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Abstract

Vietnam faces alternative options in opening its economy to trade. It is about to join the World Trade Organisation, as a member of the ASEAN Free Trade Area it is contemplating extending the regional trade area to include China, Korea and Japan, and it has recently concluded a bilateral agreement with the United States. Opening up to trade is a two edged sword, with the beneficial effects of improved market access and resource allocation liable to be partially or totally offset by adverse terms of trade effects and significant, albeit one-off, cost of structrural adjustment. Simulations of unilateral, bilateral, regional and multilateral liberalisation using a general equilibrium model, GTAP, indicate that significant welfare benefits could be obtained from unilateral liberalisation, but regional or multilateral liberalisation is required to improve exports. There are only limited gains in the agricultural and resources sectors, as these major exports face low tariff barriers. However, the US market for Vietnam’s textiles and apparel is crucially important.

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