Production of workwear for export. (Photo: VNA)To estimatethe economic and distributional impacts of RCEP in Vietnam, WB constructed abaseline and four alternative scenarios. The baseline reflects thebusiness-as-usual conditions, where the tariff schedules of previousagreements, including the most recent CPTPP, have been implemented, in parallelwith the US-China trade war.
In the baseline,between 2020 and 2035, the average trade weighted tariff imposed by Vietnamdeclines from 0.8 percent to 0.2 percent, while the tariffs faced by Vietnamare reduced from 0.6 percent to 0.1 percent. To measure the effects of RCEP,the policy scenario will be compared against this baseline.
The fourpolicy scenarios will measure the RCEP implementation incrementally. The firstscenario, the Tariffs scenario, is exclusively the implementation of tariffsaccording to the RCEP tariffs’ reduction schedules.
In the secondscenario, the RCEP scenario, WB implemented reductions of tariffs and ofnon-tariff measures, including the tariff reduction of 35 percent onagricultural goods; 25 percent on manufacturing goods; and 25 percent onservices.
Only whentariff reductions are combined with lower non-trade barriers (NTBs), areexporters able to take full advantage of the preferential rates under liberalRule of Origin (ROO).
WB assumedthat with the ROO regime, the third scenario, trade costs among its members arereduced by 1 percent over the implementation period of 2022-2035. However, inWB's simulations, implementation of ROO policy is costless, resulting in upperbound estimates of potential gains.
For the finalshock, the productivity kick scenario, an increase of productivity, as theresult of a higher degree of openness and falling trade costs, is implemented.
Vietnam’s realincome and trade expand faster than the baseline in the scenarios with tariffs,non-tariff measure reductions and rules of origin, and in the productivity kickscenario.
“In theproductivity kick scenario, where a productivity shock is included, Vietnam hasthe highest gains of all RCEP member countries. Real income increases by 4.9 percentrelative to the baseline, higher than the gains for the bloc as a whole, wherereal income increases by 2.5 percent,” WB reported.
“Trade alsoincreases the most in this scenario, with exports expanding by 11.4 percent andimports by 9.2 percent, relative to the baseline.”
In the baseline,which incorporates long-term trends and accounts for all the current tariffliberalisation commitments within the region (except RCEP), real income in Vietnamis expected to grow 112.7 percent between 2020 and 2035, with exports andimports increasing by 155.5 percent and 134.8 percent, respectively.
Withimplementation of RCEP, when rules of origin and productivity are included ontop of tariffs and non-tariff measures reductions, real income grows faster,with an increase of 123.1 percent between 2020 and 2035.
The benefitsof the implementation of these measures are also reflected in trade, withexports and imports growing 182.5 percent and 155.5 percent, respectively, andbetween the same period.
In thescenario where only the tariff reduction is implemented, the impact on Vietnam’seconomy is negligible, with real income close to zero. Trade too sees a smallreduction relative to the baseline, with both exports and imports declining by0.3 percent.
“With theimplementation of RCEP, the market for Vietnam will expand, particularly toChina, where Vietnam does not currently possess any trade agreement. Gains inthe productivity kick scenario are concentrated mostly in the manufacturingsectors, in particular wearing apparel, electrical equipment, and textiles,” WBreported.
“Some sectorswill suffer losses with the implementation of the agreement, due to aredistribution of resources to more productive sectors.”
The COVID-19pandemic has taken a high toll in human and economic terms. RCEP could helpcushion the negative effects of COVID-19 on economic growth by supportingregional trade and value chains, according to this report.
In themedium/long run, RCEP would increase the resilience of its members, it wouldmake them better prepared in the face of future shocks by enhancing regionalcollaboration, reducing trade costs, and further diversifying their economies.RCEP offers an opportunity to boost growth and support recovery from theCOVID-19 pandemic./.
VNA
