Vietnamese agriculture and global integration David Vanzetti and Pham Lan Huong Australian National University and independent consultant National CGE Workshop Melbourne, 7 th October 2013

Integration and structural adjustment Vietnam is signing up to bilateral, regional and multilateral trade agreements Structural adjustment –the movement of factors of production (capital, labour and land) between sectors. Declining sectors? Unemployment of factors, particularly labour? 2

Objectives Economic integration (four FTAs) Assess macro and sectoral impacts Identify need for structural adjustment 3

Global general equilibrium model GTAP Version 8, base 2007 Bilateral trade and tariffs (2010) Includes preferential tariffs (needed for FTAs) Whole economy Includes resource (land, labour, capital, natural resources) constraints Limitation - each country: one region, one household 4

Scenarios Four FTAs AFTA China Korea Japan All simultaneously Each FTA without exemptions 5

Methodology Based on negotiated FTA schedules Specify bilateral tariff cuts for 5113 products Aggregate (trade weighted) to 24 sectors by 19 regions using TASTE Specify baseline growth assumptions Specify labour and capital market assumptions Simulate Report 6

Exemptions Scheduled tariff cuts have exemptions for sensitive products Few in number but cover large volume of trade These differ by partner Specify HS 6 level tariff cuts (5113 products) from bilateral applied tariff schedules as negotiated 7

Sectoral coverage PrimaryProcessed RiceSugar Vegetables fruit and nutsBeef Cereal grains necPork and poultry Cane sugarDairy products Other cropsOther processed agriculture OilseedsTextiles CattleMotor vehicles and other trans Other aninmal productsManufactures Raw milkElectronics ForestryTransport & communications FishingBusiness services Petroleum and coal productsServices and activities NES 8

Reported results Welfare (national income) Imports Exports Employment and wage rates Tariff revenue Sectoral effects (production and trade) 9

Baseline 10 Schematic representation. Not to scale.

Baseline in steps 11

Change in FTA tariffs on Vietnams exports 12 Source. GTAP 2010.

Change in tariffs on Vietnams imports 13

Results Macro Welfare Exports Imports Tariff revenue Real wages Agricultural sector Output Exports Imports 14

Vietnam welfare gains in 2017 relative to Income growth important

Vietnam trade impacts in 2017 relative to base 16 Growth in imports exceed imports

Vietnam trade balance in 2017 relative to base 17

Welfare with and without exemptions in 2017 relative to base 18 Japanese rice tariffs

Real wages in 2017 relative to base 19 Fixed employment for skilled labour

Vietnam tariff revenue in 2017 relative to base 20

Agricultural sector impacts Output Exports Imports Use of land, labour and capital Factor prices 21

Change in output in 2017 relative to Textiles Cassava

Change in exports in 2017 relative to Switch to cassava from other crops

Change in imports in 2017 relative to Processed agriculture. Feed.

Use of factors in agriculture Change in 2017 relative to

Factor prices in 2017 relative to

Summary of macro results Income growth important. Changes implemented against background of expanding economy Positive welfare effects (national income) from FTAs Real wage increases Tariff revenue reduced somewhat Trade balance negative 27

Policy implications Income growth depends on capital (macro policy) Non-tariff barriers still exist, and may increase Structural adjustment manageable Need flexible land, labour and capital markets WTO virtually completed. No further tariff cuts Ignored here other FTAs, such as EU, Trans Pacific Partnership, Regional Comprehensive Economic Partnership 28

The End 29