A Quantitative Evaluation of Vietnam's Accession to the ASEAN Free Trade Area

Abstract

November 1999 - The static economic benefits of Vietnam's accession to the ASEAN Free Trade Area (AFTA) are likely to be relatively small. The gains from increased access to ASEAN markets would be small, and they would be offset by the costs of trade diversion on the import side. But binding commitments on protection rates under the AFTA plan could provide an important stepping stone to more beneficial broader liberalization. Vietnam's accession to the ASEAN Free Trade Area (AFTA) has been an important step in its integration into the world economy. Fukase and Martin use a multiregion, multisector computable general equilibrium model to evaluate how different trade liberalization policies of Vietnam and its main trading partners affect Vietnam's welfare, taking into account the simultaneous impacts on trade, output, and industrial structure. They conclude that: · The static economywide effects of the AFTA liberalization to which Vietnam is currently committed are small. On the import side, the exclusion of a series of products from the AFTA commitments appears to limit the scope of trade creation, and the discriminatory nature of AFTA liberalization would divert Vietnam's trade from non-ASEAN members. · Vietnam's small initial exports to ASEAN make the gains from improved access to partner markets relatively modest. Since Singapore dominates Vietnam's ASEAN exports and initial protection in Singapore is close to zero, there are few gains from preferred status in this market. · When Vietnam extends its AFTA commitments to all of its trading partners on a most favored nation basis, its welfare increases substantially - partly because of the greater extent of liberalization, partly because the broader liberalization undoes the costly trade diversion created by the initial discriminatory liberalization, and finally because of the more efficient allocation of resources among Vietnam's industries.

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