Abstract
This study aims to assess the protection for Vietnamese agriculture under trade liberalization based on the input–output approach. From a theoretical perspective, the authors develop a general framework to estimate the effective rate of protection using an input–output table, taking into account tariffs, subsidies and value-added tax. Based on the data of 2012 and 2016, with a projection to 2020, the empirical results reveal that agricultural production, which is considered as Vietnam’s comparative advantage, is insignificantly protected. From the year 2012 to 2016, the effective rate of protection declined for primary agriculture and its supporting sectors, and would become negative by 2020. This implies that Vietnamese farmers are at a disadvantage due to the effect of trade liberalization. Furthermore, it is empirically revealed that the primary agricultural sector has a high value-added multiplier, which means a significant contribution to the domestic economy, is not protected by the government’s tax and tariff policies. Based on the study results, the authors suggest some policy recommendations to improve the situation, which are focused on the reduction of the value-added tax rate on inputs, while making industries with a high spillover effect to the domestic economy a key priority.
Highlights
Vietnam has accelerated the process of economic integration and trade liberalization since 2007, when it became an official member of the World Trade Organization (WTO)
This provides great export opportunities for Vietnamese goods, but at the same time, domestic production faces increasing competition pressure, and agriculture is a sector of high vulnerability because of trade liberalization
Nearly 40 percent of the labor force of Vietnam is engaged in agricultural activities; agriculture requires special attention and protection from the government
Summary
Vietnam has accelerated the process of economic integration and trade liberalization since 2007, when it became an official member of the World Trade Organization (WTO). Vietnam has continuously joined numerous bilateral and multilateral free trade agreements (FTAs) with other countries and regions, such as Vietnam–ASEAN–China, Vietnam–ASEAN–Japan, Vietnam–EU, Vietnam–Korea, Vietnam–EAEU, and the Comprehensive and Progressive Agreement for Trans-Pacific. This provides great export opportunities for Vietnamese goods, but at the same time, domestic production faces increasing competition pressure, and agriculture is a sector of high vulnerability because of trade liberalization. Bureau et al (2005) have highlighted the contrasting interests of various types of developing countries faced with the perspective of trade liberalization in the agricultural sector. For most middle-income developing countries, liberalization can be a source of substantial growth in prospects
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