TPP, CPTPP AND THEIR

IMPACTS ON THE
ECONOMY OF VIETNAM
Group 11

Group member
1. Nguyễn Phương Linh – 1611140046
2. Thái Nguyễn Khánh Linh – 1611140049
3. Nguyễn Phương Linh – 1611140052
4. Nguyễn Thị Diệu Linh – 1611140055

International Economics 2 Project

Dr. Tu Thuy Anh
CONTENTS

I. Introduction ………………………………………………………………… 4

II. Methodology ……………………………………………………………….. 6

III. Impacts on Vietnam ………………………………………………………. 8

1. GDP……………………………………………………………………… 8

2. Export……………………………………………………………………. 8

3. Import……………………………………………………………………. 10

4. Welfare change…………………………………………………………... 11

5. Income & poverty reduction……………………………………………...

11

IV. Summary & Conclusion…………………………………………………… 13

V. Reference…………………………………………………………………….. 15

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 ABSTRACT

The Trans-Pacific Partnership (TPP), sealed by 12 Pacific Rim nations, appears to

meet the target of promoting trade and strengthening the relationships between the
twelve member countries. To reach that target, TPP creates free trade zone between
12 countries in the Pacific by reducing and eliminating tariffs and non-tariff barriers,
fostering competition and creating greater opportunities for local businesses.
Confronting the withdrawal of U.S decided by President Trump in 2017, the 11 TPP
parties (“the Eleven”) continued going ahead with the agreement, which now owns a
new name as Comprehensive and Progressive Agreement for Trans-Pacific
Partnership (CPTPP). This study investigates how this two Free Trade Agreement
affects the economy of Vietnam in terms of GDP, export, import, welfare change and
income & poverty reduction. Results of the study show that the withdrawal of the
United States leads to a significant loss of Vietnam, and the most beneficiary sectors
are F&B, Wearing apparel and leather, and Textiles. However, CPTPP is still a very
promising FTA and recommendations for Vietnam are provided in the paper.

Keywords: TPP, CPTPP, Vietnam, GDP, Export, Import, Trade, Welfare, Income,
Poverty.

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 I. INTRODUCTION

The Trans-Pacific Partnership (TPP), sealed by 12 Pacific Rim nations, appears to

meet the target of promoting trade and strengthening the relationships between the
twelve member countries. To reach that target, TPP creates free trade zone between
12 countries in the Pacific by reducing and eliminating tariffs and non-tariff barriers,
fostering competition and creating greater opportunities for local businesses.
Confronting the withdrawal of U.S decided by President Trump in 2017, the 11 TPP
parties (“the Eleven”) continued going ahead with the agreement, which now owns a
new name as Comprehensive and Progressive Agreement for Trans-Pacific
Partnership (CPTPP).

With the attendance of US or not, TPP - CPTPP is still set to be the biggest
multilateral free trade agreement ever attempt on the world. 12 members of TPP had
combined GDP of $28 trillion, or 40 percent of world GDP, and accounted for $5.3
trillion in exports, or 23 percent of the world total. After the US leaving, despite
reducing in number, the agreement still covers nearly 13.5 percent of global GDP and
15 percent in total world trade. This is thanks to the large numbers of TPP members,
which up to 12, including the U.S, Australia, Brunei-Darussalam, Canada, Chile,
Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.

What makes TPP so significant is its comprehensive rules. Although it aims at

deepening the economic ties among countries then boost their economic growth, its
scope is not limited in the field of trade. Having 30 chapters, TPP also covers a range
of legal provisions in investment, service, electronic commerce, government
procurement, intellectual property and environment beside many other aspects of
global trade such as tariff. To be more specific, some areas are applied WTO rulebook
but meanwhile tightening the disciplines and creating new mechanisms to improve
implementation. Furthermore, in this version of agreement, intellectual property rights
are more aware of and strengthened by enforceable rules as well as labor or
environment. In other new areas to the prior agreements, which are related to internet

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and technology, TPP has it own actions toward. It sets rules and standards to access to
telecommunication network, put impacts on electronic commerce, limits restrictions
on cross-border transfer, and tightens up the data localization requirement. Adding to
that, the agreement also supports state-owned enterprises and small - medium
enterprises to make regulations simpler by enforcing new dispute settlement
mechanism.

Defined as “a landmark 21st - century agreement”, TPP contains 5 features:

comprehensive market access, regional approach to commitments, addressing new
trade challenges, inclusive trade and platform for regional integration. It indicates a
huge ambition of TPP members in launching international cooperation on so-called
next-generation trade rules, that cannot be assessed at this time, but may prove to be
its most valuable contribution in the long run. However, this wide range covered has
its pros and cons. On the one hand, it ensures the diversity in aspects in which nation
members can support each other and gain benefits. On the other hand, because the
agreement was set up among unusually diverse, comprising low-, middle-, and high-
income countries with varied economic systems, it puts kind of a pressure on big
developed countries to help the smaller developing ones. This is what happened in the
case of US’s exit, when President Trump believes that TPP would worsen the trade
deficit and, thereby, have negatively affected U.S. employment and wages.

TPP did not die out just because the absence of such a major player like U.S, instead,
it was reborn as CPTPP. In term of the agreement after several summit of negotiating,
most of the commitments related to goods, services, procurement, and investment
remain unchanged. Meanwhile, 22 original provisions were suspended on account of
the fact that they were priorities for the United States in the original negotiations but
did not enjoy similar support among the other TPP countries. Of all, changes appear
mostly in the investment and intellectual property (IP) chapters. Besides, there are 4
issues need renegotiation, including: a cultural exception for Canada; exceptions
regarding trade sanctions for Vietnam; exceptions for state-owned enterprises in
Malaysia; and exceptions regarding coal production in Brunei.

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Though US exit is a big lost, it is understandable why the rest members decided to
proceed TPP. The economic illustration demonstrates that 11 remaining signatories
are better off with a TPP11 than without one, in spite of the decline in gain. The
benefits are brought up to every single member of CPTPP, not evenly. However, there
is one certain thing that the movement of US took a huge change in the amount of
benefit each country can gain through the agreement. According to a previously
published report, Vietnam is one of the countries influenced the most.

This paper will illustrate the change in economy of Vietnam under TPP and CPTPP,
in order to see how much Vietnam is affected by the withdrawal of US from TPP. The
rest of this paper is organized as follows: method used in analysis, impacts on
Vietnam’s economy, finally, conclusions and recommendation to Vietnam.

II. METHODOLOGY

1. Model specification
In this paper, we examine the impacts of TPP and CPTPP on the economy of Vietnam
in the computable general equilibrium (CGE) model. This is an economic model
which is applied to examine how the economy might react to changes in policy,
technology or other external factors using actual economic data. Shaikh etal. (2012)
shows that the CGE model is capable of capturing the interactions as well as the inter-
linkages between sectors in the economy, which is particularly useful for analyzing
the impact of changes in trade policy. Savard (2003) states that the CGE model is a
widely used and a suitable tool in the analysis of welfare, particularly income and
poverty. In order to distribute the macroeconomic results of the CGE model to
households, we also use the Global Income Distribution Dynamics (GIDD) modeling
framework that provides the database for the implementation of the CGE model.
GIDD is a global macro-micro global model which can assess growth and distribution
effects of global policies such as multilateral trade liberalization. These two models
allow to analyze the complex interactions among producers, households and

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governments across several countries with productivity differences as well as changes
in comparative advantage and trade flows following trade liberalization. While
household behavior is determined from an aggregate utility function, the two models
are connected mainly through changes of skill formation, reallocation of labor and
real earnings.

In terms of supply or labor, the macro and micro models generate perfect mobility
across sectors within a country. Meanwhile, on the side of earnings, the GIDD
incorporates the CGE-based simulated changes in skilled wage, income growth, and
changes in relative consumer prices.
In our model, demography and education are part of the baseline scenario and play a
vital role in allocation the relative supply of skilled versus unskilled labor. Factor
endowments are also a strong determinant of comparative advantage across countries.
2. Scenario development
To analyze the impact of the TPP and CPTPP agreement on the economy of Vietnam,
this paper does a number of simulations by investigating two trade agreement
scenarios as followings:
 Baseline scenario: key macro indicators such as GDP, export and import
including the future reduction of tariffs as a result of existing FTA
commitments up to 2030 with the data
base of the International Trade Centre (2016). Tariffs are calculated for each
FTA using current and projected trade flows between Vietnam and its trading
partners.
 CPTPP and TPP-12: implementation of the TPP agreement among its
members with and
without the USA begins in 2018, based on the data set provided by
International Trade Center, including all TPP members FTA commitments up
to 2030 (ITC and MAcMap, 2015). Tariff reductions follow estimates from
Petri et al. (2016) based on actual TPP tariff commitments.

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 III. IMPACTS OF TPP & CPTPP ON VIETNAM

Using data from World Bank, we analyze the effects of TPP and CPTPP in five
dimensions: Output, Export, Import, Welfare change, Income & poverty reduction.
1. Output
Free trade agreements often affect output growth by changing both supply and
demand. As shown in the below graph, Vietnam’s GDP gains from integration would
be higher in TPP. The estimated gains by 2030 would be a GDP increase of 3.6% and
1.1% compared to be baseline scenario under TPP and CPTPP respectively. As a
result, it can be concluded that Vietnam significant loses when the USA exits the
Trans-Pacific agreement.

In terms of specific affected sectors, TPP would bring the largest benefits to the
Wearing apparel and leather sector, and Textiles, while F&B gains the most under
CPTPP by 2030. However, similar to the big picture of the whole economy, output
growth of these sectors dramatically affected when the USA quits. For example,
output of textiles and apparel are about 40 and 80 billion USD different from the
baseline, respectively, with the USA participating in the TPP whereas the
corresponding figures are reduced to only around 3 and 10 billion USD, respectively,
under CPTPP.

2. Export
Trade growth is the most prospective economic macroeconomic indicators since FTAs
usually tend to reduce trade barriers between member countries.

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Table 1. Vietnamese and foreign tariffs and non-tariff measures ad valorem
equivalents (trade-weighted) before and after trade liberalization, for markets
included in each FTA, %
TPP CPTPP
2017 2030 2017 2030
Tariffs faced by Vietnam on
4.2 0.1 1.7 0.2
FTA markets
Tariffs imposed by Vietnam
3.2 0.1 2.9 0.1
on FTA members
NTB faced by Vietnam on
9.4 4.3 9.4 5.8
FTA markets
NTB imposed by Vietnam on
10.3 5.0 7.9 5.0
FTA members
Source: World Bank

As of 2030, under TPP, Vietnam’s export value would be 59.2 billion USD higher
with respect to baseline and 13.1 billion USD higher under CPTPP.

FTAs tend to increase export flows toward member countries. For instance, under
CPTPP exports to these countries would climb from 54 billion USD to 80 billion USD
by 2030, reaching 25% of total Vietnam’s export value.

Vietnam’s export value to CPTPP members would see an increase in F&B, Wearing
apparel and leather, and Textiles of 10.1 billion USD, 6.9 billion USD and 0.5 billion
USD in that order. On the other hand, also with this FTA, Agriculture would
experience the largest net decline of 1.6 billion USD. Under TPP the USA would
double its share in Vietnam’s exports reaching 37% by 2030. Under TPP the export
portfolio across sectors will recognize the domination of Wearing apparel and leather
with an increase of US$54.4 billion, along with another focus - Textiles.

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Vietnam is the second largest apparel supplier in the US market, making up almost
13% of total US’s import value of textiles and apparel. With the withdrawal of USA
in TPP, Vietnam could boost their export of these products with greater market access
in other CPTPP member countries or non-members like Japan, Australia, Canada,
Mexico and Chile.

So, absence of the USA in the TPP will obviously have an negative effect on the
export of Vietnam but at the same time, we would also enjoy a positive export growth
rate even without getting any preferential access into the US market through the TPP,
and expand our access to new and promising markets. This below graph since the
USA drops out from TPP, the share of CPTPP member countries in our country’s
export structure will grow from 18% to a quarter in 2030.

3. Import
Vietnam will experience substantial growth in import of 21.7% and 5.3% compared to
the baseline in 2030 under TPP and CPTPP, respectively. In FTAs, the developing

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countries usually gain most from their own tariff liberalization (Cimino-Isaacs and
Schott 2016).

The United States is not one of our top import markets, so its withdrawal would have
no significant impact on import growth. The most outstanding beneficiary under TPP
is Textiles while under the latter FTA, benefited sectors are more evenly distributed,
including Chemical, rubber, plastic products; Wearing apparel and leather; Textiles;
Food, beverages, tobacco; Natural resources/mining and Agriculture, ...

4. Welfare
For Vietnam, welfare levels reach a substantial extent. If the USA would have been in
the agreement, then the welfare change for Vietnam would be 5927.1 million USD
which would be reduced to $ 1209.1 million without the USA in TPP, that is, the
welfare of the country would lose by almost 80%.
5. Income and poverty reduction
Sectoral expansion determines demand for labor and equilibrium wages. A more
ambitious and wider reaching trade agenda (TPP-12), despite its larger gains, would
tend to increase the skill wage premia and concentrate benefits on the more educated
and wealthier segments of the population. By 2030 and under TPP-12, there will be a
5.8% difference between the growth in the rich’s income and the poor’s, while this
gap under CPTPP is only 2%.

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Impact on poverty reduction is expressed in millions of people from poverty. CPTPP
would have lifted from poverty (at PPP$5.50/day) 0.6 million of people by 2030 -
half of the effect obtained with TPP.
TPP-12 exhibits the largest effects on poverty reduction due to biggest boost to
growth. By 2030, it would have lifted from poverty (at PPP$5.50 a day) 1.4 million
people in addition to baseline conditions. Using a poverty line of $3.20 a day, it can
be seen that differences in poverty impacts between scenarios are more moderate in
comparison.

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 IV. SUMMARY AND DISCUSSION

To sum up, this paper has been focused on the formulation and the impact of the TPP
agreement and CPTPP agreement. Moreover, this paper also aims to investigate the
effect of the withdrawal of the USA and how it would affect the TPP - ASEAN
economies, especially Vietnam.
To understand about the effect, the paper compare two baseline scenarios: first
developed considering the USA as a member of TPP and then as a non-member of the
agreement.
In the scenarios with the tariff reduction when the USA is a member, all of the TPP-
ASEAN countries enjoy positive growth in total output and export as well as in
import. Vietnam registers the more significant growth in total output and total import
compared to the other countries because the USA is the biggest partner of Vietnamese
international trade. As the TPP agreement comes into effect, the global welfare would
be expected to increase when all the members of the TPP agreement will gain
benefits.
On the other hand, when the USA is omitted in the list of TPP members, the growth
rates appear to fall considerably in all respects. However, the remained countries of
the TPP agreement would face a positive output and export growth rates despite the
absence of the USA. As a result, the global welfare also reduces when the CPTPP is
implemented. Without the presence of America, Canada and Japan will become the
beneficiaries enjoying more gain in welfare because they would become the major
players in the CPTPP agreement. The other economic factors like income also
experience positive growth rates with tariff reduction even when the USA is not in.
Absolutely, the growth rates are considerably less than when the TPP agreement is
applied.
TPP is an opportunity to make a big leap for the TPP-ASEAN nations in many aspects
such as economic development, export promotion, improving services industry and so
on because the USA is the biggest partner of Asian countries.
Even though not attractive as TPP, the CPTPP agreement is still needed to consider.
With the application of CPTPP, Vietnam can attract a lot of FDI then lead to

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expansion of services sectors and boost the productivity. The industry of textiles,
F&B, tobacco will have chances to grow significantly. Although the growth rate is not
able to be compared with the scenario when the TPP is complemented, with CPTPP,
Vietnam will have a better chance to diversify theirs exporting lines. With CPTPP, the
benefits for higher-skilled in the top 60% of the income distribution will also be
higher.
On the other side, CPTPP also has impact in domestic economics. CPTPP will
motivate the improvement of internal competition inside Vietnam, stimulate domestic
private firms to integrate more actively into the global market and therefore promote
the SME sector development.
To reap the full benefits from the application of CPTPP agreement, both Vietnamese
government and firms should prepare carefully. On the side of firms, it is necessary to
improve their market value and reaffirm their position to have ability to compete with
international corporations. Obviously, the government also needs to take further steps
in the road of perfection the law. Reducing the administrative procedures, providing
more information for private companies, . . . is some of the urgent mission for
Vietnamese authority to start with.

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 V. REFERENCE

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President of the United States. Available at:
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Bourguignon, F., & Bussolo, M. (2013). Income Distribution in Computable General

Equilibrium Modeling. Elsevier. Available at:
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2019]

Carlo Dade & Dan Ciuriak (2017). The Art of the trade deal: Quantifying the benefits
of a TPP without the United States. Canadawest Foundation Trade and Investment
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[Accessed 20 Mar. 2019]

Dasgupta, P. and Mukhopadhyay, K. (2017). The impact of the TPP on selected

ASEAN economies. Journal of Economic Structures, [online] 6(1). Available at:
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Dezan Shira (2017). TPP Revived as CPTPP: What it means for Vietnam. Available
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[Accessed 20 Mar. 2019]

Matthew P.Goodman (2018). From TPP to CPTPP. Center for Strategic and
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Peter A. Petri and Michael G. Plummer (2016). The Economic Effects of the Trans-
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Savard L (2003) Poverty and income distribution in a CGE-household micro-

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Progressive Agreement for Trans-Pacific Partnership: The case of Vietnam. Available
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