Which economic sector benefits most when Vietnam joins CPTPP?

Many industries benefit

The World Bank believes that, even without the US participation, the CPTPP is still an agreement that has a comprehensive impact on Vietnam's economy. Research by this organization shows that with Vietnam's accession to the CPTPP, many economic sectors will benefit.

Specifically, the highest growth in output is expected to be in the food, beverage, tobacco; apparel, leather goods; and textile industries, along with moderate growth in some industrial production and service sub-sectors.

Export growth is expected to be highest in food, beverages, and tobacco; apparel and leather goods; chemicals, leather products, and plastics; transportation equipment and vehicles; and other machinery and equipment. Imports are expected to increase across all sectors.

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

CPTPP was officially signed on March 9 in Chile with the participation of 11 countries without the US.

WB research shows that FTAs ​​tend to increase exports to countries that have signed the agreement. For example, in the CPTPP, by 2030, exports to CPTPP countries will increase from 54 to 80 billion USD, accounting for 25% of total exports. Exports to CPTPP member countries will increase in the food, beverage, tobacco, apparel, leather and textile industries. In total, these industries will increase exports by 10.1, 6.9 and 0.5 billion USD, respectively.

In contrast, the 23 export sectors of Vietnam that will have the largest net decline will be agriculture (-1.6 billion USD), other industrial production (-1.2 billion USD), electrical equipment (-0.5 billion USD), and metals (-0.4 billion USD). The export portfolio among sectors will focus heavily on garments, leather goods, and food, beverages, and tobacco, with export proportions increasing by 22.6% and 13.6%, respectively.

Promoting Vietnam's reform

The WB report affirms that CPTPP is still an agreement worth considering, although the loss of US participation will greatly reduce the benefits that can be obtained.

CPTPP is likely to lead to increased FDI and continued expansion of service sectors.

“As expected, the CPTPP will be less attractive than the TPP, and will offer less potential for increased production and exports. However, the agreement will lead to greater export diversification in terms of export markets,” the report said.

In addition to 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.

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 increased technological content of exports.

Increased investment due to the potential benefits of the CPTPP could make exports less dependent on imported raw materials, and instead rely 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 SME sector.

There is expected to be a stronger shift in foreign investment flows to upstream industries of the major beneficiary sectors such as textiles, apparel and leather to take advantage of the CPTPP.

However, the WB also said that increased FDI in upstream industries does not come without costs, so Vietnam needs to come up with wise policies to choose advanced technology and environmentally friendly FDI flows to optimize the impact of this agreement.

Experience after joining the WTO shows that Vietnam cannot immediately take advantage of the benefits of joining the WTO to attract and receive large FDI flows due to the lack of capacity to facilitate globally linked companies to participate in high value chains due to high logistics costs and weak infrastructure of roads, electricity, seaports, logistics services, etc.

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 physical and institutional infrastructure. Recent research shows that the majority of high compliance costs are related to non-tariff barriers.

The World Bank report highlights that despite recent progress in customs reform and the implementation of the national and ASEAN single windows, compliance costs in terms of time and money for clearing goods before and at the border in Vietnam remain high. Addressing this critical bottleneck will help implement commitments under the CPTPP framework.