Studying the impact of Vietnamese non - Tariff measures on imported agricultural products

ost studies on imported agricultural products focus on assessing the impact of two typical non-tariff measures, SPS and TBT, as these are the two measures that have the largest impact on the agriculture. Moenius (2004) used a gravity model to assess the impact of technical standards on trade with a data set covering 471 sectors according to the SITC classification at 4-digit level in bilateral trade of 12 developed countries. The results show that the standards applied only to imported goods have a negative effect on the import of food and beverages, whereas, there is a positive effect on imports of manufactured goods such as oil, chemicals, machinery. A study by Melo et al. (2014) analysing the impact of SPS and TBT measures on fruits imported from Chile indicates that increasing the strictness in the application of SPS and TBT standard regulations will be effective and inversely affecting the value of fruit exports of Chile. Research by Otsuki et al. (2001) points out the negative impact of European Union's Aflatoxin residue standards on agricultural products imported from Africa. In particular, the more EU standards are (or less compatible with) the CODEX of FAO, the import value of cereal, grain and fruit products (according to the author's calculation is approximately 670 million USD). This level of impact is quite similar to the impact of the Chlopyrifos standard imposed on bananas imported from Latin America, Asia, and Africa to developed countries of the OECD group. Disdier and Marette (2010) 's research focused on the regulation of antibiotic residues in agricultural products applied in some major importing countries. 7 1.4. Vietnamese studies on Non-Tariff Measures The earliest study of Vietnam that brought the issue of non-tariff measures into trade policy is Mai Xuan Hung (1996)'s titled “study of the basic tools of Vietnam's foreign trade policy”. However, the study only lists theoretical non-tariff measures and the basic measures applied in Vietnam such as quotas. A prominent research by Dinh Van Thanh (2006) on "Non-tariff measures on agricultural products in international trade" examines the application of non-tariff measures to protect Vietnamese agricultural products. In accordance with international practices, this is an elaborate study of achievements in reviewing Vietnamese non-tariff measures on agricultural products and assessing compatibility with commitments in the WTO Agreement on Agriculture. Research by Dinh Cong Hoang (2015) has formulated a theoretical framework for trade barriers including tariffs and non-tariffs in the footwear industry. From the perspective of studying the impact of non-tariff measures, Dao Thi Thu Giang (2008) has made the assessment of current non-tariff measures in the main export markets of Vietnam. Since then, it has proposed a solution to overcome non-tariff barriers in international trade in order to boost the export of Vietnamese goods. Also, in the direction of research for export activities, the research of the authors Do Duc Binh and Bui Huy Nhuong (2009) on "Meeting the non-tariff barriers to promote sustainable export of Vietnamese seafood" gave a view on "non- tariff barriers" and from the perspective of market access of Vietnamese exports, the ability to overcome non-tariff barriers in import markets. In summary, a review of Vietnamese studies on non-tariff measures found that the main issues include: - Regarding terminology: Most researches use the terms "Non-tariff barriers" or "Trade barriers", "Non-tariff policies". Using the above terminology, the studies selected the theoretical framework and approach as a measure to hinder trade, in which Vietnam is the subject of damage and negative effects. - Regarding the method of determining non-tariff measures: Up to now, very few Vietnamese studies have had a comprehensive system of theoretical frameworks in quantifying non-tariff measures because the non-tariff measure is a difficult variable to quantify, compared to the tariff that has been clearly determined by the ratio calculated by value and published in each period of countries. Regarding the assessment of non-tariff measures, this is the concern when referring to non- tariff measures in domestic studies. However, Vietnam's studies on the issue are limited in quantifying the effects of non-tariff measures. At the same time, the previous studies' perspective on the impact of research focuses on the impact of measures imposed by other countries (importing countries) on Vietnam's exports. However, the process of international economic integration shows that trade liberalization will affect the two dimensions of trade (import and export flows). 8 Therefore, Vietnam needs to identify both issues that meet the non-tariff measures of other countries, and proactively develop non-tariff measures that are certain to manage imported goods efficiently. CHAPTER 2: THEORETICAL BASIS OF THE IMPACT OF NON-TARIFF MEASURES ON IMPORTED AGRICULTURAL PRODUCTS 2.1. Summary of non-tariff measures With the definition of non-tariff measures in international trade, Baldwin (1970) soon introduced the concept of non-tariff measures as a measure to create the trade distribution process in international goods and services in the direction of reducing the potential real income of the world. Meanwhile, some economists approaching non-tariff measures from a cost perspective such as Gourdon and Nicita (2012) argue that non-tariff measures are measures to generate costs arising from production activities to final consumption, excluding tariffs. Research by Beghin et al. (2012) emphasized that non-tariff measures are measures that have direct and indirect effects on the volume and price of goods through changing customer preferences and perception for that product. Based on practice, UNCTAD (2009) agreed on the concept of non-tariff measures which emphasizes “non-tariff measures are non-tariff policy measures that can have economic impacts on international trade by changing volume, or price, or both”. Therefore, based on the applied practice and research overview, in this study, the measures are interpreted as a non-tariff measure when ensuring the following basic points: - Non-tariff measures are all types of measures of trade policy excluding tariff, applied to imported goods (some applied to exported goods). - Non-tariff measures may or may not affect trade flows - Not all measures affecting trade flows are taken for the purposes of discrimination or protectionism as barriers to trade. - Non-tariff measures may affect trade flows in terms of trade volume and impact on benefits and costs from production to final consumption. - Non-tariff measures are built on the basis of facilitating the process of market access and the regulation of import or protection in an appropriate manner with sensitive areas within the framework of the World Trade Organization (WTO) and regional commitments. 2.2 Some basic issues of the impact of non-tariff measures on imported agricultural products a. Factors affecting imports of agricultural products The response of imports to the effects of non-tariff measures varies across different product groups, as well as across the trade partners. However, it is still largely dependent on the level of 9 supply-demand elasticity of the commodity market (Leamer, 1988) and factors affecting trade relations among countries, namely:
Factors affecting supply and demand of the exporting or importing country - Per capita income - The labor force in agriculture - The degree of population concentration on agricultural land - Output or value of agricultural products - Relative price of the product
Factors affecting trade relations between the two countries - Geographical, economic, historical and cultural differences: - International trade policy (tariffs, non-tariff measures, degree of international economic integration) b. Impact of non-tariff measures on imported agricultural products
The positive effect - Non-tariff measures have the effect of promoting demand due to the shift of demand curve - Non-tariff measures positively affecting social welfare - Non-tariff measures on imported agricultural products increase consumer awareness and change consumer behaviour related to increased food safety and quality attributes. - Non-tariff measures on imported agricultural products increase the linkage in the agricultural food supply chain to ensure food quality and safety. - Non-tariff measures on imported agricultural products to help solve global issues related to human health, animals and plants
The negative effect - Non-tariff measures have an effect of hindering trade to the market entry of exporting enterprises - Non-tariff measures have the effect of hindering trade through reducing the supply of imported goods - Government intervention by non-tariff measures on agricultural products is often of a trade protective nature 10 CHAPTER 3: RESEARCH FRAMEWORK AND RESEARCH METHODOLOGY 3.1. Framework for studying the impact of non-tariff measures on imported agricultural products In this study, the theoretical basis for building a research framework based on the theory of Melitz's new international trade (2003). In addition, the study is based on the theory of Disdier and Marette (2010) on the impact of non-tariff measures belonging to technical measures such as sanitary and phytosanitary measures (SPS) and technical standards to trade (TBT). On that basis, the framework below, analyses the impact of SPS and TBT measures from the supply side through the production cost. In particular, these costs can create an impact on the probability of market access and the supply of goods or trade flow. The framework includes important factors to assess the overall impact of non-tariff measures on the flow of agricultural imports such as: i) The first group is a representative of trade policies such as tariff and level of international economic integration; ii) The second group is the factors that belong to the difference between the two pairs of countries such as geographical distance, economic scale, historical culture; iii) The third group of factors influences supply and demand elasticity in the market for agricultural products 11 3.2 Empirical equation for estimating the impact of non-tariff measures on imported agricultural products a. Estimating the overall impact of Vietnam's non-tariff measures on imported agricultural products
Outcome equation (written as empirical equation) Ln (Hi | Zi = 1) = β0 + β1 lnYijt + β2 lnTariffkit + β3SPSik + β4TBTik +β5lnDistij + β6Rij + β7RTA + uijk
Selection equation Zi = β0 + β1lnTariffkit + β3SPSik + β4TBTik +β5lnDistij + β6 Rij + β7RTA Collection of variables in the empirical equation assessing the impact of two typical Vietnamese technical measures (TBT and SPS) on imported agricultural products is as follows: Yit, Yjt: GDP per capita of Vietnam (i), of exporting country (j) SPSik: Number of SPS measures applied to the product k TBTik: Number of TBT measures applied to product k Rij: Differences in other factors (geographic, cultural, historical) including a set of variables (contig - sharing borders, colony - colonial relations, comcol - both countries Tariffkit: Import tariffs are imposed on goods k in year t Dist: The geographical distance between import partners and Vietnam RTA: Dummy variable representing to bilateral or regional trade between the two countries b. Estimating the impact of non-tariff measures on groups of imported agricultural products Based on the assumption of differences between commodity groups, there will be different effects of non-tariff measures in Vietnam. The author conducted estimations on 3 typical agricultural product groups including: - Group 1: Group of animal products and products of animal origin (corresponding to HS codes from 01 to 05) - Group 2: Group of plant products and products of plant origin (corresponding to HS codes from 06 to 14) - Group 3: Group of agricultural processed products (corresponding to HS codes 15 to 24) 12 The above empirical equation is to test the correlation of two main variables representing the non- tariff measure (SPS and TBT) with the underlying assumptions: - Hypothesis 1: SPS and TBT measures are correlated with the probability of market access to Vietnamese agricultural markets - Hypothesis 2: SPS and TBT measures are correlated with Vietnam's agricultural product import value - Hypothesis 3: The impact of SPS and TBT on the import value of agricultural products is less than the impact of tariffs - Hypothesis 4: The impact of SPS measures on the import value of agricultural products is stronger than the impact of TBT - Hypothesis 5: The impact of SPS and TBT measures is different for different groups of agricultural products 3.3. Methods of data collection The research data is designed the panel data on the bilateral import flow between Vietnam and 34 trading partners for goods classified under the Harmonized System that describes goods with 4 digits (including 182 codes). Data were collected for 11 years from 2007 to 2017. Total observations were 68068 observations (182 commodity codes x 34 trading partners x 11 years). Secondary data sources are collected from international databases. Specifically, for the dependent variable, the updated value from the database of the International Trade Center (ITC - International Trade Center) of UNCTAD- WTO is specific for each pair of countries and each 4 digits products. For the two main explanatory variables, SPS and TBT, the non-tariff measure data were collected from statistical database of the ASEAN and East Asia Economic Research Institute (ERIA) and UNCTAD for 10 ASEAN countries. CHAPTER 4: CURRENT SITUATION OF THE IMPACT OF VIETNAMESE NON- TARIFF MEASURES ON IMPORTED AGRICULTURAL PRODUCTS 4.1 Analysis of the current situation of Vietnam's imports of agricultural products Although Vietnam's import value of agricultural products is lower than export value to ensure a surplus in agricultural trade balance and maintain Vietnam's comparative advantage in exporting agricultural products. However, the average growth rate of imported agricultural products in the two periods of 5 years (2008-2012) and (2012-2017) were more than double that of exported agricultural products. This shows the government's control over the flow of imports very clearly, however, the trend of growth in imports of agricultural products is still superior to exports. 13 In terms of imported agricultural products, agricultural processed products (HS15 and above), and vegetable and plant derived products (HS05-14), it accounts for over 80% of the total agricultural export. While the group of plants and products of plant origin tends to nearly double (from 24.7% in 2001 to 43.04% in 2017), the group of agricultural processed products tends to decrease to less than 50% of total import value. In addition, the import growth rate of agricultural processed products is still much larger than the export growth rate, so this product group still maintains a high trade deficit of - 4.29 billion USD. However, when considering the trade balance of the above agricultural groups, even though the group of animals and products of animal origin account for a very small proportion, it has the largest trade deficit (- 4.5 billion USD) or in other words almost absolute imports of this product group. 4.2 Analyze the situation of applying Vietnam's non-tariff measures on imported agricultural products 4.2.1. Actual situation of non-tariff measures applied to imported agricultural products by type 4.2.1.1 Sanitary and Phytosanitary measures (SPS) - The improvement of the law has not yet kept up with the growth of all sectors, especially the agriculture and food industry. Regulations related to SPS in the country have not complied with international regulations or compared to other countries. - Although there are many documents in the field of food safety, the scope and extent of adjustment are still overlapping and do not meet the requirements of actual production and circulation. - Regarding the management of importing enterprises, the capacity of inspection agencies is still limited, leading to inconsistent enforcement, increasing the uncertainty for manufacturers. Large number of legal documents related to food safety (about 400 documents issued by central government and ministries and about 1,000 documents issued by local authorities), leading to overlap and lack of focus clearly. - Coordination between agencies, risk analysis and identification system needs to be improved, both at central and local government levels. The lack of transparency in information and the harmonization of Vietnam's regulations compared with international regulations are also raised by exporting countries as issues of concern in the implementation of SPS measures for imported agricultural products. 4.2.1.2. Technical barriers to trade (TBT) When Vietnam became an official member of the WTO, the system of standards and technical regulations was established according to the International Standardization Classification (ISC) and referenced and cited international standards in accordance with WTO TBT Agreement. 14 Secondly, Vietnam's technical standards and standards have clearly demonstrated the role of overcoming market restrictions in transparency of information flows between suppliers and consumers regarding the characteristics and quality of products, creating more favorable conditions for domestic and international trade. However, some standards and technical regulations of Vietnam show protection for some commodities (specifically maize, soybean), issues related to genetic modification, although they are redundant. However, the lack of information on product labels and warnings about their use have not been widely disseminated to producers, especially farmers. The level of application of measures that belong to Vietnam's technical standards is at an average level, in particular, the quantity and value of imports affected by these measures only account for less than 50% of the total traded volume of goods. The level of concentration that imposes TBT on one product is low. In agriculture, the number and concentration of standards and technical regulations imposed are low compared to other sectors. In addition, standards and technical regulations in agriculture only focus largely on products, while the production process has not been focused, especially not clearly showing the orientation of developing organic agriculture. Organic agriculture in standards and technical regulations. Vietnamese standards and technical regulations imposed on imported agricultural products have not been effective in enforcing the control due to Vietnam's weak inspection and enforcement process. Technology and processes are still lacking in tightness and loopholes. The second reason is that Vietnam's technical standards are still at a lower level than international standards. Moreover, some of Vietnam's imported agricultural products depend on one or two major markets, along with import pressure to ensure production purposes leading to loosen the implementation of technical regulations and standards. 4.2.2 Actual situation of applying non-tariff measures of Vietnam to imported agricultural products compared to other countries Up to 2018, Vietnam introduced 330 non-tariff measures, lower than Thailand (1566 measures) and Malaysia (689 measures). However, the number of non-tariff measures of Vietnam equivalent to China is 377 measures. For Vietnam, the number of SPS and TBT measures is similar. However, compared to other countries, the number of SPS measures applied is quite high, even higher than some strict markets such as the European Union (EU) with 101 measures, Australia with 64 measures. 4.2.3 Current situation of applying non-tariff measures of Vietnam to imported agricultural products compared with other industries 15 Regarding the frequency of occurrence indexes for each group of industries, agriculture is still the industry that is subject to the most non-tariff measures imposed on almost all agricultural products. The average number of non-tariff measures applied to the above non-agricultural products is more than 1, while for agricultural products, there are more than 22. In addition, 90- 100% of all agricultural products are subject to at least one measure of the non-tariff measure group represented by the Frequency Index (FR). Vietnam applies a non-tariff measure of up to 98%. In terms of prevalence index, Vietnam belongs to the group of countries with the highest number of non-tariff measures applied to the group of agricultural products (more than 22 non- tariff measures, on average, applied to a certain product). agricultural products) Through statistics on Vietnam's current level of non-tariff application to agricultural products, it can be seen that Vietnam's imported agricultural products are subject to a fairly high degree of non-tariff measures, and strict protection equivalent to developed countries like the United States, or some regional countries such as Indonesia and the Philippines. For the non-tariff measures applied to agricultural products, it can be seen that SPS measures are the most applicable to all agricultural products, notably food products. with SPS Measures and a half as much as the other two groups (75 notifications apply). Similarly, the number of TBT measures applied to groups of food products or preparations from agricultural products is double that of the two groups of raw agricultural products from animals or plants. 4.3 Results of quantitative analysis of the impact of Vietnam's non-tariff measures on imported agricultural products Some of the overall impacts were estimated as follows: - The non-tariff measure of Vietnam has a clear impact on the possibility of importing agricultural products into the domestic market, but the direction of impact differs according to each type of measures. - The non-tariff measure of Vietnam has an impact on the import volume but the direction of impact differs by type of measure and by group of agricultural products. - In particular, SPS measures create two different impacts: the trade-promoting effect with the ability to import agricultural products and the trade-restricting effect that prevents the import of agricultural products. In contrast, technical barriers to trade (TBTs) only have a spurring effect on agricultural imports. - However, the impact of non-tariff measures is quite small compared to other independent variables. This again shows the key role of traditional measures such as tariffs and strengthening integration commitments in the management of Vietnam's imports of agricultural products. 16 4.4 General assessment of the impact of Vietnam's non-tariff measures on imported agricultural products 4.4.1 The positive effects The SPS measure has a positive effect on increasing the foreign market's access to Vietnam market. The reasons are: i) market orientation and commodity orientation in Vietnamese policies; ii) the system of non-tariff measures is gradually approaching the regional and world systems; iii) infrastructure system, equipment and facilities for checking, sampling and measuring the residues of substances in the product are not modern, so it is difficult to detect violations at the border gate. The SPS measure has a positive effect on the import demand for agricultural products (group 1, group 2, group 3). The reasons are: i) consumers tend to have increased concerns about hygiene and food safety issues for goods sold in the market; ii) trends in population structure and social structure, as well as the growth of per capita income that influences import demand through behavioral and dietary changes; iii) some food processing and agricultural products industry of Vietnam still heavily relies on imported raw materials due to insufficient domestic supply and uneven quality. Non-tariff measures impact the shift of import markets in the direction of promoting import demand from countries with FTAs. The reasons are: i) the market share of import partners of Vietnam has changed significantly. The shift is clear from import markets of Asian countries such as India, China, Thailand, Malays