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The Trans -Pacific Partnership Agreement: an Opportunity for Viet Nam to reduce its Economic Dependence of ChinaScott H. Murray &Tai H. Pham Discipline of Mathematics & StatisticsAugust, 2014Good morning everyone The Annual summer conference at Institution of Mathematics, Toulouse, France The conference theme : The Rise of China and its Effects on Vietnam and the World Title: The Trans-Pacific Partnership Agreement: an Opportunity for Vietnam to Reduce or Exit the Dependence of China Economy. Scott H, Murray & Tai H. Pham- Discipline of Mathematics & Statistics, University of Canberra

1ContentsProblem statementMembers of AEC, TPP, RCEP & FTAAP USAs TPP Vision Chinas FTAAP VisionTheories of international tradeThe Extended Input-Output Table Scenarios Conclusion

My talk is divided into the following sections 21. Problem statement The ASEAN Economic Community (AEC) by 2015The Trans-Pacific Partnership (TPP) by 2014.Quantitative assessment of economic effects of AEC and TPP on the textile & apparel, footwear and furniture industries in Vietnam

Viet Nam has signed and in effect 8 FTAs; just signed 1 FTA ; launched negotiation 6 FTAs; under consultation and study 4 FTAs.These FTAs must be modelled to maximize the governments efforts and the entrepreneurs can identify the opportunities and challenges The need of the ASEAN Economic Community by 2015 ( AEC) and the Trans-Pacific Partnership (TPP) also require Viet Nam using economic models to identify interdependence of economic sectors in the ASEAN and TPP trading bloc as a whole.Determining the appropriate model for an impact assessment is not easy.Developed countries usually use Computable General Equilibrium (CGE) models or partial equilibrium models to estimate the economic effect of a free trade agreement. These models assume a stable market economy with prices set by the equilibrium between supply and demand. However, Viet Nam and the majority of ASEAN countries are still in transition to market economy. CGE model or partial model are not suitable for such economies. In addition, it is difficult to find enough data for constructing CGE model from Vietnam and ASEAN countries because these models are sensitive to missing or incorrect data. Japan has used an international Input-Output model to analyse industrial linkages which spread beyond national borders. However, this model is expensive in money and time. It is not appropriate model for Vietnam.My research explored the appropriate model for Vietnam as well as some ASEAN countries, namely the Extended Input-Output model. My presentation is the quantitative assessment of economic effects of the AEC and TPP for textile & apparel, footwear and furniture industries on Vietnamese economy. 3The flagship FTAs: AEC, TPP, RCEP & FTAAP? 42. Members of AFTA, TPP, RCEP & FTAAPCambodiaIndonesiaLaosMyanmarPhilippinesThailandBruneiMalaysiaSIngaporeViet Nam

AECAustraliaJapanNew Zealand

Canada Chile Mexico Peru United StatesTPPRussiaTaiwanFTAAPChinaKorea

RCEPIndiaAssociation of Southeast Asian Nations (ASEAN) : The first economic cooperation scheme was the ASEAN Preferential Trading Arrangement in 1977; the ASEAN Free Trade Area (AFTA) in 1992 further increased economic integration between the members of ASEAN. Since then, the members of ASEAN have committed themselves to create a single market by 2015, to be called the ASEAN Economic Community (AEC).5TPP

Trans-Pacific Partnership (TPP): TPP aims to strengthen and tie Asia and Americas.. It was originally called Trans-Pacific Strategic Economic Partnership Agreement ( TPSEP), a FRA agreement between Brunei, Chile, New Zealand and Singapore in 2005. Since 2010, the membership was expanded and given new name TPP. Since then, has been regarded as an initiative predominantly pushed and led by the US. TPP is a massive free trade agreement currently being negotiated behind closed doors by officials from 12 countries. The Obama administration plans to sign TPP by end of 2014.

6RCEP

Regional Comprehensive Economic Partnership (RCEP): It aims to broaden and deepen ASEAN +1 pacts ( Australia, China, India, Japan, Korea, New Zealand ) with the other 6 by end of 2015.7FTAAP

The creation of Free Trade Agreement Asia- Pacific (FTAAP) by 2020 is goal of Asia- Pacific Economic Cooperation (APEC). In 1994, the Bogor Goals which firmed APEC goal towards FTAAP was adopted.

After 19 years since FTAAP was announced in 1994, the progress towards FTAAP is still very slow. In the APEC trade ministers meeting in China 2014, China want to use a November international summit to start to put in place a new free trade zone among Asia -Pacific rim countries. China is looking for an endorsement of the new trade Zone, known as the FTAAP, by 2025 and for backing for a feasibility study.8 3. USAs Trans-Pacific Partnership Agreement visionStrengthen ties across three continents: America, Asia, and Oceania Become basis and means to establish the Free Trade Area of the Asia Pacific (FTAAP)The baseline: existing US trade and investment agreementsCreate mutual benefits among participantsEnsure third parties do not take advantage of the agreementApply yarn-forward style rules of origin

Together with the proposed Transatlantic Trade and Investment Partnership (TTIP), the proposed Trans-Pacific Partnership (TPP ) agreement is the most significant negotiation for the U.S since the North American Free Trade Agreement (NAFTA). TPP creates a trade bloc of substance and dont include China. The baseline : the U.S existing trade and investment agreements such as NAFTA , U.S and Korea Job creation is one of the pacts main goals and must be through TPP value chain. Apply yarn- forward style rules of origin to ensure that the third parities such as China do not take advantage of the agreement.

94. Chinas Free Trade Agreement of the Asia Pacific vision Build step by step the ambitious New Silk Road and New Maritime Silk Road through bilateral negotiation, Sanghai Cooperation Organization (SCO), ASEAN & APEC Compete with the USA

10Asia-Pacific Economic Cooperation (APEC) is a forum of which the goal is the creation of FTA of the Asia Pacific (FTAAP ) by 2020. In 1994, the Bogor Goals which firmed APEC goal towards FTAAP was adopted. The FTAAP was proposed in 2004 and China raised the feasibility study proposal in February, 2014The proposed FTAAP is to aims to obtain step by step the ambitiousness for the new Maritime Silk Road.The proposed feasibility study is part of competition with the U.S because pushing FTAAP would reduce the U.S objective of having TPP set the trade policy standard.

Chinas New silk road vision

11The New Silk road consists of land version and maritime version.The land version begins at Xian in China and ends at Venice, traversing Central Asia, Iran the Middle East, Eastern Europe and Germany and the Netherlands. The maritime Silk Road begins at Quanzhou in Fujian, and also ends at Venice, where it converges with the land route.The New Silk road concept is not a new idea. In 1992, Deng confirmed his vision of economic reforms based on Chinas coastal development ( e.g., special economic zones in coastal provinces, open coastal cities, eastern comprehensive development zones ) The new silk road aims to further enhances ties between Central and South Asia, Europe and the Middle East through a new project called the Silk Road Economic Belt and 21st Century Maritime Silk Road, an initiative stretching from Europe to Asia.China is also interested in its southern neighborhood, especially ASEAN. The idea of a 21st century maritime Silk Road through strengthened maritime economy, environment technical and scientific cooperation. The idea has also been promoted as the 2+7 cooperation framework. Briefly, 2+7 means consensus on two issues and seven proposalsChina needs to find new export markets or preserve existing ones, as well as narrow development gaps between the well- developed coastal areas and the less-developed inland parts of the country. This is the main reason why the current group of Chinese leaders have coined the slogan a New Silk Road

FTA: Beneficial to poor countries? 125. Theories of international trade Neo-mercantilism is a term used to describe a policy regime which encourages exports, discourages imports, controls capital movement and centralizes currency decisions in the hands of a central government. These policies, based on an incorrect theory, damage both trading partners. The theory of Division of labor and expanding the extent of the markets has contributed for the theory of the new international division of labor (NIDL) which often referred to as global value chains or vertical specialization. This theory has produced benefits for both developing countries and economic powers.The theory of comparative advantage also contributed ideas to the evaluation of potential economic effects of an FTA. This method shows that complementary and competing are characterized by the differences and similarity in the goods and services produced between the two economies. If these two economies produce and export a different basket of goods and services, they gain greater potential from trade. Conversely, they do not gain potential benefits from trade. In other words, trade gains benefits of two economies produce and export different goods and services rather than the same goods and services.Through the extended input-output model, we can measure amplified effects of any economy, the effects of change of structure of an economy as well as a countrys net contribution of value added in TPP value chain.

13 5.1. China encourages exports and discourages imports 14

5.2. China keeps its exchange rate weak 15

5.3. China & New International Division of Labor Global value chain is the term discribing the modern trade reality, illustrating that production consists of different links originating in difference countries The value chain analysis is a concept derived from business management. One of its earliest exponents was Michael Porter of Havard Bussiness School.Benefiting from global value chains is measured through contributing net value addedThe net contribution of value added in global value chains in developing countries usually labour. This is also one of any pacts main goals .

16Trade indicators5.4. China & Viet Nam are competing economies

17We argue that an increased index of revealed symmetric comparative advantage is a basic indicator determining whether the two economies compete against or complement each other. For example, two economies that export similar products to the same markets are considered as competing economies even if their bilateral trade is increasing. They claim that an increased index of bilateral trade in a developing economy is usually caused by rises in export of raw materials or unprocessed products. On the other hand, a similar increase in a developed economy usually originates from exports competing against products from developing economies. Thus, the two economies in question are by nature competing regardless of their increased bilateral trade intensity, trade specialization, intra-industry trade, or inter-industry trade.Revealed symmetric comparative advantage (RSCA) index =Revealed comparative advantage (RCA)

RSCA=(RCA -1)(RCA +1)18HS codeRSCA of VIetnam, relative toRSCA of China, relative toChinaGlobalVietnamGlobal01-05Animal & Animal Products 0.8 0.5 (0.8) (0.4)06-15Vegetable Products 0.8 0.5 (0.8) (0.5)16-24Foodstuffs 0.3 (0.1) (0.3) (0.4)25-27Mineral Products 0.7 (0.1) (0.7) (0.8)28-38Chemicals & Allied Industries (0.5) (0.7) 0.5 (0.3)39-40Plastics / Rubbers 0.2 0.1 (0.2) (0.1)41-43Raw Hides, Skins, Leather, & Furs 0.0 0.4 (0.0) 0.4 44-49Wood & Wood Products 0.1 (0.1) (0.1) (0.2)50-63Textiles 0.1 0.6 (0.1) 0.5 64-67Footwear / Headgear 0.5 0.8 (0.5) 0.6 68-71Stone / Glass (0.1) (0.2) 0.1 (0.1)72-83Metals (0.4) (0.4) 0.4 0.0 84-85Machinery / Electrical (0.4) (0.1) 0.4 0.3 86-89Transportation (0.5) (0.7) 0.5 (0.3)90-97Miscellaneous (0.2) 0.0 0.2 0.3 98-99Commodities not elsewhere specified 0.6 (0.6) (0.6) (0.9)Explanatory notesMaximum value1Minimum value-1Critical point Comparative advantage = >019 HS code - top tenRSCA of VIetnam, relative toRSCA of China, relative toChinaGlobalVietnamGlobal'85Electrical, electronic equipment (0.2) 0.1 0.2 0.3 '27Mineral fuels, oils, distillation products, etc 0.8 (0.1) (0.8) (0.8)'64Footwear, gaiters and the like, parts thereof 0.5 0.8 (0.5) 0.6 '62Articles of apparel, accessories, not knit or crochet 0.4 0.7 (0.4) 0.5 '61Articles of apparel, accessories, knit or crochet 0.2 0.7 (0.2) 0.6 '84Machinery, nuclear reactors, boilers, etc (0.6) (0.4) 0.6 0.2 '03Fish, crustaceans, molluscs, aquatic invertebrates nes 0.8 0.8 (0.8) (0.0)'94Furniture, lighting, signs, prefabricated buildings 0.1 0.6 (0.1) 0.5 '09Coffee, tea, mate and spices 0.9 0.9 (0.9) (0.4)'10Cereals 1.0 0.7 (1.0) (0.8)Explanatory notesMaximum value1Minimum value-1Critical point Comparative advantage = >020Trade indicators5.4. TPP & Vietnam are complementary

21HS codeRSCA of VIetnam, relative toRSCA of TPP, relative toTPPGlobalVietnamGlobal01-05Animal & Animal Products 0.5 0.5 (0.5) (0.0)06-15Vegetable Products 0.5 0.5 (0.5) 0.1 16-24Foodstuffs 0.1 (0.1) (0.1) (0.2)25-27Mineral Products (0.0) (0.1) 0.0 (0.1)28-38Chemicals & Allied Industries (0.7) (0.7) 0.7 (0.1)39-40Plastics / Rubbers 0.1 0.1 (0.1) (0.0)41-43Raw Hides, Skins, Leather, & Furs 0.7 0.4 (0.7) (0.4)44-49Wood & Wood Products (0.1) (0.1) 0.1 0.0 50-63Textiles 0.8 0.6 (0.8) (0.5)64-67Footwear / Headgear 1.0 0.8 (1.0) (0.8)68-71Stone / Glass (0.2) (0.2) 0.2 0.0 72-83Metals (0.3) (0.4) 0.3 (0.0)84-85Machinery / Electrical (0.2) (0.1) 0.2 0.1 86-89Transportation (0.8) (0.7) 0.8 0.2 90-97Miscellaneous 0.0 0.0 (0.0) 0.0 98-99Commodities not elsewhere specified (0.7) (0.6) 0.7 0.3 Explanatory notesMaximum value1Minimum value-1Critical point Comparative advantage = >022 HS code - top tenRSCA of VIetnam, relative toRSCA of TPP, relative toTPPGlobalVietnamGlobal'85Electrical, electronic equipment 0.0 0.1 0.1 0.0 '27Mineral fuels, oils, distillation products, etc 0.1 (0.1) (0.2) 0.1 '64Footwear, gaiters and the like, parts thereof 1.0 0.8 (0.8) 1.0 '62Articles of apparel, accessories, not knit or crochet 0.9 0.7 (0.7) 0.9 '61Articles of apparel, accessories, knit or crochet 0.9 0.7 (0.7) 0.9 '84Machinery, nuclear reactors, boilers, etc (0.4) (0.4) 0.1 (0.4)'03Fish, crustaceans, molluscs, aquatic invertebrates nes 0.8 0.8 (0.1) 0.8 '94Furniture, lighting, signs, prefabricated buildings 0.7 0.6 (0.3) 0.7 '09Coffee, tea, mate and spices 1.0 0.9 (0.5) 1.0 '10Cereals 0.6 0.7 0.2 0.6 Explanatory notesMaximum value1Minimum value-1Critical point Comparative advantage = >023Extended Input-Output Table for Vietnam24Inaccurate data of value of exports and imports between Viet Nam and countriesCountries_export > VN_import: 3.3%Countries_import > VN_export: 5.8%Slide ny mi b sung: nm 2007: VN_im > Countries_ex: 5,2% v Countries_im > VN_ex: 7,6% nm 2012: Countries_ex > VN_im: 11,5% v Countries_im > VN_ex: 11,4%25Inaccurate data of value of exports and imports between Viet Nam and ChinaChina_export > VN_import: 8.6%China_import > VN_export: 1.2%26Inaccurate data on exports and imports between TPP and Viet NamTPP export > VN_import: 4.6%TPP_import > VN_export: 10.2%27Inaccurate data on exports and imports between ASEAN* and Viet NamVN_imports > ASEAN*_exports: 0.02%VN_exports > Asean*_imports: 27.0%286. Extended Input-Output Table for Vietnam ASEAN 9% RCEP 23% FTAAP 28% 296. Extended Input-Output Table for Vietnam RCEP 20% FTAAP 23% ASEAN 7% 306. Extended Input-Output Table for Vietnam29% > 041% = 030% < 0RCEP 27% FTAAP 31% ASEAN 8% 31ASEAN 25%RCEP 68%FTAAP 81%ASEAN17%RCEP 47%FTAAP 74%6. Extended Input-Output Table of Vietnam 326.1. Vietnam's imports from the blocsS liu ny mi iu chnh: b bt nm 2006Khng c 2013 do s liu cha 336.2. Vietnam's exports to the blocsS liu ny mi iu chnh: b bt nm 2006Khng c 2013 do s liu cha

34Top ten exporters to VietnamViet Nam imports from: 2007200820092010201120122013China11.915.116.323.129.034.248.6Korea, Republic of5.87.87.19.713.515.921.1Singapore6.58.77.07.410.210.410.9Japan5.77.86.58.29.610.710.6Taipei, Chinese6.87.96.07.59.08.48.9Thailand4.05.04.75.87.16.77.2India1.21.81.82.553.76.0United States of America1.92.83.13.74.34.65.0Malaysia2.32.42.33.53.83.84.2Germany1.71. 51.62.02.62.52.5Indonesia1.41.71.51.92.42.32.4Australia1.21.31.11.42.11.82.0Unit: Billion USD Slide ny mi b sung: top 12 nc VN nhp khu nhiu nht (s liu theo cc nc xut cho VN)35Top ten exporters to VietnamViet Nam imports from: 2007200820092010201120122013China19.9%20.1%22.9%25.2%25.0%27.0%33.8%Korea, Republic of9.7%10.4%10.0%10.6%11.6%12.5%14.7%Singapore10.9%11.6%9.8%8.1%8.8%8.2%7.6%Japan9.6%10.4%9.1%8.9%8.3%8.4%7.4%Taipei, Chinese11.4%10.5%8.4%8.2%7.8%6.6%6.2%Thailand6.7%6.6%6.6%6.3%6.1%5.3%5.0%India2.0%2.4%2.5%2.7%4.3%2.9%4.2%United States of America3.2%3.7%4.4%4.0%3.7%3.6%3.5%Malaysia3.9%3.2%3.2%3.8%3.3%3.0%2.9%Germany2.8%2.0%2.2%2.2%2.2%2.0%1.7%Indonesia2.3%2.3%2.1%2.1%2.1%1.8%1.7%Australia2.0%1.7%1.5%1.5%1.8%1.4%1.4%Unit: Billion USD Tng cng: 84.5% 84.8% 82.9% 83.6% 85.0% 82.8% 89.9% 36Top ten importers from VietnamViet Nam exports to: 2007200820092010201120122013United States of America11.413.913.015.918.521.426,0China3.24.34.77.011.116.216.9Japan6.19.17.08.211.615.114.2Germany2.93.53.23. 95.66.67.4Korea, Republic of1.42.02.43.35.15.77.2Malaysia1.82.32.12.63.45.26.0United Kingdom1.92.21.92.23.03.94.5France1.71.81.71.92.73.53.7Australia3.74.42.52.82.93.33.7Thailand1.11.41.41.42.03.03.3Singapore2.12. 42.31.61.72.23.1Italy1.01.21.01.21.82.332.9Unit: Billion USD Slide ny mi b sung: top 12 nc VN xut khu nhiu nht (s liu theo cc nc nhp t VN)37Top ten importers from VietnamViet Nam exports to: 2007200820092010201120122013United States of America21.8%20.5%21.1%20.7%18.5%16.8%18.8%China6.1%6.4%7.6%9.1%11.1%12.7%12.2%Japan11.7%13.5%11.3%10.7%11.6%11.8%10.3%Germany5.6%5.2%5.2%5.1%5.6%5.2%5.4%Korea, Republic of2.7%3.0%3.9%4.3%5.1%4.5%5.2%Malaysia3.4%3.4%3.4%3.4%3.4%4.1%4.3%United Kingdom3.6%3.3%3.1%2.9%3.0%3.1%3.3%France3.3%2.7%2.8%2.5%2.7%2.7%2.7%Australia7.1%6.5%4.1%3.6%2.9%2.6%2.7%Thailand2.1%2.1%2.3%1.8%2.0%2.4%2.4%Singapore4.0%3.5%3.7%2.1%1.7%1.7%2.2%Italy1.9%1.8%1.6%1.6%1.8%1.8%2.1%Unit: Billion USD Tng cng: 73.3% 71.7% 70.0% 67.7% 69.4% 69.3% 71.6% 38The scenarios reduceseconomic dependence on China

7. Scenarios39

7.1. The Extended Input-Output TableIntermediate used Final useTotal ConsumptionInvestmentExport HHs. Govt. Domestic 1,171,126 552,607 76,626 294,203 757,554 2,852,116 TPP 174,17473,38372459,563307,844Asean*62,67124,11823915,155102,183China 114,09745,62847040,394200,589RCEP*57,56034,72726421,433113,984FTAAP*80,44127,61529717,940126,293RoW 97,80557,48948652,317208,097Total Import 586,748 262,960 2,480 206,802 1,058,990 Total Intermediate 1,757,874 Value added 1,094,242 Total 2,852,116 815,567 79,106 501,005 Unit: Billion VNDThe Extended Input-output table is the extension of traditional I-O table .The difference with the traditional I-O table is that the use of products is broken down according to their origin. Each product is produced either by a domestic industry or by a member countries or rest of the world. In contract to the national I-O table, this information is made explicit in the extended I-O table. An important accounting identity is that total ouput is equal total use . The extended input-Output model is the combination between Isard model and Chenery- Moses modelThe fundamental different between Isard model and Chenery- Moses model is that the interregional trade flow are only specified by region of origin and region of destination, thus inoring the specific industry or (final consumer) of destination Isard model takes into account the spillover effects , through the inclusion of one or more additional region in the system.The different between the Chenery- Moses model and the extended Input-output model is the fact that the Chenery-Moses model includes many regions in the system.

407.2. Scenario 1Intermediate used Final useTotal ConsumptionInvestmentExport HHs. Govt. Domestic 1,171,126 552,607 76,626 294,203 707,225 2,801,787 TPP 174,17473,38372459,563307,844Asean*62,67124,11823915,155102,183TPP + AEC119,80247,90949442,414210,619RCEP*57,56034,72726421,433113,984FTAAP*80,44127,61529717,940126,293RoW 97,80557,48948652,317208,097Total Import 592,453265,2412,504208,8221,069,020Total Intermediate1,763,579Value added 1,038,208Total 2,801,787817,84879,130503,025Unit: Billion VNDGDP - 5.1%417.3. Scenario 2 Intermediate used Final useTotal ConsumptionInvestmentExport HHs. Govt. Domestic 1,171,126 552,607 76,626 294,203 707,225 2,801,787 TPP 174,17473,38372459,563307,844Asean*62,67124,11823915,155102,183TPP + AEC131,78252,70054346,655231,680RCEP*57,56034,72726421,433113,984FTAAP*80,44127,61529717,940126,293RoW 97,80557,48948652,317208,097Total Import 604,433270,0322,553213,0631,090,081Total Intermediate1,775,559Value added 1,026,228Total 2,801,787822,63979,179507,266Unit: Billion VNDGDP - 6.2%42Scenarios reduce economic dependence on China

7.4. Scenarios (cont.)43

7.5. Scenario 3Unit: Billion VNDIntermediate used Final useTotal ConsumptionInvestmentExport HHs. Govt. Domestic 1,171,787 552,607 76,626 295,203 777,071 2,872,294China + AEC + TPP 115,705 46,541 479 41,202 203,927 RoW 472,651 217,332 2,010 166,408 858,401 Total Import 588,356 263,873 2,489 207,610 1,062,328 Total Intermediate 1,760,143Value added 1,112,151 Total 2,872,294 816,480 79,115 501,813 GDP + 1.6%447.6. Scenario 4Unit: Billion VNDIntermediate used Final useTotal ConsumptionInvestmentExport HHs. Govt. Domestic 1,171,787 555,082 76,626 295,244 777,071 2,872,810China + AEC + TPP 115,705 46,541 479 41,202 203,927 RoW 472,651 217,332 2,010 166,408 858,401 Total Import 588,356 263,873 2,489 207,610 1,062,328 Total Intermediate 1,760,143Value added 1,115,667 Total 2,872,810 818,955 79,115 502,854 GDP + 2.0%457.7. Scenario 5Unit: Billion VNDIntermediate used Final useTotal ConsumptionInvestmentExport HHs. Govt. Domestic 1,171,787 559,385 76,626 296,806 777,071 2,881,675China + AEC + TPP 115,705 46,541 479 41,202 203,927 RoW 472,651 217,332 2,010 166,408 858,401 Total Import 588,356 263,873 2,489 207,610 1,062,328 Total Intermediate 1,760,143Value added 1,121,531 Total 2,881,675 823,258 79,115 504,416 GDP + 2.5%468. Conclusion Thanks for listening!47