The free trade agreement and vietnam's shrimp exports

Nội dung text: The free trade agreement and vietnam's shrimp exports

1. THE FREE TRADE AGREEMENT AND VIETNAM'S SHRIMP EXPORTS MA. Tran Trong Duc1 Abstract: This study will provide an insight about Vietnam’s Free Trade Agreements, the exports of shrimp products from Vietnam and the determinants impacting on the export performance. With the economic reform since 1986, Vietnam has made efforts to promote foreign trade as a key factor contributing to GDP growth. The incentive trade links via the bilateral and multilateral Free Trade Agreements (FTAs) are powerful motivation, attracting the attention and participation of many countries and Vietnam is no exception. Vietnam has trade relationships with more than 200 countries and territories, the most significant trade agreements for this country are its regional agreements on free trade. New–generation FTAs breed a lot of benefits to Vietnam, attracting investment capital, improving administrative institutions and business environment. The advantage of tariff reduction from free trade agreements plays an important force for Vietnam's seafood export in general and shrimp in particular to achieve strong growth in the future. By using stochastic frontier gravity model for the panel data of top 15 partner countries and regions of Vietnam on shrimp exports from 2010 to 2019, the estimated results illustrate that GDP of partners nations, participating in the free trade agreements, trading across borders score, FDI and exchange rate have positive impacts on the shrimp exports of Vietnam; however, population, distance from Vietnam to partners countries, tariffs have negative impacts on the exports. Key words: Free trade agreement, shirmp export, stochastic frontier gravity model, export growth decomposition. 1. INTRODUCTION The level of integration is expressed from bilateral and multilateral cooperation to global cooperation. As of 2020, there are 185 bilateral agreements and 77 multilateral agreements in the world. According to statistics of Asia Regional Integration Center, in the period 1960 to 2016, world trade increased by about 3.5% per year and the proportion of the world’s gross domestic product (GDP) rose from 24% to 56%. Free trade agreements affect both commodity supplies and demands for each partner economy over an often long period of time, since tariff reduction schedules are typically designed and implemented gradually to avoid immediate and disruptive impacts on economic activity. Over the past few years, Vietnam has been active in signing bilateral trade agreements with countries throughout the world. Additionally, due to its membership in the Association of Southeast Asian Nations (ASEAN), Vietnam has become a party to several FTAs that the regional trade bloc has signed. As of December 2020, Vietnam officially joined 14 FTAs (including 8 FTAs signed as a member of ASEAN and 6 FTAs signed as an independent party), in addition, Vietnam is negotiating 2 FTAs. The total number of Vietnam’s trading partners in FTAs is 56 economies, including 55 countries and 1 territory. Vietnam’s signing of bilateral and multilateral FTAs has enabled Vietnamese enterprises to expand their markets, gaining access to regional and global markets. This study will provide an insight about the exports of shrimp from Vietnam and the determinants impacting on the export performance. The structure of this paper is as follows: Section 2 shows Section 3 provides an overview of shrimp and Vietnam’s exports of shrimp; Section 4 provides the methodology and a literature review; Section 5 1 National Economics University. Email: ductt@neu.edu.vn 538
2. describes the results of the Stochastic frontier gravity model; and the final section will draw conclusions. 2. VIETNAM’S FREE TRADE AGREEMENTS Over the past three decades, Vietnam has entered into numerous Free Trade Agreements, both bilateral and multilateral, with trading partners around the world. Although Vietnam has trade relationships with more than 200 countries and territories, the most significant trade agreements for this country are its regional agreements on free trade. These agreements can be classified into five broad frameworks. The first is the ASEAN Trade in Goods Agreement (ATIGA), which is a free trade agreement among ten ASEAN member countries including Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Vietnam and Thailand. Through ATIGA, ASEAN+6 (Brunei, Indonesia, Malaysia, Philippines, Singapore, and Thailand) have eliminated intra – ASEAN import duties on 99.65% of their tariff lines (with some exceptions) and accordingly by 2015–2018 for CLMV (Cambodia, Laos, Myanmar and Vietnam). Currently, ASEAN+6 have eliminated 99.65% of their tariff lines, Cambodia, Lao PDR, Myanmar, and Vietnam have reduced their import duties to 0–5% on 98.86% of their tariff lines (ASEAN, 2010). Thus, in general, with the reduction of 1,706 tariff lines to 0% by 2015, it increases the import sales and the trend of increasing import shift from ASEAN countries compared to other partners. The second framework is RCEP (ASEAN+5) and ASEAN+7, which is a set of free trade agreements among the ten ASEAN countries and China, Korea, Japan, India, Australia, New Zealand and Hong Kong. The agreement between China and ASEAN, called ACFTA, came into effect in 2010 and is expected to be near fully complete in 2018 for a majority of tariff lines (ASEAN, 2016). The agreement between Korea and ASEAN was signed in 2009 and implemented to 2018 with some flexibility for Laos and Cambodia until 2024 (AKFTA, 2016). The agreement between Japan and ASEAN on the ASEAN–Japan Comprehensive Economic Partnership came into force in 2008, and it is expected to be complete in 2026 (Ministry of Foreign Affairs of Japan, 2016). The agreement between India and ASEAN (AIFTA) came into effect in 2010, which eliminate tariffs imposed by India and ASEAN+6 between 2013 and 2018, except for the Philippines and a longer schedule for CLMV (IE Singapore, 2016). Also in effect in 2010 is the agreement on free trade areas between ASEAN and Australia and New Zealand, which eliminates at least 90% of all tariff lines from 2009 to 2025 (Department of Foreign Affairs and Trade, 2016). The AHKFTA came into effect on June, 11st, 2019, for Vietnam, Laos, Myanmar, Singapore, and Thailand. The remaining ASEAN member states are expected to complete the ratification process soon. The deal was first signed and agreed in November 2017 to increase economic cooperation, reduce taxes, and increase investment between regional markets and Hong Kong. The negotiations of the Regional Comprehensive Econimic Partnership between ASEAN and the six states with which ASEAN has existing FTAs (including China, Korean, Japan, India, Australia and New Zealand) were launched from May 9th, 2013. 15 RCEP member countries (except India) signed RCEP Agreement on November, 15th, 2020. The third framework is VJEPA, VCFTA, VKFTA, VN–EAEU FTA. VJEPA is the first bilateral FTA agreement of Vietnam, VJEPA was signed on December 25th, 2008 and officially took effect from October 1, 2009. The VJEPA Agreement is a comprehensive bilateral agreement that includes commitments to liberalize trade in goods, services, investment and other economic cooperation between the two countries. is consistent with the standards and principles of the World Trade 539
3. Organization (WTO). The Vietnam – Chile Free Trade Agreement (VCFTA) was signed on 11/11/2011 and took effect from 1st January 2014. This is the first FTA of Vietnam with a country in the Americas. On May 5th, 2015, Vietnam and South Korea officially signed Vietnam – Korea Free Trade Agreement (VKFTA). Free trade agreement between Vietnam – Eurasian Economic Union (EAEU – including Russia, Armenia, Belarus, Kazakhstan and Kyrgyzstan) was officially signed on May 29th, 2015 in Kazakhstan and the VN–EAEU FTA Agreement officially took effect on October 5th, 2016. The fourth framework is the EU–Vietnam Free Trade Agreement (EVFTA) is a new generation FTA between Vietnam and 28 European Union member states. On June, 26th 2018, EVFTA was divided into two Agreements in terms of trade and investment. Both Agreements were signed on June, 30th 2019. EVFTA and EVIPA were ratified by the European Parliament on February, 12nd 2020, and approved by the Vietnamese National Assembly on June 8th, 2020. EVFTA has come into force on August 1st, 2020. Under EVFTA, the EU eliminated 85.5% of tariff lines for Vietnam immediately after the agreement came into force. Under the roadmap, the EU will eliminate the remaining tariffs in 3–7 years. By 2027, almost all Vietnamese products exported to the EU would enjoy zero percent tax, except for a small group of “sensitive” goods. With the difference in development levels and the size of EU economy, the EVFTA is expected to allow Vietnam to exploit its comparative advantage and improve its competitiveness. The final framework is the Comprehensive and Progressive Trans–Pacific Partnership (CPTPP) Agreement, a trade agreement among 11 member countries including Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam (TPP11).The fanfare surrounding the TPP declined significantly after US President Donald Trump announced the US withdrawal from this deal. Overcoming this setback, the remaining 11 countries renegotiated parts of the TPP and in March 2018 signed the Comprehensive and Progressive Agreement for Trans – Pacific Partnership (CPTPP). CPTPP was approved by 7 country members including Australia, Canada, Japan, Mexico, Singapore, New Zealand, Vietnam, and officially came into force on December, 30th 2018. Vietnam has been playing a proactive and important role in promoting megaregional trade agreements such as the CPTPP. With an emerging market and strategic geographic location, Vietnam provides other CPTPP members opportunities to promote exports and do business, thereby simultaneously expanding their presence in the region. Yet to meet its commitments under the CPTPP, Vietnam will need to press on with much needed economic reforms in general and to upgrade its industrial production structure in particular. 3. OVERVIEW OF SHRIMP EXPORTS OVER THE PERIOD 2015–2019 Shrimp exports plays an important role in Vietnamese seafood exports. Over the period 2015– 2019, shrimp exports accounted for 46.4% of total seafood exports in 2017. In 2019, shrimp exports made up for 39,2% of total seafood exports (Table 1). Table 1: The contribution of the shrimp exports in Vietnam from 2015 to 2019 Unit: million USD 2015 2016 2017 2018 2019 Shrimp exports 2.952,371 3.150,723 3.854,740 3.554,403 3.362,862 Total seafood exports 6.572,60 7.053,13 8.315,74 8.801,93 8.578,49 Contribution of Vietnam’s 44,9 44,7 46,4 40,4 39,2 seafood export (%) Source: Vietnam General Customs 540
4. During the period of 5 years (2015–2019), Vietnam shrimp exports increased by nearly 14% from roughly USD 3 billion in 2015 to USD 3.4 billion in 2019. Also, in this period, shrimp export value reached a bottom in 2015, then constantly grew positively and peaked at USD 3.9 billion in 2017. After 2017, shrimp export decreased continuously from USD 3.9 billion to USD 3.4 billion in 2019. Vietnam shrimp exports in 2015 hit nearly USD 3 billion, down 25.5% year-on-year. The decline was attributable to dive in export shrimp price amid weakness in importing demand from main markets. Shrimp prices plummeted by 15–20% in international trade as a result of the supply and demand disparity in the US, EU and Japan. Vietnam’s shrimp exports in 2015 must confront with many challenges. The export price of Vietnam shrimp fell owing to unfavorable weather condition, low demand from importing markets and currency volatility. Shrimp exports by Vietnam in 2015 reported the year-on-year decline of 25–30%. Vietnam shrimp must face more competition in global market due to rising production of whiteleg shrimp from India and Indonesia. Vietnam’s shrimp exports in 2016 reversed the downward trend of 2015. After the negative growth of 25.3% in 2015, shrimp exports reported the positive growth of 0.1–12.3% throughout the year of 2016 (except for the negative growth in May 2016). The recovery in shrimp sales in 2016 was thanks to upward trend in global shrimp price, higher demand from importing markets and stability in currencies in the world, especially black tiger shrimp in the world. Besides, stability in the domestic price of raw shrimp and rise in export price of shrimp facilitated shrimp exports. Shrimp farming of Vietnam in 2016 faced some obstacles such as unfavorable weather, salinity, lack of raw material and diseases. Vietnamese exporters encountered pressures from markets such as higher anti-dumping duty on shrimp exported to the US; technical barriers from the markets of EU, Japan, Australia However, thanks to large investments, technological innovation, big efforts of enterprises; shrimp production and exports of Vietnam reported the recovery in 2016. In 2017, total shrimp export value of Vietnam reached USD 3.85 billion, which hits approximately a peak in 2014; up 22.3% from 2016. Demand from key importing markets increased for year-end festivals. Some competing countries (India, Thailand) have difficulties in production and exporting markets as well as the exchange rates of EUR and CNY increase against USD are considered as the factors which facilitated Vietnam’s shrimp exports in 2017. The introduction of many deep-processing products (deep-processing products from shrimp accounting for 50%) to the market with good selling prices and other favorable market factors has led to good Vietnam's shrimp export sales. In addition, European market has highly appreciated Vietnam's efforts to control antibiotics in products, therefore, European importers, distributors and consumers have returned to use shrimp products from Vietnam remarkably. In 2018, shrimp exports failed to meet the business targets, reached USD 3.55 billion, down 7.8% from the previous year. The shrimp demand of large markets such as the US and Canada decreased due to weather and high inventory volume in Japan, South Korea, and EU. Domestic prices fell by between 20 and 30%, affecting the supply, local demand and export value. At the end of 2018, world shrimp prices hit a bottom. The supply from shrimp-producing countries such as India, Thailand and Indonesia increased, while inventory in the US was high, meaning Vietnam could not boost exports to this market. Moreover, inventories in India, Ecuador and Indonesia also increased after China tightened the export of shrimp via informal cross-border gates. As a result, cheap shrimp from India and Ecuador flooded the Chinese market and total Vietnam’s export to China decreased dramatically. 541
5. In 2019, Vietnam’s shrimp exports reached USD 3.36 billion, down 5.4% year-on-year. From the beginning of March to September 2019, shrimp production increased, raw shrimp prices reduced, while the number of shrimp stocks in markets is still high. Moreover, the supply of shrimp from other countries such as India and Ecuador have increased, which has caused shrimp prices in many import markets to be lower than before. On the other hand, some markets, including China, have tightened quality control and traceability of imported goods, as well as the impacts caused by the US–China trade tensions, which made shrimp exports encounter difficulties and instabilities. In the second half of 2019, shrimp exports were better than the first half of the year thanks to the increase in raw shrimp prices and export. Vietnam shrimp exports usually reach the lowest level in February because this month usually coincides with the Lunar New Year, then increases gradually, reaching the highest value in the months of the third quarter and the beginning of the fourth quarter. After that, shrimp exports gradually decreasing until the end of the year. The period from August to October each year is the period, shrimp exports usually reach the highest value of the year. Vietnamese shrimp export markets Table 2: Top 5 largest shrimp markets of Vietnam from 2015 to 2019 Unit: USD Market 2015 2016 2017 2018 2019 EU 548.581.981 600.368.946 862.817.619 838.295.220 689.796.996 Up/Down (%) 9 44 –3 –18 Contribution of 19 19 22 24 21 shrimp exports (%) USA 657.041.868 708.755.415 659.238.785 637.722.194 653.886.233 Up/Down (%) 8 –7 –3 3 Contribution of 22 22 17 18 19 shrimp exports (%) Japan 584.269.473 599.835.286 704.147.586 639.431.265 618.577.675 Up/Down (%) 3 17 –9 –3 Contribution of 20 19 18 18 18 shrimp exports (%) China&HK 350.365.654 435.615.576 683.194.614 492.179.475 542.914.443 Up/Down (%) 24 57 –28 10 Contribution of 12 14 18 14 16 shrimp exports (%) South Korea 250.934.859 285.132.046 381.962.968 385.810.944 337.486.740 Up/Down (%) 14 34 1 –13 Contribution of 8 9 10 11 10 shrimp exports (%) Total export 2.952.370.917 3.150.723.195 3.854.739.735 3.554.403.372 3.362.862.249 Source: Vietnam General Customs Top 5 largest markets included EU, US, Japan, China, and South Korea, representing 81%–85% of total shrimp exports. In the top 5 markets during the period of 5 years (2015–2019), Vietnam's shrimp 542
6. exports to EU and South Korea increased continuously from 2015 and peaked in 2018, then leveled off in 2019. Japan and China increased continuously from 2015 and reached a peak in 2017. The US market fluctuated and peaked in 2016. In 2019, in the top 5 main import markets, the proportion of shrimp exported to the US and China increased while it both decreased in the remaining 3 markets compared to 2018 (Figure 1). Figure 1: Top 5 importing markets of Vietnam shrimp from 2015 to 2019 Unit: mil USD Source: VASEP Figure 2 shows that shrimp exports to EU and China markets had the strongest breakthrough in the top major markets, while the remaining markets changed insignificantly, proving the results of a sharp increase in shrimp exports in 2017 is mainly thanks to these two markets. Meanwhile, the import demand of these markets did not increase significantly (Figure 2), demonstrating there is a change in the supply structure of shrimp for these markets. As a result, Vietnamese shrimp tends to be preferred more. Figure 2: Vietnam shrimp exports every month of top 5 markets Unit: million USD Source: VASEP (January/2015 – December/2019) In the top 5 markets, in 2019, only the value of Vietnamese shrimp exports to the US decreased slightly by 0.5% compared to 2015, whereas the remaining markets increased (Table 2). Shrimp export value to China had the strongest increase from USD 350.4 million in 2015 to nearly 543 USD million in 2019, up 55%. In 2017, Vietnam's shrimp exports to China grew the best in the top 5 major markets, up 57% compared to 2016. However, in 2018, shrimp exports to this market decreased the most by 543
7. 28% compared to 2017. Shrimp exports to China only decreased in 2018, and the remaining years grew positively. China became the third largest shrimp import market of Vietnam in 2017, and it ranked 4th in the remaining years. The proportion of China in total Vietnamese shrimp exports increased from 12% in 2015 to 16% in 2019. Vietnam shrimp exports to EU increased from USD 548.6 million in 2015 to nearly USD 690 million in 2019, up 25.7%. Vietnam's shrimp exports to EU grew positively in 2016 and 2017. In 2018 and 2019, shrimp exports to this market both decreased. In 2015, EU ranked third in importing Vietnamese shrimp, after the US and Japan. In 2016, EU surpassed Japan to 2nd place and became the largest shrimp import market of Vietnam in 2017. EU maintained the first position in importing Vietnamese shrimp from 2017 to 2019. The proportion of EU in total Vietnamese shrimp exports increased from 19% in 2015 to 21% in 2019. Shrimp exports to the US decreased by 0.5% from more than 657 USD million in 2015 to nearly USD 654 million in 2019. The proportion decreased from 22% in 2015 to 19% in 2019. Shrimp exports to the US decreased in 2017 and 2018. In 2019, shrimp exports to this market increased slightly again. From the largest market of Vietnam's shrimp exports in 2015 and 2016, the US dropped to 4th place in 2017, climbed up to 3rd place in 2018 and recovered to 2nd place in 2019. 4. METHODOLOGY 4.1. Theoretical model The gravity model that has been applied since 1962 is the most successful approach to estimate export potentials as well as export determinants, and it is based on Newton’s law. This model hypothesizes that the GDP, population and distance between two nations have major impacts on trade. Tinbergen (1962) demonstrated that there is a positive relationship between exports of nations and their GDP; however; the relationship between the exports of nations and distance of two countries is negative. There are numerous studies providing theoretical legitimacy to improve the gravity model such as Anderson (1979) and Bergstrand (1989). With OLS estimation, the basic of gravity model of international trade is ln(EXijt ) 0 1 ln(GDP j ) 2 ln(POP j ) 3 ln(1 T j ) 4 ln(DIST j ) 5 ln(RER j ) Nevertheless, there are several disadvantages of this basic model. The “behind the border” constraints as well as “implicit beyond the border” constraints are ignored such as the social and political institution of both home and trading partner nations (Kalirajan 2005). The bias further brings about the presence of heteroskedasticity (Silva & Tenreyro 2003). The basic gravity model is improved by numerous studies. Egger (2008) and Sayavong (2015) confirm that panel data models which are linear in variables and non-linear in the trade expenses. In addition, Feenstra (2002) indicates that the difference of price between trading partner could be used in the gravity model. Kalirajan (2007) suggests that by using the Stochastic frontier gravity model, the effect of trade resisting factors can be measured. There are several benefits of the Stochastic frontier gravity model, and the biggest advantage of this model is that although the studies do not have adequate information, country-specific impacts “behind the border” as well as “beyond the border” can be incorporated and measured. The form of stochastic gravity model can be written: ln(EXijt ) 0 1 ln(GDP j ) 2 ln(POP j ) 3 ln(1 T i, j ) 4 ln(DIST j ) 5 ln(RER j) u i, j v j in which uij is only positively distributed, and vj is normally distributed. The value of u can be between 0 and 1. 544
8. According to Kaliarajan (2008), there are three types of determinants that impact on export growth of countries, namely natural constraints, “behind the border” constraints as well as “beyond the border” constraints; therefore, Vietnam’s shrimp export will depend on numerous factors. Firstly, the core determinants such as GDP, population of nations that import product from Vietnam and the distance from Vietnam to the importing countries will have significant impacts on Vietnam’s export. It is evident that the increase of GDP or population of the importing countries could generally bring about the growth of demand for shrimp export from Vietnam. Nevertheless, because of costs of transportation, there is an inverse correlation between the values of shrimp exports and distances. For example, if the distance between Vietnam and an importing country becomes longer, it will lead to higher transport costs; thus, the value of export will be reduced. Secondly, “beyond the border” factors will be separated into two groups, namely “explicit beyond “zhe border” factors and “implicit beyond the border” factors. The “implicit beyond the border” factors consist of infrastructure and institution of partner nations, and it could have negative impacts on the export country. Moreover, the ‘explicit beyond the border’ factors include tariff and exchange rate policies which also have inverse effects on the total export value of the export countries. The price of imported products could be increased due to the increase in tariff or the devaluation of domestic currency; as a result, the demand for imported goods in the importing countries will be decreased. Finally, the “behind the border” factors relate to the limitations of infrastructure or institution of exporting countries such as transaction costs, the infrastructure of trade, port and custom procedures, licensing and bank procedures that could have negative impact on the export. Another variable: FDI: 4.2. Empirical strategy In this paper, the Stochastic frontier gravity model is: ln(EX ) ln(GDP ) ln(POP ) ln(T ) ln(DIST ) ln(RER ) ln(FDI ) ijt 0 1 jt 2 jt 3 jt 4 jt 5 jt 6 jt 6ln(TAB jt ) 7 FTA u i, j v ij where EXijt presents the total value of Vietnam’s shrimp exporting to nation j; GDPj and POPj describe the GDP as well as population of importing nation j; Tjt illustrates the average import tariff of Vietnam’s shrimp exports imposed by nation j; DISTij is the geographical distance from Hanoi to the capital city of country j; EXRij indicates the nominal exchange rate of the currency of country j and the EXRij is calculated by the US dollar; FDIj is the number of foreign direct investment from country j to Vietnam; TABj is trading across borders score of country j. FTA is one dummy variable and FTA takes a value of 1, when there are trade agreements between Vietnam and partner countries; otherwise it takes a value of zero. Uij is only positively distributed. It is denoted that the value of uij will be 0 if there is not an importance in the influence of behind the border constraints as well as the actual exports and potential exports are not different; otherwise, it will have a positive value. If uij haves the value greater than 0 and less than or equal to 1, there is an importance in the bias and nation specific determinants, and “they constrain actual exports from reaching potential exports” (Kalirajan, 2008). Vij denotes the double sided error term and normally distributed. With the maximum likelihood estimation, the production coefficients (from α1 to α7) constituting the coefficients of the potential gravity model could be estimated. γ demonstrates the ratio of the 545
9. variation because of the influence of “behind the border” determinants to all of the variances of exports. The above model will be estimated by the software STATA 14 over the period between 2010 and 2019. 4.3. Data This research uses the panel data of top 15 partner countries and regions of Vietnamese shrimp exports from 2010 to 2019. The 15 nations and regions include USA, Japan, China, South Korea, United Kingdom, Hong Kong, Canada, Netherlands, Germany, Belgium, Taipei, Australia, France, Singapore and Denmark. GDP, population, exchange rate and trading across borders score are collected from the website of the World Bank. Distance is calculated from Hanoi to the capital of trading partners by Distance Calculator website. Tariff is the average of tariffs on Vietnamese shrimp exports and derived from the World Bank. TAB and FDI are collected from the website of the Doing Business (World Bank) and General Statistics Office of Vietnam (GSO). The export value of Vietnam shrimp is calculated from the website of the United Nation Comtrade. 5. DISCUSSION OF RESULTS 5.1. Determinants of Vietnam shrimp exports Table 3: Estimates of stochastic frontier gravity model for the data from 2001 to 2016 Category Standard errors of Coefficients t statistic estimates LnGDP 1.68( ) 0.1845 8.60 LnPopulation –0.49( ) 0.1301 -3.65 LnDistance –1.45( ) 0.2089 -6.77 LnEXR 0.0145( ) 0.0554 0.25 LnTariff –0.3923( ) 0.1643 -2.81 LnFDI 0.342 0.5782 2.3487 LnTAB 0.353( ) 0.3126 1.4532 FTA 0.369( ) 0.4619 1.73 Constant –13.292( ) 3.4651 -4.19 Gamma 0.9788( ) 0.1976 9.55 Log likelihood –666.3621 Number of observations 150 Notes: Dependent variable: the logarithm of the total shrimp export value of Vietnam ( ), ( ), (*) Illustrates the significance level at one, five and ten percent. In the above table, the value of gamma is 0.9788 and it has a significance level at 1 percent (p value is 0.000); thus, using stochastic frontier gravity model is valid in this research. The value of γ further illustrates that the determinants of “behind the border” are one of the most important constraints of Vietnam shrimp exports; therefore, with the purpose of increasing the shrimp export of Vietnam, 546
10. Vietnam needs to decline the numerous impacts of “behind the border” factors. For instance, Vietnam can improve the trade infrastructure and the quality of economic institutions. In Table 3, the coefficient of GDP (α1) is positive with the 1 percent importance level; hence, the growth of GDP of the importing countries leads to the positive impact on Vietnam’s exports. However, GDP of importing countries has a decreasingly positive impact on the shrimp export value of Vietnam during estimated period. There are several causes for that. For instance, when GDP of the partner countries rises, they can produce more goods that replace the imported products from Vietnam; therefore, it could decrease imports from Vietnam. However, the coefficient of population (α2) is negative, and the significance level is 1 percent. It indicates that as income of the partner countries increases, the shrimp exports that are their demand are either not exported from Vietnam or the partner countries start to produce those goods, and so their import from Vietnam is decreased. The distance from Vietnam to the partner countries is further major factor by indicating statistical significance level at 1 percent with a negative number. Distance is a proxy of transport costs and other trade costs such as communication costs and transaction costs (Deluna & Cruz, 2013). Tariff is a crucial factor in Vietnam exports of shrimp from 2010 to 2019. The coefficient has negative value with statistical importance of 1 percent. This means that if the partner countries apply higher tariff on the imported goods, then it will lead to the increase in the prices of those goods as well as the reduction of the demand for those products. However, the Vietnamese government is out of control over this determinant because it depends on polices of each partner nations and trade agreements. TAB has a positive impact on Vietnamese shrimp exports. The ranking of economies on the ease of trading across borders is determined by sorting their scores for trading across borders. These scores are the simple average of the scores for the time and cost for documentary compliance and border compliance to export and import. As can be seen in the empirical results, if there is an increase in TAB by 1%, export volume will rise by 0.353%. The exchange rate is also an importance factor in the shrimp export of Vietnam from 2010 to 2019. The coefficient has positive value with statistical importance of 5 percent. This demonstrates that the currency of the importing countries is appreciated, which results in the decrease of commodity prices importing from Vietnam; thus, the demand for shrimp exports from Vietnam will increase. Foreign direct investment has become an important factor contributing to export growth of Vietnamese shrimp. As can be seen in the empirical results, if there is an increase in FDI by 1%, export volume will rise by 0.342%. The signing of FTAs also contributes to attracting FDI capital inflows to the processing industry in general and seafood industry in particular. Regarding FDI in the seafood industry, Vietnam currently has more than 70 FDI projects in the seafood sector, with over USD 310 million focusing on fields of farming, processing, and feed providing. Small–scale projects, averaging just over USD 4.4 million/project, are scattered in localities with strong fisheries development potentials. High-tech application projects invested by FDI enterprises have created a new face for the Mekong Delta's agricultural economy. With FDI capital of more than VND 1,000 billion, Vietnam – Australia Seafood Corporation has invested in the most modern lines in the world such as antibacterial water purifiers, laboratories, super-intensive greenhouse shrimp farming technology to solve local sources of high-quality seeds and share efficient production processes with the shrimp industry. The 547
11. company has made great breakthrough not only in shrimp seed production, but also in the field of high- tech shrimp farming, which contribute to increase the value and quality of the shrimp products in the shrimp export value chain of Vietnam. FTA has important contributions toward Vietnam’s shrimp export turnover. The advantage of tariff reduction from FTA agreements is an important force for Vietnam's seafood export in general and shrimp in particular to achieve strong growth in the future. The EU–Vietnam Free Trade Agreement (EVFTA), which took effect on August 1 is considered a great opportunity for shrimp exporters. According to EVFTA, import tax on most raw material shrimp (fresh, frozen, chilled) imported into the EU will be reduced from the tax rate of 12–20% to 0% as soon as the agreement comes into effect, the import tax on processed shrimp will be 0% after 7 years apply as from the date of entry into force of the EVFTA. Regarding the competitive advantage of import tax in the EU compared to other countries, the import tax of black tiger shrimp is reduced from the GSP tax rate of 4.2% to 0% right after the agreement and import tax rate of frozen white-leg shrimp will gradually decrease to 0% after 5 years, while Thailand does not enjoy GSP and does not sign an FTA, has a base tax rate of 12%; India does not have an FTA that is subject to GSP tax rate of 4,2%; Indonesia enjoy GSP 4.2% tax; China and Ecuador is 12%. The free trade agreement between ASEAN and Japan (AJCEP) took effect from December 1, 2008 and the bilateral free trade agreement between Vietnam and Japan (VJEPA) took effect from October 1, 2009 has created favorable tariff conditions for Vietnam's seafood exports to Japan. The year 2019 also marks the completion of the tax reduction schedule in the VJEPA Agreement. This is an appropriate time for businesses to boost exports to Japan when the import tax on all seafood products from Vietnam to Japan has been brought back to 0%. In addition to the Vietnam – Japan and ASEAN – Japan FTAs, the CPTPP agreement took effect from January 2019 will help Vietnamese shrimp exporter increase their advantages in this market. According to Japan's commitments at CPTPP, most of Vietnam's strong seafood products, including frozen shrimp (HS 030617) and processed shrimp (HS 160521), are entitled to 0% tax rate right after the agreement takes effect. Being a member of the CPTPP, Vietnam has the opportunity to increase exports to 10 markets, which account for 25% of Vietnam's total seafood exports, because most of the tax cuts are reduced to 0%, including key products such as frozen shrimp. Accordingly, with the CPTPP (effective from January 2019), almost all exported goods from Vietnam, including seafood to CPTPP member countries, will be eliminated import duties immediately or according to the route. The FTA between Vietnam and Korea was signed on 5th May 2015 and took effect in Dec 20th, 2015. Accordingly, Korea committed to clear tax for 10,000 MT of Vietnam shrimp in the first year and 15,000 MT in the next 5 years. Vietnam shrimp have an advantage over 10 ASEAN countries (namely Thailand, Indonesia, Malaysia). When VKFTA takes effect, Korea will clear tax for 7 HS codes of shrimp products including 0306161090, 3006169090, 0306171090, 0306179090, 0306261000, 0306271000 and 1605219000. 5.2. Growth Decomposition The impact of determinants on export potential could be measured by estimating the equation (1). The table 4 demonstrates the export growth decomposition of 15 main markets of Vietnamese shrimp export in two periods from 2010 to 2014 and from 2015 to 2019. The table 3 could be calculated through several steps below: 548
12. Export * PE2 E2 HB2 E2 C E PE1 B E * A 1 HB1 E1 0 Time X1 X2 – (1) From data is collected, with the maximum likelihood estimation, the production coefficients over two periods (from α1 to α6) constituting the coefficients of the potential gravity model could be estimated. – (2) E1* is calculated by multiplying the value of each determinant affecting export over period 1 by the coefficients of the potential gravity model over period 1. – (3) E1 is calculated by multiplying the value of each determinant affecting export over period 1 by the coefficients of the potential gravity model over period 2. – (4) E2* is calculated by multiplying the value of each determinant affecting export over period 2 by the coefficients of the potential gravity model over period 2. – (5) E1 and E2 are the actual export over period 1 and 2 respectively. From equation (2) and E1, E2, E1*, E1 and E2*, (HB1–HB2), IBB and GCD are obtained. Table 4: Export growth decomposition of Vietnamese shrimp export between 2010 and 2019 % Export growth due to the impact of ‘Implicit behind ‘Explicit behind the ‘Behind the border’ No Countries the border’ border determinants’ determinants determinants and Core [HB – HB ] 1 2 (IBB) Determinants (GCD) 1 United States of America –153.362 5.199 259.164 2 Japan 77.501 –8.612 21.012 3 China –154.782 243.807 70.975 4 Korea, Republic of 23.09 26.576 72.334 5 United Kingdom 67.81 17.284 4.834 6 Netherlands –146.93 132.65 143.31 7 Hong Kong 38.16 –114.59 186.42 8 Canada 69.42 19.977 20.601 9 Germany 24.487 –64.465 139.978 10 Belgium –154.97 65.78 123.63 549
13. 11 Taipei 23.327 21.162 55.511 12 Australia –95.805 38.588 141.217 13 France –43.177 44.054 99.123 14 Singapore –89.75 58.57 26.21 15 Denmark –108.622 112.18 57.431 The results in the table 4 illustrate that there was a negative impact of ‘behind the border’ determinants from 60 percent nations on Vietnamese shrimp export during estimated period, meanwhile the reduce of ‘implicit beyond the border’ constraints of almost Vietnam’s market except Japan, Hong Kong and Germany leads to positive effect on Vietnamese shrimp export. Interestingly, the decreasing of ‘explicit behind the border determinants’ and Core Determinants (GCD) has contributed significantly to Vietnam’s export. 6. CONCLUSION FTA has important contributions toward Vietnam’s shrimp export turnover. FTAs have positive improvements in attracting foreign investment into Vietnam, especially CPTPP and EVFTA, those large markets provide a great deal of capital to the country. Futhermore, FTAs help to enhance the business environment and institution, hence, Vietnam has opportunities to restructure toward the import – export system more balanced. It has enhanced the country’s position in global value chains through new business and investment opportunities, facilitating stable and sustainable development. By using stochastic frontier gravity model for the panel data of 15 countries from 2010 to 2019, the estimated results illustrate that GDP of partners nations, participating in the FTAs, FDI, TAB and exchange rate have positive impacts on the shrimp export; however, population, distance from Vietnam to partners countries and tariffs have negative impacts on the exports. The value of gamma with the significance at 1 percent level further illustrates that the determinants of ‘behind the border’ is one of the most important constraints of the Vietnam’s exports of shrimp; therefore, with a target to increase the export of shrimps, Vietnam will need to decline the number of impacts of ‘behind the border’ factors. New– generation FTAs breed a lot of benefits to Vietnam and it will increase Vietnam’s shrimp export turnover. Nevertheless, it is a challenge to successfully implement the FTAs, as well as deploy the commitments that Vietnam has made. REFERENCES: 1. Anderson, J.E. (1979), A theoretical foundation for the gravity equation, American Economic Review, 69, 106–116. 2. Baumuller, H. (2010). Aligning climate and development agendas in the Mekong region options for regional collaboration between Vietnam. Cambodia and Laos, EEDP, Chatham House. 3. Bergstrand, J.H. (1989), The generalised gravity equation, monopolistic competition, and the factor– proportions theory in international trade, The Review of Economics and Statistics, 71, 143–153. 4. Brooks, D & Stone, S 2010, Infrastructure and trade facilitation in Asian APEC, Asian Development Review, 27 (1), 135–159 5. Bucher, H, Drake, J, Kasterine, A & Sugathan, M 2014, Trade in environmental goods and services: opportunities and challenges, International Trade Centre Technical Paper, Geneva. 550
14. 6. Chu, S & Ahsan, R 2014, The potential and constraint of the exports of environmental goods (EGs): the case of Bangladesh, Working paper ASARC, Crawford School of Public Policy. 7. Doing Business, viewed 01st December 2020, 8. Egger, P 2008, On the role of distance for bilateral trade, The World Economy, 31 (5), 653–662. 9. Feenstra, R.C. (2002), Border Effects and the Gravity Equation: Consistent Methods for Estimation, Scottish Journal of Political Economy, 49(5), 491–506. 10. General Statistics Office of Vietnam, viewed 01st December 2020: 11. Jones, BF & Olken, BA 2010, ‘Climate shocks and exports’, NBER Working Paper, no. 15711, National Bureau of Economic Research, Cambridge, viewed 14 Dec 2020: 12. Kaliranjan, K 2007, Regional cooperation and bilateral trade flows: an empirical measurement of resistance, The International Trade Journal, 21(2), 85–107. 13. Kalirajan, K & Findlay, C 2005, Estimating Potential Trade Using Gravity Models: A Suggested Methodology, Foundation for Advanced Studies on International Development, Tokyo. 14. Kalirajan, K 2008, Gravity model specification and estimation: revisited, Applied Economics letters, 15 (13), 1037–1039. 15. Kalirajan, K & Anbumozhi, V 2014, Regional Cooperation toward green Asia: trade in low carbon goods, The International Trade Journal, 4 (28), 344–362. 16. Ministry of Industry and Trade of the Socialist Republic of Vietnam 2017, viewed 7th May 2017: 17. Nguyen, S and Kalirajan, K 2016, Export of environmental goods: India’s potential and constraints, Environment and Development Economics, 21 (2), 158–179. 18. Petri, P 2012, ASEAN economic community: a general equilibrium analyses, Asian Economic Journal, 26 (2), 93–118. 19. Sayavong, V 2015, Export growth, export potential and export resistance: a case study of Laos, Journal of Southeast Asian Economics, 32 (3), 340–357. 20. Silva, JMCS & Tenreyro, S 2003, Gravity–defying trade, Federal Reserve Bank of Boston, Boston 21. Tinbergen, J. (1962), Shaping the world economy: suggestions for an international economic policy, The Twentieth Century Fund, New York. 22. United Nation Comtrade, viewed 24th November 2020: 23. World Bank, viewed 01st December 2020: 24. Vietnam Association of Seafood Exporters and Producers, viewed 4th December 2020: 25. WTO 2008, Committee on trade and environment in special session, World Trade Organization: /77194/ /TN/TE/18.pd. 26. World Bank (2008), International Trade and Climate Change: Economic, Legal and Institutional Perspectives. 27. Yean, S 2015, The ASEAN economic community and conflicting domestic interests: an over view, Journal of Southeast Asian Economies, 32 (2), 189–201. 551