Which economic sector will benefit most from Vietnam's accession to the CPTPP?

Many sectors benefit

The World Bank argues that, even without US participation, the CPTPP is still an agreement with a comprehensive impact on Vietnam's economy. Their research shows that with Vietnam's accession to the CPTPP, many economic sectors will benefit.

Specifically, the highest projected output growth is expected to be in the food, beverage, and tobacco; clothing and leather goods; and textile industries, along with moderate growth in several sub-sectors of industrial production and services.

Exports are expected to increase most significantly in the food, beverage, and tobacco; clothing and leather goods; chemicals, leather and plastic products; equipment and transport vehicles; and other machinery and equipment. Imports are expected to increase in all sectors.

In addition, output in several service sectors will increase. Demand will rise due to higher economic growth and increased incomes, as well as high demand for trade-related services such as transportation, finance, and other business services.

The CPTPP was officially signed on March 9th in Chile with the participation of 11 countries, excluding the United States.

A World Bank study shows that FTAs ​​tend to increase exports to signatory countries. For example, within the CPTPP, exports to CPTPP countries are projected to increase from $54 billion to $80 billion by 2030, accounting for 25% of total exports. Exports to CPTPP member countries will increase in the food, beverage, tobacco, apparel, leather goods, and textile sectors. Overall, these sectors are expected to see export increases of $10.1 billion, $6.9 billion, and $0.5 billion, respectively.

Conversely, the 23 Vietnamese export sectors that will experience the largest net declines are agriculture (-$1.6 billion), other industrial manufacturing (-$1.2 billion), electrical equipment (-$0.5 billion), and metals (-$0.4 billion). Exports across these sectors will be concentrated in garments, leather goods, and food, beverages, and tobacco, with export shares increasing by 22.6% and 13.6% respectively.

Promoting reforms in Vietnam

The World Bank report affirms that the CPTPP remains a worthwhile agreement to consider, although the absence of the US will significantly reduce the potential benefits.

The CPTPP is likely to lead to increased FDI and further expansion of the service sectors.

"As expected, the CPTPP will be less attractive than the TPP, and will offer less potential for increasing production and exports. However, this agreement will lead to greater export diversification in terms of export markets," the report stated.

Beyond the trade issues in the Agreement, the CPTPP can encourage and promote domestic reforms in many areas such as competition, services, customs, e-commerce, environment, government procurement, intellectual property, investment, labor standards, legal issues, market access for goods, rules of origin, non-tariff measures, trade remedies, etc.

The CPTPP will contribute to promoting transparency and supporting the formation of modern institutions in Vietnam. In the long term, the benefits will not only include increased exports but also an increase in the technological content of exported goods.

Increased investment driven by the potential benefits of the CPTPP could make exports less dependent on imported raw materials, instead relying more on domestic supply chains to overcome the limitations of rules of origin.

This response will help boost exports of value-added goods, encourage domestic private companies to integrate more actively into global value chains, and thus promote the development of the small and medium-sized enterprise sector.

It is expected that there will be a stronger shift of foreign investment towards upstream industries of sectors that will benefit greatly, such as textiles, garments, and leather, in order to take advantage of the CPTPP.

However, the World Bank also noted that increased FDI in upstream industries does not come without costs, so Vietnam needs to implement wise policies to select advanced technologies and environmentally friendly FDI flows to optimize the impact of this agreement.

Experience after joining the WTO shows that Vietnam could not immediately take advantage of the benefits of WTO membership to attract and receive large flows of FDI due to a lack of capacity to facilitate the participation of globally linked companies in high-value chains, stemming from high logistics costs and weak infrastructure such as roads, electricity, seaports, and logistics services.

These challenges highlight the need to improve connectivity to integrate into global value chains and keep trade costs low. Domestic private and foreign businesses participating in these value chains need to be able to move goods across borders efficiently and reliably.

This requires both good infrastructure and institutions. Recent research shows that the majority of high compliance costs are related to non-tariff barriers.

The World Bank report emphasizes that, despite recent progress in customs reform and the implementation of the national and ASEAN single window mechanism, Vietnam still faces high compliance costs in terms of time and money for customs clearance before and at the border. Addressing this critical bottleneck will help fulfill commitments under the CPTPP framework.