects just stopping at finding the linkage of production and consumption among different sectors. Hence, it can be seen that the main disadvantage of this general equilibrium approach is not being able to evaluate the disaggregated impact, by that, it is not suitable applied for subsectoral analysis. Furthermore, it is not easy to implement this model under a restraint of time and data collection. The database in need is remarkably enormous, taking the GTAP database as example, which contains 57 sectors of 140 different countries and regions (Aguiar et al, 2016). This seems to consume a lot of time and require a complicated technical tool to handle the data for the research objectives. 8 Disaggregated analysis - the partial equilibrium Disaggregated analysis is used to analyze the effects of a free trade agreement at disaggregate level, such as sub-sectors of agricultures, manufactures. The most well-known approach to implementing this ex-ant analysis for trade agreements is partial equilibrium. Partial equilibrium is part of the general equilibrium, where the market clearance is considered only in some specific sectors or industries. This model mainly focuses on the policies’ impact in directly affected market, particularly when the sectors or groups of products play important role in the trade balance, remarkably contributing to the GDP’s growth, or creating many jobs for unskilled workers. Also, the policy makers may want to find the answers about the impact of a trade agreement on these industries for the change in trade flows, tariff revenue, consumer and producer surplus (Cheong, 2010; Bacchetta M. et al., 2012). The partial equilibrium model, on its own, also have both benefits and drawbacks. The ones that are considered as the dominance of the general equilibrium may be seen as weaknesses in the partial equilibrium model, and vice versa. The key advantage of this equilibrium is that the analysis is implemented at disaggregated level, thus it can focus on a very specific group of products. Furthermore, just a rather limited database are in need, mainly including trade flows and trade interventions, together with several specific parameters. However, the main limitation of this approach is the lack of mutual interaction with other market as can be achieved by general equilibrium. Tariff elimination is the most prominent policy of an FTA , and the best way to analyze the impact of a fore-coming trade liberalization policy like an TPP agreement is combining both general equilibrium and partial equilibrium analysis (Bacchetta M. et al., 2012; Ciuriak and Xiao, 2014; Nguyen et al., 2015). However, as the main focus of the thesis are about tariff elimination’s impact on prices, trade flows, tariff revenues and welfare analysis within a single sector (in this case: the apparel industry) and under the constraint of data collection, the suitable approach to be chosen is partial equilibrium model. The partial equilibrium analysis of an FTA’s impact (through tariff elimination) on a single industry is shown in the following section. 9