WP5 Z2lq POLICY RESEARCH WORKING PAPER 2219 The Effect of the United If the United States grants Vietnam most favored nation States' Granting Most status, both countries would Favored Nation Status benefit. Vietnamese exports to the United States would to Vietnam more than double, and Vietnam would gain substantial welfare benefits Emiko Fukase from improved market access Will Martin and increased availability of imports. For the United States, lowering the current high tariffs against Vietnam would improve welfare by reducing costly diversion away from Vietnamese products. The World Bank Development Research Group Trade H November 1999 [POLICY RFSEARCH WORKING PAPER 2219 Summary findings Since the U.S. embargo on trade with Vietnant was lifted than double, from the 1996 baseline of 5338 million to in 1994, exports from Vietnam to the United States have S768 million. By conservative estimates, welfare gains in risen dramatically. However, Vietnam remains one of rhe Vietnam would be about 5118 million a year, or a 0.9 few countries to which the United States has not vet percent increase in real income per capita. Sixty percent granted most favored nation (MFN) status. The general of that gain would come from improved terms of trade tariff rates that the United States imposes average 35 and the other 40 percent from gains in efficiency. percent compared with 4.9 percent for the MFN rate. Because Vietnam's exports to the United States have been Granting MFN status to Vietnam would improve its growing rapidly since the lifting of the embargo in 1994, terms of trade and help improve the efficiency of the trade expansion resultitig from MFN status may be resource allocation in the country. Better access to the larger by the time Vietnam obtains it. Based on 1998 U.S. market would increase the volume of Vie -namese values, the increase in exports would have been around exports to the United States and the prices received for S750 million a year. them while also reducing their costs to U.S. users. For the United States, lowering the high tariffs on Fukase and Martin use a computable general imports from Vietnam would improve consumer welfare equilibrium model to examine the effects of reducing by lowering prices and increasing the volume of those U.S. tariffs on Vietnamese imports from general rates to imports. The direct welfare gains in the United States are MFN rates. They estimate tariff changes using the U.S. estimated to be $56 million a year. tariff schedule for 1997 weighted by Vietnam's exports There are likely to be significant additional gains to to the United States. both countries from the liberalization Vietnam will The results suggest that after a change to M:FN status undertake as a result of the negotiations for MFN status for Vietnam, its exports to the United States would more and for entry into the World Trade Organization. This paper - a product of Trade, Development Research Group - is part of a larger effort in the group to understand the links between trade and development in transiti on economies. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. 'lease contact Lili Tabada, room MC3-333, telephone 202-473-6896, fax 202-522-1159, Internet address Itabada@Cworldbank.org. Policy Research Working Papers are also posted on the Web at http:,//ww;avw.worldbank.org/research"working papers. The authors may be contacted at efukase@aworldbank.org or wmartinlCTworldbank.org. November 1999. (26 pages) F The Policy Research 'Working Paper Series disse:-ninates the findings of work in progress to encourage the exchange of ideas about development issutes. An objective of the series is to get the findings ouit quickly, even if the presentationis are less than fully polished. The papers carry the namnes oflthe authors and shoulc' he cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the view of the World Bank, its Executive Directors, or the countries they represent. Produced by the Policy Research Dissemination Center The Effect of the United States' Granting Most Favored Nation Status to Vietnam' by Emiko Fukase and Will Martin Development Research Group World Bank Washington, DC, USA We would like to thank Kazi Matin for the initiation and support of this research; participants in the trade workshops in Hanoi and Ho Chi Minh City in April 1999 for helpful discussions and comments; and Hugh Arce for supplying the very useful tariff data. Summary findings Since the lifting of the United States' embargo on trade with Vietnam, exports from Vietnam to the U.S. have risen dramatically. However, Vietnam remains one of a handful countries to which the United States has not yet granted Most-Favored-Nation (MFN) status, and on which it imposes its general tariffs rather than the more widely used MFN tariffs. The general rates are typically much higher than the MFN rates with the simple-average of 35.0 percent as against 4.9 percent for the MFN rate. The US granting MFN status to Vietnam gives Vietnam economic benefits from two sources: 1) improved terms of trade and 2) second-best welfare benefits from improved allocative efficiency. The improved market access to the United States leads to an increase in both the volume of exports from Vietnam to the United States, and an increase in the price received for these exports. Given the extensive distortions inherent in Vietnam's current trade regime, there are likely to be other welfare changes resulting from increases in the volume of exports, and the consequent increase in imports over Vietnam's sizable import tariffs. We use a computable general equilibrium model to examine the consequences of the U.S. reducing its tariffs against imports from Vietnam from general rates to the MFN level. The tariff changes were estimated by using the U.S. Tariff schedule for 1997 weighted by Vietnam's exports to the United States. The results suggest that Vietnam's exports to the United States more than double following the move to MFN status, from the 1996 baseline level of $337.5 million to $767.5 million.2 The increase in exports of clothing is particularly significant, registering almost a fifteen-fold increase relative to the baseline. The MFN access to the United States creates substantial welfare benefits to Vietnam. The welfare gains to Vietnam are very conservatively estimated at around $118 million per year or 0.9 percent increase in real expenditure per capita. The direct terms of trade improvement resulting from increased market access accounts fcr 60 percent of the total gain, with the remaining 40 percent derived from induced second-best gains in efficiency. From the point of view of the United States, this exercise involves unwinding the trade diversion away from Vietnamese imports resulting from the higher tariff rate against imports from Vietnam. The loweting of these high tariffs raises consumer welfare by lowering prices, and the dramatic increases in imports from Vietnam induce generate welfare benefits that accrue as tariff revenues. Despite this, the direct benefits to the USA of granting MFN treatment to Vietnam are relatively small at $56 million per year. This study focuses on the direct impacts of US liberalization. In addition, there are likely to be significant gains to both Vietnam and the United States from the liberalization that Vietnam agrees to undertake in the ongoing negotiations for MFN access and entry to the World Trade Organization. 2As Vietnam's exports to the United States have been growing rapidly since the lifting of the embargo in 1994, the magnitude of the trade-expansion resulting from MFN status may be larger by the time Vietnam obtains MFN. Based on 1998 values, the increase in exports would have been around $750 million per year. ii The Effect: of the United States Granting MFN Status to Vietnam I. Introduction Since the lifting of the U.S. embargo in 1994, trade between Vietnam and the United States has grown rapidly. The large U.S. market offers substantial potential for Vietnam to expand its exports, following the lead of the export-oriented economies of its region. However, Vietnam remains one of a handful countries to which the United States has not yet granted Most-Favored-Nation (MFN) status, and on which it imposes its general tariffs rather than the more widely used MFN tariffs. The general tariff schedule involves much higher tariff rates on most commodities than the MFN schedule. Use of these tariffs clearly imposes costs on both Vietnam and the United States. Vietnamese exporters are unable to access the best markets for some of their products. US imports are diverted from lower cost suppliers in Vietnam to higher cost sources elsewhere. The objective of this paper is to assess the economic effects of the U.S. granting MFN status to Vietnam. We first assess the size of the trade distortions involved, and then analyze their consequences. Section II deals with the pattern of exports from Vietnam to the United States and the nature of the barriers imposed by use of the general tariffs. Section I]l describes the analytical framework and presents results and interpretation. Section IV presents the main conclusions. II. Recent Trends in Vietnam's Exports to the United States Composition of Vietnam's Exports to the United States Since 1994, Vietnam's merchandise exports to the United States have increased rapidly, from $54.0 million in 1994, to $207.8 million in 1995, and $337.5 million in 1996. In 1997 and in 1998, Vietnam's exports to the U.S. accounted for $407.1 million and $588.7 million respectively (UI.N. Comtrade System, 1994-1998). In 1996,3 4.8 percent of Vietnam's exports were shipped to the U.S., which in turn accounted for 0.04 percent of total U.S. imports (World Bank, 1998a). Figure 1 shows the evolution of Vietnam's exports to the U.S. by commodities for the years 1994 to 1998.4 The exports by GTAP category are shown in Armex 1. Figure 1 - Vietnam's Exports to the U.S. 1994-1998 250 200 - M 1994 150 - 1995 0o 1996 100 rj 1997 U 1998 50 0. AGR BMF BTP CLO COG CRP LW MCE PAG TEX Source: U.N. Comtrade System In 1994 and 1995, agriculture and forestry (ARG), processed agriculture (PAG), and closing (CLO) dominated Vietnam's exports to the U.S. In 1996, exports of 3 The data for the year 1996 are analyzed in some details in this paper since our simulation results are based on the 1996 data. 4 The model database was aggregated from the original 50 sectors to twelve sectors designed to provide a reasonable representation of Vietnam's trade patterns: agriculture and forestry (AGR), basic manufacturing (BMF), beverages and tobacco products (BTP), clothing (CLO), chemical, rubber, plastic products (CRP), coal, oil, gas (COG), light manufacturing (LMF), electronics and machinery (MCE), processed agricultural commodities (PAG), petroleum and coal products (PCP), textiles (TEX), transport equipment (TRP), and others (OTH). This aggregation contains nonzero values for all exports to the United States except refined petroleum and coal products, and transportation equipment. Neither of these products seems likely to become a major export from Vietnam to 1he United States in the new future, so setting them to zero seems unlikely to be a serious problem. Annex 3 presents the description of the aggregation. 2 petroleum oils (COG), chemical, rubber, plastic products (CRP)5, and light manufacturing (LMF) emerged, giving Vietnam a much more diversified pattern of exports to the United States. Further increase in exports of chemical, rubber, plastic products (CRP) and light manufacturing (LMF) in 1997 and 1998 is mainly attributed to the footwear exports. Annex 3 A-E presents the top 10 export commodities from Vietnam to U.S. according to 6-digit Harmonized System (HS) categories for the years 1994-1998. The top 10 commodities accounted for 91.3 percent of Vietnam's exports to the U.S. in 1994, 92.7 percent in 1995, 87.0 percent in 1996, 73.8 percent in 1997, and 84.3 percent in 1998. Coffee has been the leading exports throughout the period 1994-1998. In 1996, exports of 'petroleum oils' emerged, accounting for a quarter of Vietnam's total exports. The other leading export commodities included shrimps, rice, cashew nuts, clothing, footwear, and gloves. MFN and Non-MFN Tariff Analyses The United States generally applies the MFN rate in the U.S. tariff schedule to almost all of its WTO and non-WTO trading partners.6 Countries not receiving U.S. MFN status are subject to the higher general rates. These rates are for the most part the original statutory rates that were applied to all U.S. imports under the Tariff Act of 1930 (also known as the Smoot-Hawley Act). After the trade liberalization of the various 5Vietnam's main export item to the U.S. in this category is casual footwear using rubber. 6As of June 1998, all countries except Afghanistan, Cuba, the Lao PDR, Monenegro, North Korea, Serbia, and Vietnam have MFN status. Albania, Armenia, Belarus, Bulgaria, China, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Mongolia, Romania, Russia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan all have their MFN status reviewed annually (Personal conmnunication, the Trade Information Center, the U.S. Department of Commerce). 3 GATT Rounds beginning in 1947, the Unites States retained the general rates primarily against Communist countries (Arce and Taylor, 1997). Table 2 compares estimates of the MFN and non-MFN tariff rates levied on Vietnam. Table 2 - U.S. Tariffs against Vietnam's Exports MEFN vs Non-MFN Rates SIMPLE WEIGHTED AVERAGE (%) AVERAGE (%) 1994 kport 1995 lnport 1996 Import Weights Weights Weights GTAP Description MFN Non- MFN Non- MFN Non- MFN Non- MFN MFN MFN MFN I Paddy rice 1.7 6.5 na na na na na na 2 Wheat 3.5 10.0 na na na na na na 3 Cereal grains 0.6 4.0 na na na na 1.4 3.6 4 Vegetables, fruits, nuts 5.4 20.8 0.2 1.8 0.3 2.9 0.1 1.2 5 Oil seeds 8.2 35.4 0.0 1.6 na na 0.0 0.0 6 Sugar cane, sugar beet 2.1 na* na na na na 2.5 na* 7 Plant-based fibers 0.3 1.6 na na na na 0.0 0.0 8 Crops n.e.c. 2.8 18.2 0.0 0.0 0.0 0.0 0.0 0.0 9 Bovine cattle, sheep, goats, horses 0.7 7.8 na na na na na na 10 Animal products n.e.c. 1.2 5.6 3.1 12.4 2.5 14.2 1.5 11.1 12 Wool, silk-wormn cocoons 0.6 0.0 na na na na na na 13 Forestry 0.0 1.7 na na na na 0.0 0.0 14 Fishing 0.4 3.9 0.0 0.0 0.2 4.2 0.0 0.0 15 Coal 0.0 0.0 0.0 0.0 na na na na 16 Oil 0.2 0.6 na na na na 0.4 1.3 17 Gas 0.0 0.0 na na na na na na 18 Minerals n.e.c. 0.7 10.0 3.4 7.5 1.1 10.0 1.3 10.3 19 Bovine cattle, sheep,goat, horse meat 3.4 23.9 na na na na na na 20 Meatproductsn.e.c. 4.7 23.1 na na na na na na 21 Vegetable oils and fats 3.7 12.8 0.0 na* na na na na 22 Dairy products 27.3 29.9 na na na na na na 23 Processed rice 5.a 23.6 8.8 35.0 8.8 35.0 8.8 35.0 24 Sugar 10.3 20.0 na na na na na na 25 Food products n.e.c. 5.5 19.2 0.3 1.1 0.3 1.3 0.5 1.9 26 Beverage and tobaccoproducts 16.B 92.0 2.8 18.1 4.5 22.1 2.2 17.4 27 Textiles 10.3 55.1 6.7 63.8 9.6 58.2 4.4 38.5 28 Wearing apparel 13.4 68.9 13.5 56.4 13.1 52.5 14.3 58.0 29 Leather products 5.6 33.0 11.9 46.3 9.2 28.4 8.4 22.8 30 Wood products 2.1 29.4 3.3 38.7 3.5 38.9 3.5 37.3 31 Paperproducts,publishing 1. 22.7 0.9 21.9 0.3 4.1 1.6 25.4 32 Petroleum, coal products 1.1 8.6 na na 0.0 4.3 na na 33 Chemical, rubber, plastic, products 4.3 30.3 5.3 24.5 6.4 25.1 30.8 49.6 34 Mineral products n.e.c. 4.3 41.6 4.1. 42.4 3.6 40.2 3.8 40.4 35 Ferrous metals 3.7 21.5 na na na na na na 36 Metals n.e.c. 3.0 28.0 0.0 0.0 0.0 0.1 0.0 1.1 37 Metal products 3.6 38.9 na na 3.3 43.4 4.5 45.0 38 Motor vehicles and parts 5.2 18.9 na na na na na na 39 Transport equipment n.e.c. 3.0 28.4 na na na na 2.8 28.3 40 Electronic equipment 2.8 34.0 2.1 35.0 na na 4.1 36.8 41 Machineryandequipmentn.e.c. 2.9 37.6 3.0 35.7 1.8 46.1 2.4 30.1 42 Manufactures n.e.c. 3.8 46.7 5.0 47.7 5.6 39.7 13.1 40.9 Total 4.9 35.0 1.9 8.7 1.5 6.2 4.7 11.8 Sources: Authors' calculations, UN Comrntade System, UNCTAD Trains Database Note: In most cases, 'na' in the weighted averages means the absence of trade. Some 'na*' reflects 'specific' tariffs for which ad valorem equivalent tariff rates are not available in Arce and Taylor's dataset. 4 The U.S. Tariff Schedule for the year 1997 was originally obtained from the UNCTAD TRAINS Database. Obtaining complete estimates of the tariff changes was hampered by the presence of 'specific' tariff rates. At the 8-digit level, 2,277 tariff lines out of 10,102 (or 22.5 percent of total tariff lines) are specific tariffs or combinations of specific and ad valorem rates. When specific tariffs apply, the ad valorem tariff equivalents, which were computed by Arce and Taylor (1997) for U.S. imports from China were used as a proxy.7 The trade-weighted averages were computed using the U.S. import data from Vietnam taken from the UIN COMTRADE System. The aggregation was undertaken from the 6-digit level which is the most disaggregated level available in the COMTRADE System. The ad valorem tariff equivalents of MFN and non-MFN rates cover almost the entire list (99.9 percent) of U.S. imports from Vietnam in 1996. A serious problem evident from Table 2 is the absence of trade in a number of commodities, particularly where the unweighted average tariff rates are relatively high. This suggests that Vietnam faces prohibitive tariffs on certain commodities. In this situation, the weighted average tariff is very misleading-indicating zero protection when the protection rate is effectively infinitely high. Given these caveats, the general rates are typically much higher than the MFN rates. The simple-average MFN duty rate of 1997 U.S. Tariff Schedule is 4.9 percent as against 35.0 percent for the non-MFN rate. The average tariff rates weighted by U.S. 7Arce and Taylor (1997) estimated the effects of the U.S. not renewing MWN status for imports from China. They constructed the ad valorem equivalents of specific or combination rates of the U.S. tariff schedule at the 10-digit level using the U.S. customs data on the value and quantity of imports. Their dataset covers 99.4 percent of U.S. imports from China. In 1995, the average trade-weighted MFN duty rate applied to U.S. imports from China was approximately 6 percent. Under the non-MFN rates, the trade-weighted tariff rate would rise to 44 percent. If China's MFN status were rescinded, their simulation result revealed that Chinese exports to the U.S. drop by approximately $11 billion, or over 50 percent. 5 imports from Vietnam differ substantially between years. The trade-weighted averages were 8.7 percent in 1994 and 6.2 percent in 1995 which were 6.8 point and 4.7 point higher than MFN rates respectively. In 1996, however, the weighted average had risen to 11.8 percent implying that Viebiam's composition of exports had shifted towards commodities with higher tariffs. The difference between MFN and non-MFN rates was 7.1 percentage points in 1996. Table 3 compares Vietnam's exports to the EU15, Japan, and the U.S. by GTAP4 categories for the year 1996. Despite the recent increases in Vietnam's exports to the US, the US share of 4.8 percent was clearly low relative to the EU15's share of 24.0 percent and Japan's share of 28.7 percent. While Vietnam's exports of 'crops n.e.c.' (category 8) of $119 million were significant, this was attributable mainly to coffee for which the tariff rate was already zero. hi contrast, Vietnam's exports of 'wearing apparel' to the United States were very small. While Vietnam's exports of 'wearing apparel' to the EU158 and Japan were $456 million and $489 million respectively, exports to the U.S. accounted for only $26 million in It 996. 8Vietnam signed a preferential trade agreement with the EU in 1992. This involved the granting of quotas to export textiles and clothing to Europe and the granting of a 2 percentage point preference on imports of selected items under oveir 200 tariff lines falling chapters 51-63 of the HS tariff schedule (Centre for Intemational Economics, 1998). 6 Table 3 - Vietnam's exports to the EU15, U.S. and Japan in 1996 EU15 Share JAPAN Share USA Share (US$1,000) (%) (US$1,000) (%) (US$1,000) (%) 1 Paddy rice 752 0.0 89 0.0 0 0.0 2 Wheat 0 0.0 0 0.0 0 0.0 3 Cereal grains 1 0.0 230 0.0 51 0.0 4 Vegetables, fruits, nuts 4809 0.3 2026 0.1 8276 2.5 5 Oil seeds 102 0.0 1301 0.1 2 0.0 6 Sugar cane, sugar beet 1 0.0 0 0.0 14 0.0 7 Plant-based fibers 176 0.0 0 0.0 7 0.0 8 Crops n.e.c. 171038 10.1 40941 2.0 119436 35.4 9 Bovine cattle, sheep, goats, horses 0 0.0 0 0.0 0 0.0 10 Animal products n.e.c. 4500 0.3 6802 0.3 2782 0.8 12 Wool, silk-worm cocoons 0 0.0 54 0.0 0 0.0 13 Forestry 1704 0.1 3503 0.2 42 0.0 14 Fishing 430 0.0 7252 0.4 213 0.1 15 Coal 19215 1.1 69041 3.4 0 0.0 16 Oil 0 0.0 635430 31.6 85834 25.4 18 Minerals n.e.c. 19886 1.2 6094 0.3 36 0.0 19 Bovine cattle, sheep and goat, horse meat I 0.0 0 0.0 0 0.0 20 Meat products n.e.c. 2 0.0 1004 0.0 0 0.0 21 Vegetable oils and fats 60 0.0 2077 0.1 0 0.0 22 Dairy products 0 0.0 0 0.0 0 0.0 23 Processed rice 9 0.0 47 0.0 6568 1.9 24 Sugar 0 0.0 0 0.0 0 0.0 25 Food products n.e.c. 40933 2.4 393598 19.6 39574 11.7 26 Beverage and tobacco products 175 0.0 4150 0.2 591 0.2 27 Textiles 14760 0.9 94429 4.7 182 0.1 28 Wearing apparel 456693 27.1 488580 24.3 25567 7.6 29 Leather products 310299 18.4 72367 3.6 11746 3.5 30 Wood products 76998 4.6 81493 4.1 1081 0.3 31 Paper products, publishing 929 0.1 4962 0.2 11 0.0 32 Petroleum, coal products 1 0.0 0 0.0 0 0.0 33 Chemical,rubber,plastic,products 339162 20.1 43148 2.1 31863 9.4 34 Mineral products n.e.c. 39842 2.4 6981 0.3 1319 0.4 35 Ferrous metals 34 0.0 1185 0.1 0 0.0 36 Metals n.e.c. 1598 0.1 2132 0.1 61 0.0 37 Metal products 3115 0.2 4674 0.2 97 0.0 38 Motor vehicles and parts 75 0.0 342 0.0 0 0.0 39 Transport equipment n.e.c. 3060 0.2 590 0.0 19 0.0 40 Electronic equipment 5336 0.3 7086 0.4 154 0.0 41 Machinery and equipment n.e.c. 8037 0.5 18052 0.9 325 0.1 42 Manufactures n.e.c. 162582 9.6 11611 0.6 1602 0.5 Total 1686316 100.0 2011272 100.0 337451 100.0 Share (%) 24.0 28.7 4.8 Source: UN Comtrade System 1996;World Development Indicators 1988. 7 III. Analysis and Results Theory of tariff liberalization by a trading partner The GTAP model used in the analysis is a comprehensive multi-region, multi- commodity general equilibrium model incorporating global production, consumption, trade and policy distortions. Despite the resulting complexity of the model, the key features of the model results can be understood in terms of relatively simple partial equilibrium diagrams (Martin 1997), The reduction in the US tariff on exports from Vietnam shifts the demand curve for exports from Vietnam to the right, as is shown in Figure 1. The result is an increase in both the volume of exports from Vietnam to the United States, and an increase in the price received for these exports. The resulting increase in the price of exports to the United States creates potentially substantial welfare benefits to Vietnam, measured in Figure 1 by area piabpo . Figure 1 - Impacts of a reduction in the tariff on Vietnam's exports to the USA \ a Vietnam's export supply Pi Po -------- US demand with MFN tariff I ! ! US demand for exports from Vietnam with general tariff 0 qo qi 8 Because of the extensive distortions inherent in Vietnam's current trade regime, there are likely to be some other welfare changes resulting from increases or reductions in the volume of exports crossing trade barriers (see Martin 1997 for an interpretation of these second-best welfare impacts). If, for instance, the change in export market opportunities results in an increase in the volume of imports subject to distortions, there will be an increase in welfare because each unit of imports costs less on world markets than its value to users behind the tariff wall. In Figure 2, this effect is represented by the shift in the import demand curve for imports from partner countries from Do to DI, and the consequent gain in welfare is shown by the shaded area abdc. As is clear from Figure 2, the welfare benefits resulting from these additional imports will accrue as increases in tariff revenues, which may generate additional welfare benefits if they allow the government to reduce its dependence on other distorting taxes (Anderson and Martin 1998). Figure 2. Impacts on import volumes passing across tariff barriers Price Pw + tb Pw \ ~Do 0 mI mO Import volumes 9 When access to the US market increases, there are likely to be increases in Vietnam's import demands for several reasons. Firstly, the increases in prices for goods that benefit from increased market access are likely to cause domestic consumers to substitute towards imported goods. Similarly, domestic users of intermediate inputs are likely to substitute to now relatively cheaper imported inputs. Domestic producers increasing their export production will also increase their volumes of imported inputs, although this may be offset by reductions in the volumes of inputs imported by other, contracting, sector-- the ultimate impact of these output changes will depend upon the relative import intensities of the ex,panding and contracting sectors. Finally, there will be changes in the volumes of imports resulting from changes in real incomes. While there is some controversy in the literature as to whether these should be included in measurements of welfare (Anderson and Martin 1996), they are included in the money- metric measures of the type used in the GTAP model. To capture all of these impacts requires a fully specified general equilibrium model and we use the GTAP global general equilibrium model to capture the needed interactions between actors and secl:ors. Model Structure The Global Trade Analyses (GTAP) model is a relatively standard static multi- sector multi-region Applied CGeneral Equilibrium (AGE) model documented comprehensively in Hertel (1997), with updated information on the GTAP web site.9 The model assumes that firms use constant retums to scale technology in perfectly 10 competitive product market. Household consumption behavior is represented by a constant demand elasticity (CDE) expenditure function, while consumption and government demand are characterized by constant value shares. The equilibrium levels of production and consumption are determined by global demand and supply of the product and zero economic profit for firms. Traded goods are linked through international trade and classified by country of origin using the standard Armington assumption. The version of the model used in this analysis is based on the Version 4 GTAP database. The base year of this data set is 1995. However, because of the rapid changes in Vietnam's exports to the United States following the removal of the trade embargo, the database was modified to reflect the value and the composition of Vietnam's exports to the United States in 1996. This is important both for updates the model and to reduce the number of zero entries for Vietnam's exports to the USA.10 The simulation was conduced by reducing U.S. tariffs against imports from Vietnam from their 1996 non- MIFN weighted average level to the MEN level. 9www.agecon.purdue.edu/gtap 10Models of this type work in percentage changes and are unable to move from zero levels of trade to non- zero levels. 11 Results of the Experiment Table 4 shows the changes in Vietnam's exports to the United States and to the world. Table 4 - Changes in Vietnam's Exports Value Changes Percentage Changes Exports to Exports to Exports to Exports to U.S. the World U.S. the World ($ mil.) ($ mil.) (%) () AGR Agriculture and forestry -2 -31 -1 -3 PAG Processed agriculture 10 -21 19 -2 BTP Beverage and tobacco 1 1 125 18 COG Coal, oil, gas 3 -5 4 0 TEX Textiles 0.4 -4 241 -2 CLO Clothing 384 332 1512 38 LMF Light Manufacturing 23 -28 147 -3 BMF Basic manufacturing 4 -1 329 -1 CRP Chemnical, rubber, plastics 12 11 64 14 MCE Electonics and machinery 1 -2 284 -3 Total 430 250 Source: Authors' Simulation Result The first two columns present the changes in export values. The second two columns show the percentage changes in value which in turn reflect both quantity and price changes. The results suggest that Vietnam's exports to the United States would more than double following the granting of MFN status, increasing from the 1996 baseline level of $337.5 million to $767.5 million.'" The increase in exports of clothing is particularly significant, registering almost a fifteen-fold increase relative to the baseline. (Annex 4 reviews the current U.S. imports of textiles and apparel in some detail. For the recent Carnbodia's experience, see Box 1). This estimated increase takes II In an earlier version of this paper and in Ketnam: Rising to the challenge (World Bank, 1998b), the effects of granting MFN status were estimated to be even larger than in the current paper. This is because we did not have estimates of the tariff equivalent of 'specific' tariffs when preparing the first paper, and excluded these commodities from the calculation of the average tariff. When these tariff equivalents became available, we found that the tariffs on these conimodities (e.g. oil) were relatively low. Their inclusion therefore reduced our estimates of the average tariffs applied, and hence the trade-expanding effects of liberalization. On the other hand, since Vietnam's exports to the United States have been growing rapidly, the magnitude of the trade- 12 into account only the reduction in tariff rates on these goods. Whether such a large increase could actually be realized would depend upon the arrangements made for phasing out of the MFA quota regime against these exports (Riedel, 1993). Because Vietnaam is not a contracting party to the GATT 1947, the abolition of these quotas is not assured even if Vietnam becomes a member of the WTO. Box 1. The Effects of the United States Granting MFN Status - Cambodia's Experience Despite the political events in July 1997 and the Asian financial crisis, Cambodia managed to achieve a 33 percent increase in its exports in 1997. This remarkable development owed greatly to the United States granting Most Favored Nation (MFN) status to Cambodia on September 25, 1996. Since then, Cambodia's merchandise exports to the United States have increased rapidly, from 4.2 million in 1996, to 102.9 million in 1997 and 134.3 million in 1998. While the United States represented only 4 percent in Cambodia's total exports in 1996, its share increased to 21 percent in 1998. The substantial increase in Cambodia's exports is mostly attributed to the clothing sector. The exports of this sector increased from $2.3 million in 1996 to $98.7 million in 1997. In 1998, Cambodia's exports of this category registered $130.2 million or 97 percent of its total exports to the United States. This development was induced by the substantial tariff cuts against Cambodia's garment exports, from a simple average of 69.2 percent under the general rate to 12.8 percent under MFN rates. The increase in the production of clothing in recent years has resulted in a dramatic increase in Cambodia's imports of textiles. Since 1996, Cambodia's imports of textiles have risen from $61 million in 1996 to $117 million in 1997, and $247 million in 1998. The increased market access to the United States attracted more foreign investors12 mainly from Hong Kong, Taiwan, Malaysia, South Korea and Singapore. It is estimated that around 270 garment factories are now operating in Cambodia up from only 70 factories in 1997 (Reuters, Cambodia News, July 20). Cambodia is likely to have difficulty achieving such high rates of growth in these products in the US market in the future, since the U.S. has imposed quotas on its main clothing exports. The growth rate of these quotas depends heavily upon the results of an annual, unilateral deternmination by the United States of whether Cambodia is protecting core labor standards. If the results are affinmative, the growth rates are quite high, at 14 percent per year, while they may withdraw such an increase if the US decides that labor standards are not being adequately protected. Unfortunately, the ability of the importing countries to impose quotas has, if anything, been increased by the change by the move from the Multifibre Arrangement (MFA) MFA to the Agreement on Textiles and Clothing (ATC). While Article 3 of the MFA required that the exports from an individual expansion may be larger by the time Vietnam obtains MFN. For instance, if the estimate is based on 1998 values, the increase in exports would have been around $750 million per year. 12 The nature of the model applied to Vietnam in this paper is static, and the total stock of capital is fixed. Thus, our model does not capture the effects of increased foreign direct investments (FDI) following the U.S. granting MFN treatment to Vietnam. 13 supplier should be causing market disruption before quotas could be imposed, Article 6 of the ATC allows quotas to be imposed when total imports are causing market disruption. For small suppliers such as Cambodia, this change is particularly unfortunate. The increase in exports to the U.S. of beverages and tobacco (BTP), textiles (TEX), basic manufacturing (BMF), amd electronics and machinery (MCE) are significant in percentage changes, but negligible in value terms, reflecting the very low initial levels of these exports (see Figure 1). Exports of agriculture and forestry (AGR) decrease slightly by 1 percent from the baseline. This is because the non-MFN tariff rates of the main agricultural exports such as coffee and shrimps are already zero (Annex 3) implying that these industries benefit relatively less from the MIFN status than the other sectors. It is likely that a certain amount of unskilled labor would shift from the agricultural sector to other labor intensive manufacturing sectors. The overall increases in Vietnam's exports of $250 million are less than the increase in exports to the U.S., reflecting the shift in exports from other markets to the U.S. From the point of view of the United States, this experiment involves unwvinding the trade diversion away from Vietnamese imports resulting from the higher tariff rate against imports from Vietnam. Table 5 reports the changes in output by sector in Vietnam and the United States. Table 5 - Changes in Output Vietnam USA (%) (%) AGR Agriculture and forestry -0.7 0 BMF Basic manufacturing -2 0 BTP Beverage and tobacco -1.2 0 CLO Apparel 31 -0.1 COG Coal, oil, gas -0.5 0 CRP Chemical, rubber, plastics 2 0 LMF Light manufacturing -3 0 MCE Electronics and machinery -2 0 PAG Processed agriculture -2 0 14 PCP Petroleum products -0.1 0 TEX Textiles 7 -0.03 TRP Transport equipment -4.3 0.01 Source: Authors' Simulation Results The increase in production of clothing (CLO) by 31 percent is the mirror image of the increase in exports from this industry. The increase in production of textiles (TEX) follows from the increase in demand for textiles as inputs into the clothing industry. The increase in production of chemical, rubber and plastics products (CRP) appears to reflect an increase in the production of casual footwear. The production in other sectors decreases slightly since the domestic resources have been diverted into now more profitable sectors such as clothing. The output of clothing in the United States decreases by only 0.1 percent, and the overall impact on U.S. production patterns is negligible relative to the U.S. size of the economy. Table 6 shows the key results for a range of economy-wide variables. In order to test the sensitivity of the model to the key parameters, the experiments were conducted using the standard Armington parameters (first two columns), decreasing the parameters by 50 percent (second two columns), and increasing them by 50 percent (third two columns).13 13 We increased (decreased) the elasticities of substitutions between domestic products and imports as well as those between import sources by 50 percent. 15 Table 6 - Key Results of the U.S. Granting MFN Status for Vietnam Elasticity Elasticity Elasticity Standard Minus 50% Plus 50% Viietnam United Vietnam United Vietnam United States States States Export Value (%) 3.6 0.01 0.9 0.002 12.1 0.04 Export Price (%) 1.5 -0.002 0.6 -0.001 3.3 -0.005 Export Volume (%) 2.1 0.01 0.3 0.003 8.8 0.04 Price Index (%) 0.8 -0.00 1.7 -0.01 0.4 -0.00 Real Income per Capita (%) 0.9 0.001 0.4 0.000 2.4 0.003 TariffRevenues ($ mil.) 44 3 10 -16 150 60 Decomposition of Equivalent Variation Total EV ($ mil.) of which 118 56 51 9 315 175 Allocative Component ($ mil.) 45 77 12 20 151 231 Terms of Trade Cornponent ($ mil.) 73 39 -11 164 -561 Source: Authors' Simulation Results Following the grant of MEFN status, Vietnam's export volume and terms of trade increase by 1.5 percent and 2.1 percent respectively. This in turn increases the total value of Vietnamese exports by 3.6 percent. As goods are redirected from the domestic market to export markets, the domestic consumer price rises by 0.8 percent. However, increased foreign exchange earnings from increased exports enable Vietnam to import more, and this in turn leads to an increase in tariff revenues of $44 million. This increase in tariff revenues provides an indication of lthe second-best welfare gains from liberalization. It measures the difference between the value of the goods in the country and their value at the border, times the change in the quantity imported. Overall, Vietnam's welfare measured by Equivalent Variation (EV) rises by $118 million. Vietnam gains both from improved efficiency of resource allocation ($45 million) and from terms of trade gains ($73 million). This is about a 0.9 percent increase in real expenditure per capita. 16 The effects of granting MEN treatment to Vietnam on the U.S. economy are relatively small. Overall, the welfare of the United States increases by $56 million. Whereas the U.S. is positively affected by the improved resource allocation of $77 million, the gains are partially offset by deterioration in the terms of trade of $21 million as the USA increases its demand for imports from Vietnam. Caveats and Qualifications on the Results Sensitivity analysis on the Armington elasticities of substitution reported in Table 6 revealed that the results are sensitive to the values of these parameters. When the elasticities of substitution between domestic goods and imports and those between import sources are both increased by 50 percent, the change in EV increases by more than 50 percent. Gehlhar (1994) has shown that the standard elasticities used in the GTAP model, while derived from the best available econometric evidence, seem to be too low to capture the changes in trade patterns over time. Gehlhar found that it was necessary to roughly double the values of these elasticities if changes in trade patterns were to be captured. Based on the sensitivity results presented in Table 6, this would likely result in a welfare gain to Vietnam of over $400 million per year. Another reason to think that our estimates are conservative is examination of the estimated tariff rates. The non-MFN rates that we estimated using Vietnam's current pattern of exports to the USA are roughly a quarter of the average rates that Arce and Taylor's estimate would be applied against China in the absence of MFN (Arce and Taylor, 1997). Since Vietnam's current pattern of exports is strongly biased against the goods subject to high general tariff rates, the real rate of protection is much higher than 17 the weighted average numbers would suggest-the prohibitive tariffs on many goods are assigned a zero weight. Since Vietnam's pattern of exports is very likely to evolve towards that of China, this higher rate is likely to be more representative in the longer term. Further, the experiment consi(lered focuses only on the impacts of actions by the United States. In reality, any decision by the United States to grant MFN arise from the ongoing bargaining process in which Vietnam is likely to make "concessions" that will increase the efficiency and competitiveness of its economy. Without knowledge of the size of the reductions in Vietnam's protection, it is unclear how large the consequent economic benefits are likely to be. However, past research (see, for example, Martin and Winters 1996; Bach, Lloyd and Mzrtin 1999) suggests that the largest gains from reciprocal trade liberalization tend to accrue to the countries reducing their own barriers, rather than to those benefiting from reductions in the barriers they face in foreign markets. IV. Conclusions In this paper, the direct impacts on Vietnam's trading opportunities of the US granting MFN treatment were first estimated by building up from the resulting level of tariffs applied to individual traded goods. Then, the economic impacts on Vietnam were inferred using simulations with the Global Trade Analysis (GTAP) model. The results revealed that the increased market access to the United States brings significant welfare gains to Vietnam. The direct terms of trade improvement resulting from increased market access accounts for 60 percent of the total gain, with the remaining 40 percent derived 18 from second-best induced gains in efficiency. Exports to the United States more than double, from the 1996 baseline level of $337.5 million to $767.5 million.14 The estimated increase in exports of clothing is especially significant, with these exports increasing almost fifteen-fold while exports of agricultural commodities decrease slightly. Combined with the increased efficiency of allocation, the welfare measured by Equivalent Variation (EV) increases by $118 million or 0.9 percent increase in real expenditure per capita. By granting MFN status for Vietnam, the United States also gains from improved resource allocation alth6ugh some of the gains are offset by deterioration in its terms of trade. The gains for the United States were estimated to be around $56 million per year. The model results should be interpreted as extremely conservative, lower-bound, estimates of the benefits of MFN access to the United States. They are based on a purely static framework, on estimates of protection and trade elasticities that are very likely underestimated, and do not take into account the benefits of Vietnam's own liberalization. Even with these caveats, they point to substantial benefits to both Vietnam and the United States. 14 As Vietnam's exports to the United States have been growing rapidly since the lifting of the embargo in 1994, the magnitude of the trade-expansion resulting from MFN status may be larger by the time Vietnam obtains MFN. Based on 1998 values, the increase in exports would have been around $750 million per year. 19 References Anderson, J. M. and Martin, W. (1996), 'The welfare analysis of fiscal policy: a simple, unified account', Working Paper No 316, Department of Economics, Boston College (www.bc.edu). Anderson, J. M. and Martin, W. (1998), 'Evaluating public expenditures when governments must rely on dislortionary taxation', Policy Research Working Paper No 1981, World Bank, Washington DC (www.worldbank.org). Arce, Hugh M. and Taylor, Christopher T. (1997), 'the Effects of Changing U.S. MTN Status for China,' Weltwirtschaftliches Archiv 1997, Vol. 133 (4): 737-753. Bach, C., Lloyd, P.J. and Martin, W.(1999), 'The Uruguay Round, World Trade Organization, and Asia-Pacific Trade Liberalization', in Lloyd, P. J. ed. International Trade Opening and the Formation of the Global Economy, Edward Elgar, Cheltenharn. Centre for International Economics (1998), Vietnam 's Trade Policies 1998, Canberra & Sydney. Gehlhar, M. (1997), 'Historical Analysis of Growth and Trade Patterns in the Pacific Rim: An Evaluation of the GTAP framework,' in Hertel, T. ed. Global Trade Analysis: Modeling and Applications, Cambridge University Press. Hertel, T. (1997), Global Trade Analysis: Modeling and Applications, Cambridge University Press. Martin, W. (1997), 'Measuring welfare changes with distortions' in Francois, J. and Reinert, K. eds. Applied Methods for Trade Policy Analysis: A Handbook, Cambridge University Press, Cambridge. Martin, W. and Winters, L. A. (1996), The Uruguay Round and the Developing Countries, Cambridge University Press, Cambridge. Riedel, J. (1993), 'Vietnam: On the Trail of the Tigers,' World Economy, 16:401-22, July 1993. U.S. Department of Commerce, Office of Textiles and Apparel (OTEXA) Web Site (http://otexa.ita.doc.gov) World Bank (1998a), World Development Indicators 1998, Washington, D.C. World Bank (1998b), Vietnam: Rising to the Challenge, An Economic Report of the World Bank Consultative Grouip for Vietnam, December 7-8, 1998. 20 Annex 1. Vietnam's Exports to the United States 1994-1998 GTAP Description 1994 1995 1996 1997 1998 1 Paddy rice 0 0 0 0 0 2 Wheat 0 0 0 0 0 3 Cereal grains 0 0 51 260 159 4 Vegetables, fruits, nuts 470 1223 8276 16092 23715 5 Oil seeds 2 0 2 0 12 6 Sugar cane, sugar beet 0 0 14 0 0 7 Plant-based fibers 0 0 7 91 56 8 Crops n.e.c. 32874 156067 119436 119133 159557 9 Bovine cattle, sheep, goats, horses 0 0 0 0 0 10 Animalproductsn.e.c. 203 394 2782 3773 8231 12 Wool, silk-worm cocoons 0 0 0 0 0 13 Forestry 0 0 42 0 30 14 Fishing 30 189 213 378 3010 15 Coal 1548 0 0 2795 0 16 Oil 0 0 85834 37448 122018 17 Gas 0 0 0 0 0 18 Minerals n.e.c. 70 77 36 145 263 19 Bovinegattle, sheep, goat, horse meat 0 0 0 0 0 20 Meat products n.e.c. 0 0 0 0 0 21 Vegetable oils and fats 1554 0 0 21 0 22 Dairy products 0 0 0 0 22 23 Processed rice 5339 8 6568 21862 0 24 Sugar 0 0 0 1148 539 25 Food products n.e.c. 6351 21507 39574 65270 103487 26 Beverage and tobacco products 251 423 591 332 613 27 Textiles 20 111 182 302 365 28 Wearing apparel 2831 18317 25567 27914 30917 29 Leather products 676 4197 11746 38474 49196 30 Wood products 587 776 1081 1068 2164 31 Paper products, publishing 47 30 11 120 84 32 Petroleum, coal products 0 17 0 0 0 33 Chemical, rubber, plastic, products 262 2388 31863 65550 75030 34 Mineral products n.e.c. 316 796 1319 2072 4148 35 Ferrous metals 0 0 0 0 22 36 Metals n.e.c. 108 813 61 264 1535 37 Metal products 0 9 97 221 924 38 Motor vehicles and parts 0 0 0 0 52 39 Transport equipment n.e.c. 0 0 19 6 49 40 Electronic equipment 254 0 154 94 47 41 Machinery and equipment n.e.c. 38 94 325 622 1582 42 Manufactures n.e.c. 122 382 1602 1686 969 Total 53953 207817 337451 407139 588794 Source: UN Comtrade System 21 Annex 2. Aggregation of the GTAP sectors used for Vietnam 1. AGR(Agriculture and forestry) 27. textiles 1. paddy rice 2. wheat 7. CLO(Apparel) 3. cereal grains 28. apparel 4. vegetables, fruits, nuts 5. oil seeds 8. LMF(Light manufacturing) 6. sugar cane 29. leather products 7. plant based fibers 30. wood products 8. crops n.e.c. 42. manufactures n.e.c. 9. bovine cattle, sheep, goat, etc 10. animal products 9. BMF(Basic manufacturing) 12. wool, silk-worm, cocoons 31. paper products, publishing 13. forestry 34. mineral products 14. fishing 35. ferrous metals 36. metal n.e.c. 2. PAG(Processed agriculture) 37. metal products 19. bovine, cattle etc meat 20. meat products 10. CRP (Chemical, rubber, plastic 21. vegetable oils & fats products) 22. daily products 33. chemical, rubber, plastic products 23. processed rice 24. sugar 11. TRP (Transport Equipment) 25. food products n.e.c. 38. motor vehicles & parts 39. transport equipment n.e.c. 3. BTP (Beverage and tobacco products) 26. beverages & tobacco products 12. MCE (Electronics and Machinery) 40. electronic equipment 4. COG (Coal, oil, gas) 41. machinery & equipment 15. coal 16. oil 13. OTH (Others) 17. gas 43. electricity 44. gas manufacture, distribution 18. minerals, n.e.c. 45. water 46. construction 5. PCP (Refined Petroleum and coal 47. trade, transport products) 48. financial business, recreational services 32. petroleum & coal products 49. pubic administration and defense, education, health services 6. TEX (Textiles) 50.dwellings 22 Annex 3A. Leading Vietnam's Export Commodities to the U.S. 1994 HS Code Description Imports Share in Total Non-MFN MFN Tariff Exports Tariff Rates Rates = _____ _______________________________ (US$1,000) (%) (%) (%) 1 90111 Coffee, not roasted or decaffeinated 29017 53.8 0.0 0.0 2 30613 Frozen shrimps and prawns 5352 9.9 0.0 0.0 3 100630 Seni-milled or wholly milled rice 5339 9.9 35.0 8.8 4 90112 Decaffeinated coffee, not roasted 2145 4.0 0.0 0.0 5 620520 Men's or boys' shirts of cotton 1666 3.1 67.5 14.9 6 151311 Crude coconut (copra) oil and fractions 1554 2.9 n.a. 0.0 7 270111 Anthracite, not agglomerated 1548 2.9 0.0 0.0 8 90240 Black tea 999 1.9 0.0 0.0 9 621600 Gloves, mittens and mitts 986 1.8 37.2 11.0 10 420292 Containers with surface of plastic or textiles 651 1.2 46.4 11.9 Total 49257 91.3 Annex 3B. Leading Vietnam's Export Commodities to the U.S. 1995 HS Code Description Imports Share in Total Non-MFN MFN Tariff l______ l__________________________________ l_______ Exports Tariff Rates Rates _______X__ (US$1,000) (%) (%) (%) l l 90111 Coffee, not roasted or decaffeinated 146025 70.3 0.0 0.0 2 30613 Frozen shrimps and prawns 17067 8.2 0.0 0.0 3 621600 Gloves, mittens and mitts 8212 4.0 37.2 11.0 4 620520 Men's or boys' shirts of cotton 6899 3.3 67.5 14.9 5 90112 Decaffeinated coffee, not roasted 5642 2.7 0.0 0.0 6 640399 Footwear with rubber soles, leather uppers 3184 1 .5 22.7 8.3 7 330129 Essential oils (incl. concretes and absolutes) 1606 0.8 13.3 1.0 8 180100 Cocoa beans, whole or broken 1408 0.7 0.0 0.0 9 400122 Technically specified natural rubber 1279 0.6 0.0 0.0 10 30420 Frozen fish fillets 1257 0.6 1.7 0.3 192579 92.7 Annex 3C. Leading Vietnam's Export Commodities to the U.S. 1996 HS Code Description Imports Share in Total Non-MFN MFN Tariff Exports Tariff Rates Rates (US$1,000) (%) (%) (%) _ 90111 Coffee, not roasted or decaffeinated 115708 34.3 0.0 0.0 2 270900 Petroleum oils 85834 25.4 1.3 0.4 3 30613 Frozen shrimps and prawns 28896 8.6 0.0 0.0 4 640291 Footwear covering the ankle of rubber, plastics 12658 3.8 55.0 32.9 5 640411 Sports footwear,with rubber or plastic soles 12463 3.7 57.2 34.5 6 620520 Men's or boys' shirts of cotton 9477 2.8 67.5 14.9 7 80130 Cashew nuts, fresh or dried 8015 2.4 0.9 0.0 8 640399 Footwear with rubber soles, leather uppers 7899 2.3 22.7 8.3 9 100630 Semi-milled or wholly milled rice 6568 1.9 35.0 8.8 10 621600 Gloves, mittens and mitts 6014 1.8 37.2 11.0 293532 87.0 23 Annex 3D. Leading Vietnam's Export Commodities to the U.S. 1997 HS Code Description Imports Share in Total Non-MFN MFN Tariff Exports Tariff Rates Rates (US$1,000) (%) (%) (%) 1 90111 Coffee, not roasted or decaffeinated 112033 27.5 0.0 0.0 2 270900 Petroleum oils 37448 9.2 0.4 1.3 3 640411 Sports footwear, with rubber or plastic soles 37411 9.2 34.5 57.4 4 30613 Frozen shrinps and prawns 36109 8.9 0.0 0.0 5 640399 Footwear with rubber soles, leather uppers 23401 5.7 8.3 22.7 6 100630 Seni-milled or wholly milled rice 21588 5.3 8.8 35.0 7 640299 Footwear not covering the anlde, of rubber or plastics 16663 4.1 25.9 48.7 8 80130 Cashew nuts, fresh or dried 15984 3.9 0.0 0.9 9 640391 Footwear with rubber soles and leather uppers 14417 3.5 7.8 20.0 10 160520 Shrimps and prawns, prepared or preserved 10352 2.5 3.5 10.0 300637 73.8 Annex 3E. Leading Vietnam's Export Commodities to the U.S. 1998 HS Code Description Imports Share in Total Non-MFN MFN Tariff l____ l_ Exports Tariff Rates Rates (US$1,000) (%) (%) (%0) 1 90111 Coffee, not roasted or decaffeinated 147643 25.1 0.0 0.0 2 270900 Petroleum oils 122018 20.7 0.4 1.3 3 30613 Frozen shnimps and prawns 63296 10.8 0.0 0.0 4 640299 Footwear not covering the ankle, of rubber or plastics 60826 10.3 25.9 48.7 5 640399 Footwear with rubber soles, leather uppers 38714 6.6 8.3 22.7 6 80130 Cashew nuts, fresh or dried 23494 4.0 0.0 0.9 7 160520 Shrimps and prawns, prepared or preserved 13683 2.3 3.5 10.0 8 620520 Men's or boys' shirts of cottonI 9142 1.6 14.9 67.5 9 640391 Footwear with rubber soles and leather uppers 8974 1.5 7.8 20.0 10 30420 Frozen fish fillets 8795 1.5 0.3 1.7 496584 84.3 Source: UN Comtrade System 24 Annex 4. Textiles and AlDarel Exports to the United States 1997 The model results suggest that the clothing is the sector where Vietnam is likely to benefit the most from obtaining US MFN status. In 1997, the United States imported $54.0 billion worth of textiles and apparel from the world of which $42.8 billion were apparel imports. 5 Table 4a shows total imports of textiles and apparel and Table 4b presents apparel only. Table 4a. Major Shippers of Textiles and Apparel Table 4b. Major Shippers of Apparel 1997 1997 Country Imports($ nil.) Share (%) Country Imports($ mnil.) Share (%) I Mexico 5928 11.0 1 Mexico 5050 11.8 2 China 6024 11.2 2 China 4488 10.5 3 HongKong 4100 7.6 3 HongKong 3935 9.2 4 Taiwan 2812 5.2 4 Dominican Rep. 2216 5.2 5 Canada 2401 4.4 5 China 2071 4.8 6 Korea 2288 4.2 6 Honduras 1659 3.9 7 Dominican Rep. 2273 4.2 7 Indonesia 1596 3.7 8 India 2010 3.7 8 Philippines 1597 3.7 9 Indonesia 1872 3.5 9 Korea 1518 3.5 10 Philippines 1846 3.4 10 Bangladesh 1448 3.4 11 Italy 1846 3.4 11 India 1347 3.1 12 Honduras 1663 3.1 12 Thailand 1257 2.9 13 Thailand 1661 3.1 13 Canada 1204 2.8 14 Bangladesh 1499 2.8 14 Sri Lanka 1204 2.8 15 Sri Lanka 1362 2.5 15 Italy 1226 2.9 16 Pakistan 1197 2.2 16 El Salvador 1052 2.5 17 Salvador 1079 2.0 17 Guatemala 962 2.2 18 Guatemala 971 1.8 18 Macau 930 2.2 19 Vietnm 26 0.05 19 Vietnam 26 0.06 20 Others 11145 20.6 20 Others 672 1.6 World 54002 100.0 World 42827 100.0 Source: the U.S. Department of Cornmerce The U.S. primarily sourced textiles and apparel from NAFTA, Asian and Latin American countries in 1997. Mexico, China, and Hong-Kong were the leading suppliers both for total textiles and for apparel exports. Some countries' exports, including Canada, consist of non-apparel such as fabrics whereas some developing countries, including Vietnam, export almost exclusively apparel. This is at least partially due to the fact that textiles are more capital intensive than apparel, giving the low income countries a comparative advantage in the latter. The U.S. imported $26.4 million worth of textiles and apparel from Vietnam in 1997 of which 98 percent belonged to apparel. Vietnam represented 0.05 percent of the market share in the United States. Table 3c. (see 'table3c.xls') shows U.S. imports of apparel by 3-digit US MFA category. The statistics for China and Cambodia are also shown for the purpose of comparison. China exports a wide range of apparels to the U.S. registering 947 million metric equivalents ($4.5 billion in value). The United States granted MFN status to Cambodia on September 25, 1996. Cambodia's exports of textiles and apparel increased from 2.4 million M2 ($2.3 million) in 1996 to 30.2 million M2 ($98.7 million) in 1997. January-May figures in 1998 alone registered 32.0 million M2 ($94.7 mnillion). 5 http://otexa.ita.doc.gov 25 Table 30 ble 3c. The U.S.'a Imoorts of AD rats from China. Vietnam an Cambo Tariff Rates China Vietnam Cambodia M~~~~~A ~~~Deacription MFN Non-MFN 1998 1997 May-98 1996 1997 May-98 1996 1997 M 9 M% M~ (mil. M21 (mit. M2) mul. M21 (ml. M2) Cmli. M21 fmit. 2 ml. M2) (mil. M21 _JnL(Y21 27 PIaysuits, sunsuits. etc dn19.2 19.5 80.7 39.21 44.08 20.77 0.00 O.01 0.16 239 Baisgronaan ilrn c esnro kg. 0.3 17.3 86.2 18.34 188 .9 0.07 0.66 01 1 330 1-Iandlkerchiefs doz 1.4 10.6 88.8 3.17 3.2 1.4 331 Giovea and mmtens dpr 2.9 19.2 672 16.01 187 8.79 4.76 5.25 2.40 2.18 3.45 1.71 32 Hosier dp r3.8 1 5.6 70.5 0.47 1.1 I0.55 333 M&B nult-tp ecots doz 30.3 10.6 71.5 0.31 0.4 0.15 34 Other M&B mats doz 34.5 10.5 71.3 9.08 13.01 1.19 335 W&G roasa doz 34.5 110.1 72.6 12.12 14.41 1.01 336 Dresses don37.9 10.3 77.9 5.57 4.87 2.52 0.00 0.37 0.71 338 M&B knit shirts doz 6 16.1 67.1 9.04 9.45 3.01 10.40 0. 39 .3 0.02 0.09 1.32 339 W&G knit shrrts &biouises doz s 14.7 67.2 -3.45 5.77 F .97 0.00 2.13 3.87 340 M&B shirs ntkidz20116.9 51.7 --13.36 17.81 3.36 5.72 4.95 2.0`1 0.13 0.87 0.39 341 W&G shirts&blouses, not knit doz 12.1 11.4 87.7 8.17 8.34 [1.55 342 !Skirts doz 14.9 9.4 81.7 -3.66 2.50 [1.18 345 Sweaters doz 30.8 12.3 55.8 4.53 4.01 I .90.00 0.02 0.75 347 M&B trousers, breeches & shorts doz 14.9 14.4 87.6 --18.59 122.59 7.99 0.00 6.63 7.10 348 W&G trousers,breeches &shorts doz 14.9 13.8 78.6 17.91 18.91 4.98 0.00 2.58 5.18 39 Brassieres & other body asuppring garmnents doz 4 20.9 86.3 5.41 8.72 3.44 350 Robes. dresina cowns, etc. doz 42.6 8.8 90.0 5.57 7.5 261 351 Nightwear and arsado 4.59.0 88.0 2.2 23.59 3.22 0.00 1.00 0.88 352 Underwear doz g.2 11.2 82.1 2034 18.01 5.55 0.09 2.07 1.47 353 M&5 down-filled ~coats doz 34.~5 4,2 60.0 1.73 1.92 0.30 359 Other cottons aprei .8. 10.3 73.4 77.58 73.01 30.71 0.00 1.47 1.12 431 Gloves and mittens d )r 1.~8 8.2 32.5 0.32 0.47 0.03 433 M&B suat-tye coats doz 30.1 18.8 55.5 0.48 0.68 0.27 434 Other M&B costs doz 45.1 -18.7 53.7 0.75 0.82 0.04 ________ 45 W&G coats doz 45.1 -16.7 61.0 1.19 1.02 0.05 0.09 0.18 0.00 ___ 436 rssso41.1 140 59.9 0.4 048 0.02 ___ ______ 438 Knit shirts & blouses doz 12.5 -14.4 82.0 0.34 0.34 0.03 0.00 0.06 0.00 40 Shirts & blouses, not knit doz 20.1 '15.1 .74.7 0.27 0.13 0.00 ___ ___ ___ 442 Skirts doz IS 14.9 .75.5 0.86 0.28 0.01 ___________ 443 M&B suits no. 3.76 17.2 54.7 0.48 0.50 0.31 ___________ 4" W&G suits no. 3.7613.1 .58.0 0.79 0.75 0.03 0.07 0.04 0.00 __ ___ 45 M&8 sweatems doz 12.4 -13.8 54.2 0.86 0.98 0.03 ___ ______ 4.46 W&G sweaters doz 12.4 12.8 .58.7 2.27 2.94 0.19 0.00 0.07 10.01 447 M&B trousers, breeches &short doz 15 19.5 63.4 1.~07 1.08 0.46 _ ____ 448 W&G trousers, breeches & shorts doz 15 15.1 62.0 0.633- 0.T21 0.02 459 Othler wool awarml kg. 3.7 13.7 469.3 2.26 2.84 0.37 ___ 630 Handkerchiefs don 1.4 11.3 68.5 1.35 0.98 0.58 _______ 631 Gloves and mittens dpr2.9 16.3 64.7 3.37 3.83 0.33 ___ ______ 633 Nt&B si costs doz 303 23.8 58.6 1.54 1.78 0.93 _ _______ 634 Other M&B coats doz 34.5 20.3 70.6 22.55 22.10 3.153 0.0 I .-71 1.19 835 1W&G coast doz 34.5 19.0 71.0 23.22 23.00 3.10 0.00 40.98 0.40 638 Dresses doz 37.9 14.0 78.0 20.79 20.43 6.07 0.00 1.01 0.90 638 IM&B knit shirts don 15 26.7_ 78.3 18.05 16.17 2.24 0.00 0.22 0.38 639 W&G knitsahirti ;lossdoz 12.5 23.3 77.1 14.94 '19.30 3.25 0.00 1. 1 0.48 540 M&B shiets, non knit don 20.1 21.9 83.0 25.42 29.20 15.58 ___ ___ ___ 64-1 W&G shlrts&b-louses. nothn-Mdozl12.1 18.3 86.1 15.10 118.09 4.10 642 Skiets -don 14.9 15.2 75.8 4.43 4.64 1.2___ __ ___ 643 M&B suits no. 3.76 20.8 65.2 1.70 2.8 10 644 W&G suits no. 3.76 20.5 67.3 9.67 10.46 5.46 0.38 0.33 0.00 I____ 645 M&B sweaters don 30.8 19.5 73.0 1i.79 2.43 0.09 648 W&G sweaters don 30.8 17.4 75.8 24.72 23.97 1.31 0.00 0.78 0.52 648 W&G trousers. breeches & shorts don 14.9 22.4 78.1 14.97 17.75 4.76 0.00 0.66 0.58 649 Brassiere & other Sods r-'n a- ents do 4~ 20.9 86.3 3.21 3.98 1.71. 650 Robes, dressting gowna, etc. don 42.8 16.6 79.7 4.55 4.76 0.98 61 N ghtwear and pjmas doz 43.5 16.1 76.0 35.85- 36.64 10.18I 652 Underwear don 13.4 17.8 86.6 3 2.28 40.49 12.63 63 M&B down-filled costs don 34.5 4.2 600 9.38 11.77 0.60 654 W&G down-filled coats don 34.5 4.2 50.0 3.52 4.15 0.36 ___ 659 Other man-made fibers apprlkg .14.4 15.8 77.9 62.82 78.36 31.08 ___ 0.0 0.17 0.72 831 Glovesandmittenscdpr2.9 14.7 50.7 1.39 1.48 0.98 833 M&B suit-tye coats don 30.3 5.2 47.5 0.31 0.19 0.9 834 Other M&B coats don 34.5 8.5 50.3 2.35 2.30 0.13 835 W&G cests don 34.5 9.0 55.9 3.48 4.13 3.58 836 Dresses doz 37.9 88 63.3 63 8.8 1360.00 0.00 -0.08 638 Knit shirts & blouses don 11.7 10.2 72.3 2.49 5.58 2.60 839 Babies' assfents and clothing accessories kg. 6.3 4.4 47.5 0.15 0.15 0.08 640 iShiets & blouses, not knit don 16.7 6.8 59.3 5.89 9.82 6.25 0.00 0.2 .6 642 ISkiers don 14.9 6.3 58.3 1.97 2.22 2.49 844 ~W&G suits no. 3.76 6.4 82.5 - 3.10 -2.93 2.64 84 Seaters ofnncto tbt iesdn3. 6.5 86.0 112.75 111.08 25.69 56 Sweaters, of slk bendsdon 0.85.4 60.0 3.20 7.63 2.94 _______ 87 Tosr., brec &he o 498.7 59.4 8.60 12.50 13.89 __ ___ 859 O0thers prel 9.5 63.2 4.15 5.48 2.30 1.58 2.80 1.09 0.01 1.406 1.35 lTotal 881.56 946.52 307.76 13.05 1455 5.95 2.40 36.1 319 Notes: S to Mtric Eulvala Convrsion actrsea used to convert unfts of san titlnto M2. 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