Impact of Trade Policies on

Industrial Pollution in Vietnam

Purpose of paper

• Study linkages between trade and industrial pollution in Vietnam

• SAM for Vietnam and World Bank IPPS => estimates of industrial pollution in Vietnam

• Simulation exercise: examine how exogenous trade shocks affect resource allocation, and hence pollution

Outline of paper

1. Introduction

2. Trade and environment linkages: some theoretical and empirical backgrounds

3. Vietnam’s trade policies and industrial pollution

4. Trade and pollution linkages in Vietnam: a SAM multiplier analysis

5. Conclusion

Trade Policies in Vietnam• Major trade reforms since doi moi => much

more open now compared to 15 years ago.

• However, still a very protective trade regime

• Tariff structure: low for capital goods and raw materials; high for finished goods

• NTBs: cement, fertilizer, sugar, paper, alcohol, steel & iron, construction glass, motor vehicles, etc.

• Protected industries also tend to be more pollutive industries

IndustriesSimple average

Weighted average

ERP for import substitution

ERP for export production

Paddy rice 5 5 4.2 -3.8Wheat 3 3 3 0Cereal grains 5.9 2.6 -4.6 -10Vegetables 24.3 27.2 41.6 -8.1Oil seeds 8.6 6.5 4.4 -7.1Sugar cane, sugar beet 10 10 9.7 -3.8Plant-based fibers 3.9 4.2 1.3 -6Crops, n.e.c 13.2 6.2 4.5 -5.8Cattle, sheep, goats, horses 4.5 4.8 0.9 -7.1Animal products n.e.c 5 3.7 -1.5 -7.4w ool, sil-w orm cocoons 3 1.3 -2.2 -4.2Forestry 4 1.2 -20.5 -22.9Fishing 16.9 18.9 66.6 -45.7Coal 3.8 3.4 -14.4 -22.2Oil seeds 4.5 1 -13.9 -15.9Gas 14.1 15.5 24.5 -13.3Minerals n.e.c 2.3 1.1 -21.4 -27Bovine cattle, sheetp, goat meat 12.2 10.3 12.2 -3.5Meat products n.e.c 18.1 27.3 13.3 -5.4Vegetable oils and fats 13.1 12.3 1.4 -98.5Dairy products 16.7 14.5 16.3 -5.7Processed rice 7.5 7.5 8 -22.5Sugar cane, sugar beet 30 30 na naFood products n.e.c. 28.6 20.1 59.6 -48.3Beverage & tobacco 52.1 50.2 na naTextiles 29.4 30 115 -138Wearing apparel 49.2 49.4 229.8 -231.9leather products 18.8 13.5 -15.1 -67.1Wood products 18.7 11.9 15.2 -19.3Paper products, publishing 20 19.4 88.1 -88.5Petroleum, coal products 9.6 44 na naChemical, rubber, plastic, products 8.8 6.4 -0.1 -40.3Mineral products n.e.c. 20.7 23.8 69.6 -52.3Ferrous metals 5.3 6 3.7 -25.3Metals n.e.c. 5.8 10.4 21.9 -103.8Metal products 18.5 16.6 34.5 -33.9Motor vehicles and parts 22.6 18.6 186.4 -200.7Transport equipment n.e.c. 13.2 28.3 56.6 -32.9Electronic equipment 9.7 10.7 13.8 -18.4Machinery & equipment n.e.c. 7.4 8.1 -0.6 -29.3Manufactures n.e.c. 24.7 22.7 64.3 -45.1Total 15.6 19

Table 2: Vietnam's tariff structure, 2000

Nominal tariff rate (%) Effective rate of protection (%)

• FDI flows tend to follow trade policies:

– Over half of FDI into Vietnam enters the services sector

– Of the FDI in the traded-goods sector, a significant proportion is going into highly protected industries

– FDI in clearly import-substituting industries is more than double that in clearly export-oriented industries

=> FDI tends to intensifies the effects of trade policies on environment

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 Total

Agriculture, forestry, f isheries 120 107 51 34 20 43 72 32 51 46 21 597

Industry

Food & food processing 2 10 106 571 199 191 494 580 590 532 100 3,375

Textiles and garments 3 18 35 46 111 543 189 446 204 280 53 1,928

Leather products 6 0 6 7 31 20 251 21 183 18 28 571

Wood products 0 4 12 15 9 21 10 23 0 15 22 131

Sub-total: light industries 11 32 159 639 350 775 944 1,070 977 845 203 6,005

Cement, glass, non-metal 2 2 4 5 338 127 136 603 952 604 40 2,813

Chemicals 3 29 5 8 69 64 145 526 230 358 330 1,767

Electric, electronic products 2 6 10 26 17 207 156 451 195 315 20 1,405

Machinery 1 17 2 114 140 48 113 614 523 85 101 1,758

Metal products 0 0 2 0 6 131 211 293 134 81 74 932

Other industry 1 1 9 6 23 54 62 127 49 144 103 579

Sub-total: heavy indutries 9 55 32 159 593 631 823 2,614 2,083 1,587 668 9,254

Mining 149 99 181 178 699 163 150 79 145 140 143 2,126

Services

Banking & f inance 0 0 15 0 140 50 45 80 96 17 15 458

Construction & real estate 18 230 115 421 639 1,818 2,073 2,792 4,528 814 1,083 14,531

Transport, post, telecom. 39 33 294 37 40 42 77 365 719 749 695 3,090

Other services 6 37 4 100 15 347 44 89 268 450 731 2,091

Total 352 593 851 1,568 2,496 3,869 4,228 7,121 8,867 4,648 3,559 38,152

Table 3: Structure of FDI by Sector and Year of License Issuance

Industrial pollution in Vietnam

• Scale effect: rapid expansion of industry sectors => rapid growth in industrial pollution

• Technique effect ?

• Composition effect: two major trade/industrialization policy impact: export-oriented growth and ISI

Unit 1995 1996 1997 1998 1999 2000 2001avg.

growth

Cement 5,828 6,585 8,019 9,738 10,489 13,298 15,37413.0 21.8 21.4 7.7 26.8 15.6 17.7

Bricks 7,453 7,597 7,744 8,131 8,217 9,454 9,9851.9 1.9 5.0 1.1 15.0 5.6 5.1

Glass 77 93 66 105 106 113 11620.5 -29.3 60.1 0.9 6.8 2.6 10.2

Leather tanning/processing Trillion 4 4.5 6.6 7.1 7.7 8.9VND 25.0 46.7 7.6 8.5 15.6 17.2

Paper 216 220 263 311 349 408 4281.9 19.5 18.3 12.2 16.9 4.8 12.3

Processed w ood 1,606 1,398 1,184 2,705 1,466 1,744 1,801-13.0 -15.3 128.5 -45.8 19.0 3.3 12.8

Detergent 129 167 213 229 214 247 33029.6 27.6 7.4 -6.7 15.8 33.5 17.9

Chemicals Trillions 5 6.3 7.2 8.1 9.7 11.9VND 23.5 14.3 12.5 19.8 22.7 15.5

H2SO4 9,768 17,943 15,173 22,864 27,348 35,652 37,00083.7 -15.4 50.7 19.6 30.4 3.8 28.8

NAOH 7,307 9,099 7,676 10,444 54,401 59,097 59,84024.5 -15.6 36.1 420.9 8.6 1.3 79.3

Rubber & plastics Trillions 2 2.8 3.5 4.4 5.4 6.8VND 21.7 25.0 25.7 22.7 25.9 20.2

Ceramic 187 233 172 182 220 247 23024.3 -26.2 6.1 20.7 12.5 -7.1 5.0

Refined sugar 93 111 122 143 208 161 16018.9 10.3 17.2 45.7 -22.9 -0.4 11.5

Alcohol and beer 516 601 675 766 803 903 94416.3 12.3 13.6 4.8 12.6 4.5 10.7

Table 2: Production statistics of selected industries in Vietnam

Thousand tonsMillion piecesThousand tons

Million piecesThousand tonsMillion litre

Thousand tons

Thousand tons

Tons

Tons

Thousand metric

Graph 1: Sources of Air Pollution 1

52%

15%

10%8%

2%1% 1%

47%

14%

1%

9%

3%

0%

12%

8%

2%

13%

27%

9%

23%

4%

0%

10%

20%

30%

40%

50%

60%

CEMENT CONCRETE NFERMETAL PAPER PRWOOD OTHCHEM BRICKS

SO2 NO2 CO

Graph 2: Sources of Air Pollution 2

0.9% 0.3%2.4%

8.7%

29.3%

24.7%

71.8%

20.9%

0.2% 0.8% 2.3%0.1%

53.3%

15.6%

1.9% 3.5%7.2%

0.2%0%

10%

20%

30%

40%

50%

60%

70%

80%

CEMENT CONCRETE NFERMETAL PAPER PRWOOD ALCOHOL

VOC PM-10 TSP

Graph 3: Sources of Water Pollution

50.2%

17.1%

8.7% 8.5%

5.0%

0.0%

28.3%

5.1%

21.0%

0.2% 1.2%

32.9%

0%

10%

20%

30%

40%

50%

60%

PAPER ALCOHOL NFERMETAL DAIRY REFSUGAR FERMETAL

BOD

TSS

Graph 4: Sources of Toxic Pollution

19.2%

14.0%9.7% 8.2% 7.1%

4.2% 4.2% 3.7%

71.4%

0.3% 1.9% 0.0% 1.4%

13.7%

1.2% 1.0%

0%

10%

20%

30%

40%

50%

60%

70%

NFERMETAL PAPER ORGCHEM PRWOOD INORGCHEM FERMETAL FERTILIZER LEATHTAN

Toxic Toxic metal

Development strategies and goals 2000-2010

• By 2010: double GDP; more than double exports; agriculture: 16-17%; industry: 40-41%; services: 42-43%

• “The production development should be corresponding to the market demand, strongly oriented to export, and at the same time oriented to an effective import substitution …”

• “ … rapidly develop industries capable of promoting their competitive advantages, taking hold of domestic markets and pushing ahead exports, such as agricultural, forest and aquatic product processing, garment, leatherwear and footwear, electronics and informatics, certain mechanical products and consumer goods, etc …”

• “… selectively build a number of heavy industry establishments: petroleum, metallurgy, mechanical engineering, basic chemicals, fertilizers, and building materials, etc. in rational sequences conformable with the capital, technology and market conditions, and capable of promoting efficiency …”

In summary: general industrial development

strategy is to follow an export-oriented

industrialization, but ISI continues to be an

influential view => important implications to trade

policies and environment in the next few decades

Ranking of industries by BOD emissions

0

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Ranking of industries by toxic pollution

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