UNIVERSITY OF ECONOMICS ERASMUS UNVERSITY ROTTERDAM HO CHI MINH CITY 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 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE VIETNAM 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 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 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 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 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 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 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 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Contents DECLARATION.
iii LIST OF TABLES. vi LIST OF FIGURES. vii CHAPTER 1_INTRODUCTION. Research objective and research questions.
Research scope and methodology. Expected contribution of the thesis. Organization of the thesis. 4 CHAPTER 2_LITERATURE REVIEW.
Theoretical analysis of the free trade agreement’s impact .1 Ex-post and ex-ante analyses. Aggregated and disaggregated analyses. Partial equilibrium and the impact of free trade agreement. Theoretical framework development.
Rule of Origin’s impact on apparel industry. Impact of the TPP agreement. Application of GISM model. 20 CHAPTER 3_TPP AGREEMENT AND VIETNAM’S APPAREL INDUSTRY.
TPP agreement and the “yarn-forward” rule. 21 iv LUAN VAN CHAT LUONG download : add luanvanchat@agmail. TPP regulation on apparel industry - yarn-forward” rule. Vietnam’s apparel industry.
Vietnam’s main export apparel products and markets. Vietnam’s apparel main export competitors. Vietnam’s main import textile and apparel products and suppliers. 23 CHAPTER 4_METHODOLOGY AND DATA.
34 CHAPTER 5_SIMULATION RESULTS. Impact of TPP agreement on trade value of Vietnam's apparel industry. Impact of TPP agreement on trade value of Vietnam's apparel products. Impact of TPP agreement on trade welfare of Vietnam's apparel industry.
Impact of TPP agreement on trade welfare of Vietnam's apparel products. Main competitors and export market of Vietnam's apparel products. 43 CHAPTER 6_CONCLUSION, POLICY IMPLICATION AND THESIS’S LIMITATION .55 v LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LIST OF TABLES Table 3. Details of some main export apparel of Vietnam in 2014.
Export shares in three leading apparel importing countries in 2014. Change in export value of Vietnam’s apparel in different scenarios. Change in the apparel prices. Export value of Vietnam’s apparel products at HS digit 4-level.
Total net welfare components of Vietnam’s apparel. Total net welfare components of other countries. Total net welfare components of Vietnam’s apparel products. Main competitors and export markets of Vietnam apparel.
44 vi LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LIST OF FIGURES Figure 2. Tariff elimination in a small country. Vietnam's export apparel in 2014. Vietnam's main export apparel products group HS 61 and HS62 in 2014.
Main apparel’s importing countries in 2014. Vietnam's main export apparel products HS61 in 2014. Vietnam's main export apparel products HS62 in 2014. Main apparel’s exporting countries in 2014.
Vietnam main import textile and apparel in 2014. Vietnam textile’s main import markets in 2014 .1: Producer and Consumer surplus. Change in apparel export value of countries in scenario 1. Producer surplus of countries in different scenarios.
41 vii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com CHAPTER 1 INTRODUCTION 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. 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., India, Brazil and Australia (for cotton and fiber). Except for the U., 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 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 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.
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. Research objective and research questions The thesis aims to investigate the impacts of the proposed TPP agreement on the Vietnam’s apparel industry. 2 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 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.