Viet Nam WTO Accession and Viet Nam WTO Accession and Implications for Agriculture Implications for Agriculture David Roland-Holst UC Berkeley MARD Workshop on GLOBALIZATION AND AGRICULTURAL DEVELOPMENT IN VIETNAM 13-14 December 2005 Nha Trang – Viet Nam
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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
Roland-Holst Slide 3
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.
Roland-Holst Slide 4
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
Roland-Holst Slide 5
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
Roland-Holst Slide 6
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.
Roland-Holst Slide 7
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 .
Policy Scenarios CGE Model Baseline Calibration Data
Numerical Results Graphical Output
Development
Simulation
Analysis
Box Color Key to Software Implementation: Green – Microsoft ExcelYellow – GAMS
Roland-Holst Slide 9
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.
Roland-Holst Slide 10
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.
Roland-Holst Slide 11
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
Roland-Holst Slide 12
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
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
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
Ba Ria - Vung TauKien Giang
Poverty Specialization Mkt. Distance Ag TOT
Unfavorable
Favorable
Poverty and Related VariablesPoverty and Related Variables
Roland-Holst Slide 13
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)
Roland-Holst Slide 16
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.
Roland-Holst Slide 17
Priorities for AgriculturePriorities for Agriculture
• Tackling rural poverty• Scale and services for smallholder
agriculture• Adding value to agriculture• Modernizing infrastructure• Reforming state-owned enterprises
Roland-Holst Slide 18
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
Roland-Holst Slide 19
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%.
Roland-Holst Slide 20
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.
Roland-Holst Slide 21
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
Roland-Holst Slide 22
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.
Roland-Holst Slide 23
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
Roland-Holst Slide 24
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
• 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,
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
Roland-Holst Slide 27
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.
Roland-Holst Slide 28
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.
Roland-Holst Slide 29
Conclusion 2Conclusion 2
• 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.
Roland-Holst Slide 30
Conclusion 3Conclusion 3
• 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.
Roland-Holst Slide 31
Conclusion 4Conclusion 4
• 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.