IMPACTS OF RCEP ON RICE EXPORT OF VIETNAM

FTA Free Trade Agreement MUTRAP European Trade Policy and Investment Support Project PSD online Production, Supply and Distribution Online RCEP Regional Comprehensive Economic Partnershi

MINISTRY OF EDUCATION AND TRAINING

FOREIGN TRADE UNIVERSITY

DISSERTATION

IMPACTS OF RCEP ON RICE EXPORT OF VIETNAM

Major: Master of International Trade Policy and Law

Trịnh Thị Tuyết Nhung

Ha Noi - 2016

MINISTRY OF EDUCATION AND TRAINING

FOREIGN TRADE UNIVERSITY

DISSERTATION

Impacts of RCEP on Rice Export of Vietnam

Major: Master of International Trade Policy and Law

Full Name: Trịnh Thị Tuyết Nhung

SUPERVISOR: Assoc Prof Dr Từ Thúy Anh

Ha Noi - 2016

DECLARATION

I, Trịnh Thị Tuyết Nhung, hereby declare that the work presented herein is the original

work done by me and has not been published or submitted elsewhere to the best of my

knowledge Any literature date or work done by another and cited within this thesis has

given due acknowledgement and listed in the reference section

The work was done under the guidance of Assoc Prof Dr Từ Thúy Anh, at the Foreign

Trade University, Hanoi

Hanoi, 30 November 2016

ACKNOWLEDGEMENTS

I would like to express my deep gratitude to Assoc Prof Dr Từ Thúy Anh , my research supervisor for her professional guidance, valuable support and useful recommendations

of this research work My grateful thanks are also extended to Ms Lê Thanh Thủy and

Ms Nguyễn Thu Hà for their support to keep my progress on schedule I would also like

to thank other lectures of MITPL program for their sharing of knowledge that very useful

in my research

Finally, I wish to thank my family, my friends for their support and encouragement throughout my study

TABLE OF CONTENTS

TABLE OF CONTENTS 1

LIST OF FIGURES 4

LIST OF TABLES 4

LIST OF ABBREVIATIONS 5

EXECUTIVE SUMMARY 7

INTRODUCTION 9

CHAPTER 1: OVERVIEW ON RCEP AND THEORETICAL FRAMEWORK TO ASSESS IMPACT OF RCEP ON RICE EXPORT OF VIETNAM 13

1.1 Overview on RCEP 13

1.1.1 The context 13

1.1.2 The issues of the RCEP 15

1.1.2.1 Market accesses issues 16

1.1.2.2 Other matters in the RCEP 18

1.2 Theoretical framework to assess impact of RCEP on rice export of Vietnam 22

1.2.1 Approach 22

1.2.2 The effects of removing tariff on international trade 22

1.2.3 Research Methods 25

1.2.3.1 Partial equilibrium method (SMART model) 25

1.2.3.2 Method identifying factors affecting rice production and characteristic of an industry 26

1.2.3.3 Synthesis method, comparison of data 27

1.2.3.4 Classification method 27

1.2.3.5 SWOT analysis method 27

CHAPTER 2: IMPACT ASSESSMENT OF RCEP ON RICE EXPORT OF VIETNAM 29

2.1 Current situation of RCEP rice export market 29

2.1.1 The role of RCEP members with rice export market 29

2.1.1.1 The importers 29

2.1.1.2 The exporters 30

2.1.2 Trade barriers of six important importers in RCEP area 31

2.1.3 Situation of Vietnamese rice exports in recent years 39

2.1.4 The scale of RCEP members‟ demand with rice export of Vietnam 41

2.2 Impact assessment results of RCEP on rice export of Vietnam 45

2.2.1 Increasing quantity of Vietnam‟s rice export 45

2.2.1.1 China and the Philippines, two largest rice importers 47

2.2.1.2 Japan and Korea, two most restriction countries 49

2.2.1.3 Indonesia and Malaysia 52

2.2.2 The rise of competition in the area 56

2.2.2.1 Rice quality 60

2.2.2.1.1 Milling rate 60

2.2.2.1.2 Diversity of rice types 61

2.2.2.2 Brand identity 64

2.2.2.3 Production ability 66

2.2.3 Attract FDI – big challenge 70

2.2.4 Other factors relevant to impact - assessment of RCEP on rice export of Vietnam 76

CHAPTER 3: RECOMMENDATIONS TOWARD RICE EXPORT OF VIETNAM TO RCEP 78

3.1.Create and improve the brand of Vietnamese rice 78

3.2 Improve rice quality 82

3.2.1 Choose the rice variety 82

3.2.2 Make regulations in the process of taking care of rice variety, guidance for farmers 84

3.2.3 Improve division of grain production 86

3.2.4 Improve science, techniques 88

3.2.5 Improve land quality, limit the impact of climate change 89

3.3 Attract FDI in the rice industry 90

3.3.1 Make sustainable development strategy for rice industry in long term 90

3.3.2 Create big production area, improve infrastructure in the rice industry 91

3.3.3 Improve labour quality 91

3.3.4 Restrict corruption and non-transparency in FDI project 92

3.4 Build relevant strategy for each market 93

3.4.1 China and the Philippines 93

3.4.2 Japan, South Korea 94

3.4.3 Indonesia, Malaysia 95

4.2.5 Take advantage of the incentives on Vietnam in RCEP 95

CONCLUSION 96

REFERENCES 98

LIST OF FIGURES

Figure 1 Impact of joining RCEP on Vietnam‟s rice export 23

Figure 2 Impact of big scale demand on rice export 24

Figure 3 Rice imports from Vietnam to Japan 37

Figure 4 Rice exports of Vietnam in period 2007 – 2015 39

Figure 5 Vietnamese rice price from Jan-16 to Oct-16 (USD/ton, FOB) 40

Figure 6 Main exporting markets of Vietnam's rice in 2015 42

Figure 7 Rice import from Vietnam, selected countries 43

Figure 8 Rice imports of Malaysia by exporting country in 2015 55

Figure 9 Rice export of India, Thailand and Vietnam from 2007 to 2015 57

Figure 10 Rice (HS 1006): Major global trade flows, 2011–13 (1,000 mt) 58

Figure 11 Rice price of high quality rice (5% rice broken) 63

Figure 12 Rice price of low quality rice 64

Figure 13 Yield of rice production, selected countries, 2015 68

Figure 14 Rice production area of Vietnam 73

Figure 15 Rice production area of Thailand 74

LIST OF TABLES Table 1 Tariff elimination coverage by country under some ASEAN+1 FTA (%) 17

Table 2 Ranking of RCEP members as rice importer on Global rice importer 29

Table 3 Top ten rice exporters in the world, 2015 31

Table 4 Tariff on rice import, selected countries 33

Table 5 Non-tariff barriers, selected countries 34

Table 6 Matrix level of restriction 38

Table 7 The rice export changes of Vietnam due to RCEP 45

Table 8 Rice exports from RCEP members to China change due to RCEP 47

Table 9 Rice exports from RCEP members to the Philippines change due to RCEP 48

Table 10 Rice exports from RCEP members to Japan change due to RCEP 49

Table 11 Rice exports from RCEP members to Korea changes due to RCEP 50

Table 12 Rice exports from RCEP members to Indonesia change due to RCEP 52

Table 13 Rice exports from RCEP members to Malaysia change due to RCEP 53

Table 15 Milling rate, selected countries 60

Table 16 Milling Rate, selected countries, period 2006 - 2015 61

Table 17 Export price quotes 61

Table 18 Area Harvested of India, Thailand and Vietnam 66

Table 19 Rough Production, selected countries, 2015 69

Table 20 Milled Production, selected countries, 2015 69

Table 21 Top five foreign investors of Vietnam 70

Table 22 Foreign direct investment projects licensed by kinds of economic activity 71

Table 23 SWOT analysis 75

LIST OF ABBREVIATIONS

AANZFTA ASEAN-Australia-New Zealand Free Trade Area Agreement ACFTA ASEAN-China Free Trade Area

AITIG ASEAN-India Trade in Goods Agreement

AJCEP ASEAN-Japan Comprehensive Economic Partnership agreement AKFTA ASEAN-Korea Free Trade Area

ASEAN Association of South East Asian Nations

COMTRADE Statistics about trade of United Nations

FAO Food and Agriculture Organization

FTA Free Trade Agreement

MUTRAP European Trade Policy and Investment Support Project PSD online Production, Supply and Distribution Online

RCEP Regional Comprehensive Economic Partnership

RCEP area The area includes countries participate RCEP

SMART Software for Market Analysis and Restrictions on Trade SPS Sanitary and Phytosanitary Measures

SWOT Strengths, Weaknesses, Opportunities and Threats

TBT Technical Barriers to Trade

TPP Trans-Pacific Partnership

TRAINS Trade Analysis and Information System

U.S The United States of America

USDA United States Department of Agriculture

USITC United States International Trade Commission

WITS World Integrated Trade Solution

EXECUTIVE SUMMARY

RCEP (Regional Comprehensive Economic Partnership) is a framework for free trade negotiations which were initiated by the ten members of Association of Southeast Asian Nations (ASEAN10) (Vietnam, Laos, Cambodia, Thailand, Myanmar, Malaysia, Singapore, Indonesia, the Philippines and Brunei) and the six nations with which ASEAN has existing bilateral FTAs (China, Japan, South Korea, India, Australia and New Zealand) RCEP is one of the most FTAs of Vietnam in the future This study serves 2 goals: Firstly, the study evaluated the effects of the RCEP on Vietnam's rice exports; secondly, this study provides some recommendations to the Government of Vietnam to best preparation to deal with the impact of the RCEP for Vietnam's rice exports Due to these goals, research approaches of this study in view of Vietnam as a rice exporter RCEP impacts‟ evaluation based on the benefits and risks it brings to Vietnamese rice exports To assess the impact of the RCEP on rice export of Vietnam, this study used a combination of methods, including partial equilibrium method (use SMART model); method identifying factors affecting rice production and characteristic

of an industry; synthetic method, comparison of data; classification method, SWOT analysis method RCEP is still in negotiating the process, so it will be difficult to predict the result This research based on the assumption of the author in case of best scenario This research focuses on six important partners of Vietnamese rice exports in RCEP area, includes China, the Philippines, Japan, South Korea, Malaysia, and Indonesia RCEP area is the most important market for rice exports of Vietnam It accounts for more than a half of total Vietnamese rice exports The restriction on rice imports of countries in this area is different The most restricted level countries are Japan and South Korea, be followed by China and Philippines; the lowest restricted level countries are Malaysia and Indonesia However, in general, all countries have strong protection for the domestic rice industry Because of this context, there are three main impacts of the RCEP on rice exports of Vietnam that are: (i) increasing rice export quantities and expand new market; (ii) increasing the competition in RCEP area;

(iii) increasing FDI inflow rice industry However, the Vietnamese rice industry has many weaknesses, such as no brand, low quality, and unconformity policies It leads to many difficulties of Vietnamese rice in use positive impacts and restricts negative impacts which are brought by RCEP To deal with this problem, some recommendations for the Government of Vietnam are: (i) to create and promote brand; (ii) to improve rice quality; (iii) to change policies to attract FDI; (iv) to plan a separate strategy for each market; (v) to take advantage of the incentives on Vietnam in RCEP

INTRODUCTION

1 The importance of Research

In the trend of globalization, Vietnam is increasingly involved in many free trade agreements, including RCEP Being a multilateral agreement in the Asia - Pacific, RCEP has many impacts, both positive and negative on the economy of Vietnam, including the rice industry Rice has been Vietnam's export industry for decades and has a great contribution to the economy Moreover, rice is one of domestic resources,

so the development of this industry will increase the Vietnamese economic strength Asia - Pacific region is the main exported market for Vietnamese rice for many years,

so the fluctuations in this market have a strong influence on Vietnam's rice exports For these reasons above, there is necessary to assess the impact of the RCEP on Vietnam's rice exports, thereby reasonable solutions should be recommended to deal with the changes which are bought by this agreement better

2 Research questions

The research questions for this study were:

- Does RCEP bring benefit for Vietnamese rice export?

- Which challenges does Rice export of Vietnam have to face when RCEP is effective?

- How can Vietnamese Government deal with these problems?

3 Research subjects

Research subjects of this study are RCEP and rice export of Vietnam

4 Goals of the study

This study serves 2 goals:

First of all, this study evaluated the effects of the RCEP on Vietnam's rice export

In addition to assessing rice exports as a normal economic sector, the study also paid a

special attention to the specific characteristics of the rice industry for the most comprehensive and accurate assessment

Secondly, this study provided some recommendations to the government of Vietnam to have the best preparation for the impact of the RCEP for Vietnam's rice exports With the scope and extent of the RCEP, the impact of this agreement on Vietnam's rice exports are great including the opportunities and challenges, so it is needed to prepare as much as possible

5 Scope of Research

This study focuses only on impact assessment of RCEP on the rice export of Vietnam Research is mentioned on the macro level of Vietnamese rice export rather study the microscope for each enterprise

6 Research Methodology

This study used a combination of methods, including partial equilibrium method (use SMART model); method identifying factors affecting rice production and characteristic of an industry; synthetic method, comparison of data; classification method; SWOT analysis method

7 Research Assumptions

RCEP is in negotiation process, the results of this agreement are difficult to predict In this research, with the assumption RCEP will be negotiated successfully with the best results, the authors assume that all RCEP members will reduce tariffs on

importing rice to zero percent This assumption is also used to run the SMART model, particularly, the tariff before RCEP is applied tariff, the new tariff after RCEP is zero

percent for all countries

8 Literature review

MUTRAP (2015), Assessing the Impacts of the Regional Comprehensive

Economic Partnership on Vietnam’s Economy

MUTRAP (2015) examined the effect of Regional Comprehensive Economic Partnership on Vietnam‟s Economy In this research, authors assessed the impacts of RCEP on whole Vietnam‟s Economy by using sectoral analysis This research performed useful knowledge about context of RCEP, RCEP‟s issues and its impacts on economy sectors, including Agricultural, forestry and fishery sector

Từ Thúy Anh, Lê Minh Ngọc (2015), Challenges for Vietnam in ASEAN+6

integrations: A sectoral analysis, Journal of Economics and Development, 212, page

2-12

In this research, authors examined the impacts of RCEP on specific sectors by using partial equilibrium method (SMART model) This research introduced a useful method to assess the impacts of an FTA on specific economic sector It also spent attention on challenges for Vietnam due to RCEP

MUTRAP (2010), Impact assessment of free trade agreement on Vietnam’s

economy

This study identified the impact and efficiency of several FTAs, especially ASEAN-Korea, ASEAN-India, ASEAN-Australia New Zealand and AFTA on Vietnam‟s economy In this research, authors used some modeling to assess these impacts: Computable General Equilibrium model, Gravity model, SMART model

Fukunaga, Isono (2013), Taking ASEAN+1 FTAs towards the RCEP: A Mapping

Study

In this research, authors focused on ASEAN+1 FTAs to identify the opportunities and challenges for RCEP This research proposed some recommendations for RCEP negotiation process: tariff elimination up to 95%, clearly regulation about tariff barriers, general provision of RoO

Hà Văn Hội (2015), Joining TPP: Opportunities and Challenges for Rice export

of Vietnam, VNU Journal of Science: Economics and Business, 31, page 1-10

Hà Văn Hội (2015) focused on the impacts of TPP on Rice export of Vietnam In this research, authors shown prediction about positive and negative impacts of TPP on Vietnamese rice export This research stated that TPP will bring opportunities to increase rice export for Vietnam due to reducing tariff However, Vietnam has to face with competition from Thailand and India The weakness of Vietnamese rice in international trade is low quality

Nguyễn Thị Lan Anh (2014), The impacts of ASEAN Free Trade Agreement on

Vietnam’s rice sector

This research examined the impacts of ASEAN Free Trade Agreement (AFTA)

on regional production, consumption, trade, and prices for agricultural and processed food This study found that AFTA increase small quantity of Vietnam‟s rice production and export This study also found that trade creation outweighs trade diversion in some manufacturing sectors

CHAPTER 1: OVERVIEW ON RCEP AND THEORETICAL FRAMEWORK

TO ASSESS IMPACT OF RCEP ON RICE EXPORT OF VIETNAM

1.1 Overview on RCEP

1.1.1 The context

Compared to Western Europe and North America, East Asia still considered as the slow development about the economic linkage in the area In the deadlock of the Doha round, bilateral agreements still are a mainstream trend in East Asian trading system From the 2000s, East Asian Government, have signed dozens of agreements of bilateral free trade agreements, however, much agreements are often not appreciated for the quality The FTAs are decided based on the elements of geopolitics and not merely economic aims Most FTAs in East Asia often ignore the "sensitive" issues and the bilateral FTAs disjointed, overlapping impacts negatively on regional economic integration In the context of bilateral mechanisms also revealed many limitations as such, many countries in East Asia try to join in the multilateral cooperation

RCEP (Regional Comprehensive Economic Partnership) is a framework for free trade negotiations that were initiated by the ten members of The Association of Southeast Asian Nations (ASEAN10) (Vietnam, Laos, Cambodia, Thailand, Myanmar, Malaysia, Singapore, Indonesia, the Philippines and Brunei) and the six nations with which ASEAN has existing bilateral FTAs They are China, Japan, South Korea, India, Australia and New Zealand About RCEP, scale has a total population of about 3.4 billion people (nearly half of the world population), with a combined GDP of about US$ 17.23 trillion, which is about a third of the world‟s (Singapore 2014) RCEP officially launches, talks in the margins of the East Asia Summit in Phnom Penh, Cambodia on 20 November 2012, based on fundamental principles is to expand and promote the commitment of ten ASEAN countries with free trade partners The goal of the RCEP is the integration of the different FTA that ASEAN signed with Japan, South Korea, Australia, New Zealand, India and China (ASEAN + 1 FTAS) into a comprehensive agreement to maximize the benefits

RCEP is an FTA that is led by the ASEAN; link the economies of the 16 countries in the Asia-Pacific region According to the evaluation of international economic experts, RCEP establishment will reduce the dependence of the Asia-Pacific

on the Western markets that are in trouble

Currently in the Asia-Pacific region, in addition to RCEP is also a multilateral agreement known as Trans-Pacific Partnership (TPP) – a multilateral agreement in the area with 12 members by the leader is the United States (cover 7 members are also located in both agreements include as follows: Australia, Japan, Malaysia, New Zealand, Vietnam, Singapore and Brunei) TPP is called an "FTA of the 21st century" However, the 21st century is also seen as the "Asian century" So, it reasonable to call

an FTA covering Asian area as is an FTA of the 21st century While TPP requires all members to participate in liberalization in the trade as a developed country, the RCEP

is a multilateral agreement to reach each package class Although it may be less integrated, RCEP will be much higher flexibility compared to the TPP Also note further, TPP without the participation of China and India, the two the largest population countries in the region with the very high growth rate In other words, RCEP is the only playground in areas of these two countries Besides, with the participation of China, the most powerful country in Asia, a big partner of many countries, RCEP will be an important agreement in the region

In addition, the new President of the United States, Mr Donald Trump has always strongly opposed to the TPP agreements during the election Thus, despite being signed

on 04/02/2016, the efficiency of the future activities of the TPP is difficult to answer because the U.S is the leading factor of TPP The influence of the change in U.S politics might lead to the positive impact of the TPP will be limited In this context, RCEP will become the multilateral trade agreements which are most important in the area and have a high likelihood of success by RCEP the success which was led by the central factor is ASEAN

1.1.2 The issues of the RCEP

RCEP negotiation will be guide by the 8 following principles:

The RCEP will be consistent with WTO; will have broader and deeper engagement with significant improvements over the existing ASEAN +1 FTAs; facilitate trade and investment and to enhance transparency in trade and investment; support developing countries; the FTAs between and among participating countries will continue to exist; an open accession clause to enable the new participation; economy and techniques cooperation; negotiations on trade in goods, trade in services, investment and other areas will be conducted in parallel Cover 8 areas: trade in goods, trade in services, investment, economic and technical cooperation, intellectual property, competition, dispute settlement and other issues

Box 1: Guiding Principles for Negotiating the Regional Comprehensive Economic Partnership

RCEP negotiations will be guided by the following principles:

1 The RCEP will be consistent with the WTO, including GATT Article XXIV and GATS Article V

2 The RCEP will have broader and deeper engagement with significant improvements over the existing ASEAN+1 FTAs while recognizing the individual and diverse circumstances of the participating countries

3 The RCEP will include provisions to facilitate trade and investment and to enhance transparency in trade and investment relations between the participating countries, as well as to facilitate the participating countries‟ engagement in global and regional supply chains

4 Taking into consideration the different levels of development of the participating countries, the RCEP will include appropriate forms of flexibility including provision for special and differential treatment, plus additional flexibility to the least-developed

ASEAN Member States, consistent with the existing ASEAN+1 FTAs, as applicable

5 The ASEAN+1 FTAs and the bilateral/ plurilateral FTAs between and among participating countries will continue to exist and no provision in the RCEP agreement will detract from the terms and conditions in these bilateral/ plurilateral FTAs between and among the participating countries

6 Any ASEAN FTA Partner that did not participate in the RCEP negotiations at the outset would be allowed to join the negotiations, subject to terms and conditions that would be agreed with all other participating countries The RCEP agreement will also have an open accession clause to enable the participation of any ASEAN FTA partner that did not participate in the RCEP negotiations and any other external economic partners after the completion of the RCEP negotiations

7 Provisions for technical assistance and capacity building may be made available, building upon the ASEAN+1 FTAs, to the developing and least-developed countries participating in the RCEP to enable all parties to fully participate in the negotiations, implement obligations under the RCEP and enjoy the benefits from the RCEP

8 The negotiations on trade in goods, trade in services, investment and other areas will be conducted in parallel to ensure a comprehensive and balanced outcome

Source: (Guiding Principles and Objectives for Negotiating the RCEP 2012)

1.1.2.1 Market accesses issues

Tariff reductions

The first goal of the RCEP is reducing and eliminating tariffs and non-tariff barriers for all trade goods in order to establish a free trade area among the countries participating RCEP

However, this issue will also face with much difficulty Firstly, countries have different tariff elimination for each FTA Although in the same FTA, the tariff

elimination of different countries also differs Addition to that, the use of non-tariff barriers is very popular in all countries, especially for the sensitive product

Table 1 shows the tariff elimination coverage by countries under ASEAN + 1 FTAs Almost countries have different tariff elimination for each FTA (except Singapore) For example, Vietnam has tariff elimination that applies for AANZFTA is 94.8%, but the tariff elimination in AIFTA just 79.5% In addition, in the same FTA, each country has a different tariff elimination For instance, in AJCEP the tariff elimination of Vietnam is 94.4%, while the tariff elimination of Thailand is 96.8%, of Myanmar just only is 85.2%

Table 1 Tariff elimination coverage by country under some ASEAN+1 FTA (%)

Rules of origin (ROO) of goods is a very important factor to decide the application of tariff reduction with aim to avoid the trade deflection ROO in the RCEP towards rules of origin of goods is simple and easy to apply to all the Member States

1.1.2.2 Other matters in the RCEP

Economic and technical cooperation

The aim of economic and technical cooperation is to reduce the development gap between countries that participated in RCEP, enhance the benefits of the RCEP for each member Among the countries that join RCEP have a huge gap of development, there are the developed countries such as Japan, Singapore, Australia; besides that there are many countries still underdeveloped as Laos, Cambodia, and Vietnam Therefore, to the least developed countries have the opportunity to fully participate in and also receive benefits from the RCEP, the negotiators have set out economic and technical cooperation issues when negotiating this agreement Economic, technical cooperation is not a subsidy, but that is a form of support in terms of the technology to help the least developed countries to catch up the level of other countries that joined the RCEP

Intellectual property

The purpose of the negotiation of this problem is to reduce the trade and investment barriers related to intellectual property by the implement, protection and enforcement of intellectual property rights The developed countries involved in RCEP have many goods with high intelligence So, the intellectual property rights are one of the top priorities However, with many members have lower development level, should have cleared the provisions which related to intellectual property in order to guarantee the rights of the involved parties At the same time, this provision will also restrict the use of the national intellectual property rights as a trade barrier

Competition

The purpose of this provision is to enhance competition, increase economic efficiency and consumer welfare; to avoid the anti - competition actions RCEP will focus on two main issues are the SOEs and Government procurement The State-owned enterprises usually have many advantages on the market and being received more subsidies by the Government, especially in sensitive areas such as agriculture, energy

To avoid the anti - competition actions between enterprises, RCEP towards setting out clear regulations on the operation of SOEs limited exclusively and subsidies from the Government In addition, transparency in government procurement is also an issue that RCEP wants to achieve However, it will be very difficult to negotiate this

Dispute settlement

RCEP towards the goal is efficiency, performable, and transparency of the mechanism of consultation and dispute settlement Today, countries still use the dispute settlement mechanism of WTO However, in the future, RCEP may set out specific and more complicated dispute settlement mechanisms to achieve this objective

Issues and other challenges

The problems that RCEP have to face within the process of negotiating the RCEP are:

Firstly, the ASEAN + 1 Agreements are diverse

As mentioned above, the RCEP was developed based on the ASEAN + 1 Agreements However, the agreements have many differences in the content, the schedule to complete Therefore, to combine these agreements into a general agreement would be very complicated, requiring a lot of effort from the parties of RCEP

The second, the countries join RCEP have a different developmental level and benefit expected from this agreement is also very different

This is a huge challenge for the negotiators to harmonize the benefit of the parties with the RCEP At the same time, to ensure the countries with different developmental levels can fully participate in this agreement, it is also other difficulty

Third, the sensitive goods

The country has its list of sensitive goods and the difference among countries is very big For example, rice has a very high level of protection in some countries such

as Japan, South Korea, but the rice exporting countries like Thailand, Vietnam has an expectation of an open market for this commodity This is also a difficulty in achieving the goals of the RCEP

The fifteenth negotiation round of RCEP was held in Tianjin, China from October

9 to October 21, 2016 According to the opinion of the negotiators is the agreement will definitely be complete but not in 2016 The senior leadership‟s hope the negotiation can end soon, but this agreement will require significant investments of time and resources to complete Currently, the negotiators had stuck with the rules, the text and commitment in a variety of areas such as development and technical support, e-commerce, goods, services, investment, intellectual property rights, telecommunications, financial services, rules of origin, legal and institutional, and trade facilitation There is also the discussion of trade protection and Government procurement

The complete liberalization would actually be a big success for most of the RCEP economy This agreement creates much flexibility, in particular with the least developed countries and brings the policy space for members

The agreement will be significantly enhanced if the negotiating process is improved in the direction allows the enterprise to participate and comment However,

the media still miss or incomplete It leads to the Governments have to draft business rules in many cases without input information practices or business experience For example, how an officer can know the ingredients of milk? How much active transaction is if the tax or license or standards or different investment rules? Rules of origin would be most useful for people making milk in RCEP? The same question was also posed with the goods or services In most cases, the negotiators must give conform answers However, just because a country has implemented the agreement in the past does not mean that the situation also occurs with similar enterprises in the RCEP Although it has undergone fifteen negotiating rounds, many negotiators in RCEP also concerned the expansion of the round with the parties concerned The parties concerned not to participate in negotiations, but they have a lot of valuable information This is very important and should be encouraged whenever and wherever possible Expected at the next negotiating round in December 2016 in Jakarta (Indonesia), there may be the other official activities or operations on the sidelines for the parties involved but also very limited Instead the process for providing information according to the legal regulations with many steps; the parties may send information directly to the negotiators and officials through the electronic portal be identified clearly, mainstream Second, the RCEP officials must cooperate better with the media The ending result of the negotiations, RCEP will impact approximately 3 billion people

in 16 countries in East Asia, should be required to provide information and regular updates

1.2 Theoretical framework to assess impact of RCEP on rice export of Vietnam 1.2.1 Approach

Research approaches of this study in view of Vietnam as a rice exporter RCEP impacts are evaluated based on the benefits and risks it brings for Vietnamese rice exports These recommendations in this study also proposed for the government of Vietnam

Although RCEP is still in the negotiation process, this study raises the assumption RCEP will be negotiated successfully with the best results Impacts of RCEP on Vietnam's rice exports are mentioned in this study are located in ideal conditions when all participants in the RCEP agree trade liberalization fully with all commodities, which including rice

1.2.2 The effects of removing tariff on international trade

In case of no tariff, the volume of trade in rice will increase This consequence can be explained by the fact that when the government imposes tariff on rice, the price that consumers have paid for import product is so high Thereby, they cannot adequately buy rice from foreign countries, although their demand is higher than the quantity they purchase Therefore, in case of tariff, people consume less than their needs The reduction of tariff help consumer can purchase imported product at the lower price, it leads to increasing of import quantity The more detail of this impact will be represented in the figure below

The figure below shows the impact of the RCEP in case tariff decreases from t to

zero

Figure 1 Impact of joining RCEP on Vietnam’s rice export

Source: (Krugman, et al 2008)

The figure above shows the general impact of the RCEP on Vietnam‟s rice

export Before Vietnam joined RCEP, the tariff on rice export of Vietnam is t So, the

price that consumer in importing country has to pay is Pt while the price that producer sell is Pw At Pt price, the import quantity is D1 – S1, the value producer received is

Pw*(D1 – S1), this is the area c on the figure After Vietnam became RCEP member, the

price of rice export in importing country is Pw with import quantity is D2 – S2, the value

of rice export is Pt*(D2 – S2), represented by area (a + b + c) in the figure Therefore, when joining RCEP, the rice export of Vietnam will increase by (a + b)

The export quantity increases because of two reasons, trade creation and trade diversion Trade creation is the volume of trade increased due to when the price goes down, the consumers in importing country tend to buy more import product than the domestic product Trade diversion is the volume of trade increased because the consumers buy more rice exported from Vietnam than from non RCEP members The reason for this action is that although non RCEP member sells at a lower price than Vietnam, the price consumers have to pay for their product is higher than that of the product of Vietnamese producers because of tariff impact

The above simple analytics shows that being RCEP member will bring benefit for Vietnam‟s rice export due to the impact of tariff reduction However, to accurately assess the impact of the RCEP on rice export of Vietnam, it is important to know how large increasing quantity of export is and what challenges Vietnam has to face when RCEP becomes effective These impacts depend on the scale of rice demand of RCEP countries because the higher in rice demand in countries the greater impact of tariff reduction on the rice import The figure below will explain the reason of this comment

Figure 2 Impact of big scale demand on rice export

Source: (Krugman, et al 2008)

When the demand of rice in country A is large and plays a significant role in the rice market of the world, it means that country A is a large country with rice Therefore, the increase in rice import demand of country A will lead to the increase in rice import demand of the world As a result, the world price will increase (from Pw1 to

Pw2 in the figure) In this situation, the total value of rice import that producers received

increase is area c and reduce area (a + b) Totally, the value of rice import will increase the area (c – (a + b)) However, rice product is one essential commodity, so the

elasticity of demand is lower than 1 unit Besides, the input factor of rice production is hard to change (weather, land, water and so on), so the elasticity of rice supply is

inelastic For these reasons, the area (a + b) is smaller than area c Therefore,

eventually, the value of rice import that producer received from country A will increase more than from other countries To sum up, if the demand of rice in one country is larger than other countries, the impact when this country remove tariff is stronger It means that the rice exporting to this country will increase more than others Of course, rice exporters, for example Vietnam, will earn more benefit

1.2.3 Research Methods

1.2.3.1 Partial equilibrium method (SMART model)

The partial equilibrium method will help to assess the impact of free trade agreement on specific industries

This method has the advantages of:

- Do not require a lot of data

- Analysis of the specific industry at pretty detailed level

- Easy to implement, simple; Results clearly, easy to explain

Disadvantages:

- Often overlooked important interactions between different markets

In this study, the authors used partial equilibrium model SMART (Software for Market Analysis and Restrictions on Trade), this model is part of the database system and software of WITS, developed by the World Bank

This model focuses on an import market and the export partners of that market to assess the impact of an FTA These effects include trade creation, trade diversion, net trade impact, changes in revenue from tariffs and changes in consumer surplus

The assumptions of the SMART model:

On the supply side:

- The competition to providing a commodity for an importer

- Export supplies are perfectly elastic (use value 99)

On the demand side:

- Imperfect substitutes of the import sources of the same type of goods from different countries

The data is used to run the SMART model is the data on tariffs and trade of TRAINS Trade data of TRAINS are compiled from a database of COMTRADE

1.2.3.2 Method identifying factors affecting rice production and characteristic

of an industry

Rice is an export sensitive agricultural commodity, so it has the common characteristics of the agricultural sector and the specific characteristics of the Vietnamese rice industry Therefore, during the study, the authors assessed the impact

of the RCEP on the basis of identifying factors affecting rice production and characteristic of Vietnam rice industry to have the most accurately assessment Analysis features of rice industry include: Identifying the factors affecting rice production; identifying the characteristics and properties of rice commodity

- Factors affecting rice production:

+ The quality of rice seeds;

+ Conditions of soil, land, and water;

+ Weather, climate conditions;

+ Production tools; fertilizers and pesticides;

+ Production techniques (including cultivation, harvesting, drying, cleaning and

so on)

- Characteristics and properties of rice commodity:

+ Easy for pests

+ As direct food use in the meal should be able to directly influence the health of consumers

+ Because of their small size and large quantities so it is difficult to assess the quality of the entire product

+ Long production time, it is difficult to adjust production keep up market demand

+ Input on rice production depends on nature conditions, so it is difficult to control

1.2.3.3 Synthesis method, comparison of data

This study will use data from many countries in many times, so it is needed to use methods of aggregating data for a complete and comprehensive data In addition, the method of comparing the data used to recognize the differences and specificities of each country in the process of exporting rice

1.2.3.4 Classification method

There are many countries joined RCEP are export partners of Vietnam at the same time These countries have some specific characteristics and differences with each other Thus, the classification of these partners will work to understand the characteristics of each country and plan strategy for each market The classification is primarily based on the ability to import rice from Vietnam and restriction level of rice imports

1.2.3.5 SWOT analysis method

SWOT is an acronym for strengths, weaknesses, opportunities and threats SWOT analysis is a useful technique for understanding the strengths and weaknesses of Vietnamese rice industry, and for identifying both the opportunities open to it and the

threats it faces A SWOT analysis is typically conducted using a four-square SWOT analysis template The SWOT results can be used to develop short-term and long-term strategies for Vietnamese rice industry

CHAPTER 2: IMPACT ASSESSMENT OF RCEP ON RICE EXPORT OF

VIETNAM

2.1 Current situation of RCEP rice export market

2.1.1 The role of RCEP members with rice export market

2.1.1.1 The importers

Asia is an area having the largest rice consumption in the world Citizens in that continent use rice in all their meals, this is their tradition since very long time, especially in South, East, and South – East Asia For this reason, the demand for rice in these areas is always larger than the rest of the world All RCEP members are located

in these great areas It leads to the result that RCEP area is the eventful market of rice import and export Every trade policy in the rice industry of governments in these countries has huge impacts on the rice market in the world

In all RCEP members, China and The Philippines are well – known as the largest rice importers in the world for many years The following table shows the detail about the import quantities of some RCEP members as rice importer

Table 2 Ranking of RCEP members as rice importer on Global rice importer

Source: Author’s calculation based on data of USDA, ERS, Rice Yearbook

Note: The ranking involves 51 rice import countries on the world

Look at the table above, it is easy to recognize four RCEP members place at the top ten largest rice-importing countries in the world, especially China and The Philippines Six RCEP countries above cover more than 21% of the total rice import all around the world in 2014 Only China and the Philippines was accounting for more than 14% of the total rice import in 2014 Besides, although the rank of Japan and Korea are not too high, the rice demand of two countries is larger than the number in the table above The reason is their government use tariff and other trade barriers to restrict imports to protect domestic producers, so they import less than real demand Therefore, RCEP members have an important role in the rice market in the world These countries are the most important markets for all rice exporters, include Vietnam All data above shows the fact that the scale of rice import demand in RCEP member is

so big Because of that reason, the reduction of the tariff will increase a large rice import quantities

2.1.1.2 The exporters

Besides importers, there are many rice exporters locate in RCEP area Almost RCEP members have a favorable geographical location and suitable weather to produce rice During a long period, some of RCEP members keep the leader position

of rice exporters in the world India, Thailand, and Vietnam are three famous countries, known as the largest rice exporters in many years Especially, Thailand is the well – known rice exporters with high-quality rice; the price of Thai rice is used as the world price of high-quality long grain segment (USITC 2015, p 93) See the data from the table about top ten rice exporters in 2015 below, five of them are RCEP members with the first slot belong to India, follow by Thailand Vietnam sits in the fifth slot; Australia and Cambodia in the ninth and tenth position

Table 3 Top ten rice exporters in the world, 2015

Unit: thousand USD

Source: Trade Map, International Trade Centre

Vietnam, Australia and Cambodia

Total rice export of five RCEP members in 2015 is more than 13 billion US dollars, account for 61.7% of world export With the important role as both rice importers and exporters, freer trade among the countries in RCEP area will have the huge impact on the global rice market Vietnam, as a big rice importer, is going to be affected strongly when RCEP is effective

2.1.2 Trade barriers of six important importers in RCEP area

Each country has its own trade policy depend on the point of view of the government on economic development One hand, some countries support for free

trade and open their market with the expectation that it will bring economic development to the country and more social welfare of the citizen In another hand, other countries place more restrictions on trade than the rest of the world because they concern about market opening will hurt the domestic industries Today, almost countries encourage free trade, but they still keep restriction in some industries (called

„sensitive product‟) to protect domestic producers Agricultural products, especially rice, are always protected with high level There are many reasons for this action, include politics reason, labor protection, human health and food security The popular trade barriers that governments use to protect them are tariff and quota Besides, they also use other trade barriers to protect human health like SPS measure It is true with six important rice importers in RCEP area In some developed countries in an area like Japan and Korea, the measures are more complex with the higher standard than in the others

The table below will show the recent tariff on rice import in these countries This

is strong trade barriers to restrict rice import from foreign countries On RCEP members, the tariff set at different level depend on the government However, in general, the tariff is really high

Table 4 Tariff on rice import, selected countries

Source: Japan Customs, FAO, Vietnamexport.com

3872 USD/ton) The global rice price of high quality rice segment in June, 2016 (FAO)

is 441 USD/ton (use Thai 5% price for global rice price (USITC 2015, p 93))

China, The Philippines, and Korea use tariff rate quota measure whereby any product out quota is imposed higher tariff than the product in quota The tariff for the product out quota is much higher than in quota, especially Korea and China Although the tariff out the quota of The Philippines is lower than China and Korea‟s, the tariff in the quota of The Philippines is 35%, much higher than this one of China and Korea The other countries in the table do not use tariff rate quota, but the tariff level also too high, especially the case of Japan The tariff 878% is a huge restriction with the rice exporter When the product can touch the consumer, the price of rice increase nearly 10 times higher than the price that producer sell Indonesia and Malaysia keep the tariff lower than other countries However, the tariff level more than 20% still too high and this is a big restriction of trade in rice

Although the tariff imposes on rice in these countries is different, the level of protection is so high in all countries Some countries such as Korea and Japan keep the strong protection for their domestic industries by using too high tariff This is a hard barrier with the foreign producer Despite two the largest rice importers in the world,

China, and the Philippines, also use both tariff and quota to restrict rice exporter By strong impact of tariff on trade, the Government of these countries limited a big rice import quantities In spite of the strong restriction of the recent tariff with rice export, these countries also create many non – tariff barriers with an aim to restrict imports and protect domestic producers The following table displays the recent non-tariff barriers

in these countries

Table 5 Non-tariff barriers, selected countries

Country

Non-tariff barriers Quota

(tons)

Competitive Restriction

SPS,

Banned sales of rice across borders with Viet Nam, in a bid to thwart tax evasion

The

Minimum

46 USD/ton (rice import by private company)

Indonesia

- Imports of medium quality rice are to be conducted solely

by the state enterprise BULOG, for public subsidized distributions, subject to authorization by the Ministry of Trade

- Private sector imports of other types of rice will

be permitted to traders recognized

by the Ministry of Trade as

Producer/Importer

of Rice or as Registered Importer

Malaysia

Padiberas Nasional Berhad's (BERNAS)

exclusive right to import rice renewed to 10 Jan

2021

Standard price (145 USD)

Standard

Many laws control rice import: Plant Protection Act, Food Sanitation Act, Rice

Traceability Act, Act for

Standardization and Proper Labeling of Agricultural and Forestry

Products, Health Promotion Act and so on

Source: FAO, Commodity Policy Developments, update April – 16

In the table above, all countries as important rice importer used at least one tariff barriers to restrict rice import from foreign countries The table shows that Indonesia and Malaysia restrict rice import less than other countries Indonesia and Malaysia set the tariff lower than other countries and they also do not use quota or other popular barriers such as fee, SPS and so on However, they use exclusive right import and import license as a competitive restriction measure to limit rice import The Philippines and China use more non-tariff measures with two measures are applied together Korea is the country that set the quota with the lowest quantities and the tariff out quota is 513% (see table tariff on rice import above) It is at a high level of restriction so Korean government does not use too many other barriers Japan is the most difficult market in six countries It sets the tariff at 878% (the highest tariff in comparison with the other five countries) and uses a quota, high standard of SPS, TBT together to restrict rice import Besides, Japan government uses many laws to control rice product imports from foreign countries For rice exporter, non-tariff barriers of Japan bring more difficult than tariff and quota because their products have to comply with many standards and regulations Some standards of Japan are higher than international standards that be accepted in almost countries in the world (for example, the maximum residue level of acetamiprid in rice is 0.3 ppm in Korea and is 0.5 ppm in China, but in Japan, the maximum residue level of acetamiprid in rice is only 0.01 ppm

non-(Sato 2009; M Meador 2014; Korean Food and Drug Administration 2009)

Box 2 Japan banned rice import from Vietnam

In the past, Japan was the important rice importer of Vietnam, especially in 2005 with rice import were more than 50 million dollars However, everything changed from

2007