Effects of EVFTA on Vietnam’s apparel exports: an application of WITS-SMART simulation model

Abstract

The textile and apparel industries play an important role in Vietnam’s economy in general and the manufacturing sector in particular. As a matter of fact, Vietnam ranks as one of the leading suppliers of textile and apparel for major economies in the world, including the European Union. This paper attempts to examine the potential impacts of the European Union - Vietnam Free Trade Agreement on the export of Vietnam’s apparel at three levels: 2, 4, 6–digit HS respectively, assuming full liberalization from Vietnam to European Union by 2026. An analysis is undertaken using WITS-SMART model to identify the variation of Vietnam’s apparel export as well as to predict some most affected products if European Union - Vietnam Free Trade Agreement is in full application. As a result, Vietnam’s apparel exporting to European Union will increase significantly by 42% compared to the base year (2016) and is expected to reach US$4.220 billion in the next 8 years. Due to trade diversion dominates over trade creation effect, Vietnam’s apparels will get more gains than non - European Union - Vietnam Free Trade Agreement members; however, this result is not because of an effective allocation of resources. Therefore, policy makers should implement some remedies to improve the competitivey of Vietnam’s apparels, to reduce the production price to bring advantages for both Vietnam and Europe.