Trade creation and trade diversion effects of ACFTA on seafood exports

Abstract

The gravity model is an econometric model used an as effective tool to explain the volume and direction of bilateral trade between countries. It is widely used in international trade and thus, in this article, we use the gravity model to examine the trade creation and diversion effects of ASEAN-China Free Trade Agreement (ACFTA) for the seafood industry by estimating the gravity trade model for the time period between 2003 and 2020 and between 10 countries. Initially, the estimation applied panel data with ordinary least squares (OLS) estimation, but there was a problem with heteroscedasticity and autocorrelation using the OLS estimator. Therefore, we will re-estimate the model by using the fixed effects model (FEM) and random effects model (REM). We estimate twice, once with data including 2020 and once excluding 2020 to understand the impact of the COVID-19 pandemic on commercial trends. The estimated results show that trade creation influences seafood. It is possible that the COVID-19 pandemic has no impact on trade diversion and creation, or that the 2020 data is too short for us to assess this impact. In conclusion, this article has achieved certain success in explaining the causes affecting trade flow in processed goods due to differences between the general tariff rate and the preferential tariff rate for ASEAN - Chinese seafood, and the close distance between commercial partners and converting certificate of origin (C/O) of goods to export. Analysis using the gravity model shows a positive impact on Vietnam's seafood trade flow when joining ACFTA.