group midterm assignment course international economics

The total import export revenue of goods in 2022 was a record USD 7,325 billion, representing trade surpluses of EUR 112 billion, despite the continued severe impact from the COVID19 epi

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS AND

FINANCE FACULTY OF ECONOMICS

-o0o -GROUP MIDTERM ASSIGNMENT COURSE: INTERNATIONAL

ECONOMICSClass: A04ELECTURER: NGUYEN ANH DUY LEADER : TRAN NGUYEN PHUONG MAI NO

TO DO LIST

NO NAME OF MEMBERS ROLE % CONTRIBUTION Mark

1 Trần Nguyễn Phương Mai Leader, Part 1 25%

2 Nguyễn Vũ Vân Bình Part 2 25%

3 Quách Hồng Đăng Khoa Part 3: Reading 1 25%

4 Nguyễn Thành Phước Part 3: Reading 2 25%

100%

TABLE OF CONTENTSPart 1/ (4 points)

Question 1

How can Vietnam become the success story of Economic Integration?

What are the strategies that Vietnam have to use in this volatile markets?

What are the key sectors that Vietnam can have benefits in these new FTAs: such ad RCEP and EV- FTA?Explain the trade creation effect and trade diversion in RCEP, EU- Vietnam FTA

What are your proposals for future trade policy of Vietnam to gain full benefits of new generation of FTAs such

as RCEP, EU-Vietnam FTA, CP-TPP

Question 2:

Why do nations subsidize exports (identify the main functions of subsidy) ? Explain why Subsidy is more popular and is preferred trade policy in many countries To what problems do these subsidies give rise?

Part 2 / ( 3 points)

Briefly summarize the film

What are the arguments of Protectionism ?

Do you agree with the argument of the film?

What are the valid arguments for the use of trade barriers: infant industry argument, strategic trade policy

Part 3: READING (3 points)

Reading 1 : Briefing on World Trade: Globalization

What are the main arguments of the authors?

What are the impacts on developing countries if the Globalization has changed? Give some examples What are the key drivers of slow-balization trend ?

Explain the rise of new waves of Protectionism, do you think it’s good for free trade or not? Give your arguments

Reading 2: Why the World Still Needs Trade

The Case far Reimagining-Not Abandoning-Globalization

Author: NGOZI OKONJO-IWEALA

What are the main arguments of the authors?

Identify the arguments of the benefits of New Case for Globalization? Do you agree with author ‘s arguments ?

PART 1Question 1:How can Vietnam become the success story of Economic Integration?

- Vietnam's accession to the World Trade Organization in 2007 provides it with over 500 Bilateral and Multilateral Agreements across a wide range of areas By establishing economic relations with approximately 230 countries and territories and being a strategic partner of 17 countries, we are participating in 17 FTAs This position is and will create outstanding driving forces to help the country realize its growth goals, continue comprehensive innovation, and steadily advance development in the new period with many great achievements after 36 years of innovation and 16 years of expansion enter the WTO

- The research shows the success of economic intergration is the result of a wider trend that defies global norms Despite the stagnation of global commerce, Vietnam's trade in 2017 was up to 190% of GDP from 70% in 2007 Vietnam's manufacturing sector has continued to expand, with an estimated 1.5 million new jobs added between 2014 and 2016, while the world economy has been buffeted by premature deindustrialization

- As Vietnam's manufacturing is witnessing a "renaissance", the research stated Vietnam's experience holds lessons for developing and advanced economies alike

- Besides low wages and young populations, Vietnam has been able to take advantage of its strong foundations by means of good policies First, it adopted a bold stance on trade liberalization Second, by deregulating and cutting the cost of Doing Business, it has complemented international liberalisation with national reforms In addition, Vietnam has been investing a large part of its human and physically capital in both public and private investments

+ Promote import and export of goods: In 2012, Vietnam exported 1,146 billion USD and imported1,143 billion USD, and this was the first year that Vietnam achieved a surplus in the export sector By 2014 the trade surplus was 237 billion USD During the 5-year period (2011 - 2015), the total flow of foreign trade in goods and services reached 1,4395 billion USD, nearly 21 timeshigher than the period 2006 - 2010(11) In general, in the period 2015 - 2019, the country's import and export activities always achieved high growth rates each year With the outbreak and the complicated evolution of the COVID-19 pandemic, the year 2020 has made a special mark

on global trade The blockades and border closures in order to prevent COVID-19 from spreading have left the world's trade stagnated, supply chain breakdown has led to a wave of business failures around the globe In spite of some difficulties in 2021, total import-export sales reached 66,854 billion US dollars, representing a 226% increase compared to 2020 The total import export revenue of goods in 2022 was a record USD 7,325 billion, representing trade surpluses of EUR 112 billion, despite the continued severe impact from the COVID19 epidemic

on the country as well as volatile world economic conditions

+ The Global Competitiveness Index (GCI) improved sharply: In 2019, before the COVID-19 epidemic broke out in the world, Vietnam was considered a country with a stable, fast-growing economy and ranked among the top in the region and the world is considered by the

International Monetary Fund (IMF) to be among the 20 economies with the largest contribution

to global growth

+ In order to become one of the 20 largest trading countries in the world, the WTO recognises that

in the period 2016 to 2020, Vietnam will become an open economy with a GDP of more than 200

billion US dollars and improve the trade balance of goods that shift from a trade deficit to a tradesurplus.

+ Signing and implementing international economic commitments : Vietnam has developed economic relations with international organizations and multinational companies Vietnam has signed a number of bilateral trade agreements with countries around the world, such as the Vietnam Japan Economic Partnership Agreement and the Vietnam Chile FTAVCFTA in 2009.+ Our country's international economic integration process continues to be promoted through the formation of the ASEAN Economic Community (AEC) at the end of 2015 CPTPP (2016) EVFTA (2020) Global Economic Partnership Agreement Regional Representative (RCEP in 2020) Free Trade Agreement between Vietnam and Northern Ireland (UKVFTA in 2020)

What are the strategies that Vietnam have to use in this volatile markets?

- The world's political economy has been buffeted by a series of unforeseen and unforeseeable events overthe last five years There are a number of concurrent events that have not ended, such as China's trade rivalry with the USA, the COVID-19 Pandemic, and Russia's Ukraine crisis, which has driven global economic activity to change significantly In a number of fields, strategic and commercial competition from the big countries is becoming more intense

- The values of economic liberalism have been seriously challenged, the rules based global governance ofthe international system have been weakened, and trade protectionism has returned Racial nationalism and rising xenophobia block each other The future of supply chains with increasing globalization of services will continue to be determined by the consequences of events that lead to a change in the globalsupply chain in order to be more flexible and adaptable to the use of digital technology, to promote e commerce and to increase regional production networks in the context of global production networks Inflation is expected to rise over the next 10 years, as regions' supply chains develop

*SOLUTIONS:

- The measures taken by the government are flexible and effective in improving quality of growth: + Looking back to 2021, 258 capital factors contributed to GDP growth, contributing to 96 jobs, 78 totalfactor productivity, contributing to -38TFP The target of the TFP in 2021 has been negatively affected

by the fact that the government has implemented administrative measures to combat the COVID-19 epidemic, which has hampered production activities in economic centres and many municipalities throughout the country, with the aim of ensuring the lives of citizens first

+ In 2022, in the context of advantages and difficulties, challenges are intertwined, but the difficulties and challenges are more than our country's economy has a large openness, a modest economic scale, resilience, and competitiveness are still limited to only one variable The socioeconomic situation of thecountry could be greatly affected by a few minor impacts in the world As a consequence, the barriers to recovery and rehabilitation were removed by the government's strategy of shift from Zero COV-19 to Flexible Safe Adaptation at the end of 2021, so as to effective combat against this epidemic promote economic development

+ The Government with breakthrough thinking, quick and flexible actions, puts leadership effectivenessfirst, and with the effective companionship of the National Assembly, many policies and solutions promulgated and implemented at the right time have created good conditions for production and business activities to overcome bottlenecks and inadequacies of the economy, maintain macroeconomic stability and promote economic development With Vietnam's economy growing strongly and

controlling inflation below the target level, the government's proactive policies and management have been rewarded by the dynamism of the business community in overcoming difficulties

+ Only 347 people contributed to the GDP growth rate of 802 capital factors, amounting to 215 productivity gains and up to 438 overall factor contributions Although the target of 2022, which had a high value, was achieved, it is still lower than in 2018 at 467 and in 2019 at 496 This shows that improving the business environment and timely and effective government leadership are both of importance and a driving force for economic growth in institutional reform

- Proactively turn the situation around and turn challenges into development opportunities:

+ In comparison with the inflation target, which remains one of the key risks for a number of economies, it is expected that world inflation will fall but still remain strong in 2023 In 2023, according to the World Trade Organization, international trade will further slow down in comparison with the second half of 2022 The growth of world trade in 2023 is estimated to be just 1 % Overall, the global economic outlook continues to be volatile With increasing and more lasting inflation, world growth volatility is expected to continue to be significantly lower.+ Proactively forecast and assess the world economic and political situation, promptly propose policies and solutions in the short, medium, and long term, with the right orientation, flexible handling without fluctuations and loss of direction, and urgently organize implementation solution policies

+ To ensure timely support for Vietnam's economy with a large degree of openness that depends heavily on the world economy, the government has identified and assigned tasks to ministries, sectors, trade communities and economic policy organizations in order to promote efficient cooperation with governments, businesses and organizations throughout the region and around the world

- About labor market:

+ The employment factor is an important driver of the Vietnam economy, in addition to capital andfinancial support for enterprises In addition to solving domestic companies' problem, the labour factor is an attractive advantage for investors from other countries

+ To meet the labour needs of enterprises and take advantage of the trends towards chain transformation, the Government must ensure that a unified and synchronized policy regime is put

in place so as to develop and further improve efficiency with respect to flexibility, Integrated, and Sustainable Labour Markets Given the trend of moving foreign investment to Vietnam, it is crucial that global and regional supply sources are able to provide workers

+ In addition, skills development policies need to pay special attention to female rural workers andelderly workers Early identification of the demand for skilled labour in various types of vocational training under the digital technology trend

- Solve challenges for businesses:

+ It is not only this year but also for many years to come that the survival and recovery of enterprises will be a major factor in economic growth The government needs to promote the implementation of a policy on interest rate support as part of the Economic Recovery Programme, so that companies do not find it difficult to access capital for maintaining and restoring production and expanding investment

+ Research and propose solutions to continue the policy of exemption, reduction, and extension ofland use fees and taxes to reduce cash flow pressure to support businesses in providing enough credit capital for the economy to focus on production and business sectors Priorities, growth

drivers In solving the problem of ensuring energy security, direct commercial banks provide a source of finance for traders importing oil and coal.

+ In order to create new types of intermediation financial institutions, encourage the

diversification of capital mobilization channels for businesses Strengthening financial management capacity and access to capital for small and medium sized enterprises is also needed

at the same time

What are the key sectors that Vietnam can have benefits in these new FTAs: such ad RCEP and FTA? Explain the trade creation effect and trade diversion in RCEP, EU- Vietnam FTA

EV-1 What are the key sectors that Vietnam can have benefits in these new FTAs: such ad RCEP and EV- FTA?

- First, promoting export act ivities There is an impact on promotion of exports in particular from trade liberalization and the introduction of new generation free trade agreements The regulations in these FTAs force member economies, including Vietnam, to restructure, opening up new markets and creating attraction for goods

- Agricultural products and seafood: Vietnam is the world's largest exporting country for agricultural products and fisheries The FTAs make it possible to increase exports of products, e.g rice, coffee, fish and fruits, which may be marketed in different markets Decreased tariffs on agricultural and fishery products from Vietnam are particularly reduced by EVFTA

- Attracting foreign investment FDI In new generation FTAs, commitments to fair treatment of domestic investors and foreign investors in the establishment, acquisition, expansion and implementation of business activities have been established

- The removal of investment and service restrictions, as well as the opening up of government procurement markets for financial services will lead to substantial opportunities for investments in the coming years when new generation free trade agreements enter into force of Vietnam Investors will invest a great deal in Vietnam's market with new generation FTA regulations, improving the quality of foreign investment and making economic development more attractive

+ For example, the EVFTA will support high quality investors from the EU and other partners in Vietnam Until now EU investors concentrated in the construction sector and certain services sectors, but have also been active in other important areas of economy

2 Explain the trade creation effect and trade diversion in RCEP, EU- Vietnam FTA

- Trade creation refers to a situation where two countries within the FTA begin to trade with each other, whereas formerly they produced the good in question for themselves In international trade terms it means the countries go from autarky (in this good) to trading with zero tariffs, and they both gain Trade diversion, on the other hand, Occurs when two countries begin to trade within the FTA, but one of these countries had formerly imported the good from outside the FTA The importing country formerly had the same tariffs on all other countries, but purchased from outside the FTA because that was lowest After the union, the country switches its purchases from the lowest - price to a higher price country, in this case there is negative efficiency effect

- Example:

The picture above shows an analysis of a good in Vietnam that is initially protected by a tariff Imports are equal to the quantity BC, the difference between domestic demand and domestic supply at the tariff-inclusive price Consider, firstly, the case where Vietnam applies the same tariffs (T) on imports from allcountries Vietnam's consumer will buy at price P(NM) +T Secondly, once the tariff is eliminated on EU's goods, imports from the EU replace those from the rest of the world Since the EU duty-free price (P(EU) post FTA) is lower P(NM) + T, demand increases and Vietnamese domestic production reduces Imports increases, equal to GD Domestic consumers gain the areas ACDH, domestic producers lose the area ABGH, tariff revenue falls by BCEE, and the overall welfare effects are ambiguous Trade creation leads to a gain of BFG and CDE, but trade diversion leads to a loss of FELK, as the imports from EU replace imports from non member countries In practice, there are several cases when the outcome would be less ambiguous For example, if the EU were already the low cost producer before the FTA, trade creation would result in welfare gains equal to areas JBK and LCM, without any trade diversion losses However, if EU were instead uncompetitive before the tariff reduction and just a very little less than the rest of the world tariff inclusive price after the FTA, only trade diversion would take place, with

a loss in tariff revenue of BCLK but no noticeable gains

- Tariff levels and imports of these industries compare to other industries From theory, we see that trade creation will be great when, before FTA, the industry is much protected and imports of this industry are great This fact shows that there is still a strong demand for these goods at home, even in spite of the significant protection provided by the tariff In addition, it also shows that despite the high level of tariff protection, demand for transport equipment in the EU is very strong and could lead to trade with Vietnam should tariffs be reduced under a Free Trade Agreement As regards trade diversion, it is pointed out that if the tariff level of imports before FTA has been high, but Vietnam used to import goods from other free trade agreements, this can happen Imports from the EU could result in trade diversion when tariff reductions under FTA are applied because it can substitute imports from more efficient countries The EVFTA could, for instance, have a trade distorting effect on the electronics and machinery sectors in Vietnam In the following part, you can examine this issue more clearly + If tariff reductions are applied in the context of FTA, imports from the EU may lead to trade diversion because they will be able to replace imports from more efficient countries For instance, the EVFTA may have an impact on Vietnam's electronics and machinery sectors in terms of trade distortions We will take a more detailed look at this issue in the next part

+ Impact on Vietnam 's machineries and electronics industries Firstly, in 2004-2009 Vietnam annual import turnover of electronics increased by 33.6% on average From an import turnover

of 2.6 bn USD in 2005, after five years in 2008 it tripled reaching 7.6 bn The MFN tariff rate onelectronics is 13% For what concern electronic sector, a simple business analysis would endorse the conclusion that a reduction in tariff would have definitely an impact on the volume and prices

of electrical products and components imported from Europe

+ Indeed, a reduction in tariff would at least offset the costs of transport from Europe and give a great business advantage to European exporters vis-a-vis their Asian competitors from Japan, Korea and China that are already benefiting from lower distances and reduced import duties (Claudio Dordi,

+ 2011), In this case, future Vietnam-EU

+ FTA can lead to a trade diversion effects because imports from EU can replace imports from Japan, Korea and China in the Vietnam's market Secondly, concerning Vietnam's machineries industry, the EVFTA can lead to a trade diversion effects Research shows that machineries industry takes an 18.8 percent of the total Vietnam's imports from EU

+ In addition, the MFN tariff rate of this industry is quite great, equal to 15.7% according to the research of Vietnam-EU joint study group, 2011 Over the years Vietnam has been constantly increasing its demand for high quality machineries and has thus relied heavily on importations

In 2008 Vietnam has imported 11.1 bn.USD worth of machinery In this respect, the EU hastaround 14% of the market with 1.5 bn of export to Vietnam China is the biggest import partner with 2.75 bn of export to Vietnam For the machinery sector, a reduction of the already low tariff applicd by Vietnam on the imports of machinery will not result in a substantial increase

in imports On the other hand, Vietnam could benefit from a consistent surge of FDIS from European manufacturers that could decide to locate here the production Indeed, the growing domestic industries coupled with the general economic growth of Vietnam could have a domino effect on all the other support industries, which are now missing In this respect, the general high quality of the European products could have an important market in Vietnam, and potentially also in the neighboring countries, such as Laos and Cambodia ) In this case, future Vietnam-

EU FTA can lead to a trade diversion effects because imports from EU can replace imports from China in the Vietnam’s market

- In short, this research used the theory of trade creation and trade diversion and gravity model to evaluateimpact of EVFTA on welfare It reviewed existing bilateral trade linkages between Viet Nam and the EUcountries and come to the conclusion that there is a significant potential for Viet Nam and the EFTA States to strengthen their economic relationship by further developing their framework for trade and investment In particular, it came to a positive conclusion country with respect to the feasibility of a FTAbetween the EU countries and Vietnam The quantities results show there is a negative relationship between tariff rate and VN- EU bilateral trade In addition, qualitative research shows that Vietnam-EU FTA will offer many new opportunities, it perhaps leads to trade creation in automotive industry

What are your proposals for future trade policy of Vietnam to gain full benefits of new generation of

FTAs such as RCEP, EU-Vietnam FTA, CP-TPP

To fully benefit from new-generation Free Trade Agreements (FTAs) like the Regional Comprehensive Economic Partnership (RCEP), EU-Vietnam Free Trade Agreement (EVFTA), and the Comprehensive and

Progressive Agreement for Trans-Pacific Partnership (CPTPP), Vietnam should consider the following proposals for its future trade policy:

- Trade Diversification:

+ Expand exports markets: Vietnam should continue to diversify its exporting destinations with a view to reducing reliance on specific markets Although there is potential for RCEP, EVFTA and CPTPP to have an impact, the fact that multiple markets must be relied on is essential because risks and uncertainties may arise

+ - Sectoral Diversification: Encourage diversification of export sectors While textiles and electronics are key, it is also possible to reinforce resilience and competitiveness through diversification in the field of more value adding sectors and services

- Improving Regulatory Framework:

+ Enhance Transparency: In order to enhance investor and trader confidence, introduce transparency and predictability of regulations Attracting foreign investment and encouraging trade is made possible by the consistency and coherence of rules

+ Simplify Customs Procedures: In order to reduce the cost and time of transport for trade, customs procedures should be streamlined and simplified In this way, Vietnam would be a good logistics hub in the region

- Investment Promotion:

+ Facilitate FDI: Attract foreign direct investment by offering incentives, enhancing infrastructure and ensuring legal and regulatory frameworks is Foreign Investor friendly This could be a way

of creating jobs and increasing exports

+ Technology Transfer: Support the transfer of technology to Vietnamese companies from foreign investors This will help the development and evolution of regional industries in value chains

- Human Capital Development:

+ Education and Training: Training and education: invest in training, with a view to developing aneducated workforce that is able to take part in high technology industries and services + R&D and Innovation: Promoting research and development to develop cutting edge technologiesand products, fostering innovation in the country

- Infrastructure Development:

+ Transportation and Logistics: In order to reduce the costs of transport and time for transit, invest

in infrastructure including roads, seaports and logistics so that exports become more competitive.+ Digital Infrastructure: Make digital infrastructure more efficient for promoting eCommerce and Digital Economy, facilitate trade in services

- Quality Standards and Certification:

+ Meet International Standards: Ensure the fulfillment of international quality and safety standardsfor products and services As long as Vietnam meets international standards, exports from the country are better placed to compete on world markets

Question 2: Why do nations subsidize exports (identify the main functions of subsidy) ? Explain why Subsidy is more popular and is the preferred trade policy in many countries To what problems do these subsidies give rise?

Why do nations subsidize exports (identify the main functions of subsidy) ?

- Subsidies are also given in the form of tax exemptions to certain sectors in a bid to promote

industrialisation

- To support protect the infant industry, to protect jobs for domestic production of selected industry, to develop new potential sector/industrial for future trade advantage

- Provide domestic firms a cost advantage

Explain why Subsidy is more popular and is the preferred trade policy in many countries.

- Examples:

+ In terms of loans, Chinese commercial banks have provided short-term loans to exporters that enjoy the rates of Preferential interest rates, with interest rates currently only at 4-5% / year Withlow-interest rates, the volume of Chinese goods exported is increasing Foreign businesses only need to buy Chinese goods and materials to enjoy 0% interest rate support for 30% of the order value In addition, Chinese commercial banks also provide loans with interest rates of only 1-2%

to encourage exporters to invest in building factories and workshops These conditions have enabled Chinese enterprises to produce products in large quantities at the lowest cost

+ WTO rules against Boeing in US subsidies case The World Trade Organization (WTO) has ruled that a tax break from Washington state to help Boeing develop its new 777X jetliner was a prohibited subsidy - a victory for Airbus and EU regulators US aircraft manufacturer Boeing hadreceived forbidden subsidies for its 777X wide-body passenger jet, the World Trade Organization(WTO) said Monday, as they encouraged the use of domestic materials and fuel unfair trade distortions The WTO said the subsidy came in the form of a renewed cut in Washington state's main business tax for aerospace agreed in 2013, when Boeing was considering where to base assembly its latest long-haul jet The trade body didn't give a value for the banned aid, but the

EU estimated it at 5.7 billion (5.2 billion euros) out of an 8.7-billion package of tax measures granted to the planemaker by Boeing's home state of Washington

- Conclusion:

+ Outright cash disbursements, tax concessions, insurance arrangements, and loans at market interest rates

below-+ To help improve their market position

+ Provide domestic firms a cost advantage

+ Market products at prices lower than warrante by their actual cost or profit considerations+ If foreign imports compete with a relatively nascent domestic industry to benefit from economies

of scale, export subsidies will protect that industry as it thrives

To what problems do these subsidies give rise?

Subsidies are a popular and preferred trade policy in many countries for several reasons, but they also give rise

to various problems and challenges Let's examine both aspects:

- Trade Distortion: By creating an uneven playing field for domestic industry, subsidising can distort international trade This can set the stage for trading disputes and retaliation from another country whichcould trigger a trade war

- Inefficiency: In the case of those supported industries, subsidies may encourage inefficiency because there are no similar incentives to cut costs and increase productivity as in their unsubsidized

competitors