IDU0f80d18470acf904d0e0b0f506f6ff68bb215.pdf

VIETNAM’S
ACCESSION TO
THE REGIONAL
COMPREHENSIVE
ECONOMIC PARTNERSHIP:
A LEGAL AND ECONOMIC
ASSESSMENT
A p r i l 2 0 2 2
CENTRAL ECONOMIC
COMMISSION
Public
Disclosure
Authorized
Public
Disclosure
Authorized
Public
Disclosure
Authorized
Public
Disclosure
Authorized

A p r i l 2 0 2 2
VIETNAM’S ACCESSION
TO THE REGIONAL
COMPREHENSIVE
ECONOMIC PARTNERSHIP:
A LEGAL AND ECONOMIC
ASSESSMENT

VIETNAM’S ACCESSION TO THE REGIONAL COMPREHENSIVE ECONOMIC PARTNERSHIP:
A LEGAL AND ECONOMIC ASSESSMENT
4
@2022 The World Bank
1818 H Street NW, Washington DC 20433
Telephone: 202-473-1000; Website: www.worldbank.org
This work is a product of the staff of the World Bank with external contributions. The findings,
interpretations and conclusions expressed in this work do not necessarily reflect the views of the
World Bank and its Board of Executive Directors. The World Bank do not guarantee the accuracy of
the data included in this work. The boundaries, colors, denominations and other information shown on
any map in this work do not imply any judgement on the part of the World Bank concerning the legal
status of any territory or the endorsement or acceptance of such boundaries.
Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and
immunities of the World Bank, all of which are specifically reserved.
All queries on rights and licenses should be addressed to the Publishing and Knowledge Division, the
World Bank, 1818 H Street NW, Washington DC, 20433, USA, Fax: 202-522-2625; email: pubrights@
worldbank.org.

APRIL 2022 5
Table of Contents
Abbreviations.......................................................................................................................................................................9
Preface................................................................................................................................................................................... 11
Acknowledgments.........................................................................................................................................................13
Executive Summary.......................................................................................................................................................14
Overview...............................................................................................................................................................................15
Legal Assessment.............................................................................................................................................................16
Economic Assessment..................................................................................................................................................18
Chapter 1.
Overview of the RCEP and Relationship with Vietnam...................................... 23
1. Introduction................................................................................................................................................................... 24
2. Trade and Investment Relationship between Vietnam and the RCEP....................................26

6
Chapter 2.
Vietnam’s Legal Gap and Commitments.................................................................. 37
1. Trade in Goods ...........................................................................................................................................................38
2. Trade in Services .......................................................................................................................................................41
3. Investment..................................................................................................................................................................... 43
4. Intellectual Property............................................................................................................................................... 43
5. Some Nontraditional Trade Issues ................................................................................................................ 44
6. Institutional Commitments................................................................................................................................. 44
7. Dispute Settlement.................................................................................................................................................. 45
8. The Relationship between the RCEP Agreement and other Trade Agreements ........... 45
9. Chapter Conclusion.................................................................................................................................................46
Chapter 3.
Economic and Distributional Impacts of the RCEP.............................................. 47
1. Methodology and Data..........................................................................................................................................48
2. Income, Trade, and Distributional Impacts for the Region and Vietnam...............................49
Chapter 4.
Conclusions............................................................................................................................ 73
Annex: Consistency of Economic Impact Estimates of CPTPP, EVFTA and RC
EP for Vietnam..................................................................................................................................................................76
References.........................................................................................................................................................................78

APRIL 2022 7
Figures
Figure 1. RCEP, ASEAN, and CPTPP conformation.................................................................................24
Figure 2. GDP, population, and trade: RCEP and rest of the world, 2019...............................25
Figure 3. RCEP’s share in Vietnam’s total trade..........................................................................................27
Figure 4. Vietnams trade balance with key trading partners (US$ million).........................28
Figure 5. Structural change in trade by type of goods between Vietnam
and RCEP member countries........................................................................................................................29
Figure 6. Trade by product between Vietnam and RCEP member countries...................29
Figure 7. China’s role in RCEP trade and investment with Vietnam.......................................... 30
Figure 8. Prior to RCEP establishment: The Role of China compared
to other RCEP member countries in Vietnam’s exports and imports............................... 31
Figure 9. RCEP’s share in Vietnam’s participation in GVCs (%)........................................................32
Figure 10. Share of foreign value added of RCEP member countries in Vietnam’s
gross exports, and share of Vietnam’s foreign value added in exports of RCEP
member countries...................................................................................................................................................33
Figure 11. RCEP’s cumulated investment in Vietnam (as of 31 December 2019)..............34
Figure 12. Increased share of RCEP’s key investors in FDI inflows to Vietnam
during COVID-19.......................................................................................................................................................35
Figure 13. Macroeconomic impacts: Percentage change relative to the
business-as-usual scenario, 2035............................................................................................................... 51
Figure 14. Real income gains by country in RCEP: Percentage change relative to
business-as-usual scenario, 2035...............................................................................................................52
Figure 15. Impact on trade: Percentage change relative to business-as-usual
scenario, 2035.............................................................................................................................................................53
Figure 16. Macroeconomic impacts for Vietnam: Percentage change relative to
Figure 17. Impact on Vietnam trade (volume): Percentage change relative to
Figure 18. Tariffs imposed by Vietnam (A) and faced by Vietnam (B) in trade with
RCEP member countries in 2020 and 2035........................................................................................ 56
Figure 19. Reduction imposed NTBs (A) and faced NTBs (B) by Vietnam vis-à-vis
RCEP members in 2020 and 2035...............................................................................................................59

8
Figure 20. Total volume Vietnam exports (A) and imports (B), percentage change
of productivity kick scenario relative to the baseline scenario, 2035...............................62
Figure 21. Trade: Difference change of RCEP “productivity kick” relative to the
business-as-usual scenario (in million US$ dollars, 2035)...................................................... 65
Figure 22. Output in volume, percentage change relative to business-as-usual
scenario, 2035............................................................................................................................................................66
Figure 23. Poverty headcount ratio at 2011 PPP of US$1.90 a day –
Extreme poverty......................................................................................................................................................68
Figure 24. Poverty headcount ratio at 2011 PPP of US$10.00 a day –
Middle class................................................................................................................................................................68
Figure 25. Additional people with middle-class status in 2035,
by country and scenario....................................................................................................................................69
Figure 26. Additional people with middle-class status in 2035,
by country and scenario, in low- and middle-income countries........................................ 70
Figure 27. Wages under productivity kick scenario, by gender and ASEAN
membership (annual growth rate with reference to the baseline by 2035)............... 70
Tables
Table 1. Summary of Scenarios.............................................................................................................................18
Table 2. Real GDP, percentage change relative to baseline, in 2030 as result of
CPTPP, EVFTA and RCEP. .................................................................................................................................19
Table 3. Vietnam’s tariff reduction commitments in its signed FTAs.........................................39
Table A.1. Real GDP results, percentage change relative to baseline, in 2030.
Current simulations. %. ........................................................................................................................................77
Table A.2. Real GDP results, percentage change relative to baseline, in
2030. Previous simulations. %. .....................................................................................................................77

APRIL 2022 9
Abbreviations
AFAS ASEAN Framework Agreement on Services
ASEAN Association of Southeast Asian Nations
ATISA ASEAN Trade in Services Agreement
CEP Comprehensive Economic Partnership
CGE Computable General Equilibrium
COVID-19 Coronavirus disease of 2019
CPTPP Comprehensive and Progressive Agreement for
Trans-Pacific Partnership
CTC change of tariff classification
ENVISAGE Environmental Impact and Sustainability Applied
General Equilibrium model
EVFTA European Union–Vietnam Free Trade Agreement
GTAP Global Trade Analysis Program
ISDS Investor-State Dispute Settlement
FDI foreign direct investment
FTA free trade agreement
GDP gross domestic product
GVC global value chain
LHS left-hand side
MFN most favored nation
NTB non-tariff barriers
NTM non-tariff measures
OECD Organisation for Economic Co-operation & Development
PPP purchasing power parity
RCEP Regional Comprehensive Economic Partnership

10
RHS right-hand side
ROO rules of origin
RVC Regional Value Content
SPS sanitary and phytosanitary
TBT technical barriers to trade
TRIMS Trade-Related Investment Measures
TRIPS+ Trade-Related Aspects of Intellectual Property Rights+
UKVFTA United Kingdom-Vietnam Free Trade Agreement
UNCTAD United Nations Conference on Trade and Development
US$ United States dollar
WTO World Trade Organization

APRIL 2022 11
Preface
Effecting trade liberalization and global integration through signing and implementing
free trade agreements (FTAs) has been one of key drivers of Vietnam’s remarkable
economic growth and the equitable sharing of that growth among all Vietnamese
citizens over the past three decades. The reduction of tariff and non-tariff barriers
as a result of FTA implementation can lower trade costs and shifts resources and
production to more competitive sectors and economy-to-scale economic activities,
leading to productivity gains, and boosts inflows of foreign investment. Further, global
integration stimulates domestic reforms for modernizing state and market institutions
and strengthens national competitiveness. As a result, during 1990–2019, Vietnam
evolved from an almost closed economy to one of the most open economies in the
world—the openness rate measured by the share of trade in gross domestic product
(GDP) exceeded 200 percent. Likewise, GDP per capita (at price and exchange rates
in 2010 U.S. dollars) has quadrupled from US$529 to US$2,025, while the poverty rate
(measured as an individual’s income at US$1.9 per day) has declined from 53 percent
to around 2.0 percent during the same period.
Following implementation of the recent new-generation FTAs such as the
Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP),
the EU-Vietnam Free Trade Agreement (EVFTA), and the UK-Vietnam Free Trade
Agreement (UKVFTA), Vietnam signed the Regional Comprehensive Economic
Partnership (RCEP) on November 15, 2020, together with 14 other countries including
ASEAN members Australia, China, Japan, the Republic of Korea, and New Zealand.
The block accounts for around one-third of the world’s GDP and population, and one-
quarter of world exports and imports.

12
This report, “Vietnam’s Accession to the Regional Comprehensive Economic
Partnership: A Legal and Economic Assessment,” concludes that in the fullest
productivity-kick scenario, Vietnam’s real income increases by 4.9 percent, and an
additional of 1.7 million Vietnamese would join the middle class by 2035. China’s
participation in the RCEP is significant in terms of improving Vietnam’s exports and
deepening Vietnam’s global value chain integration.
We are pleased to recommend this analysis to policymakers, researchers, and
businesses for their reference. The report is a product of a collaboration between the
World Bank office in Vietnam and the Central Economic Commission. We would like to
thank the World Bank staff and key government stakeholders who have contributed
to the report, which include experts from Vietnam’s Ministry of Industry and Trade and
Ministry of Planning and Investment. We are grateful to the Umbrella Trust Fund for
Trade for funding World Bank’s work on this report.
Nguyen Duc Hien
Vice Chairman
Central Economic Commission
Commission
Carolyn Turk
Country Director
The World Bank in Vietnam

APRIL 2022 13
Acknowledgments
ThisWorld Bank analytical report was done in collaboration with the Central Economic
Commission.
The report was prepared by a World Bank team led by Duc Minh Pham (Senior
Economist) and Maryla Maliszewska (Senior Economist) – a joint report by East Asia
Pacific Macro Trade and Investment Team and Global Trade and Regional Integration
Unit. The team comprised Carmen Estrades (Consultant), Israel Osorio-Rodarte
(Economist), Maria Seara e Pereira (Consultant), Nguyen Ngoc Ha (Consultant),
Nguyen Thi Xuan Thuy (Consultant), and Tran Toan Thang (Consultant).
The report was prepared under the general guidance of Carolyn Turk (Country
Director for Vietnam), Hassan Zaman (Regional Director; Equitable Growth, Finance
and Institutions; East Asia Pacific Region), Deepak Mishra (Former Practice Manager;
Macroeconomics, Trade and Investment; East Asia Pacific Region); Sebastian Eckardt
(Practice Manager; Macroeconomics, Trade and Investment; East Asia Pacific Region);
Zafer Mustafaoglu (Practice Manager; Finance, Competitiveness and Innovation;
East Asia Pacific Region), Antonio Nucifora (Practice Manager, Trade and Regional
Integration Global Unit), and Nguyen Duc Hien (Vice Chairman of Central Economic
Commission). Peer reviewers were Sebastian Saez (Lead Economist) and Pierre
Sauve (Senior Private Sector Specialist). Comments were also received from Jacques
Morisset (Lead Economist), Marcin Piatkowski (Senior Economist), Nguyen Ngoc
Trung (Deputy Director, Industrial Department, Central Economic Commission), and
Andre Barber (Consultant). Diane Stamm edited the report, and Le Thi Khanh Linh
provided administrative assistance.

14
Executive Summary
This report provides an economic and legal impact assessment of Vietnam’s
accession to the RegionalComprehensive Economic Partnership (RCEP) to support
Vietnamese policymakers, researchers, and businesses to maximize potential
benefits from this Agreement. The report has four chapters. Chapter 1 analyzes
Vietnam’s recent trade and investment patterns with other RCEP member countries
and assesses how the Agreement will affect future directions. Chapter 2 evaluates
Vietnam’s legal commitments under the RCEP and their potential implications,
especially by comparing them with the commitments made in other recent signed
FTAs. Chapter 3 evaluates economic benefits of Vietnam’s participation in the RCEP
with relevant scenarios. Chapter 3 summarize key policy recommendations. Policy
implications are also highlighted for relevant issues in each of the first three chapters.
Overview
The RCEP is an initiative of the Association of Southeast Asian Nations (ASEAN)
and its five large partners, Australia, China, Japan, the Republic of Korea, and New
Zealand. Negotiations started in 2013, concluded in 2019, and the Agreement was
signed in November 2020. When coming into force on January 1, 2022, the RCEP will
effectively affect trade flows and trade policy regimes covering the largest preferential
trade market Vietnam has joined so far, equal to one-third of world gross domestic
product (GDP) and population, and one-quarter of world exports and imports.

APRIL 2022 15
Joining the RCEP is the latest sign of Vietnam’s consistent move toward global and
regional integration, one of key drivers for its remarkable economic development
achievements during the past three decades.
The level of binding obligations created by the RCEP Agreement for Vietnam are
not higher than those already included in the FTAs signed and implemented by
Vietnam, such as the Comprehensive and Progressive Agreement for Trans-Pacific
Partnership (CPTPP), European Union–Vietnam Free Trade Agreement (EVFTA),
and the ASEAN+1 FTAs. Therefore, the equivalent committed level of tariff reduction
and elimination under the RCEP will lead to relatively limited direct economic gains.
However, a major gain from the RCEP Agreement is the provision on simplified rules
of origin, and trade and investment facilitation commitments. This gain would help
further boost regional supply chains of which Vietnam is already an integral part. In
contrast, the relatively weaker commitments on tariff, non-tariff and non-trade issues
under the RCEP compared to other trade pacts may lead to more muted indirect
economic gains in terms of anchoring domestic reforms in Vietnam.
Historically, Vietnam has imported more from other RCEP member countries than
it exported to them. Both exports and imports between Vietnam and RCEP member
countries have grown rapidly during the past two decades, partly reflecting Vietnam’s
integration into regional supply networks. However, while the RCEP countries’ share in
total imports has continuously increased, their share in total exports has declined over
the past two decades, resulting in a growing trade deficit with most RCEP member
countries (especially with China, but not with Australia and New Zealand). China alone
has contributed to nearly 50 percent of Vietnam’s trade deficit during this period, and
the highest share of 70 percent in 2014, largely due to imports of intermediate goods
used for final assembly and export processing in Vietnam. The trade deficit with the
RCEP has been offset by the surplus gains from other partners, mainly from the United
States and the European Union.
Vietnam’s trade within the RCEP has shifted from a product mix of raw materials
to capital goods and related products. This shift has translated into a more
sophisticated and higher technology content in manufacturing goods produced in
and exported from Vietnam to the RCEP. Likewise, while fuels were key raw material
exports of Vietnam to RCEP member countries in the late 2000s, their share has
declined sharply and has been replaced more recently by electronics and electrical
equipment products. Vietnam’s important labor-intensive products such as textiles
and garments, footwear, and vegetables have retained their considerable share in its
total exports to RCEP member countries over the past two decades.

16
Ofparticularimportance, China’s participation in the RCEPcould benefitVietnam in
severalways. Prior to enactment of the RCEP, China already played an increasing role
in trade with and investment in Vietnam. It contributed nearly half of Vietnam’s total
volume of exports and imports within the RCEP. China’s share in Vietnam’s exports and
imports within the RCEP increased during 2001–19. China has been the third-greatest
non-ASEAN investor in Vietnam, after Korea and Japan. China’s accession to the RCEP
could boost Vietnam’s exports to RCEP markets and contribute to strengthening
the role of RCEP member countries as a major source of Vietnam’s imports. Most
importantly, China’s accession could increase the share of both domestic and
foreign value-added in Vietnam’s gross exports. Increased domestic value added
in Vietnam’s exports could encourage the shift of Vietnam’s GVCs from backward to
forward participation. This would in turn enhance Vietnam’s capacity to produce more
sophisticated semifinished products rather than to assemble finished products (with
imported semifinished products) so as to create value added for Vietnam’s exports
and increase the country’s trade competitiveness.
Legal Assessment
A key feature of Vietnam’s commitment on trade in goods under the RCEP is that
tariff reduction and elimination under the RCEP are equivalent to or not higher
than the current ASEAN+1 FTAs. To the contrary, the multi-tariff schedule application
in the RCEP would create additional complications for businesses to comply. Because
Vietnam committed under the RCEP to apply different tariff schedules for different
partners, the government will have to specify the tariff differentials of the RCEP
Agreement in legislation.
The RCEP introduces regionally harmonized and development-friendly rules
of origin for goods, which is of critical importance for Vietnam. These rules are a
key element in the effort to boost intra-RCEP trade and investment, and for RCEP
member countries to move toward more complex manufacturing value chains and
more sophisticated trade and investment activities. For textiles, the RCEP Agreement
allows the cumulation of materials in the region. This is much more lenient than both
the CPTPP which requires the use of the “yarn forward” rule and the EVFTA which
requires the “fabric forward” rule. In other words, the RCEP’s rules of origin for textiles
will greatly facilitate the export of Vietnamese textile and garment products to other
countries in the region without the need to onshore upstream textile mills.

APRIL 2022 17
Vietnam’s commitments on trade in services under the RCEP are equivalent
to the ASEAN+1 FTA but “shallower” than under the CPTPP, EVFTA, and ASEAN
Framework Agreement on Services (AFAS) (or ASEAN Trade in Services Agreement
[ATISA], in the near future). The “negative list” approach is not used under the RCEP
at the beginning, and Vietnam will only change the commitment approach from
“positive list” to “negative list” after nine years of implementing the RCEP. Vietnam
applies the automatic most favored nation (MFN) principle to only five subsectors,
excluding financial and telecommunication services, and the rachet mechanism1
to
seven subsectors.
In the investment chapter, the RCEP Agreement adds some new obligations
compared to ASEAN+1 FTAs that can facilitate the intraregional investments.
Those include the automatic MFN principle, the ratchet mechanism applied five
years after the date of entry into force of the RCEP Agreement for some services.
However, Vietnam’s commitments in this sector are considered lower than these
under the CPTPP and EVFTA and would not contribute to significantly improving the
business environment. For example, according to the RCEPAgreement, Vietnam does
not require application of the Investor-State Dispute Settlement (ISDS) mechanism
and tax-related expropriation. In addition, the MFN mechanism does not apply for
Vietnam.
Several other commitments under the RCEP are considered lower than or
equivalent to those under other recently signed FTAs (CPTPP, EVFTA), including
such issues as e-commerce, government procurement, intellectual property, and
disputes settlements. The RCEP does not cover important issues such as environment
and labor standards, state-owned enterprise reform, institutional commitments. As
such, its significance in terms of broader structural reforms is likely less pronounced
in the RCEP than CPTPP and EVFTA.
Economic Assessment
The potential impact of the RCEP has been estimated using the dynamic, global,
Computable General Equilibrium (CGE) ENVISAGE model, and based on four
different scenarios reflecting the depth of the Agreement.2
The first scenario (tariffs
1
The ratchet mechanism mandates that “existing non-conforming measures may not be amended in
the future in a way that would decrease the level of their conformity with the treaty compared to
the measure as it existed immediately before the amendment or modification” (APEC and UNCTAD
2005, 114).
2
For full details of the analysis see Estrades et. al. (2021).

18
alone scenario) simulates the expected tariff reduction among RCEP members as
scheduled in the agreement. The second scenario (RCEP scenario) simulates the
expected impact of both tariff and non-tariff measure (NTM) reductions among goods
and services on an ad-valorem equivalents basis for RCEP members, and countries
outside the RCEP. The third scenario (rules of origin liberalization scenario) assumes
that the rules of origin regime in the RCEP Agreement reduces trade costs among its
members by 1 percent over the period of implementation (2022-2035). The resulting
trade cost reduction is modeled as a lowering of iceberg trade costs (ad valorem tax
equivalent costs associated with trade), since it is assumed that when tariff reductions
are combined with lower NTBs, only then exporters are able to take full advantage of
the preferential rates under liberal rules of origin. In the simulations these policies are
considered to be costless resulting in upper bound estimates of potential gains. The
fourth scenario (productivity kick scenario) is based on the assumption that tariff and
non-tariff liberalization leads to an increase in productivity associated with the falling
trade costs. All scenarios are evaluated relative to the baseline without RCEP (and
without COVID as the study was conduced before the pandemic).
Table 1. Summary of Scenarios
Scenario Policy instrument Shock
1. Tariffs alone Tariffs RCEP Tariff reduction schedule
2. Full scenario Tariffs and NTMs RCEP Tariff reduction schedule
Preferential NTM reduction:
-35% agricultural goods
-25% manufacturing goods
-25% on services
10% non-preferential NTM reduction
3. ROO liberalization Tariffs, NTMs, and trade
costs
RCEP Tariff reduction schedule
NTM reduction as in RCEP
1% reduction in trade costs among RCEP
members over the period of 2022-2035
4. Productivity kick Tariffs, NTMs, and trade
costs
ROO liberalization with productivity
increase
Vietnam’s real income and trade expand faster than the baseline in the RCEP
scenarios, the rules of origin liberalization scenario, or the productivity kick
scenario. In the productivity kick scenario, Vietnam has the highest gains of all RCEP
member countries. Realincome increases by 4.9 percent relative to the baseline,while
exports expand by 11.4 percent and imports by 9.2 percent, relative to the baseline,
by 2035. In the tariff alone scenario, the impact on Vietnam’s economy is negligible,

APRIL 2022 19
with the impact on real income close to zero and on trade showing a decline by
0.3 percent. This is because Vietnam already signed and implemented a series of
ASEAN+1 FTAs and FTAs with separate countries or groups of countries in the region.
RCEPhaslowereconomicimpactcomparedtoCPTPPandEVFTA3
. Table2compares
estimated real GDP results in 2030 in percentage change relative to baseline.
Table 2. Real GDP, percentage change relative to baseline, in 2030 as result of
CPTPP, EVFTA and RCEP.
Standard Productivity kick
CPTPP 1.1 3.5
TPP12 3.6 6.6
RCEP 0.4 1
EVFTA 2.4 6.8
Source: Scenarios CPTPP and TPP12 RCEP from Maliszewska et al. (2008), and EVFTA scenario from Pham et al.
(2020) and RCEP scenario from current simulations
In the productivity kick scenario, manufacturing total exports (exports both for
RCEP member countries and non-RCEP countries) expand the most, accounting
for 11.9 percent, mainly due to a faster expansion in the sectors of motor vehicles and
parts, textiles, and wearing apparel. Total agriculture increases by 9.1 percent, with
meat products expanding the most. The higher increase of exports in these sectors
is mainly the result of their high initial levels of faced NTMs and, consequently, of
experiencing a higher reduction of NTMs. In most sectors, intra-RCEP exports grow
faster than exports to the rest of the world. In terms of imports, services expand
the most, mainly due to their high level of initial NTMs and, thus, have the highest
reductions of NTMs. Within the services sectors, trade and tourist services increase
the most, while all sectors see an increase in imports.
The RCEP induces structural changes within Vietnam. While most of the sectors
expand their production, some will contract compared to the baseline as a
consequence of a reallocation of resources away from less competitive sectors. In
the productivity kick scenario, it is manufacturing, namely wearing apparel, electrical
equipment, and textiles, that see the most gains. This increase in production is
the result of a higher demand for exports from those sectors, where in the case of
electrical equipment and textiles, the increase comes mostly within RCEP member
countries. For wearing apparel, the increase is due to the rest of the world. Production
3
See further detail in Annex: Consistency of Economic Impact Estimates of CPTPP, EVFTA and RCEP for
Vietnam

20
contracts in basic pharmaceuticals and wood products. Two important implications
can be observed from the structural change. First, the gains from the implementation
of the RCEP Agreement are the result of a regional reallocation of production to the
most cost-efficient sectors, more competitiveness, diversification, and increased
openness. Second, regionally harmonized rules of origin may encourage investments
in upstream industries and make exports less dependent on imported goods, but
more dependent on domestic supply chains.
A complementary simple global microeconomic model used indicates that an
additional 1.7 million Vietnamese would join the middle class by 2035. In addition,
by creating job opportunities in sectors of the economy that employ larger shares of
women, such as textiles, wearing apparel, electronics, and several service sectors,
the RCEP will also push wages for women higher, particularly in ASEAN countries and
Vietnam.
Vietnam should consider the following key policy approaches among others as
highlighted in Chapter 4:
• Adopt a development rather than a compliance approach to proactively make
better use of the existing FTAs. Vietnam should consider FTAs as a driving force
to promote domestic institutional reforms, as these are indirect benefits that are
no less important than direct benefits (expanding access to world markets, among
others) of international economic integration.
• Increase the current low level of using tariff preferences under effective FTAs
(33 to 37 percent, and only slightly increased during 2015–2020) due to outstanding
constraints facingVietnamese exporters in compliancewith the rules of origin in the
context that Vietnam heavily imports components for export production, leading
to a low percentage of exported products considered as being made in Vietnam.
• Shift toward GVC forward participation to produce more semifinished products
as higher value-added inputs to Vietnamese and foreign exports. This strategic
orientation needs to be combined with the orientation of high-tech upgrading,
going hand in hand with a greening industry approach.
• Modernize institutions so state management agencies and their policies can better
address emerging and cross-cutting development challenges, (for example, trade
and regional integration policies in strong interrelationship with such issues
as logistics infrastructure, value chain development, climate change, development
of high-tech manufacturing, trade in services, and human capital development).

APRIL 2022 21
• Share knowledge about and raise awareness of FTAs and their benefits
and challenges and provide detailed guidance for compliance with FTAs
among businesses so they can take advantage of opportunities provided
by the agreements.

CHAPTER 1.
Overview of the RCEP
and Relationship with
Vietnam

24
1. Introduction
1. The Regional Comprehensive Economic Partnership (RCEP) is an initiative of
the Association of Southeast Asian Nations (ASEAN) and its five large partners,
Australia, China,Japan, Republic ofKorea, and NewZealand.The negotiation started
in 2013, concluded in 2019, and was signed in November 2020 after a long debate
among RCEP members on issues that included the extent of tariff cuts, harmonizing
standards, and the development level of its members. The 15 signatory countries in
the East Asia and Pacific region are Australia, Brunei Darussalam, Cambodia, China,
Indonesia, Japan, the Lao People’s Democratic Republic, Malaysia, Myanmar, New
Zealand, the Philippines, Singapore, Korea, Thailand, and Vietnam. Ten of those
countries were already part of ASEAN, and seven signed the Comprehensive and
Progressive Agreement for Trans-Pacific Partnership (CPTPP) (figure 1). The RCEP will
come into force on January 1, 2022,4
concurring with Article 20.6 that the Agreement
will officially become effective after 60 days from the time when at least six ASEAN
countries and three partner countries complete the procedures for ratification of the
Agreement and deposit their instruments of ratification with the Depositary (ASEAN
Secretary-General).
Figure 1. RCEP, ASEAN, and CPTPP conformation
ASEAN RCEP CPTPP
Brunei Darussalam, Malaysia
Singapore, Vietnam
Cambodia, Indonesia, Lao PDR
Myanmar, Philippines, Thailand
Australia, Japan
New Zealand
Canada, Chile
Mexico, Peru
China
Korea, Rep.
4
By November 2, 2021, six ASEAN countries (Singapore, Brunei Darussalam, Lao DPR, Cambodia, Thailand,
and Vietnam) and four partner countries (China, Japan, New Zealand, and Australia) had deposited
their ratification to the ASEAN Secretary-General, satisfying the condition for the Agreement to be fully
effective starting January 1, 2022.

CHAPTER 1.
OVERVIEW OF THE RCEP AND RELATIONSHIP WITH VIETNAM 25
2. The countries that comprise the RCEP account for around one-third of world
gross domestic product (GDP) and world population, and one-quarter of world
exports and imports. Before the RCEP, ASEAN had signed bilateral Free Trade
Agreements (FTAs)/Comprehensive Economic Partnerships (CEPs) with each RCEP
member, including the ASEAN-China FTA, signed in 2004; the ASEAN-Korea FTA, in
2006; the ASEAN-Japan CEP, in 2008; the ASEAN-Australia, New Zealand, in 2009;
and the ASEAN-India FTA in 2010. These agreements have certain differences in their
commitments and do not apply to third parties. Therefore, the RCEP is expected to
harmonize ASEAN’s bilateral agreements with other RCEP members (except India)
and have a significant impact on trade and GDP in the region. Figure 2 shows RCEP’s
share of GDP, population, and trade. The RCEP will create a market with 2.2 billion
consumers, accounting for about one-third of the world’s population, with a GDP of
US$26.2 trillion or about one-third of global GDP and will become the largest free
trade area in the world. The RCEP is considered one of the most diverse groups of
trading partners in terms of level of development.5
Figure 2. GDP, population, and trade: RCEP and rest of the world, 2019
Rest of the world RCEP
GDP Population
Import
Export
29%
71%
30%
70%
29%
71%
73%
27%
Source: World Development Indicators, World Bank.
5
The RCEP member country bloc is formed by six high-income countries (Australia, Brunei Darussalam,
Japan, the Republic of Korea, New Zealand, and Singapore), four upper middle-income countries
(China, Indonesia, Malaysia, and Thailand), and five lower middle-income countries (Cambodia, Lao PDR,
Myanmar, the Philippines, and Vietnam).

26
3. The levels of binding obligations created by the RCEP Agreement for Vietnam
are not higher than the ones already included in the FTAs signed and implemented
byVietnam, such as the CPTPP, EVFTA, and ASEAN+1FTAs. Therefore, the equivalent
committed level of tariff reduction and elimination under the RCEP will only lead to
limited direct economic gains, mainly through the possible expansion of market
access. Meanwhile, “shallower” commitments regarding non-tariff and non-trade
issues under the RCEP could be a weaker motivation for institutional reforms and, so,
could lead to reduced indirect economic gains.
4. Therefore, the major gain from the RCEP Agreement is not to further open
marketsforVietnam,buttostrengthenexistingregionalpartnershipsbyleveraging
other members through simplified rules of origin and trade and investment
facilitation commitments. This will help Vietnam’s supply chains adjust to a changing
global context and cope with adverse impacts of the COVID-19 pandemic, as well as
other possible external shocks in the future.
2. Trade and Investment Relationship between Vietnam and
the RCEP
5. Vietnam’s exports to and imports from RCEP member countries have grown
rapidlyduring the past two decades. During 2001–19, the average annualized growth
rate of Vietnam’s exports to and imports from RCEP member countries was 18 percent
and 19 percent, respectively. However, the RCEP countries’ share in total imports has
continuously increased, while their share in total exports has declined over the past
two decades, showing that RCEP member countries have been an important source of
imports, while there remains room for improving Vietnam’s exports to RCEP countries
in the future. Figure 3 shows that RCEP member countries’ share in imports increased
from 65 percent in 2001 to 77 percent in 2019, while its share in exports declined from
50 percent to 43 percent during the same period, though absolute export value still
increased by 18 percent.

CHAPTER 1.
Figure 3. RCEP’s share in Vietnam’s total trade
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
0.00
50.00
100.00
150.00
200.00
250.00
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
1
4
2
0
1
5
2
0
1
6
2
0
1
7
2
0
1
8
2
0
1
9
Share
in
total
trade
(%)
Trade
value
(bilion
US$)
VN's exports to RCEP(5) VN's imports from RCEP(5)
RCEP(5)'s share in VN's exports RCEP(5)'s share in VN's imports
Source: ITC Trademap.
Note: RECP(5) = Australia, China, Japan, Republic of Korea, and New Zealand;
VN = Vietnam.
6. Such trade trends have resulted in Vietnam having a trade deficit with
most RCEP member countries (especially with China, but not with Australia and
New Zealand). As shown in figure 4, Vietnam’s trade balance has been in deficit
continuously for 15 years since 2001, then shifted to a surplus since 2015. However,
decomposing the trade balance by partner, trade data show that Vietnam has gained
surpluses with the United States, the European Union, and CPTPP trading partners,
but faced deficits with ASEAN and RCEP countries during 2001–19. China contributed
the most to Vietnam’s trade deficit with an average share of nearly 50 percent during
this period, and the highest share of 70 percent in 2014. The trade deficit with the
RCEP, especially with China, has been offset by the surplus gains from other partners,
mainly from the United States and the European Union.

28
Figure 4. Vietnams trade balance with key trading partners (US$ million)
-
80,000
60,000
40,000
20,000
(20,000)
(40,000)
(60,000)
(80,000)
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
1
4
2
0
1
5
2
0
1
6
2
0
1
7
2
0
1
8
2
0
1
9
RCEP ASEAN EU27 CPTPP USA China World
Trade
Balance
(US$
Million)
Source: ICT Trademap.
7. Structural change in trade by type of product between Vietnam and RCEP
member countries looks encouraging: in recent decades, capital goods have been
dominant, with an increasing share in both Vietnam’s total imports and exports, in
contrast with a declining share of raw materials in both Vietnam’s total imports
and exports. This implies an increased share of more sophisticated and higher
technology content in manufacturing goods produced in and exported from Vietnam.
Figure 5, panel A shows that in late 2000, nearly 50 percent of Vietnam’s exports to
RCEP member countries were raw materials, although recently, its share in Vietnam’s
total exports declined to less than 10 percent. Meanwhile, exports of capital goods
have grown from less than 10 percent to nearly 40 percent during the same period.
Similarly, figure 5, panel B shows that the share of capital goods in Vietnam’s total
imports during 2008–19 increased the most—from 30 to more than 40 percent—while
the share of other goods in total imports decreased slightly.
8. A similarly encouraging trend is observed in the structural change in trade by
product between Vietnam and RCEP member countries. Figure 6 shows that fuels
were key exports of Vietnam to RCEP member countries in the late 2000s, but their
share has declined sharply and has been replaced more recently by electronics and
electrical equipment products. Textiles and garments and vegetables have retained
their share in Vietnam’s total exports to RCEP member countries during the same
period. A similar trend has happened for electronics and electrical equipment and
fuels in Vietnam’s imports, while products that can maintain their share in Vietnam’s
totalimportsincludemetals,textilesandgarments,plasticsandrubber,andchemicals.

CHAPTER 1.
Figure 5. Structural change in trade by type of goods between Vietnam and RCEP
member countries
0
20
40
60
80
100
%
Panel A. Vietnam's exports to
RCEP member countries
Raw materials Intermediate goods
Consumer goods Capital goods
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
1
4
2
0
1
5
2
0
1
6
2
0
1
7
2
0
1
8
2
0
1
9
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
1
4
2
0
1
5
2
0
1
6
2
0
1
7
2
0
1
8
2
0
1
9
Panel B. Vietnam's imports from
Source: UN Comtrade, according to UNCTAD’s goods classification.
Figure 6. Trade by product between Vietnam and RCEP member countries
0%
20%
40%
60%
80%
100%
E&E
Fuels
T&G
Vegetable
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
1
4
2
0
1
5
2
0
1
6
2
0
1
7
2
0
1
8
2
0
1
9
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
1
4
2
0
1
5
2
0
1
6
2
0
1
7
2
0
1
8
2
0
1
9
Fuels
Chemical
E&E
Metals
T&G
Source: UNComtrade.
Note: E&E = electronics and electrical equipment; T&G = textiles and garments

30
Figure 7. China’s role in RCEP trade and investment with Vietnam
0%
10%
20%
30%
40%
50%
60%
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
1
4
2
0
1
5
2
0
1
6
2
0
1
7
2
0
1
8
2
0
1
9
Panel A. China's share
in RCEP trade with Vietnam
VN's Export VN's Import
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
20.00
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Share
of
FDI
Regissted
Capital
(%)
Panel B. China's share
in RCEP's investment in Vietnam
China/RCEP Linear (China/RCEP)
Source: ITC Trademap. Source: Ministry of Planning and Investment.
9. Among RCEP member countries, China plays an increasing role in trade with
and investment in Vietnam. Prior to enactment of the RCEP, China contributed nearly
half of the total volume of RECP exports and imports. China’s share of both Vietnam’s
exports to and its imports from the RCEP increased during 2001–19, as shown in figure
7, panel A. China’s investment in Vietnam ranks third among RCEP member countries
after Korea and Japan, although its investment level has fluctuated considerably
since 2011 and at the moment has decreased from a high in 2019. The general trend
of China’s investment over time has increased (figure 7, panel B).
10. In addition, China’s participation in the RCEP could boost Vietnam’s exports to
RCEP markets. As figure 8, panel A shows, Vietnam’s exports to China (considered as
a single market of Vietnam) grew at an average annualized rate of 26.2 percent during
2001–19, higher than Vietnam’s annual total exports growth rate of 18.7 percent during
the same period. In the meantime, the share of Vietnam’s exports to China in its total
exports increased (in figure 8, panel A, see the right-hand side of the vertical axis).
In contrast, Vietnam’s exports to RCEP member countries (considered as a common
market of Vietnam) grew at 17.7 percent annually, on average, lower than the annual
growth rate of Vietnam’s total exports during the same period. Meanwhile, the share
of Vietnam’s exports to RCEP member countries as a group of trading partners in its
total exports has decreased (the RCEP member countries fall into the area on the left-
hand side of the vertical axis).

CHAPTER 1.
11. China could also contribute to strengthening the role of the RCEP member
countries as a major source of Vietnam’s imports. Comparing China and the other
RCEP member countries as two separate sources of imports to Vietnam prior to
enactment of the RCEP, and as shown in figure 8, panel B, during 2001–19 the average
annualized growth rate of imports of China and the RCEP member countries to
Vietnam was 24.9 percent and 18.7 percent, respectively—higher than Vietnam’s total
imports (17.6 percent). Meanwhile, the share of Vietnam’s imports from China and the
RCEP member countries in Vietnam’s total imports have both increased (both China
and the RCEP member countries are positioned on the right-hand side of the vertical
axis of figure 8, panel B).
Figure 8. Prior to RCEP establishment: The Role of China compared to other RCEP
member countries in Vietnam’s exports and imports
RCEP
ASEAN
EU
CPTPP
USA
China
0%
5%
10%
15%
20%
25%
30%
35%
-30.0 -20.0 -10.0 0.0 10.0 20.0 30.0
Export
growth
(%,
2001
-
19)
Change of partners' share
in Vietnam's total exports (%, 2001–19)
key trading partners
RCEP
ASEAN
EU
CPTPP
USA
China
0%
5%
10%
15%
20%
25%
30%
-30.0 -20.0 -10.0 0.0 10.0 20.0 30.0 40.0
Import
growth
(%,
2001
-
19)
Change of partners' share
in Vietnam's total imports (%, 2001–19)
key trading partners
Note: The horizontal axis shows the change in a partner’s
share in Vietnam’s total export between 2001 and 2019,
and the vertical axis shows the compound annual
growth rate during the same period.
Note: The horizontal axis shows the change in a
partner’s share in Vietnam’s total export between 2001
and 2019, and the vertical axis shows the compound
annual growth rate during the same period.
12. Before the RCEP, Vietnam’s participation in global value chains (GVCs)
through RCEP member countries was defined as high backward participation
and low forward participation. The high backward participation of Vietnam reflects
that Vietnam’s exports contained higher and increasing imported content from RCEP
member countries (or foreign value added) compared to lower and decreasing
domestic content (or domestic value added). Vietnam’s low forward participation
reflects its lower and declining value added in RCEP member countries’ gross exports.
Specifically, and as shown in figure 9, the value-added share of RCEP member

32
countries (Vietnam’s imported content from RCEP member countries) in Vietnam’s
gross exports increased from 18.7 percent to 28.0 percent during 2005–15, while
Vietnam’s value-added share in RCEP member countries’ gross exports fell from 9
percent to 6.4 percent during the same period.
Figure 9. RCEP’s share in Vietnam’s participation in GVCs (%)
0.0
5.0
10.0
15.0
20.0
25.0
30.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
RCEP(5)'s VA share in VN's gross exports (backward)
VN's VA share in RCEP(5)'s gross exports (forward)
Source: OECD.
13. China’s participation in the RCEP can deepen Vietnam’s GVC integration. China
is the only RCEP member country that contributed to increasing both the foreign value-
added share in Vietnam’s gross exports (figure 10, panel A) and the domestic value
added in foreign exports (figure 10, panel B). This can help Vietnam shift toward more
GVC forward participation. Increasing forward participation means that Vietnam will
enhance its capacity to produce more sophisticated semifinished products rather than
to assemble finished productswith imported semifinished products) so as to increase its
value added in Vietnam’s exports as well as foreign exports to entire GVCs. Specifically,
the share of foreign value added (China’s imported content) in Vietnam’s gross exports
grew from 4.9 percent to 14.1 percent, while the share of Vietnam’s domestic value
added in China’s gross exports increased from 1.6 percent to 2.2 percent during 2005–
15. Korea is another RECP country that has increased its foreign value-added share in
Vietnam’s gross exports—from 3.2 percent to 5.1 percent during 2005–15. However, the
share of Vietnam’s domestic value added in Korea’s gross exports increased from 0.6
percent (2005) to the highest level of 1.6 percent (2013), and then gradually decreased
to 1.1 percent (2015).

CHAPTER 1.
14. RCEP member countries are leading investors in Vietnam in terms of both
number of projects and total registered capital. As indicated in figure 11, until the
end of 2019, RCEP member countries had invested in more than 20,000 projects in
Vietnam, accounting for 65 percent of the total number of foreign direct investment
(FDI) projects, with registered capital of US$221 billion, 61 percent of total registered
capital. FDI inflows into Vietnam are expected to increase after the RCEP agreement
is signed, when changes to the rules of origin make all RCEP signatories considered
as one economic area, thereby allowing goods produced in Vietnam and using inputs
from other member states to be considered as originating in Vietnam. Furthermore,
RCEP member countries will implement many measures related to investment
facilitation such as easing administrative procedures and introducing some dispute
settlement mechanisms by consultation among member countries. According
to Ministry of Planning and Investment statistics, FDI inflows from RCEP member
countries into Vietnam increased significantly during 2016–19 compared to 2010–
15. Specifically, FDI from ASEAN increased from US$19.8 billion to US$28.9 billion,
and from RCEP member countries from US$41.5 billion to US$78.9 billion, while FDI
inflows from the United States or the European Union were almost unchanged during
this period.
Figure 10. Share of foreign value added of RCEP member countries in Vietnam’s
gross exports, and share of Vietnam’s foreign value added in exports of RCEP
member countries
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
1
4
2
0
1
5
Panel A. Foreign value-added share
of gross exports (%)
China Korea ASEAN
Japan Australia New Zealand
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
1
4
2
0
1
5
ASEAN China Korea
Japan Australia New Zealand
Panel B. Domestic value added-share
in foreign exports (%)
Source: OECD.

34
Figure 11. RCEP’s cumulated investment in Vietnam (as of 31 December 2019)
Korea
27.5%
Japan
14.2%
China
9.1%
Australia
1.5%
0.1%
ASEAN
12.8%
Others
34.6%
Panel A. Number of projects
New Zealand
Korea
18.7%
Japan
16.3%
China
4.5%
Australia
0.5%
New Zealand
0.1%
ASEAN
20.8%
Others
39.1%
Panel B. Total registered capital
Source: GSO.
15. Looking forward, and given the lessons learned from the COVID-19 pandemic
and changing global context from both the trade and non-trade perspectives, the
RCEP is expected to stabilize in favor of Vietnam and other member countries by
consolidating the ASEAN+3 link with Japan, Korea, and China. In light of pandemic-
induced debates over the need to diversify or shorten supply chains, Vietnam’s parallel
participation in three new-generation FTAs, namely the RCEP, EVFTA, and CPTPP, could
favor a reallocation of regional production links and FDI ties from which it could derive
additional benefits. According to Vietnam Briefing,6
in 2020, Vietnam has emerged
as one of the top locations in Southeast Asia for U.S. investors looking to relocate or
supplement their China operations amidst the U.S.-China trade tensions and the
COVID-19 outbreak, which have impacted their production in China and their supply
chains globally. The Japan External Trade Organization’s (JETRO’s) survey in 20207
showed that 22.3 percent of Japanese-affiliated manufacturers in Asia have planned
to change their procurement source because of the spread of COVID-19, and Vietnam
ranked first as a possible new procurement source. The proportion of manufacturers
planning to review their production sites because of COVID-19 was 5.7 percent, ofwhich
25.7 percent were from China, and Vietnam ranked second, following Thailand, as a
new production site. Regarding FDI inflows, as shown in figure 12, Vietnam’s major FDI
investors are RCEP member countries, including Japan, Korea, Singapore, and China. In
2020 and 2021, their registered capital decreased sharply compared to previous years
due to the impact of COVID-19, but still accounts for an increasingly larger proportion.
6
https://www.vietnam-briefing.com/news/relocating-production-vietnam-for-us-businesses-what-you-
need-to-know.html/.
7
https://www.jetro.go.jp/ext_images/_News/releases/2021/69b41fe59a5b2299/rp_firms_asia_
oceania2020.pdf.

CHAPTER 1.
Figure 12. Increased share of RCEP’s key investors in FDI inflows to Vietnam
during COVID-19
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
China Japan Korea, Rep. Singapore
2018 2019 2020 2021 (as of Otc) 2018 2019 2020 2021 (Otc)
Panel A. Registered capital (US$ mill.)
0%
5%
10%
15%
20%
25%
30%
35%
China Japan Korea, Rep. Singapore
Panel B. Registered capital (% of total)
Source: GSO.

CHAPTER 2.
Vietnam’s Legal Gap
and Commitments

38
16. This chapter presents a legalreviewand gap assessment ofVietnam’s national
legal framework, with particular attention to the key areas to which the signatory
states have committed in the Agreement and makes recommendations for
Vietnam. The chapter also highlights key differences compared with new-generation
FTAs recently signed by Vietnam, such as the Comprehensive and Progressive
Agreement for Trans-Pacific Partnership (CPTPP) and European Union–Vietnam Free
Trade Agreement (EVFTA) and their implications. The RCEP Agreement consists
of 20 chapters and four annexes. The Agreement was negotiated with the aim of
harmonizing the free trade agreements (FTA) ASEAN has signed with each of these
partners, so its ratification and implementation will be crucial for Vietnam and the
other ASEAN countries. The four major features of the RCEP Agreement are that the
agreement is modern, comprehensive, high quality, and mutually beneficial.8
In other
words, the negotiators, to accelerate regional trade liberalization and reform, have
made deep and broad commitments. These are the points Vietnam needs to focus
on to ensure effective implementation and to take advantage of the opportunities
the RCEP Agreement will bring. According to the Law of treaties of Vietnam, this legal
review is required to help Vietnam determine the compatibility of its current legal
framework with the commitments in the RCEP agreement in order to clarify legal or
institutional amendments and supplements for ensuring this compatibility.9
1. Trade in Goods
17. Vietnam’s commitments on trade in goods in the RCEP Agreement are mainly
incorporated in six chapters, including Chapter 2. Trade in Goods; Chapter 3. Rules of
Origin; Chapter 4. Customs Procedures and Trade Facilitation; Chapter 5. Sanitary and
Phytosanitary Measures; Chapter 6. Standards, Technical Regulations and Conformity
Assessment Procedures; and Chapter 7. Trade Remedies. To implement these
commitments, Vietnam should note the following.
18. First, in terms of tariff reduction and elimination, Vietnam makes concessions
that are not higher than the current ASEAN+1 FTAs. That is why economic gains as
analyzed in Chapter 3 do not come directly from tariff reductions, given that a series of
ASEAN+1 FTAs have been signed and implemented. Table 1 indicates tariff reductions
committed to in Vietnam’s signed FTAs. According to the RCEP Agreement, Vietnam’s
tariff schedule will apply to 90.3 percent of goods from other ASEAN countries,10
8
See: The ASEAN Secretariat, Summary of the Regional Comprehensive Economic Partnership Agreement.
9
See: Article 6.2 of the Law of treaties of Vietnam.
10
See: Annex I: Schedule of Tariff Commitments of Vietnam, Section A: For Member States of ASEAN.

CHAPTER 2.
VIETNAM’S LEGAL GAP AND COMMITMENTS 39
89.6 percent of goods from Australia and New Zealand,11
86.7 percent of goods
from Japan and Korea,12
and 85.6 percent of goods from China.13
Furthermore, one
important difference under the RCEP is that Vietnam applies different tariff schedules
for different partners, while it applies a single tariff schedule for all partners under
other FTAs. As a result, in addition to promulgating a decree on the preferential export
and import tariffs for implementing tariff schedules for all other FTAs, Vietnam’s future
governmental decree issuing RCEP tariff schedules will have to include an appendix
regarding tariff differentials of the RCEP Agreement.
Table 3. Vietnam’s tariff reduction commitments in its signed FTAs
FTA % of tariff lines
eliminated at
schedule’s end
FTA % of tariff lines eliminated at
schedule’s end
ATIGA 98% VJEPA 93%
ACFTA 86% VCFTA 89%
AKFTA 86% VKFTA 89.7%
AANZFTA 90% CPTPP 97.8%
AIFTA 74% EVFTA 98.3%
AJCEP 90% RCEP 90.3% for ASEAN
89.6% for Australia and New Zealand
85.6% for China
86.6% for Korea and Japan
Source: Nguyen 2021a.
19. Second, the RCEP Agreement uses rules for determining the origin of goods
that are similar to other FTAs to which Vietnam is a signatory but add exceptions
that can bring about regionally harmonized and development-friendly rules of
origin. According to the RCEP’s rules, a good is considered as an originating good if
it meets one of the following requirements14
: (i) it is wholly obtained or produced in
an RCEP country15
; (ii) it is produced in an RCEP country exclusively from originating
materials from one or more of the RCEP countries16
; and (iii) it is produced in an
RCEP country using non-originating materials, provided it meets the applicable
requirements set out in Annex 3A on product-specific rules.17
According to Annex
11
See: Annex I: Schedule of Tariff Commitments of Vietnam, Sections B (for Australia) and E (for New
Zealand).
12
See: Annex I: Schedule of Tariff Commitments of Vietnam, Sections C (for Korea) and D (for Japan).
13
See: Annex I: Schedule of Tariff Commitments of Vietnam, Sections F (for China).
14
Article 3.2 of the RCEP Agreement.
15
16
17
Article 3.5 of the RCEP Agreement and its Annex 3A (Product-Specific Rules).

40
3A, for some chemical products in chapters 29 and 38, the Chemical Reaction Rule,
equivalent to the Regional Value Content (RVC) or change of tariff classification (CTC)
rule, is used. For textiles, the RCEP Agreement allows the cumulation for materials
in the region while the CPTPP requires the use of the “yarn forward” rule 18
and the
EVFTA “fabric forward” rule.19
In other words, the rules of origin for textiles will greatly
facilitate the export of Vietnamese textile and garment products to other countries in
the region.
20. Regarding origin certification procedures, besides the traditional certification
procedures, the RCEP Agreement requires parties to apply self-certification
procedures.20
However, this Agreement gives parties a long transition period—for
Vietnam, it is 10 years21
and can be extended for another 10 years.22
In the context
of the ASEAN Economic Community, Vietnam is deploying a pilot program on self-
certification of origin23
based on the second ASEAN pilot project on self-certification.24
Moreover, under the CPTPP, the self-certification will have to be implemented in
Vietnam after a transition period of five years (with possibility of a five-year extension
for exports).25
This means that Vietnam will not face difficulties related to the
implementation of the commitments on self-certification, in accordance with the
RCEP Agreement. Therefore, to implement the commitments on this subject matter,
the Ministry of Industry and Commerce of Vietnam in the near future needs to issue
a circular guiding rule of origin under the RCEP Agreement without requirements on
self-certification.
21. Third, the commitments essentially do not create new obligations forVietnam
regardingtheRCEPAgreement’srulesoncustomsproceduresandtradefacilitation
(Chapter 4), sanitary and phytosanitary (SPS) measures (Chapter 5), and technical
barriers to trade (TBT) measures (Chapter6).This means thatVietnam does not need
to amend its domestic law in these sectors. In addition, the SPS and TBT chapters
18
This means that the yarn used to form the fabric (which may later be used to produce textiles and
garment products) must originate in CPTPP countries.
19
This means that the fabric used to produce apparel or other textile articles must originate in Vietnam or
an EU country.
20
21
Article 3.16.2 of the RCEP Agreement.
22
23
See Circular No. 28/2015/TT-BCT of the Ministry of Industry and Trade of 28 August 2015 on the
pilot project for self-certification of origin of goods in accordance with the ASEAN Trade in Goods
Agreement, and Circular No. 27/2017/TT-BCT of the Ministry of Industry and Commerce of 6 December
2017 amending Circular No. 28/2017/TT-BCT.
24
ASEAN, Memorandum of understanding among the Government of the participating member States of
the ASEAN on the second pilot project for the implementation of a regional self-certification system, Siem
Riep, 29 August 2012. See also Nguyen and Nguyen (2020).
25
Paragraphs 2 and 3, Annex 3-A (Other arrangements), Chapter 3 of the CPTPP.

CHAPTER 2.
allow parties to sign bilateral or plurilateral arrangements on the implementation of
SPS/TBT obligations26
so that, in case of necessity, Vietnam and one or more RCEP
country can consider concluding it in order to promote the harmonization of SPS/TBT
requirements and to ensure their effective implementation.
22. Finally,withtheRCEPrulesontraderemedies,VietnamandotherRCEPcountries
have reached a number of additional commitments in the field of anti-dumping
and subsidy investigations, such as prohibition of the use of zeroing,27
disclosure of
the essential facts,28
and treatment of confidential information.29
These rules are not
incorporated in the Law on Foreign Trade Management of 2017 and other guiding
normative documents. However, because of their limited scope of application within the
RCEP context and the fact that they meet all the requirements set out in article 6.2 of the
Law on Treaties of 2016, Vietnam may allow the direct application of these rules.
2. Trade in Services
23. Besides the general obligations on trade in services shown in Chapters 8
(Trade in Services) and 9 (Temporary Movement of Natural Persons) of the RCEP
Agreement, the specific commitments are built simultaneously on positive and
negative lists30
with the schedules of specific commitments and the schedules
of non-conforming measures. At the same time, the RCEP Agreement requires
that parties apply the automatic most favored nation (MFN) principle to a number
of service sectors and subsectors inscribed in its schedule identified with a MFN.31
In the case of Vietnam, some service subsectors that Vietnam has completely
opened for foreign suppliers are covered by the automatic MFN principle. These
include Management consultant services (CPC 865); Courier services (CPC 7512**)32
;
Environmental impact assessment services (CPC 94090*); Catering food services
(CPC 642), and Catering drink services (CPC 643). Therefore, these commitments will
not create new obligations for Vietnam. Because of their limited scope of application,
Vietnam may allow their direct application.
26
Articles 5.16 and 6.12 of the RCEP Agreement.
27
Article 7.13 of the RCEP Agreement. Zeroing is a method of calculating dumping margins in which
negative margins are reduced to zero.
28
29
30
The “positive list” is an approach of commitments under which the service sectors or subsectors of
liberalization and the conditions and restrictions are specifically and explicitly inscribed in the list of
specific commitments regarding market access, national treatment, and additional commitments. In
contrast, the “negative list” is an approach of service commitments under which all sectors or subsectors
that are not listed are, by default, open to foreign suppliers under the same conditions as for domestic
service suppliers.
31
32
Asterisks (*) and (**) are part of service industry code in the RCEP Agreement.

42
24. In the three annexes regulating financial services, telecommunications
services, and professional services, Vietnam makes commitments additional
to those with the World Trade Organization (WTO) and the ASEAN+1 FTAs.
For example, relating to financial services, the new rules cover the supply of new
financial services33
and regulatory transparency in financial services.34
However,
the rule on the supply of new financial services is not highly legally binding, while
the transparency obligations are equivalent to Vietnam’s commitments under the
CPTPP or EU–Vietnam Free Trade Agreement (EVFTA), and are also transposed into
domestic law through the Law on Promulgation of Legal Documents of 2015, revised
in 2020. Even the RCEP rules on transparency in licensing of financial services are
less strict than those of the Vietnamese Law on Credit Institutions of 2010, amended
in 2017; when allowing the regulatory authority of an RCEP country to extend the
time needed to make a decision, this extension is not permitted under the domestic
law.35
Similarly for telecommunication services, the RCEP Agreement sets out some
additional rules, such as number portability36
; resale of public telecommunication
services37
; provisioning and pricing of leased circuit services38
; co-location of
equipment necessary for interconnection39
; international submarine cable systems40
;
and access to poles, ducts, and conducts.41
Nonetheless, these rules are equivalent
to those under the CPTPP or EVFTA and have also been incorporated into the Law
on Telecommunications of 2009, amended in 2017 and 2018. Therefore, Vietnam’s
commitments in trade in services do not create new obligations for Vietnam. In
relation to the automatic MFN principle set out in article 8.6 and Vietnam’s schedule
of specific commitments, Vietnam can choose the option of its direct application.
3. Investment
25. Vietnam’s investment commitments are provided in Chapter 10 and its Annex
III (Schedule of Reservations and Non-Conforming Measures for Investment).
In comparison with the ASEAN+1 FTAs, the RCEP Agreement adds some new
obligations, such as (i) obligations not covered by the WTO Agreement on Trade-
33
Article 3, Annex 8A – Financial services of the RCEP Agreement.
34
Article 7, Annex 8A – Financial services of the RCEP Agreement.
35
Article 7.10, Annex 8A – Financial services of the RCEP Agreement and article 22 of Law on credit
institutions of 2010, amended in 2017.
36
Article 5, Annex 8B – Telecommunications services of the RCEP Agreement.
37
38
39
40
41

CHAPTER 2.
Related Investment Measures (TRIMS)42
; (ii) the automatic MFN principle43
; and (iii)
application of the ratchet mechanism44
five years after the date of entry into force of the
RCEP Agreement45
for the services described in the List A of Schedule of reservations
and nonconforming measures for investment. With the automatic MFN principle
applied to investors and investments, this rule is equivalent to those under Chapter 8
of the RCEP Agreement. However, Vietnam does not have to apply this principle. The
ratchet mechanism will be implemented in Vietnam only after five years, so currently,
this does not cause any difficulties for the country. Like the CPTPP, Annex III of the
RCEP Agreement may be applied directly in Vietnam. It should be noted that unlike the
CPTPP or EVFTA, the RCEP Agreement does not contain provisions on the Investor-
State Dispute Settlement (ISDS) mechanism and does not apply the tax-related
expropriation. This absence can be made up for in two ways. On the one hand, article
10.18 lays out a process for RCEP countries to enter into discussions on whether and
how to incorporate the ISDS. These discussions should take place in the next two years.
On the other hand, the RCEP Agreement coexists with treaties among the signatories
that are already in force, many of which include the ISDS mechanism.
4. Intellectual Property
26. In relation to intellectual property, Vietnam’s commitments are shown
in Chapter 11 of the RCEP Agreement. The provisions of this chapter provide
more comprehensive commitments than some ASEAN+1 FTAs and add some
Trade-Related Aspects of Intellectual Property Rights+ (TRIPs+) rules, including
procedures for establishing some industrial property rights46
; enforcement in the
digital environment47
; protection of genetic resources, traditional knowledge, and
folklore48
; and criminal remedies.49
These commitments are not higher than those
under the CPTPP and EVFTA that have been transposed into the draft of revised
Law on Intellectual Property adopted by the National Assembly in 2022. This means
that Vietnam will not need to amend its domestic law to comply with its intellectual
property obligations under the RCEP Agreement.
42
43
44
The ratchet mechanism mandates that “existing non-conforming measures may not be amended in the
future in a way that would decrease the level of their conformity with the treaty compared to the measure as
it existed immediately before the amendment or modification” (APEC and UNCTAD 2005, 114).
45
46
See, for example, article 11.22 on the registration and applications of trademarks; article 11.30 on the
domestic administrative procedures for the protection of geographical indications; and article 11.41 on
the procedural aspects of examination and registration of a patent.
47
Subsection 5 of section J, chapter 11 of the RCEP Agreement.
48
Section G of chapter 11 of the RCEP Agreement.
49
Subsection 4 of section J, Chapter 11 of the RCEP agreement.

44
5. Some Nontraditional Trade Issues
27. Unlike the CPTPP and EVFTA, although there is an acknowledgment of
sustainable development goals in the preamble, the RCEP Agreement does not
contain specific chapters on the environment, labor, or sustainable development.
However, the Agreement also aims to regulate some other nontraditional trade issues,
such as e-commerce (Chapter 12), competition (Chapter 13), small and medium-
sized enterprises (Chapter 14), economic and technical cooperation (Chapter 15), and
government procurement (Chapter 16). Essentially, the level of commitments in these
chapters is lower than or equivalent to those under the CPTPP. This means that they
do not create new obligations for Vietnam and that their implementation will not pose
difficulties for Vietnam.
6. Institutional Commitments
28. Vietnam’s institutional commitments are in line with Chapter 18 of the RCEP
Agreement. To supervise its implementation, some bodies will be established,
including the RCEP Joint Committee,50
the Committee on Goods, the Committee
on Services, the Committee on Sustainable Growth, and the Committee on the
Business Environment51
; and additional subsidiary bodies created by the RCEP Joint
Committee, if needed. To implement these institutional commitments, Vietnam will
need to appoint its delegate(s) to participate in these bodies. Vietnam has done this
task well under the CPTPP and EVFTA after their entry into force. Therefore, Vietnam
will not face difficulties dealing with these commitments.
7. Dispute Settlement
29. The dispute settlement mechanism in Chapter 19 of the RCEP Agreement is
basedonWTOrules,withwhichVietnamhasbecomefamiliarinrecentyears.This is a
greatadvantageforVietnamintheimplementationoftheRCEPAgreement.Significantly,
Chapter 19 of the RCEP Agreement is excluded from many types of intergovernmental
trade disputes (such as disputes relating to SPS/TBT measures,52
anti-dumping and
countervailing duty,53
transparency lists and subsidies in services,54
refusal to grant
50
51
52
Articles 5.17 & 6. 14 of the RCEP Agreement.
53
54
Articles 8.10.5 & 8.22.3 of the RCEP Agreement.

CHAPTER 2.
temporary entry of natural persons,55
e-commerce,56
competition,57
small and medium-
sized enterprises,58
economic and technical cooperation,59
government procurement,60
measures to prevent and combat corruption,61
and screening regimes62
). This exclusion
is not completed by specific procedures respectively set out in the concerned chapters.
That is both an advantage and a challenge for Vietnam because, on the one hand,
Vietnam can, if necessary, take measures that are not compatible with its commitments
in those chapters to protect important national interests without fear of being sued. On
the other hand, Vietnam faces the risk of not being able to sue an RCEP country if the
country adopts a measure incompatible with its obligation under the RCEP Agreement.
8. The Relationship between the RCEP Agreement and other
Trade Agreements
30. Article 20.2 of the RCEP Agreement stipulates that the Agreement is not
intended to replace the ASEAN+1 FTAs. Therefore, the RCEP Agreement, the
ASEAN+1 FTAs, and other trade agreements to which at least two RCEP countries are
members continue to exist in parallel. This should not pose a problem for Vietnam in
terms of amending its domestic laws, but it may make the implementation of these
agreements more difficult for Vietnamese enterprises in choosing the better trade
preferences. It is important that the Government of Vietnam and relevant authorities
continue to enhance the promotion of the RCEP Agreement and support businesses
in understanding commitments and making good use of trade preferences offered by
the RCEP Agreement and other FTAs.
9. Chapter Conclusion
31. The legal review reveals that the RCEP Agreement requires few amendments
ofcurrentdomesticlawsandregulationsgivenitslowerlevelofbindingobligations
than those committed to under other signed FTAs, such as the CPTPP and EVFTA.
On the one hand, it helps Vietnam take advantage of legal changes already taken
under previous regional FTAs to save time. On the other hand, however, the shallow
commitments under the RCEP would be less helpful in motivating necessary reforms
to modernize state and market institutions for national competitiveness.
55
56
57
58
59
60
61
62

46
32. Nevertheless, to ensure the implementation of commitments under the RCEP,
in some sectors, Vietnam should issue new normative documents or allow direct
application of several rules. Specifically, (i) regarding the issuance of new normative
documents, a decree on the preferential export tariffs and the preferential import
tariffs and a circular on rules of origin will be promulgated by the Government of
Vietnam and the Ministry of Industry and Commerce; (ii) regarding direct application,
the Vietnamese authorities, when ratifying this Agreement, should allow the direct
application of some RCEP rules, such as the prohibition of the use of zeroing,
disclosure of the essential facts, treatment of confidential information in the field of
antidumping and countervailing duty; the automatic MFN principle and Vietnam’s
schedule of specific commitments in trade in services; the automatic MFN principle
and Vietnam’s schedule of reservation and non-conforming measures for investment;
and (iii) regarding institutionalissues,Vietnam needs to make appropriate preparations
for participating in the activities of the bodies established under the RCEP Agreement.
Vietnam will have many advantages when implementing the RCEP Agreement.
However, the government should pay special attention to resolving the challenges
discussed above to ensure that the RCEP Agreement brings broader socioeconomic
benefits to Vietnam, in general, and to businesses, in particular.

CHAPTER 3.
Economic and
Distributional Impacts
of the RCEP

48
1. Methodology and Data
33. The potential impact of the Regional Comprehensive Economic Partnership
(RCEP) has been estimated using the dynamic, global, Computable General
Equilibrium (CGE) ENVISAGE model, which includes most RCEP countries and
simulates the main policy changes expected under the agreement (Estrades et. al.,
2021). This analysis builds on an earlier study by Ferrantino et al. (2019), and the full
details ofthe CGE modelare presented invan derMensbrugghe (2019).The modelwas
calibrated with the latest available information, using the GTAP database v.10 (Aguiar
et al. 2019), MAcMap tariffs, and ad-valorem equivalents of non-tariff measures from
Cadot, Gourdon, and van Tongeren (2018) for goods and Hoekman and Shepherd
(2019) for services. We also included tariff reduction schedules for agreements in
force, from MAcMap, and trade war tariffs from Li (2018).
34. Different scenarios have been simulated that reflect the depth of the RCEP
Agreement. The first scenario, “Tariffs alone,” simulates the expected tariff reduction
among RCEP members as scheduled in the agreement, with average tariff reductions
of 0.6 percent to 0.1 percent between 2020 and 2035.63
A second scenario, “RCEP,” also
includes non-tariff measure reductions among goods and services. We follow Petri
and Plummer (2020) assumptions and simulate a 35 percent reduction of ad-valorem
equivalents of non-tariff measures on agricultural goods, a 25 percent reduction on
manufacturing goods, a 25 percent reduction on services among RCEP members,
and a 10 percent reduction of non-tariff measures applied by RCEP member countries
to imports from countries outside the RCEP, as it is assumed that some of the reforms
carried out in the agreement are applied on a non-preferential basis. Third, we also
assume that the rules of origin (ROO) regime in the RCEP Agreement reduces trade
costs among its members by 1 percent over the period of implementation (2022-
2035), the “ROO liberalization” scenario. The resulting trade cost reduction is modeled
as a lowering of iceberg trade costs (ad valorem tax equivalent of costs associated
with trade), using the lower bound of Dib, Juang, and Poulou (2020) estimates who
found that a csingle rule of origin could reduce export transaction costs between 1.4%
and 5.9%64
. In other words, it is assumed that when tariff reductions are combined with
lower NTBs, only then exporters are able to take full advantage of the preferential
rates under liberal rules of origin. In the simulations these policies were considered
costless resulting in upper bound estimates of potential gains. Fourth, as found in
63
For the tariff reduction schedules for RCEP members, see https://www.dfat.gov.au/trade/agreements/
not-yet-in-force/rcep/rcep-text-and-associated-documents.
64
Park, Petri and Plummer (2021) also model the benefits associated with a more liberal RoO regime and
increased utilization rates as iceberg trade cost reductions, but also allow for the RoO to impose a small
administrative cost on intra-regional exports.

CHAPTER 3.
ECONOMIC AND DISTRIBUTIONAL IMPACTS OF THE RCEP 49
previous studies, tariff liberalization leads to an increase in productivity, and thus we
simulated an increase in productivityassociated to the falling trade costs (“Productivity
kick”).65
Other aspects of the agreement, such as the reduction in trade costs from
simplified customs procedures and trade facilitation, gains from digital trade, or the
impact on investment flows were not considered in our simulations.
35. We complement the general equilibrium analysis with a simple global
microeconomic model to obtain impacts on poverty and income distribution.
The initial global distribution of per capita consumption/income was constructed
with household-based data. Country-specific growth rates in real per capita
household consumption from the CGE are fully transmitted to households assuming
distribution neutrality. To calculate the number of poor, the total population in each
country is adjusted using United Nations population projections. There are 163
countries represented in the microeconomic model with 146 harmonized, nationally
representative household surveys obtained from the World Bank’s Global Micro
Database. Additional per capita consumption/income distributions for 17 countries
were obtained from the PovcalNet website. The analysis on poverty omits Brunei
Darussalam, Cambodia, and Singapore due to lack of data.66
2. Income, Trade, and Distributional Impacts for the Region
and Vietnam
36. The trade liberalization reforms covering reductions of tariffs, non-tariff
measures, and harmonization of rules of origin all lead to the reduction of trade
costs. With lower trade costs, the price of a unit of imports is less expensive, thereby
increasing the competitiveness oflocalproduction (using imported inputs) eithersold on
the domestic market or exported. As a result, production shifts to the most competitive
sectors, leading to productivity gains and expansion of trade and faster economic
growth in the RCEP region. The trade cost reductions also apply to trade with non-RCEP
countries, leading to somewhat faster growth in trade with those countries, as well.
65
There is extensive empirical evidence that trade liberalization leads to an increase in productivity, mainly
in developing countries, as reviewed by Shu and Steinwender (2018). CGE models with constant returns
to scale usually underestimate the gains from liberalization (USITC 1997; Tarr 2012), and for that reason,
including a productivity shifter is empirically valid (Partridge and Rickman 2010). The elasticities of
productivity to trade liberalization vary. Following Topalova and Khandelwal (2011), we assume that a 10
percent fall in tariffs leads to a 4.8 percent increase in labor productivity in the economy. Similar results
are found by Fernandes (2007) for Colombia.
66
For further details, see http://iresearch.worldbank.org/PovcalNet/povOnDemand.aspx.

50
37. Better access to regional markets allows countries to benefit from the faster
growth of exports, whereas reduction of a country’s own barriers coupled with
a reduction of barriers in regional markets leads to lower prices of imports. The
differences in gains across countries are linked to the initial level of tariffs, non-tariff
barriers, and border costs, and their reductions under the RCEP Agreement, and to
the initial level of intra-RCEP trade. The overall welfare implications are also linked
to the sectors of comparative advantage. If sectors benefiting under the RCEP have
higher productivity than those that would be expanding in the baseline scenario,
the reallocation of production leads to faster economywide productivity gains and
income growth.
38. The CGE analysis should be seen as a scenario analysis helping us understand
the relative impacts oftrade policychanges at the countryand at the sectorallevel,
notasthetoolgeneratingprojections.Itcomeswithseveralcaveats.Ontheonehand,
the results may underestimate the impacts of RCEP because they do not capture (1)
new trade flows in sectors and countries that are not trading in the baseline; (2) most
dynamic gains from trade (such as economies of scale, and learning by doing); and (3)
foreign direct investment (FDI) – improving market conditions, competitiveness, and
business sentiment will likely stimulate FDI in the member countries, thereby leading
to higher investment and accelerating imports of higher-technology intermediate and
capital goods and improved management practices. On the other hand, the results
may overestimate the impacts of RCEP because the analysis does not capture (1) the
costs of lowering nontariff barriers or administrative costs related to compliance with
the RoO; and (2) the adjustment costs associated with trade-related structural change
such as employment reallocation and potentially stranded assets such as capital.
39. RCEP offers significant opportunities for boosting trade and growth. This
analysis identifies key priorities for Vietnam’ policy makers. Lowering tariffs and
especially eliminating tariff peaks will be relatively straightforward. The hard part will
be reducing the nontariff measures and creating the environment where exporters
can take full advantage of the single rule of origin without incurring high administrative
costs. RCEP’s full potential depends on agreeing to ratifying the agreement and
implementing it in full. Partial reforms would lead to smaller effects.
40. Our results suggest that the RCEP will have a positive impact on trade and
income in its member countries (figure 13). Only assuming reductions in tariffs and
non-tariff measures (RCEP scenario), real income is expected to increase by 0.21
percent in 2035, compared to the business-as-usual or baseline scenario for RCEP
member countries. The estimated impact is higher if the reduction in trade costs
due to the implementation of a common set of rules of origin is considered (“ROO

CHAPTER 3.
liberalization,” with a 0.5 percent impact for RCEP member countries), and even higher
if an increase in productivity is assumed as well (“productivity kick,” with a 2.5 percent
increase). The impact on the rest of the world is negative, although very slight, except
when the productivity kick is assumed. In that case, real income in the rest of the
world increases by 0.07 percent.
Figure 13. Macroeconomic impacts: Percentage change relative to the business-
as-usual scenario, 2035
-0.50
0.00
0.50
1.00
1.50
2.00
2.50
Real GDP RCEP Real income RCEP Real GDP RoW Real income RoW
RCEP_tar RCEP RCEP_roo RCEP_prod
Source: World Bank staff calculations using ENVISAGE model.
Note: Real income in the expenditure to attain utility in year t in any given simulation using base year prices. It is
similar in magnitude to real private consumption. ROW = rest of the world.
41. All participating countries benefit from the RCEP, although the gains are not
distributed equally and depend on the trade policy changes (figure 14). Considering
the productivity kick scenario, with reductions in tariffs, non-tariff measures, and trade
costs, Lao PDR, Thailand, Cambodia, Vietnam, and Malaysia benefit the most. Under
this scenario, the real income in Vietnam and Malaysia increases almost 5 percent. In
Japan, the country that gains less under this scenario, real income increases by 0.5
percent. Interestingly for Japan, the impact of the four RCEP scenarios is similar, which
suggests that most gains are associated with a fall in tariffs, in contrast to the rest of
the countries, where the fall in tariffs leads to very small impacts, or even a negative
impact, as in Cambodia. In most countries, there is a significant welfare gain when
trade costs are reduced. In Lao PDR, significant gains result from a fall in non-tariff
measures.

52
Figure 14. Real income gains by country in RCEP: Percentage change relative to
business-as-usual scenario, 2035
-1.00
0.00
1.00
2.00
3.00
4.00
5.00
V
i
e
t
n
a
m
M
a
l
a
y
s
i
a
C
a
m
b
o
d
i
a
C
h
i
n
a
T
h
a
i
l
a
n
d
I
n
d
o
n
e
s
i
a
P
h
i
l
i
p
p
i
n
e
s
L
a
o
P
D
R
K
o
r
e
a
,
R
e
p
.
A
u
s
t
r
a
l
i
a
a
n
d
N
e
w
Z
e
a
l
a
n
d
J
a
p
a
n
RCEP_tar RCEP RCEP_roo RCEP_prod
42. Intra-RCEP trade increases significantly, even when only tariff reductions are
considered (see figure 15). When trade cost reductions and productivity increases
are assumed, intra-RCEP trade increases by 12.3 percent in 2035 compared to the
baseline. Trade of RCEP member countries with the rest of the world falls, especially
under the scenario with a common set of rules of origin. In the baseline, which
incorporates long-term trends and accounts for all the current tariff liberalization
commitments within the region (except RCEP), in line with the ITC MAcMap database,
real income in Vietnam is expected to grow 112.7 percent between 2020 and 2035,
with exports and imports increasing by 155.5 percent and 134.8 percent, respectively.
With implementation of the RCEP, when rules of origin and productivity are included
on top of tariffs and non-tariff measure reductions, real income grows faster, with an
increase of 123.1 percent between 2020 and 2035. The benefits of the implementation
of these measures are also reflected in trade, with exports and imports growing 182.5
percent and 155.5 percent, respectively, during the same period.

CHAPTER 3.
Figure 15. Impact on trade: Percentage change relative to business-as-usual
scenario, 2035
-2.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0
Intra-ROW trade
Imports from ROW
Exports to ROW
Intra-RCEP trade
RCEPtar RCEP RCEP_roo RCEPprod
Note: ROW = rest of the world.
43. Vietnam’s real income and trade expand faster in the scenario with tariffs,
non-tariff measure reductions, rules of origin, and productivity kick than in the
baseline (see figure 16). In the productivity kick scenario, where a productivity shock
is included, Vietnam has the highest gains of all RCEP member countries. Real income
increases by 4.9 percent relative to the baseline67
, higher than the gains for the block
as a whole, where real income increases by 2.5 percent (figure 16). Trade also increases
the most in this scenario, with exports expanding by 11.4 percent and imports by 9.2
percent, relative to the baseline. In the scenario where only the tariff reduction is
implemented, the impact on Vietnam’s economy is negligible, with real income close
to zero. Trade too, sees a small reduction relative to the baseline, with both exports
and imports declining by 0.3 percent. Vietnam is already deeply integrated into the
region; therefore, any additional tariff reductions yield only negligible impacts. Like
many other RCEP member countries, Vietnam is also part of the CPTPP and ASEAN.
Vietnam has had an FTA with Korea—the Vietnam-Korea Free Trade Agreement—
since 2015. China is the only country within the RCEP that Vietnam does not have a
trade agreement with. All these treaties are accounted for in the baseline; thus, the
difference of tariffs between the respective shock and baseline, in 2035, are small,
resulting in a meager impact.
67
To compare estimated economic impacts of CPTPP, EVFTA and RCEP and consistent results, see Annex:
Consistency of Economic Impact Estimates of CPTPP, EVFTA and RCEP for Vietnam

54
Figure 16. Macroeconomic impacts for Vietnam: Percentage change relative to
business-as-usual scenario, 2035
-2.00
0.00
2.00
4.00
6.00
8.00
10.00
12.00
Real Income Real Exports Real Imports
Tariﬀs alone RCEP ROO liberalization Productivity kick
44. A progressive liberalization increases trade with RCEP members, sometimes
at the expense of trade with nonmembers. As a direct consequence of the
implementation of the RCEP, trade with RCEP member countries expands faster than
trade with nonmember countries in most scenarios (figure 17). In the productivity
kick scenario, while exports and imports within RCEP member countries increase
around 14.1 percent and 14.5 percent, respectively, exports for the rest of the world
grow by only 7.7 percent, and imports decrease by 1.5 percent, indicating a small
trade diversion. Intra-RCEP trade is higher when a common set of rules of origin are
implemented, while trade with the rest of the world is lower. Exports to the rest of
the world increase 4.7 percent under the rule of origin liberalization scenario, while
without them, they increase by 5.3 percent. The impact is clearer with respect to
imports from the rest of the world; the rules of origin scenario results in a decline of
3.7 percent relative to the baseline, the highest reduction of imports of all scenarios.

IDU0f80d18470acf904d0e0b0f506f6ff68bb215.pdf

IDU0f80d18470acf904d0e0b0f506f6ff68bb215.pdf

Recommended

Recommended

More Related Content

Similar to IDU0f80d18470acf904d0e0b0f506f6ff68bb215.pdf

Similar to IDU0f80d18470acf904d0e0b0f506f6ff68bb215.pdf (20)

Recently uploaded

Recently uploaded (20)

IDU0f80d18470acf904d0e0b0f506f6ff68bb215.pdf