Future Vietnam-EU Free Trade Agreement (Vietnam-EU FTA): an analysis of trade creation and trade diversion effects

Nguyen Binh Duong1, Tu Thuy Anh1, Nguyen Thu Trang2
1 Foreign Trade University
2 DEPOCEN and Foreign Trade University

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This paper aims to analyze trade creation and trade diversion effects of future VietnamEU FTA, in a framework of negotiations from 2012 to ensure an effective environment for trade and investment. The theory of trade creation and trade diversion will be used to evaluate impacts of an FTA on Vietnam’s welfare. By using a gravity model and a panel data analysis, we show that the reduction of tariffs in the framework of the FTA will have a positive impact on bilateral trade between Vietnam and the EU. In addition, Vietnam-EU FTA will offer many new opportunities such as trade creation in automotive industry, but it also poses challenges for Vietnam.

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