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Vietnam to Benefit Most from AEC and TPP

By Vietnam Briefing
Posted: 10th September 2015 08:56
Vietnam will gain the most substantial gross domestic product (GDP) increase in percentage terms of any other economy upon implementation of the ASEAN Economy Community (AEC) and Trans-Pacific Partnership (TPP) in almost all scenarios projected by the Vietnam Institute for Economy and Policy Research (VEPR).
The VEPR report was based on the Global Trade Analysis Project (GTAP) databases, giving the first quantitative assessment of the impact of the AEC and TPP on Vietnam. VEPR created six scenarios from the data.
Impact on GDP
Becoming a part of TPP and AEC will lead to a significant increase in Vietnam’s real GDP, achieved mainly by consumption and investment growth.
In Scenario A, Vietnam will gain 1.03 percent GDP growth after completely removing tariffs between member countries in the TPP. In Scenario B, achieving the ultimate goal for both agreements of cutting both tariff and non-tariff barriers would allow Vietnam to achieve 1.32 percent GDP growth.
Impact on Trade Value
Under Scenario B, Vietnam would experience the largest increase in imports, at 11 percent. In contrast, exports would be reduced by US$2.2-3.1 billion as a result of tariff removal and the resulting competition between domestic and foreign companies. Investment would increase by 9.2 percent, and consumption by US$6.9 billion.
In comparison, production would increase by US$2.4 billion, hence the decrease in exports despite overall real GDP growth.

Based on the VEPR’s study, the production of apparel, leather and silk manufacturing and production of textiles would experience the largest increases in export volume at US$5.4, US$3.5, and US$1.3 billion respectively under Scenario B. An increase in utilities services would support increases in fixed capital formation to meet investors’ demand.


In Scenario B, we would see an increase of 40 percent of the skilled and unskilled labor force involved in apparel. However, labor demand converted at the value of utility services would witness the largest increase at US $0.4 billion for skilled labor and US $0.8 billion for unskilled labor in order to meet investment demands.


Under the scenarios, all TPP member countries will show a significant rise in economic welfare. Vietnam will gain the largest percentage increase with 5.4 percent, equivalent to US$ 6.1 billion while Japan is the most beneficial country with the increase of US$ 18.7 billion.


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