Viet Nam WTO Accession and Implications for Agriculture

Viet Nam WTO Accession and Viet Nam WTO Accession and Implications for AgricultureImplications for Agriculture

David Roland-HolstUC Berkeley

MARD Workshop onGLOBALIZATION AND

AGRICULTURAL DEVELOPMENT IN VIETNAM13-14 December 2005Nha Trang – Viet Nam

Roland-Holst Slide 2

OutlineOutline

1. Introduction and Overview2. Economic Projections to 20203. Poverty and WTO Accession4. Agricultural Services and WTO5. Issues and Conclusions


IntroductionIntroduction

Vietnam’s WTO accession is a watershed event for the economy.

It will offer unprecedented external market opportunities,

But also unique opportunities for domestic reform.

Our results indicate that external and domestic reform must go hand-in-hand if their full potential is to be realized.


Trade and Economic Growth: Trade and Economic Growth: General PrinciplesGeneral Principles

Quantity of Growth can be influenced by trade opening.

Quality of Growth depends on many other policies.

Important qualitative growth characteristics:1. Diversification2. Modernization3. Poverty alleviation


Trade, Human Resources, and IncomeTrade, Human Resources, and Income

Vietnam is far from realizing its trade potential.

GDP

ExportsPopulation

Indonesia

Malaysia

Philippines

Singapore

Thailand

Vietnam


Domestic and External ReformDomestic and External ReformExamples of how domestic reform can facilitate readiness for WTO

accession include, but are not limited to:1. Harmonization of standards for commercial activity, including

licensing, contracts and other legal standards.2. Uniform and transparent product quality standards, including SPS

and other health safety.3. Removal of administered price systems and greater transparency

in fiscal mechanisms.4. Clear delineation of property rights, including uniform standards for

ownership and transferability.5. Agriculture-oriented policies that promote productivity, including

consolidation, technology transfer/adoption, and credit markets.6. Uniform and transparent labor standards and residential policies.7. Public-private parity in credit acces and price.8. Improved transparency and reporting of national economic data.9. Private sector development (ISO and other business standards).10.Financial sector reform and regulatory standardization, especially

in commercial banking, insurance, and asset markets.


Economic Projections to 2020: Economic Projections to 2020: Modeling StrategyModeling Strategy

Policy makers need visibility. Economic models can make a lasting contribution to this under three conditions:1. They incorporate advanced data and methods.2. Their results are transparent.3. They are locally implemented.

In order to achieve these three goals, we developed a modeling facility with a user-friendly interface and a sophisticated analytical kernel .


Schematic Modeling FacilitySchematic Modeling Facility

Social Accounting Matrix

Econometric Parameter Estimates

Policy Scenarios CGE Model Baseline Calibration Data

Numerical Results Graphical Output

Development

Simulation

Analysis

Box Color Key to Software Implementation: Green – Microsoft ExcelYellow – GAMS


ScenariosScenarios

1. Baseline: calibrated trends without reform or WTO.2. WTO: External reform only, via WTO accession.3. Reform-WTO: Combined external-domestic reform.4. Reform-UTL: Domestic reform with unilateral

removal of all Vietnamese import protection.5. AgK: Reform, WTO accession, and 2% annual

capital productivity growth in agriculture.6. AgTFP: Identical to AgK, except Total Factor

productivity in Vietnamese agriculture grows by 2% annually.


Trade and Economic Growth: Trade and Economic Growth: Real GDP to 2020Real GDP to 2020

100120140160180200220240260280

2000 2005 2010 2015 2020

BaselineWTOReformWTORefUTLAgKAgTFP

Indexed to year 2000=100.


Real Agricultural OutputReal Agricultural Output(percentage changes from Baseline in 2020)(percentage changes from Baseline in 2020)

-10

0

10

20

30

40

50

60

WTO ReformWTO RefUTL AgK AgTFP

Rice

Raw Rubber

Coffee Bean

Sugar Cane

Other Crops

Pigs

Poultry

Livestock

Irrigation Serv

Other Ag Serv

Forestry

Fishery


Dac Lac

Gia Lai

Son La

Lai Chau

Nghe An

Lao Cai

Kon Tum

Song Be

Thanh Hoa

Lam Dong

Cao Bang

Lang Son

Ha Giang

Yen Bai

Minh Hai

Ha Tinh

Bac Thai

Binh Thuan

Ha Bac

Quang Binh

Dong Nai

Vinh Phu

Binh Dinh

Quang Nam-Da Nang

Long An

Hoa Binh

Kien Giang

Phu Yen

Quang Tri

Tuyen Quang

Quang Ninh

Quang Ngai

Can Tho

Khanh Hoa

An Giang

Ninh Thuan

Soc Trang

Nam Ha

Dong Thap

Ha Tay

Thua Thien-Hue

Hai Hung

Ben TreTra Vinh

Ninh Thuan

Tien Giang

Thai BinhNinh Binh

Ba Ria - Vung TauKien Giang

Dac Lac

Gia Lai

Son La

Lai Chau

Nghe An

Lao Cai

Kon Tum

Song Be

Thanh Hoa

Lam Dong

Cao Bang

Lang Son

Ha Giang

Yen Bai

Minh Hai

Ha Tinh

Bac Thai

Binh Thuan

Ha Bac

Quang Binh

Dong Nai

Vinh Phu

Binh Dinh

Quang Nam-Da Nang

Long An

Hoa Binh

Kien Giang

Phu Yen

Quang Tri

Tuyen Quang

Quang Ninh

Quang Ngai

Can Tho

Khanh Hoa

An Giang

Ninh Thuan

Soc Trang

Nam Ha

Dong Thap

Ha Tay

Thua Thien-Hue

Hai Hung

Ben TreTra Vinh

Ninh Thuan

Tien Giang

Thai BinhNinh Binh


Dac Lac

Gia Lai

Son La

Lai Chau

Nghe An

Lao Cai

Kon Tum

Song Be

Thanh Hoa

Lam Dong

Cao Bang

Lang Son

Ha Giang

Yen Bai

Minh Hai

Ha Tinh

Bac Thai

Binh Thuan

Ha Bac

Quang Binh

Dong Nai

Vinh Phu

Binh Dinh

Quang Nam-Da Nang

Long An

Hoa Binh

Kien Giang

Phu Yen

Quang Tri

Tuyen Quang

Quang Ninh

Quang Ngai

Can Tho

Khanh Hoa

An Giang

Ninh Thuan

Soc Trang

Nam Ha

Dong Thap

Ha Tay

Thua Thien-Hue

Hai Hung

Ben TreTra Vinh

Ninh Thuan

Tien Giang

Thai BinhNinh Binh


Dac Lac

Gia Lai

Son La

Lai Chau

Nghe An

Lao Cai

Kon Tum

Song Be

Thanh Hoa

Lam Dong

Cao Bang

Lang Son

Ha Giang

Yen Bai

Minh Hai

Ha Tinh

Bac Thai

Binh Thuan

Ha Bac

Quang Binh

Dong Nai

Vinh Phu

Binh Dinh

Quang Nam-Da Nang

Long An

Hoa Binh

Kien Giang

Phu Yen

Quang Tri

Tuyen Quang

Quang Ninh

Quang Ngai

Can Tho

Khanh Hoa

An Giang

Ninh Thuan

Soc Trang

Nam Ha

Dong Thap

Ha Tay

Thua Thien-Hue

Hai Hung

Ben TreTra Vinh

Ninh Thuan

Tien Giang

Thai BinhNinh Binh


Poverty Specialization Mkt. Distance Ag TOT

Unfavorable

Favorable

Poverty and Related VariablesPoverty and Related Variables


Poverty and Market Access 2: Poverty and Market Access 2: Dual Initial ConditionsDual Initial Conditions

Yet most of Vietnam’s poor live near markets.

Poverty is more commonin remote areas

Roland-Holst Slide 14-25.00

-20.00

-15.00

-10.00

-5.00

0.00

5.00

10.00

15.00

20.00

25.00

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

Baseline Poverty Rate

Perc

ent C

hang

e in

Pov

erty

Rat

e

Doha Holds Little Potential for Doha Holds Little Potential for Vietnam without WTO AccessionVietnam without WTO Accession

Doha has a negligible but regressive effect, since there are few trade gains for a nonmember. (by province)

Roland-Holst Slide 15-40.00

-35.00

-30.00

-25.00

-20.00

-15.00

-10.00

-5.00

0.00

5.00

10.00

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

Baseline Poverty Rate

Perc

ent C

hang

e in

Pov

erty

Rat

e

Poverty Rates and WTO AccessionPoverty Rates and WTO Accession

With global reciprocity, positive export terms-of-trade and ag demand growth lead to progressive effects (by province)


Agricultural Services and WTOAgricultural Services and WTO

• Vietnam filed its application to join the WTO in early 1995, and concluded its 11th round of negotiations in September 2005.

• Both SPS- and TRIPS-related issues have proved to be obstacles in the negotiations.

• Vietnam has made great strides in agriculture since domestic reforms began in 1982, but much remains to be accomplished.


Priorities for AgriculturePriorities for Agriculture

• Tackling rural poverty• Scale and services for smallholder

agriculture• Adding value to agriculture• Modernizing infrastructure• Reforming state-owned enterprises


Farm Scale and PovertyFarm Scale and PovertyPopulation density per hectare of farmland is a serious

constraint on actual and potential income growth.There are two ways to overcome this, higher crop value and

migration.

0

500

1,000

1,500

2,000

2,500

3,000

3,500

40 50 60 70

Percent Urban Population

Farm

Rev

enue

per

Cap

ita(2

003

USD)

RiceFruit

Estimated Revenue per Capita for Vietnamese Crops at US Prices


Farm Population and PovertyFarm Population and Poverty

0200400600800

1,0001,2001,4001,6001,8002,000

10 20 30 40 50 60 70 80

Percent Reduction in Farm Population

Farm

Wor

ker V

alue

Add

ed(2

003

USD

)

Per Worker Value Added at Different Levels of Farm Population

Farm populations in middle income countries are 15-30%, in high income countries 1-15%.


Adding Value to AgricultureAdding Value to Agriculture

• Continue to shift emphasis from quantitative targets toward quality standards.

• Facilitate greater domestic and external market participation.

• Invest in better infrastructure, research, and extension activities.

• Use external negotiation and partnerships to accelerate technology and standards adoption within Viet Nam’s farming sector.


Modernizing InfrastructureModernizing InfrastructureDomestic private and public savings are a serious constraint.

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

0 10000 20000 30000 40000 50000

Norm

aliz

ed to

Max

imum

Income per Capita

Pavement/AreaElec/CapMobile


Regional Public and Private Regional Public and Private Investment Investment (Asian inbound Aid and FDI, USD Billions)(Asian inbound Aid and FDI, USD Billions)

0

20

40

60

80

100

120

140

160

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

ODA-Asia FDI-Asia

In Asia, external private savings (FDI) does much of the work.


Issues 1: Challenges and Opportunities Issues 1: Challenges and Opportunities for Viet Nam Agriculturefor Viet Nam Agriculture

Challenges• Institutional constraints

– Price transparency– Cost of capital– Trade and transport margins– Small scale

• Process constraints– Technology– Diversification– Quality– Value-added


Issues 1: Challenges and Opportunities Issues 1: Challenges and Opportunities for Viet Nam Agriculturefor Viet Nam Agriculture

Opportunities• Regional Cereals Demand

– China– Japan – Korea

• OECD Fishery Demand– Global marine stocks are being depleted– Dietary shifts in protein/fat content

• Significant potential for agricultural diversification– Fruit– Salad vegetables– Horticulture


Issues 2: Domestic Policy Considerations Issues 2: Domestic Policy Considerations

• Product markets – reduce barriers to market access/entry, especially for domestic private interests– Invest in infrastructure, transport, and communications– Reduce trade margins due to administration/regulation– Reduce direct and indirect financial bias favoring state

enterprises

• Capital markets – greater recognition of market forces– More equal private/public access to domestic and external

savings– Promote a transparent relationship between risk and return

• Labor markets – increase investments in education/training• Fiscal policy – nondistortionary standards for taxation,

uniformly applied


Issues 3: External Policy Considerations Issues 3: External Policy Considerations

Fuller participation in the global economy will improve efficiency, leverage domestic production capacity and employment, and accelerate modernization. To facilitate this, the government can

• Minimize price distortions in tradable commodities• Give more equal market access for domestic and international

participants• Liberalize direct foreign investment in all sectors and harmonize

banking and financial market standards with international norms• Share more of the burden of development risk with foreigners• Promote Vietnamese enterprises abroad and negotiate balanced

market access with trading partners


Issues 4: Human Resources, Trade, Issues 4: Human Resources, Trade, and Developmentand Development

To avoid economic marginalization with trade-induced economic growth, all factor productivity must be increased and the skill base of the economy must be diversified. This can be done

1. Publicly – extend and intensify public commitments to education, training, agricultural extension services, and standards.

2. Privately – let foreign and domestic private capital do the work. As the economy develops, so will a web of training opportunities for workers and farmers, particularly in emergent sectors with higher labor productivity and wages.


Conclusion 1Conclusion 1

• The gains Vietnam can enjoy from external liberalization will be seriously limited unless they coincide with comprehensive and sustained domestic economic reform.

• The most important insight emerging from this analysis is the essential complementarity between domestic and external economic reform.

• Both are necessary, but neither alone is sufficient, to realize the great economic potential of Vietnam.



• Our results indicate that the current WTO offer reduces average protection levels incompletely but substantially, and such a reduction could realize about 80% of the gains from complete removal of protection.

• Thus, this first phase of trade liberalization is by far the most important for Vietnam. However, the need for complementary domestic reforms is even greater if external liberalization is incomplete.



• In the absence of other policy measures, the offer will lead to intensification of Vietnam’s traditional comparative advantages.

• This would narrow the basis for development, modernization, and productivity growth, and not be in Vietnam’s best long term interest.

• It can be avoided by policies that promote economic diversification and negotiated external market access, especially intensifying bilateral and regional arrangements.



• For agriculture, policies to promote quality and productivity growth are essential.

• Without these, the agricultural sector will fall behind the rest of the economy, food imports will rise dramatically, and food exports will be diverted back into the domestic market.

• The key to food security and rising rural livelihoods is not protectionism, but promoting productivity, value added, and competitiveness.


DiscussionDiscussion

Viet Nam WTO Accession and Implications for Agriculture

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