RMIT International University Vietnam

ECON1269 – International Trade

Individual Assignment – A3

Subject Code: ECON1269

Subject Name: Assignment 3

Location & Campus: RMIT Vietnam, HCMC

Group Number: Group 4

Student Name: Tran Phuong Anh - s3752611

Lecturer’s Name: Pham Thi Bich Ngoc

Word Count: 2200 words

Source: GENERAL STATISTICS OFFICE of VIET NAM
(2020)

Vietnam is an unskilled-labor abundant country, export mostly broadcasting equipment,

telephones, integrated circuits, and textile footwears. The top countries that Vietnam export to
are China, United States, Japan, and Korea. Those countries are all developed countries with
relatively higher labor costs and expenses.

Source: GENERAL STATISTICS OFFICE of VIET NAM

(2020)

For Vietnam’s top import, the list includes mostly machines parts for our export productions, so
is the case for textiles. The origins for those imports come from mostly Asia like China, Korea,
Japan or Thailand, Singapore, etc. The reason for this can explained by our free trade agreements
to those top import and export countries. Also, with all those advantages, Vietnam has attracted
more and more foreign direct investors.

Source: GENERAL STATISTICS OFFICE of VIET NAM (2020)

In 2018 alone The proportion of foreign investment in the total investment capital has increased
gradually, from nearly 15% in 2005 to 23.7% in 2017. In 2008, this figure reached 30.8%.
Another

Essay 1: Analysis of effects of trade on income distribution

The specific-factors model can explain the impact of trade policy on the income distribution.
There are two different cases of specific-factors models, pure and mixed specific-factors model.
There are 3 factors which are labors, capital, and land to be considered in two comparative
industries. The pure specific-factors model is used when both industries require sector-specific
labor skills, and that labor can not move between industries. Therefore, when there is influence
from trade effect on one industry, only the wage of labor from the affected industry get change,
the other industry will remain the same. While in mixed specific-factors model, industries do not
need specific skills therefore, labor can move between industries. Therefore, with the change in
products price in the results of trade effect, to not lose labor and being labor surplus, both of the
industry must remain the same wage for employees even if they would not be profitable
anymore, other way would be lay off some of their workers (McLaren 2012).

Since the infrastructure and highways systems has been rising lately, this increase the demand of
Vietnamese to own a car. Automobile manufactures and assembly industry is a rising industry in
Vietnam which can provide cheaper price of foreign brand cars (Thanh Hung 2020). This
industry also requires sector-specific labor skill which are Automotive Engineering. Since labor
that specify to this industry need to complete college and changing to another industry would
mean wasting 2-year studying. Therefore, labor is usually not willing to change their jobs (BCIT
2014). According to McLaren (2012), this is the characteristic of a pure specific-factors model.

In 2017, Vietnam has signed the ASEAN Trade in Goods Agreement (ATIGA), which reduce
the import tax on Completely Built-up (CBU) cars produced in ASEAN countries to 0%. In the
result, the number of CBU car imports from ASEAN has surged, increase 50.4% in volume and
82.6% in value compared to same period in 2016 (Tap Chi Tai Chinh 2017). This situation
makes the car industry in Vietnam suffer. Vietnam Government has issued the Decree No.
57/2020/NĐ-CP stating that in the period of 2020-2024, the import tax on the components of
automobile will be decrease to 0%. This decision mainly supports the domestic Assembly
automobile industry. Firms that are qualify for this Decree must satisfy the production and
assembly standards for automobile manufacturers and assemblers according to the Government's
Decree.

This news does not only impact on the

Essay 2: Analysis of Government’s motive in imposing trade restrictions

There are different motives for Government to impose trade policy, either to protect their
industries that do not have a comparative advantage (infant industry) or to preserve jobs, or for
term of trade strategy, or because of an interest-group (McLaren 2012). There are also many
ways that Government use to restrict trading like imposing tariff, quota or VER, etc. (McLaren
2012). Originally, quota is a trade restriction on import quantity that imposed by the importing
country. If a country wants to export to a country that apply quota, they need a license which
limit a fixed quantity. VER is the abbreviation for Voluntary Export Restraint, which is a variant
of quota that restrict the quantities of export goods, imposed voluntarily by exporting countries.
However, it is usually the result of requests from importing country since they need to protect
their domestic market (McLaren 2012). VER can create negative trade effect, therefore members
of WTO agreed on not implementing any more VERs since 1994 (Suranovic 2003). The most
practical trade restriction nowadays is imposing tariff. There are also two types of tariff which
are specific tariff and ad valorem tariff (McLaren 2012). Specific tariff is when the import is
charged per unit of quantity, and ad valorem tariff is more common, and it charges as a
proportion of value (McLaren 2012).

One industry that might have trade policy change in Vietnam is the steel industry. As the U.S.-
China trade war happens, China has been dumping its excess carbon steel to Vietnam by selling
it 4-14 percent lower than the domestic price. This makes the China account for more than 50%
of the steel market in Vietnam, damages Vietnamese manufacturers terribly (Lac Phong 2019).
Therefore, in order to protect domestic market, the Ministry of Finance has proposed to raise the
import tax of hot rolled steel coil (HRC) products from 0% to 5% (Le 2019). Government
intention of imposing tax would hopefully boost the production of domestic firms and not
depend on the import of steel.

However, according to Tran Quoc Tri – CEO of Hoa Sen Corp has stated that raising import tax
cannot stop the inflow of steel coming from China, since Vietnam has a FTA with China
(ACFTA), and by that the 5% new implement tax will not be applied on China but other
countries India, Taiwan or Brazil that do not have FTAs with Vietnam (Bach 2019). This will
make it even harder for steel industry since even that every steel firm producing at their 100%
capacity, it only satisfies 60% of the domestic market, then the only solution is to import and the
cheapest price out there is still from China (Bach 2019). Then, the imports from India and
Taiwan will be lower than now and that would make the China accounting for 80% to 90% of the
steel production in Vietnam. Not only so, if raising the import tax on materials, the production
cost will higher compare to the world, as the result, the retail price will also go up. This will limit
the demands for domestic firms’ products, even though the domestic demand for steel is huge
(Bach 2019). Therefore, from these reasons, the Vietnam Steel Association (VSA) has request
the Ministry of Finance not to impose the import tax on HRC products.

The Ministry of Industry and Trade of Vietnam (MoIT) has come to the final outcomes with the
Decision 3162/QĐ-BCT issued on 21 October 2019, stated that Vietnam will impose anti-
dumping measures for some of the steel products from China, Taiwan, Malaysia and Indonesia.
This helps Vietnam manufacturers can still import materials from other countries and stabilize
the domestic market. (MoIT 2019)

Essay 3: Analysis of corporations’ decision in foreign directed investments (FDIs)

Increasing returns to scale (IRS) is when firms increase a portion in their input, their output will
also increase to a greater extent (McLaren, 2012). FDI is a type of investment when firms decide
to resident their production or distribution in another country that can help them reduce cost
(Duce & Espana 2003). By this way of investment, FDI can actually improve firms’ IRS.

Through attending the Industry Talk, Vietnam clearly has a low-cost labor, compare to the
relative countries (Carbone 2017). Also, consider the demographics of Vietnam, we have a large
population of young and middle-class workers, which make Vietnam an unskilled labor abundant
country, and attractive toward manufacturers (Samuel 2019). Another thing to take in
consideration is expenses. The set-up cost is also relatively cheap in Vietnam (Carbone 2017).
This satisfies with the low production cost in the result for IRS. Thirdly, Vietnam has begun to
sign many different free trade agreements (FTA) and also a full member of World Trade
Organization (WTO) since 2007 (Hoang 2007). Thereupon, Vietnam has signed FTAs with
many big markets in the world like the FTA between Vietnam and 27 countries in EU (EVFTA),
Vietnam and southeast Asia countries (ASEAN-AEC) or trade with China, Korea, Hong Kong
(ACFTA, AKFTA, AHKFTA) (WTO Center 2020). This reduce the input for MNEs in term of
exporting policy like tariff and trade policy. Furthermore, South Korea, China, Japan, and Hong
Kong, Thailand and Singapore are the leading contributing countries in FDI in Vietnam (Nguyen
2020). One great example could be Samsung. In 2008, Samsung started to invest in Vietnam
with the initial investment of USD 670 million and then 10 years later the number reached USD
17.3 billion, makes Vietnam the destination of Samsung's largest mobile manufactories in the
world and Samsung's largest R&D center in Southeast Asia (Vietnam Plus n.d). This fact proves
that those firms must experience IRS when doing FDI in Vietnam.

Essay 4: Analysis of global production sharing (Offshoring)

Offshoring is a form of globalizing production that to help their production process to be most
efficient. The composition of labor in every country is different and the demand for skills is
different in each part of the production, such as some part only need more low-skilled labor
while other parts need high-skilled labor or even there are products that requires high technical
expertise. Offshoring does not provide full production in one country but rather only distribute
one small part in this countries and other parts in other countries then finally assembly in
separate country. This also help firms to reduce their offshoring produce the replica of their
product. (McLaren 2012)

One empirical example that demonstrate most clearly would be H&M Group. H&M group offer
all the latest trends of women, men, kids’ fashion and even footwear, accessories, cosmetics to
home decors (H&M Group n.d). The corporation has signed with 750 independent suppliers and
manufacturers in all over Europe, Asia, and Africa (H&M Group n.d). H&M also has intimately
50 manufacturing offshoring in Vietnam and most of them are long-term suppliers (H&M
Group). Vietnam is an ideal destination to offshore for H&M. First, one of the main products of
H&M is garment, which are mostly produced in Asia since the availability of material and cheap
labor cost. Vietnam is well-known for exporting garments and up to 70% of those are Cut-Make-
Trim (CMT) models, since the job does not require high-skilled labor, but still bringing high
quantities (Nguyen 2020). Vietnam has another advantage which is location. China is right now
not the hot spot for offshore manufacturing since the minimum wage of labor is higher now there
due to many workers’ strikes (Arrigo 2020). However, most of yarns and textiles are still
produced in China, therefore, by being next to China can reduce the shipping cost of materials
into factories (Robinson, Zhou & Maulia 2019).

References:

Tap Chi Tai Chinh 2017, ‘Chính sách thuế “gỡ khó” cho ngành công nghiệp ô tô Việt Nam’, Tap
Chi Tai Chinh, viewed 19 September 2020, < http://tapchitaichinh.vn/su-kien-noi-bat/su-kien-tai-
chinh/chinh-sach-thue-go-kho-cho-nganh-cong-nghiep-o-to-viet-nam-132855.html>

Thanh Hung 2020, ‘Học ngành kỹ thuật ô tô, lương bao nhiêu?’, Vietnamnet, viewed 19
September 2020, < https://vietnamnet.vn/vn/giao-duc/tuyen-sinh/hoc-nganh-ky-thuat-o-to-luong-
bao-nhieu-650729.html>
Arrigo, E 2020, ‘Global Sourcing in Fast Fashion Retailers: Sourcing Locations and
Sustainability Considerations’, MDPI.

Bach, H 2019, ‘"Đại chiến" ngành thép: Tăng thuế hay không?’, VnEconomy, viewed 19
September 2020, < http://vneconomy.vn/dai-chien-nganh-thep-tang-thue-hay-khong-
20190911230627039.htm>

Carbone, J 2017, ‘Vietnam Becomes an Option for Low-Cost Electronics Manufacturing’,

Source Today, viewed 19 September 2020, <https://www.sourcetoday.com/supply-
chain/article/21866768/vietnam-becomes-an-option-for-lowcost-electronics-
manufacturing#:~:text=And%20for%20good%20reason%3A%20The,to%20researcher%20IHS
%20Markit%20Technology.>

Duce M & Espana 2003, ‘Definitions of Foreign Direct Investment (FDI): a methodological
note’.

Hoang, H 2007, ‘VN officially becomes a full WTO member’, VGP News, viewed 19 September
2020, <http://news.chinhphu.vn/Home/VN-officially-becomes-a-full-WTO-
member/20071/2481.vgp >

H&M Group, n.d, ‘Supplier list’, H&M Group, viewed 19 September 2020, <
https://hmgroup.com/sustainability/leading-the-change/supplier-list.html> .

Lac Phong 2019, ‘Cảnh báo thép nhập khẩu tràn vào Việt Nam’, Tap chi Tai Chinh, viewed 19
September 2020, < http://tapchitaichinh.vn/tai-chinh-kinh-doanh/canh-bao-thep-nhap-khau-tran-
vao-viet-nam-313694.html>.

Le, H 2019, ‘Vietnam opens anti-dumping probe on Chinese steel’, VnExpress, viewed 19
September 2020, < https://e.vnexpress.net/news/business/industries/vietnam-opens-anti-
dumping-probe-on-chinese-steel-3980101.html#:~:text=Last%20month%2C%20the%20ministry
%20had,escalating%20U.S.%2DChina%20trade%20war.>

Nguyen, J 2020, ‘FDI Data Shows Vietnam’s Steady Performance in First Half of 2020’,
Vietnam Briefing, viewed 19 September 2020, <https://www.vietnam-briefing.com/news/fdi-
data-shows-vietnams-steady-performance-first-half-2020.html/>.
Nguyen, T 2020, ‘Seizing Investment Opportunities in Vietnam’s Garment and Textile Industry’,
Vietnam Briefing, viewed 19 September 2020, < https://www.vietnam-
briefing.com/news/seizing-investment-opportunities-vietnams-textile-garment-industry.html/>

McLaren, J 2012, International trade: Economic analysis of globalization and policy, John Wiley
& Sons, Inc., Hoboken, New Jersey, RMIT Library database.

MoIT 2019, ‘Bộ Công Thương gia hạn việc áp dụng biện pháp chống bán phá giá đối với một số
sản phẩm thép không gỉ cán nguội có xuất xứ từ Trung Quốc, In-đô-nê-si-a, Ma-lay-xi-a và vùng
lãnh thổ Đài Loan’, MoIT, viewed 19 September 2020, < https://moit.gov.vn/CmsView-EcoIT-
portlet/html/print_cms.jsp?articleId=16886>

Samuel, P 2019, ‘FDI in Vietnam – Where is the Investment Going?’, Vietnam Briefing, viewed
19 September 2020, <https://www.vietnam-briefing.com/news/fdi-in-vietnam-investment-by-
sector.html/>.

Suranovic, S 2003, ‘International Trade Theory and Policy’, International Econ.

Robinson, G, Zhou, M & Maulia, E 2019, ‘How the death of fast fashion is transforming Asia's
garment industry’, Nikkie Asian Review, viewed 19 September 2020, <
https://asia.nikkei.com/Spotlight/The-Big-Story/How-the-death-of-fast-fashion-is-transforming-
Asia-s-garment-industry>

Vietnam Plus n.d, ‘Attracting FDI in Vietnam’, viewed 19 September 2020,

<https://www.vietnamplus.vn/samsung/attracting-fdi-in-vietnam-samsung-as-the-highlight.html>

WTO Center 2020, ‘FTA’, viewed 19 September 2020, <https://wtocenter.vn/fta>