opportunities and challenges of vietnams rubbery export aftersigning the cptpp agreement

OPPORTUNITIES AND CHALLENGES OF VIETNAM’S RUBBERY EXPORT AFTERSIGNING THE CPTPP AGREEMENTAbstract: The study evaluates the opportunities and challenges of Vietnam''''s rubberexport after si

OPPORTUNITIES AND CHALLENGES OF VIETNAM’S RUBBERY EXPORT AFTER

SIGNING THE CPTPP AGREEMENT Abstract: The study evaluates the opportunities and challenges of Vietnam's rubber

export after signing the Comprehensive and Progressive Agreement for Trans-PacificPartnership (CPTPP agreement) Among many different methods, we choose to use

the SMART model to predict the impacts of the CPTPP agreement on Vietnam’srubber exports to the CPTPP members It is forecasted that the CPTPP will havepositive effects on Vietnam’s rubber exports One of those is that it is promising forVietnamese producers/exporters to access Mexico, which is a large market in thesouthern part of North America In addition, Vietnam has the advantage to continueincreasing export earnings to the Malaysian market after the CPTPP takes effect TheCPTPP will be a great opportunity for Vietnam to boost exports of rubber to othersbut also pose some challenges to our nation On the basis of these findings, we alsosuggest a number of policies to promote trade relations with CPTPP members in thefuture

Keywords: CPTPP, SMART, Vietnam, Trade, Export, Import

1 INTRODUCTION 6

2 LITERATURE REVIEW 8

2.1 Overview of Vietnam’s rubber export: 8

2.2 CPTPP Agreement 11

2.3 Vietnam Rubber exporting situation to CPTPP countries 12

2.3.1 Before CPTPP: 12

2.3.2 After CPTPP: 13

2.4 Regarding researches on the impact of CPTPP on exportation: 13

3 METHODOLOGY 15

3.1 Data collection 15

3.2 Research methodology 16

4 RESULTS 17

4.1 Changes in Vietnam’s exports of rubbery after signing CPTPP: 17

4.2 Trade effect 18

4.2.1 Trade creation effect 18

4.2.2 Trade diversion effect 20

5 DISCUSSION 22

5.1 Opportunities and prospects: 22

5.2 Challenges: 23

6 RECOMMENDATIONS 25

6.1 For Macro-level solutions: 25

6.2 For Micro-level solutions: 25

7 CONCLUSION 27

8 REFERENCES 29

1 INTRODUCTION

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership(CPTPP) came into effect in Vietnam on January 14, 2019, creating many chances forthe rubber export sector of Vietnam as the turnover of rubber exports to themember countries of this agreement On the one hand, commitments on tariffreduction and trade facilitation will open up opportunities for Vietnamese businesses

to expand their export markets, particularly new markets to them, such as Canada,Peru, and Mexico

Despite being greatly affected by the Covid-19 pandemic, 2021 is still a successfulyear for Vietnam's rubber exports when setting two new records in both volume andvalue after a drop in 2020 Vietnam exported 1.955 million tons of rubber in 2021,making this the largest volume of rubber exported in a year in the history ofVietnam's rubber industry Also, Vietnam was ranked third in the world in terms ofrubber export value, with 3.24 billion USD in 2021, up 36.2 percent from the previousyear, the Ministry of Agriculture and Rural Development (MARD) said With thisexport turnover, 2021 was also the year when rubber exports returned to the USD 3billion mark after 10 years Besides, Vietnamese rubber has been present in morethan 80 countries and territories, and the sector has penetrated more intensively inmajor markets This is a great step forward for Vietnamese rubber exports in recentyears Tran Ngoc Thuan, chairman of the VietNam Rubber Association (VRA), saidrubber was a key export agricultural product, accounting for a large part of the totalexport turnover of VietNam's agricultural products

The Association of Natural Rubber Producing Countries (ANRPC) forecasts that theglobal rubber consumption in 2022 will increase by 4-5% compared to 2021.Meanwhile, the easing of restrictions related to the pandemic would significantlycontribute to the recovery of rubber demand in 2022, such as the reopening ofinternational borders of some countries and the resumption of more economicactivities using rubber Therefore, the prospect of the domestic rubber industry in

2022 will be very bright, with strong growth in exports and export prices continuing

to stay high Vietnam’s rubber export revenue is expected to reach 3.5 billion USD in

2022, and rubber price would rise to 3.8 USD per kg in the second half of the year,experts have said

While the world is constantly asking for more rubber, the supply is starting to fallshort of the demand The global natural rubber supply is in shortage due to aprolonged rainy season in some Asian countries That low supply of latex is likely tocontinue in 2022, leading to the price to continue to be high In addition to theshortage of supply, the rising oil price also leads to an increase in the price ofsynthetic rubber because crude oil is an input for the production of synthetic rubber.Through preliminary statistics, ANRPC states that the world's natural rubber outputreached just over 13.8 million tons in 2021, while the demand is more than 14 milliontons ANRPC forecasts that the global rubber supply will continue to fall short of thedemand and this situation will maintain in the following years until 2028, possiblyeven until 2031 due to the widening gap between supply and demand

Plus, regional and world markets are forecast to continue to experience complicatedand unpredictable developments such as slow economic growth, trade wars betweenmajor economies, and increasing use of technical barriers and trade remedies Otherfactors include the impact of Industry 4.0 and customer demand for sustainableproducts Experts also said that the unseasonal rains in Thailand and Vietnam havecaused the physiological defoliation of rubber trees to come earlier this year,potentially leading to a fast and massive reduction of output in the coming time

The Ministry of Industry and Trade and the Ministry of Agriculture and RuralDevelopment are coordinating with localities, associations, and businesses toimplement solutions on developing the value chain for VietNam's rubber industryand increasing connection between production and export It will develop productsassociated with branding in a sustainable manner

In conclusion, VietNam’s rubber exports have achieved many significantbreakthroughs in recent years After doing some online research, we acknowledgethat little study was carried out to look into VietNam’s rubber exports to CPTPP

members; therefore, our study of “Opportunities and Challenges of Vietnam's rubbery export after signing the CPTPP agreement” will focus on how the CPTPP

agreement has helped to boost and contribute to that result, showing bothopportunities and challenges that VietNam has encountered and suggesting somerecommendations as well

2 LITERATURE REVIEW

2.1 Overview of Vietnam’s rubber export:

Vietnam's rubber product manufacturing and processing industry is currently one ofthe most important agroforestry production sectors of Vietnam, both in terms ofeconomic, social, and environmental There are many economic sectors involved inthe production process, which are mainly state-owned enterprises (mostly belonging

to the Corporation) By 2017, smallholder rubber acreage accounted for about 51% ofthe total rubber area of the whole country

Export is the focus of the rubber industry The three main export product groups ofthe industry today include natural rubber materials (natural rubber), rubberproducts, and more recently rubberwood and furniture made from rubberwood.Although the domestic consumption of the industry's products is smaller than theexport volume and turnover, but is also currently at a high level and is continuing toexpand

Table 1: Structure of export value of Vietnam’s rubber industry in 2018

More recently, the rubber exporting situation in Vietnam in 2020 to CPTPP countriescan be seen from the table below:

As can be seen, in 2020, among CPTPP members, the value of rubbery products weexport to Japan is significantly higher than other countries with 212.264 thousandUSD worth Even though we still export less to Japan in comparison with some othernoticeable main importers such as the US or China, however, the growth in value inthe period of 5 years of 10% can point out that we have the potential to acceleratethis rate further in the future

Most of the countries that export rubber to all have a steady growth rate in over fiveyears from 2016-to 2020 Only the value of exported goods in Malaysia and Bruneiwitnessed a fall in value (-24% and -10% respectively) We can see that the importedvalue fall deeply during the period of 1 year from 2019 - to 2020 due to COVID-19.Moreover, due to the impact of oil price fluctuations and the trade dispute betweenthe United States and China, in the early days of April 2018, domestic rubber pricesdropped sharply All of these reasons can be the cause of the drop in the value ofexported rubbery products during 2016 - 2020 In general, the imported value fromCPTPP still remains quite stable up until now

2.2 CPTPP Agreement

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)

is a free trade agreement, signed by 11 Asia-Pacific countries representing 13 percent

of global GDP, that lowers barriers to trade in goods and services between membercountries Members pledged to eliminate almost all tariffs and import charges oneach other's products and accepted common obligations on food regulations,environmental protections, the digital economy, investment, labor, and financialservices, among others

The TPP, originally known as the “P4 agreement” (Brunei, Chile, New Zealand andSingapore), was extended into a 12-member agreement, following the entry ofAustralia, Peru, Vietnam, the United States (US), Canada, Malaysia, Mexico andJapan The fanfare surrounding the TPP declined significantly after US PresidentDonald Trump announced the US withdrawal from this deal Overcoming this

setback, at the TPP summit in Chile on 14 March 2017, all 11-remaining membercountries of the TPP affirmed that the TPP should maintain its high standards and becomprehensive in all areas This commitment was reaffirmed by participatingcountries on the sidelines of the Asia-Pacific Economic Cooperation (25th APEC)Summit in Vietnam, held on 11 November 2017 At this summit, the TPP wasrenamed the “Comprehensive and Progressive Agreement for Trans-PacificPartnership (CPTPP)” to reflect the new configuration after the US withdrawal

The CPTPP officially came into force on 30 December 2018 following ratification bythe first six countries, namely Mexico, Japan, Singapore, New Zealand, Canada andAustralia Despite the US withdrawal, the CPTPP remains one of the largest FTAs inthe world, accounting for 13.3 percent of global gross domestic product (GDP), or atotal of US$10 trillion dollars All member countries are expected to receive a boost

to their economies from lower tariffs and increased market access The CPTPP aims

to achieve the highest standard of comprehensive market access through theelimination of tariffs and other barriers to goods and services trade and investment

Most provisions of the CPTPP are similar or identical to the original TPP However, 22provisions of the TPP that were once favored by the U.S but generally opposed byother signatories were suspended in the CPTPP One of the main differences in theCPTPP is the removal of certain provisions regarding intellectual property Though theU.S favored longer copyright terms, automatic patent extensions, and separateprotections for new technologies, these provisions were unpopular among theremaining signatories and ultimately removed from the CPTPP The CPTPP alsofeatures modifications to the investment chapter, certain implementation timelines,and labor and environmental rules from the original TPP

After the US withdrawal from the trade pact, Vietnam worked with the remainingmembers to revive it under the name of the Comprehensive and ProgressiveAgreement for Trans-Pacific Partnership (CPTPP) Indeed, Vietnam joined the CPTPPtalks in 2008 There are many motivations behind Vietnam’s participation in this deal

(Nguyen Huy Hoang and Truong Quang Hoan, 2019) Hence, Vietnam was theseventh member to ratify the CPTPP Given its unique conditions as there are plenty

of requirements to join one of the largest FTAs agreements, Vietnam could be a goodexample of how a developing Asian country and one with a dominant state-ownedsector can successfully pursue economic integration via the CPTPP As a result, thishas brought to our country such opportunities but also challenges, which we willdiscuss more in the session below

2.3 Vietnam Rubber exporting situation to CPTPP countries

2.3.1 Before CPTPP:

Trade turnover between countries in the CPTPP is still quite small For Vietnam,except for Japan, Australia, and Malaysia, the trade turnover between Vietnam andother partners is also relatively small In 2016, the trade value was worth only around387.35 thousand USD It gradually increased in 2017 to 465.336 thousand USD andkept remaining stable until 2019

2.3.2 After CPTPP:

After joining CPTPP (January 14, 2019), rubber exports were affected by the Covid-19pandemic, many businesses had to temporarily suspend production because theywere located in the blockade area, or production was affected by workers who wereabsent from work, isolated, living in areas with high risk Rubber farmers in manyprovinces also had to temporarily stop harvesting rubber because of social distancing.Therefore, we cannot witness any significant increase as expected from before.However, this can also prove a good effect of CPTPP is that it keeps the rubber export

of Vietnam during the pandemic from falling too low

2.4 Regarding researches on the impact of CPTPP on exportation:

There are numerous researches before that analyzed the impact of CPTPP onVietnam’s exportation:

Nguyen Thi Oanh (2019) evaluated the opportunities and challenges for Vietnam’sexport of Goods after participating in CPTPP The result review that joining CPTPPhelps Vietnam increase in scale, export turnover, expand the structure of exportproducts and moreover, help us to get access to so many new and potential markets.However, in many fields areas such as intellectual property, labor, environment, etc.,Every field is difficult because of the standards Standards are raised, requirementsare enforced and we will have to satisfy an adamant requirement from other CPTPPcountries

Thi Anh Tuyet Le (2021) analyzed the impact of tariffs on Vietnam’s trade in CPTPP.The study shown that when the average tariff of the CPTPP countries decreased by1% in the trade volume of Vietnam with the CPTPP countries, Vietnam’s exportturnover to the CPTPP countries increased by 0.0978 % and 0.1102%., and hen theưtrade openness of the CPTPP countries increases by 1%, the trade volume of Vietnamwith the CPTPP countries and Vietnam’s exports to the CPTPP countries increase by1.3826% and 1.0504%, respectively This is a good sign that with CPTPP, Vietnam hasmore potential in exporting goods

Maryla Maliszewska also study about the economic and distributional impact of theCPTPP in Vietnam It pointed out that to take full advantage of the benefits of furthertrade integration, implementation of the EVFTA and the CPTPP should be followed bystrong efforts to enhance competitiveness and trade facilitation, while also creatingdomestic policies that safeguard negatively impacted households Vietnam also facesadditional challenges in its continual improvement in connectivity to enable deeperintegration into global value chains

With all the following research about the CPTPP and the opppoturnities andchallenges on Vietnamese exportation, our group decides to delve in moreprofoundly to the effect that CPTPP will possibly have and how to utilize theopportunities as well as cope with the challenges

3 METHODOLOGY

After reviewing the above literature and research hypothesis, we decide to apply theSMART model in this research to determine, analyze and evaluate the opportunitiesand challenges of Vietnam's rubber export after signing the CPTPP agreement.SMART is known as a partial equilibrium modeling tool included in WITS that is usedfor market analysis It focuses on one importing market and its exporting partnersand assesses the impact of a tariff change scenario by estimating new values for a set

of variables

The SMART model allows the evaluation of an FTA’s impact on a specific product orindustry, which gives an advantage to this research as it can focus on specificallyrubber commodities, not the whole economy, in contrast to CGE - a method thatanalyzes all markets simultaneously Therefore, we agree on using the SMART modelfor the case of Vietnam - which is an exporter, in this case, focusing on the change inexport and the trade effect SMART has many advantages when applying localequilibrium analysis Firstly, according to Vergano (2009), SMART requires simpleinput data and is capable of analyzing the impact of tax policy on trade creation,trade diversion, tax revenue, and social welfare Second, the SMART model cananalyze the impact of FTAs on the basis of tariff reductions on trade-in detail to 6digits in the HS classification system That allows policymakers to see the impact ofFTAs on specific products, thereby having a basis to set out guidelines, policies, andstrategies to promote the export of products to achieve this goal greatest economicbenefit

Import demand elasticity and export supply elasticity are input parameters of theSMART model to calculate the trade creation effect [ ] Regarding trade diversion,import substitution is also an important parameter in the SMART