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

Main Article Content


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.

Article Details


1. Aitken, N.D. (1973): “The effect of the EEC and EFTA on European trade: A temporal cross-section analysis”, American Economic Review, 63, 881-892.
2. Chaisrisawatsuk, S. and W. Chaisrisawatsuk, “Imports, exports and foreign direct investment interactions and their effects”, Chapter IV in ESCAP, Towards coherent policy frameworks: understanding trade and investment linkages – A study by the Asia-Pacific Research and Training Network on Trade, (United Nations, New York), 2007, pp.97-115.
3. Claudio Dordi, Federico Lupo Pasini, “The impact of Vietnam – EU FTA on some selected importing sectors of Vietnam”, wto center, 2011.
4. Cline, W.R, (1978), “Benefits and costs of economic integration in Central America, Economic Integration in Central America: A Study”, ed. W.R. Cline and C. Delagado (Washington, DC: Brookings Institution).
5. Diaw D., A. Rieber and T.A.D. Tran (2009), “On the role of Foreign Market Access in South-South trade: Application to Sub-Saharan Africa and the Developing Asia”. Presented at the international conference “Vietnam and East Asian countries facing the world crisis”, Foreign Trade University (15 December 2009, Hanoi, Vietnam).
6. Emiko Fukase and Will Martin, “A Quantitative Evaluation of Vietnam’s Accession to the ASEAN Free Trade Area (AFTA)”, World Bank report, 1999.
7. Kimberly A. Clausing,(Aug., 2001), “Trade Creation and Trade Diversion in the Canada - United States Free Trade Agreement”, The Canadian Journal of Economics, Vol. 34, No. 3 677-696.
8. Krueger Anne.O, (1999), “Trade creation and diversion under NAFTA, National bureau of economic research”, 1050 Massachusetts Avenue Cambridge, MA 02138, December 1999
9. Krugman, (1994), “Regionalism vs. multilateralism: analytical notes, New Dimensions in Regional Integration”, ed. J. De Melo and A. Panagariya (Cambridge: Cambridge University Press).
10. NGUYEN Binh Duong and TRAN Thi Anh Dao, « Sub-regional integration initiatives in East Asia and their implication for Vietnam », Journal of Social and Policy Sciences, Vol 1, Number 1, December 2010.
11. Nguyen T.X and Yuqing Xing, “Foreign direct investment and export the experiences of Vietnam”, Economics of Transition, 2008, Vol 16, Issue 2, pp 183-197.
12. Rina Oktaviani, Amzul Rifin, and Henny Reinhardt, (2007), “An Investigation into the Measures Affecting the Integration of ASEAN’s Priority Sectors, Review of Regional Trade and Available Tariff Rate Data”, REPSF Project 06/001a , Department of Economics , Faculty of Economics and Management, Bogor Agricultural University.
13. The Vietnam-EFTA joint study group, “Report on the bilateral trade and investments between Viet Nam and the EFTA States”, 2011.
14. Tumbarello, P, “Does Vietnam overtrade with its neighbouring countries? A regional investigation using a gravity model”, IMF Selected Issues, 2006.
15. WTO center, “7th negotiation round of Vietnam – EU Free Trade Agreement”, 2014.