ECON1269 international trade asm 3

RMIT International University Vietnam

Subject Code: ECON1269
Subject Name: International Trade
Title of Assignment: ASM 3

1. According to Vietnamplus ( 2018), through exporting vegetable and fruit, Vietnam received 3.3 billion USD from January to October 2018 ( increased by 15.5% compared to the same period last year). Inside, China was still the leading partner of Vietnam when the export value is approximately 2.2 billion USD. In addition, there are significant increases in export value to other countries such as Thailand (35%), Australia (31.6%), the US (30%), and the Republic of Korea (24.4%). While, based on the article of Vietnamnews ( 2018), Vietnam also spent 1.43 billion USD on importing vegetable and fruit in the first ten months of the year ( increased by 13.1% compared to the same period last year). These positive positive growths are the result of the Vietnamese government signing three strategic international trade policies: RCEP- signed in 2018 ( Regional Comprehensive Economic Partnership), TPP- signed in 2016 ( Trans- Pacific Partnership) and EVFTA- accepted by European Commission in 2018( EU- Vietnam Free Trade Agreement). That is an important step for Vietnam's economy to develop strongly in the following years. When agriculture has always been the strength and tradition of the Vietnamese people and export barriers (especially taxes) are no longer available, Nieuwsbericht (2018) predicts that Vietnam will become one of the largest agricultural exporters for the world market.

After the TPP agreement comes into effect, there is a significant increase in the volume of imported fruits of Vietnam in 2017; inside, Thailand with US$857.1 million (up 109% over 2016) and China with US$294.6 million ( up 34.3% over 2016) are the top exporter ( Hanoitimes, 2018). With no need to pay taxes on imports, local producers are inclined to import a wide range of Thai products and re-export them to the Chinese market to make a profit. In addition, with a relationship as a trading partner, domestic producers can avoid direct competition with Thai and regional countries. Especially when our region is one of the largest supplies to the world market. It benefits commercial countries through a competitive advantage. Baker and McKenzie (2015) claimed that manufacturers of a country with sufficient resources to produce certain products will enjoy a competitive advantage to specialize in such goods. In return, buying countries can also benefit from the low prices of these imported products instead of paying larger amounts to produce it on their own. Evidence of this is the agreement between Australia and Vietnam on export of Thang Long. At the end of 2017, the Australian government accepted the agreement and made Vietnam the first and only country entitled to export dragon fruit to Australia's market. In the first batch of exports to the market, three tons of dragon fruits were sold in "Vietnam dragon fruit day" at a price 12 AUD/ kg ( Vietnamews, 2018).

For two agreements TPP and RCEP, manufacturers can confidently export fruits in large quantities; that results from that they do not have to pay taxes and the logistical risks are also limited. For example, transporting goods to regional countries is faster and shorter than other countries in the world, which reduces the quality risk of goods and is less valuable because of damage during transportation. Moreover, it offers a range of advantages for producers such as foreign direct investment (FDI), professional knowledge and technology transfer.

Foreign investment will flow into the locality. This helps local industries add capital to expand and promote domestic businesses to expand production and business. It also provides an international source of money to make exchanges quicker and easier. In addition, global companies have more expertise, experience and technology than local companies to develop local resources. For example, international companies will help local producers find out what is the best place to grow selected fruits, planting methods for high efficiency. Access to modern agricultural farming equipment has also become easier.

However, free trade also gives producers a few risks, which need to be taken seriously and carefully to avoid business failure. Firstly, Vietnam encounters many barriers to food hygiene and safety, because EU countries have strict regulations on the acceptable level of antibiotics and pesticides for imported agricultural products. It can be said that this is one of the difficult challenges for Vietnamese agricultural exporters. To deal with this, Vietnamese enterprises should first focus on the quality of the entire supply chain including farming methods and agricultural production processes. In addition, businesses need to ensure a clear source of origin for all products exported to the EU market. The second difficulty is that products from domestic suppliers will have to compete fiercely with imported goods from abroad. Professor Sinclair ( 2018) mentioned that we are too optimistic about what free trade brings and forget the deaths of domestic businesses. Manufacturers that do not quickly change their production plans are likely to be left behind by high-end imports. According to Vietnamnet ( 2017), many strawberry producers in Da Lat had to import and plant strawberries of New zealand and Korea to serve the needs of customers instead of the specialty types of da Lat. In addition, family farms and small to medium-sized companies cannot compete with businesses subsidized by the government and foreign capital. As a result, they must sell or lease assets such as land, machinery or dumping to recover capital to start other jobs.

Not only manufacturers, free trade also directly affects consumers through the diversification of numbers and different types of fruits. Today, when shopping at supermarkets in Vietnam, customers easily find foreign materials such as Thai rice, Australian apples, American grape ... sold on shelves. Furthermore, customers can be assured of the quality as well as the safety of products when the policies for imports always focus on user satisfaction. With the entry of imported goods, competition will boost domestic production to develop; Specifically, domestic manufacturers will self-assess and set higher quality standards for goods. From that, goods when coming to customers will be better guaranteed than before. Not only that, customers also have the opportunity to access rare or even non-existent goods in the domestic market because natural conditions do not allow, such as kiwi fruit of new zealand or cherry fruit of Australia.

Otherwise, when trade barriers are removed, the cost of importing some goods may be cheaper than domestic production. so production may be delayed or deactivated. this leads to job loss and unemployment increase; When income is no longer stable, these employees must switch to buying products with lower prices and lower quality, or even stop buying some items. Moreover, FDI will make demand for staff less skilled, they will have to be retrained to adapt to modern equipment of foreign companies when expanding their market in Vietnam. However, a person who is familiar with traditional agricultural practices and tools will not be easy to switch to modern techniques, methods and tools ( Berman, 2018). They will have to spend some time and cost for training.

The last agent is affected by free trade as the government. The most obvious thing when the agreement was passed is that the relationship between Vietnam and the countries becomes better. This helps governments to limit legal issues such as temporary entry, length of stay and business license. Moreover, Robinson ( 2017) stated that thanks to the trade agreement, the government can eliminate some subsidies for projects that produce hard-to-grow fruits. A more reasonable investment in other industries thanks to this money will help the economy grow.

On the other hand, the agreement also brings trouble as the market is easily disturbed and depends on the external economic and political situation. Amadeo ( 2019) claimed that when foreign manufacturers are aware of the supply initiative, they will have market power to overwhelm domestic producers. From that, the price of goods will fluctuate based on the decisions of foreign companies. Moreover, the pressure to maintain a commercial relationship also increases because if the association is terminated, the shortage of goods will occur. Finally, based on the statement of Robinson ( 2017), free trade agreements can cause damage to the environment by allowing companies to move production facilities or establish new farms to carry out the production process. In order to have an area of land to build an international-scale farm, the government must grant them a forest area to implement it. This makes forest resources become exhausted. Moreover, other essential resources such as electricity and water are also components that farms or growing areas use a lot to make machines work. If production is low-scale, low-volume, the company has no advantage in the competitive process. But large-scale and modern production is world-class, the government must establish policies to protect natural resources.

Liberalization reforms should be approved by the Myanmar government instead of industrial protection policies. In order to avoid being entangled with the activities of the world's leading countries in the early stages of innovation, they can open the market to developed countries in the region to get used to the flow of the global economy. examples of success in adopting industry protection policies like England, America, Taiwan ... those countries succeed in their orientation because they have invested a large investment in Research and develop modern techniques and equipment (SCMP, 2017). For myanmar case, average annual income per capita is US $ 1,140 ( Straitstimes, 2018). This number is quite small for the government to pay for investment in research and development. Instead, they can open the market to receive available achievements from the world market. Understanding and deciding how to utilize resources is more appropriate for them. In addition, rudimentary equipment and outdated production methods can make Myanmar's product quality and production efficiency not as expected. Their production prices are also higher than in the world market. High prices, poor quality will make the demand of customers decline, which is the reason why some companies have to postpone production and the situation of job loss increases. These factors are what hinder the economy to grow, the growth rate will last long and not be effective if they solve everything on their own. Furthermore, according to Rowden ( 2012), Myanmar market has many attractions for foreign investors: a population of 54 million people with low labor costs, a market that lacks many goods, services and infrastructure as well as geographical location adjacent to the top two markets are India and China. If the government implements a market opening policy, companies and organizations will have the opportunity to access capital invested from abroad to help the economy recover. Specifically, with a rich resource base, if the government cares properly, the economy can start mobilizing international and domestic resources for efficient exploitation. It has a large population (or human capital), if the government invests properly, the trade and industry structure will be upgraded, as well as the structural transition to trade in services will be easier. Finally, based on the article of VCCI ( 2018), the market does not have access to foreign investment capital and does not import goods, which may reduce export volumes. These are the reasons that make the current account deficit increase and inflation become worse. When the Myanmar central bank is no longer able to support the exchange rate maintenance, its economy will sink into crisis.

Hence, the protectionist policy is more harmful than the benefit.

Reference list

Amadeo K, 2018, THE BALANCE, “ Trade Protectionism and Its Methods With Examples, Pros, and Cons”, online web, available at [ https://www.thebalance.com/what-is-trade-protectionism-3305896 ]. (accessed 5 Jan 2019).

Hanoitimes, 2019, “ Fruits and vegetable imported from Thailand approaching US$1 billion”, online news, available at [ http://www.hanoitimes.vn/economy/agriculture/2018/03/81E0C3B8/fruits-and-vegetable-imported-from-thailand-approaching-us-1-billion/ ] (accessed 6 Jan 2019).

Vietnamplus, 2018, “ Fruit, vegetable exports valued at 3.3 billion USD”, online news, available at [ https://en.vietnamplus.vn/fruit-vegetable-exports-valued-at-33-billion-usd/141273.vnp ] (accessed 6 Jan 2019).

Vietnamnews, 2018, “Việt Nam spends $1.43 billion on vegetables and fruits import”, online news, available at [ https://vietnamnews.vn/economy/480122/viet-nam-spends-143-billion-on-vegetables-and-fruits-import.html#7X0Bssl0TfxKqm8l.97] (accessed 8 Jan 2019).

Berman C, 2018 , “ The Disadvantages of Free Trade”, bizfluent, online web, available at [ https://bizfluent.com/about-5467816-disadvantages-trade.html ] (accessed 8 Jan 2019).

South China Morning Post, 2017, “ China, Japan, South Korea pledge to resist economic protectionism”, online news, available at [ https://www.scmp.com/news/china/diplomacy-defence/article/2093057/china-japan-south-korea-pledge-resist-economic] (accessed 8 Jan 2019).

Robinson N, 2017, bizfluent, “ Pros & Cons of Free Trade”, online web, available at [ https://bizfluent.com/about-4777659-pros-cons-free-trade.html ] (accessed 8 Jan 2019).

Straitstimes, 2018, “ Myanmar raises minimum wage to S$4.80 a day as economy staggers”, online news.

VCCI, 2018, CENTER FOR WTO AND ECONOMIC INTEGRATION - VIETNAM CHAMBER OF COMMERCE AND INDUSTRY, “ Enhancing ties with ASEAN bulwark against protectionist winds”, online news, available at [ http://aecvcci.vn/tin-tuc-n3667/enhancing-ties-with-asean-bulwark-against-protectionist-winds.htm ] (accessed 10 Jan 2019).