Deep Preferential Trade Agreements and Upgrading in Global Value Chains: Evidence from Vietnam

Relevance and Scope of the Research Project

The recent decade was characterised by both the rising importance of global value chains (GVCs) and the parallel proliferation of preferential trade agreements (PTAs). These two trends are closely intertwined: While PTAs have contributed to the expansion of GVCs, the nature of GVCs itself has demanded new forms of trade governance. From a GVC perspective, trade-related ‘behind-the-border’ issues such as competition, investment and intellectual property rights are not sufficiently addressed at the multilateral level. Deep PTAs seem to be partly closing this ‘governance gap’ by covering disciplines beyond the trade rules of the World Trade Organization.

For developing countries the implications of deep PTAs for GVC trade are of particular interest. Many developing countries do participate in GVCs but are caught in low value-added production stages and face the challenge of upgrading in GVCs. Deep PTAs can promote a more stable and reliable trade and investment environment which is necessary for upgrading along the value chain. At the same time, the extensive coverage of behind-the-border regulations in deep PTAs can restrict national policy space and limit the range of national policy instruments needed to support upgrading.

Governing GVCs by means of deep PTAs is therefore a double-edged sword. How and to what extent deep PTAs can contribute to upgrading in GVCs and which policy measures are useful and still available to support upgrading is an open as well as important question for economic development and for policy makers and firms in developing countries. The aim of the present research project is to address this question by investigating the opportunities and challenges of deep PTA provisions for upgrading in GVCs, using Vietnam as a case study. Specifically, the research project will answer the question: Do deep PTA provisions increase the potential for upgrading in GVCs in Vietnam’s textile and garments and electrical and electronics sectors?

Case Selection

Vietnam is increasingly participating in GVCs and deep PTAs which is why it is an ideal case for the present research project. The country has started to open up to international trade in the late 1980s and experienced spectacular growth since then. The year 2015 marked a milestone on Vietnam’s path to economic integration: Vietnam concluded negotiations for the Transpacific Partnership (TPP) with the US and 10 other Pacific Rim states, the Vietnam-EU Free Trade Agreement and the Korea-Vietnam Free Trade Agreement. Upgrading in GVCs is a clear policy objective pursued with Vietnam’s commitment to deep PTAs.

While Vietnam has successfully increased its participation in GVCs making it today one of the most integrated countries in Asia, it is confined to low value-added production stages. This is especially true for its two largest export sectors, textile and garments and electrical and electronics. In the textile and garments sector, for example, Vietnam carries out assembly tasks in the manufacturing process – also known as Cut Make Trim – which rely on imported fabrics and are associated with very low value added. Upgrading to higher value-added tasks thus remains a challenge for Vietnam.

Methodology

The present research project applies a mixed-methods approach, taking advantage of both quantitative and qualitative research designs. A business survey will be conducted, in collaboration with the Vietnamese Chamber of Commerce and Industry (VCCI), targeting firms spanning all sectors, sizes and ownership structures in Vietnam. The objective is to better understand firms’ general assessment of upgrading and PTAs. Together with the Central Institute for Economic Management (CIEM), we aim to conduct about 100 individual interviews with different stakeholders to get an in-depth evaluation of opportunities and challenges of deep PTA provisions for upgrading in the textiles and garments and electrical and electronics value chain from the perspective of both political and economic actors.