Expected Impact of EU-Vietnam Free Trade Agreement on Bulgaria's Exports

Abstract

In December 2015 the European Union reached an agreement on a free trade deal with Vietnam (EVFTA) that will contribute to further market access by eliminating nearly all tariffs on goods traded between the two economies. This paper aims to analyse the impact of EVFTA on Bulgaria's exports to Vietnam. To this end, we calculate relevant trade indicators and employ a partial equilibrium model by using the Software on Market Analysis and Restrictions on Trade. The results show that EVFTA will provide opportunities for increase of Bulgaria's exports to Vietnam with the highest positive impact on the products from the food, chemical and textile industries.

Full text

467
Dimitar Hadjinikolov*1
Paskal Zhelev*
Summary
In December 2015 the European Union
reached an agreement on a free trade deal with
Vietnam (EVFTA) that will contribute to further
market access by eliminating nearly all tariffs
on goods traded between the two economies.
This paper aims to analyse the impact of
EVFTA on Bulgaria’s exports to Vietnam. To
this end, we calculate relevant trade indicators
and employ a partial equilibrium model by
using the Software on Market Analysis and
Restrictions on Trade. The results show that
EVFTA will provide opportunities for increase
of Bulgaria’s exports to Vietnam with the
highest positive impact on the products from
the food, chemical and textile industries.
Key words: Vietnam, Bulgaria, preferential
trade, EU Trade Policy
JEL: F13, F14, F15, F17, O52, O53
Introduction
Vietnam is one of the key Asian partners
of the European Union and of Bulgaria
as well. As shown in Table 1, Vietnam ranks
fifth in the EU’s imports from Asia and tenth in
the EU’s exports to this part of the world.
* University of National and World Economy, Depar tment of
International Economic Relations and Business
Table 1. EU Trade with Main Asian Countries
(2017, Bill. €)
Partner EU
Exports
EU
Imports
Trade
Balance
China 198 374 -17 6
Japan 60 68 -8
South Korea 50 50 0
UAE 43 10 33
India 42 44 -2
Singapore 33 20 13
Saudi Arabia 33 22 11
Thailand 15 22 -7
Malaysia 14 25 -11
Vietnam 11 37 -26
Indonesia 10 17 -7
TOTAL 509 689 -18 0
Source: compiled by the authors based on Eurostat
data, http://appsso.eurostat.ec.europa.eu/nui/show.
do?dataset=ext_lt_maineu&lang=en
With regard to Vietnam, the dynamics of
development is more important than the static
situation. It can be seen in Figure 1, according
to the World Bank data for the period 2000-
2017, Vietnam’s average GDP growth rate
is 6.4% and the world’s is 2.9%. Vietnam is
already among the “Asian Tigers” alongside
China, Japan, Indonesia and some other
ASEAN countries. Vietnam’s foreign trade has
been extremely dynamic. For the indicated
period, according to WTO data, exports of
Vietnamese goods have grown 12 times, and
imports 11 times!
12
1 World Trade Organization, Statistics, http://appsso.eurostat.
ec.europa.eu/nui/show.do?dataset=ext_lt_maineu&lang=en
Expected Impact of EU-Vietnam Free
Trade Agreement on Bulgaria’s Exports
Economic Alternatives, 2018, Issue 4, pp. 467-479

Expected Impact of EU-Vietnam Free Trade Agreement
on Bulgaria’s Exports
468
Articles
Economic Alternatives, Issue 4, 2018
As far as Bulgaria’s trade with Vietnam is
concerned, it has very positive dynamics. The
Socialist Republic of Vietnam has traditionally
been a partner of the Republic of Bulgaria
in the Southeast Asia region. In the period
up to 1988, Bulgaria supported the post-
war reconstruction of Vietnam by providing
multilateral assistance (including grants).
Bulgaria participated in the construction of
125 different sites - industrial enterprises,
forage works, refrigeration installations,
among other facilities, worth more than USD
30 million. From 1972 to 1989, there were
several thousand Vietnamese workers in
Bulgaria, who subsequently left the country,
according to the signed agreements in 1990-
1993.
Currently, the trade and economic relations
between Bulgaria and Vietnam are based
on the Economic Partnership Agreement
between the two countries signed in 2006 (in
force since 8 January 2008). After Bulgaria’s
accession to the EU, what was related to trade
in the Agreement became irrelevant since
Bulgaria as an EU member state adheres fully
in its foreign trade policy to the EU Common
Commercial Policy and to the EU Customs
poli cy.
The state of commodity exchange between
the two countries is shown in Table 2.
Table 2. Foreign trade of Bulgaria with Vietnam
(2008-2017, million USD)
Year Exports Imports Trade
turnover
Trade
Balance
2008 14.9 105.7 120.6 -90.8
2009 14.7 69.7 84.3 -55.0
2010 27.4 37.5 64.9 -10.1
2011 16.1 26.7 42.8 -10.6
2012 23.4 40.5 63.9 -17. 1
2013 23.3 40.5 63.8 -17. 1
2014 24.8 6 7. 8 92.6 -43.1
2015 42.8 50.3 93.0 -7. 5
2016 93.0 44.7 137.7 48.2
2017 28.2 49.3 77. 4 -2 1. 1
Source: International Trade Center, https://www.
trademap.org
Based on the above mentioned, it is clear
how important it is to examine the effects of
implementing the EVFTA in order to ascertain
how much it will help to restore the good trade
and economic relations that previously existed
between these two countries.
By concluding EVFTA, Vietnam and the EU
have committed to provide improved access
to their markets. The agreement contains full
dismantling of nearly all tariffs except for a few
tariff lines that are subject to duty-free tariff
Figure 1. Dynamics of GDP growth in Vietnam and the world (2000 – 2017)
Source: World Bank, https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?end=2017&locations=VN-
1W&start=2000&view=chart

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rate quotas. Already upon the Agreement’s
entering into force, 65% of EU exports to
Vietnam will come duty free from day one.
The remaining trade – with the exception of
a few sensitive products – will be liberalised
after transitional period of maximum 10 years
so that domestic producers could gradually
adapt to heightened competition. The EU will
liberalise 71% of its imports from Vietnam
from day one and 99% will enter duty-free
after a transitional period of maximum seven
years. (Delegation of the EU to Vietnam, 2016,
p.24). EVFTA is anticipated to bring benefits
to competitive producers from both sides
boosting their export competitiveness. In this
context, the aim of the paper is to analyse
the expected impact of EVFTA on Bulgaria’s
exports to Vietnam.
Review of Literature
The EU-Vietnam Free Trade Agreement
is part of the EU global policy on trade
liberalization. The pursuit of large-scale
preferential trade agreements was proclaimed
by the European Commission in 2006 as
the Global Europe Program.
12
As some
researchers have noted, this strategy fully
fits into the broader concept of globalization,
which mainly relies on the theory of the
global win-win effect. In the pre-crisis years,
substantiating the win-win effect was relatively
easy, based on the vast empirical data of the
positive impact of foreign trade on economic
growth. For instance, in a study carried out
by the Hamburg Institute of International
Economics, covering 42 emerging economies
over a period of three decades, it has
been proven by econometric methods that
liberalization “has a significant positive
relationship with economic growth” (Parikh
and Stirbu, 2004, p.18).
2 See: DG Trade, European Commission (2006) Global Europe.
Competing in the World. A Contribution to the EU’s Growth and
Jobs Strategy, Brussels.
During the period 2000-2006, when the
world economy grew by an average of 3.5%
per year, it was easy to stand for trade
liberalization. Yet the situation changed
because of the economic crisis of 2007-
2008. For some time, optimism about trade
liberalization was on the wane, and some
authors reasonably expressed doubts as to
whether this “idealism” dominating the Global
Europe strategy will withstand the challenges
of growing protectionism, often referred to
as “realism”. (Garcia, 2013). However, in the
post-crisis period the European Commission
succeeded in preserving the open nature
of the Common Commercial Policy of the
EU, which allowed for a new stage of trade
liberalization to set in. The beginning of this
stage was marked by the successful signing
and ratification of the EU-Korea Free Trade
Agreement. (Siles-Br
ü
gg e, 2 0 11).
By joining this positive assessment of
the European Commission’s actions, it is
necessary to emphasize that, at the current
stage, following the changes in the US trade
policy with the election of President Trump, it
is all the more important to resist protectionist
pressure. In this respect, it is very useful to
study the interdependence of the economies
that has appeared recently (Solar-Arouet,
Tersen, 2017). These authors yet again argued
that protectionism is untenable. They provide
a good case in point: the introduction by the
EU of protective anti-dumping measures
against the import of photovoltaic Chinese
solar panels in 2013 reciprocated into ... a
significant reduction in China’s imports of
French wine, and hence a severe deterioration
in the economic situation of Bordeaux
ch
â
teaux.
That it is worth keeping the course of
trade liberalization has been proved by a
recent study of the Ifo Institute for Economic
Research in Munich. Its authors assess the
impact of the entry into force of the EU-Japan
Free Trade Agreement using the econometric
model applied in the impact assessment of the

Expected Impact of EU-Vietnam Free Trade Agreement
on Bulgaria’s Exports
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Articles
Economic Alternatives, Issue 4, 2018
EU-Korea Free Trade Agreement (Felbermayr,
et.al, 2017). They reach the conclusion that
an in-depth and comprehensive EU-Japan
agreement, which not only eliminates tariffs
but also reduces costs of non-tariff measures,
will bring GDP gains worth about EUR 10.7 bn.
(Felbermayr, et.al, 2017, p.43).
There are many papers on the EU – Vietnam
economic relations and more specifically
on the expected impact of EVFTA on both
economies and their bilateral trade patterns. A
study by Philip MJ, et. al. (2011), funded by the
European Commission, utilized a composed
methodology: a quantitative assessment
following the reduction of customs duties with
a Computable General Equilibrium (CGE)
model and a qualitative assessment conducted
on three selected sectors of interest for
Vietnamese exports (footwear, garments and
furniture) and three on Vietnamese imports
(automotive, electronics and machinery, and
banking). The authors reached positive results
for all the economic variables analyzed. In
terms of trade they find that Vietnamese
exports would increase on average by 4%
annually, with peak of more than 6% annually
for sectors of interest for Vietnam which, at
present, have to face relevant high tariffs on
export to the EU, and 3% on average for the
other sectors. On average, imports would
increase by 3.1%; among the most important
import from the EU, electronic and machinery
+2.7%, chemical +2.5% and other industries,
including pharmaceuticals, 3%. (Philip MJ, et.
al., 2011, p.6)
Nguyen (2014) adopted the gravity model
to estimate changes in the bilateral trade
flows between Vietnam and the EU finding
that the Agreement will have a positive impact
on bilateral trade bringing benefits to both
sides. In a more recent study facilitated by
the German Federal Ministry for Economic
Cooperation and Development Grumiller J.,
et.al. (2018) using a structuralist CGE model
confirm the positive economic effects of trade
liberalization between Vietnam and the EU.
While Vietnam enjoys already preferential
market access to the EU via GSP and up
to 24.5% of tariff lines enter the EU market
duty and quota free (equivalent to 59% of the
EU import volume), the major export sectors,
textile, apparel and footwear, will benefit
significantly from the reduction of tariffs by
the EU and bilateral exports in these sectors
contribute strongly to positive export effects.
The liberalization of import tariffs by Vietnam
increases the inflow of goods from the EU
by more than 7%, with only a limited number
of sectors (motor vehicles, machinery and
foods) being negatively affected with regard
to declining output (Grumiller J., et.al., 2018,
p.74).
All of the above papers examined the
possible impact of EVFTA from the viewpoint
of Vietnam or the EU but they did not study
how Bulgaria’s foreign trade would be affected.
Even though Vietnam is among the fastest
growing economies in South-East Asia, rapidly
turning into a middle-income country, there is
altogether a lack of recent studies dedicated
to Bulgarian-Vietnamese economic relations.
Some papers briefly touch on that topic in
the context of Bulgarian economic relations
with developing countries (Tosheva, S., 2011)
or EU’s relations with ASEAN (Mateev, I.,
2005). A paper that focuses particularly on
EVFTA and its possible impact on Bulgaria is
presented by Marinov, E. (2016). The author
discusses the development of the institutional
framework of the EU-Vietnam trade relations
and presents the main features of the EVFTA.
By using qualitative methods of analysis he
draws conclusions on the export opportunities
that EVFTA offers to Bulgaria. The researcher
contends that the Agreement will boost the
export potential of Bulgarian product groups
traditionally exported to Vietnam such as
pharmaceuticals, machinery and equipment,
textiles, raw and processed food products.
The review of the past literature exhibits
that there is a lack of research estimating
comprehensively the possible trade impact

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of EVFTA on Bulgaria’s exports by sector at
disaggregated level and the present paper
tries to fill this gap.
Methodology
In order to assess the relevance of the
implementation of the EU-Vietnam Free Trade
Agreement, it is first necessary to identify the
different types of customs regimes that are in
place or could be applied in the trade between
the EU and Vietnam, respectively Bulgaria
and Vietnam. Next one needs to identify the
effects that arise from the transition from one
customs system to another, for example, from
the implementation of the customs regime of
most favored nation treatment in trade (regime
of the WTO) to a regime of “free trade”, i.e.
using zero tariffs.
Furthermore some method should be used
to quantify the result of the change in the
duty rates. There are various methods that
are commonly used to evaluate ex-ante the
impact of trade liberalization and especially
of preferential regional trade agreements
(RTAs). Some are intended to assess the
macroeconomic impact while others focus on
industry-level effects. The former are general
equilibrium models that are based on complex
econometric methods and usually require a lot
of high-quality data that is often incomplete or
unavailable. The latter are partial equilibrium
models that consider specific markets without
capturing linkages between them. They are
less data demanding and unlike general
equilibrium models can explore effects on
very detailed product level.
Besides economic modelling researchers
use trade indicators in order to evaluate the
potential effects of RTAs. A broad definition of
a trade indicator is that it is an index or a ratio
that can be used to describe and assess the
state of trade flows and trade patterns of a
particular economy or economies and can be
used to monitor these flows and patterns over
time or across economies/regions (Mikic and
Gilbert, 2007, p. 4). Using trade indicators is
a method easy to implement with lesser data
requirements and straightforward calculation
but it does not provide precise numbers that
quantify the effects of a FTA and can answer
only a limited number of specific questions
(Plummer, M., et.al. 2010).
Given the research objective of the paper,
namely to evaluate the effects of EVFTA on
Bulgarian exports and more specifically which
sectors and products will benefit the most from
free trade access on the Vietnamese market,
both trade indicators and a partial equilibrium
model as methodological tools will be applied.
The sectors that are most likely to benefit
from trade liberalization are those that are the
most efficient, i.e. the sectors in which a country
possesses comparative advantages and is
specialized within the international division of
labour. The trade indicator that is most widely
used to measure comparative advantages of
countries is proposed by Bela Balassa (1965).
Known as revealed comparative advantage
index (RCA) or also Balassa index, it uses
the trade pattern to identify sectors in which
an economy has a comparative advantage,
by comparing the country of interests’ export
profile with the world average.
The formula of the Balassa index is:
(1)
where: Xij and Xit, are values of country
i’s exports of product j and country i’s total
exports, respectively;
Xwj and Xwt are values of world exports of
product j and total world exports, respectively.
When the product’s share in national
exports is higher than the product’s share in
the world exports (RC A >1), we interpret it as
the country possesses revealed comparative
advantage in this particular product. In
contrast, for products whose RCA<1,
country is said to have revealed comparative
disadvantage (Zhelev, 2018, p.5).
While the RCA index gives good grounds
to draw inferences about the potential effects
6
notprovideprecisenumbers thatquantifytheeffectsofa FTAandcanansweronlyalimited
numberofspecificquestions (Plummer,M.,et.al. 2010).
Given the research objective of the paper, namely to evaluate the effects of EVFTA on
Bulgarianexportsandmorespecificallywhichsectorsandproductswillbenefitthemostfrom
free trade access on the Vietnamese market, both trade indicators and a partial equilibrium
modelasmethodologicaltools willbeapplied.
Thesectorsthataremostlikelytobenefitfromtradeliberalizationare thosethatarethemost
efficient,i.e. thesectorsinwhichacountrypossesscomparativeadvantagesandisspecialized
within the international division of labour. The trade indicator that is most widely used to
measurecomparativeadvantagesofcountriesis proposedbyBelaBalassa(1965). Knownas
revealedcomparativeadvantage index(RCA) or also Balassaindex, itusesthetrade pattern
to identify sectors in which an economy has a comparative advantage, by comparing the
countryofinterests’exportprofilewiththeworldaverage.
TheformulaoftheBalassaindexis:
 =  

 
(1)
where:  Xij and Xit, are values of country i’s exports of product j and country i’s total exports,
respectively;
Xwj andXwtarevaluesofworldexportsof productjandtotalworldexports,respectively.
Whentheproduct’sshareinnational exports is higherthantheproduct’sshareinthe world
exports(RCA>1),weinterpretitasthecountrypossessesrevealedcomparativeadvantagein
this particular product. In contrast, for products whose RCA<1, country is said to have
revealed
comparativedisadvantage (Zhelev,2018,p.5).
While the RCA index gives good grounds to draw inferences about the potential effects of
joiningaRTAitdoesnotprovidespecificestimations.Hence theanalysis willbe expanded
by applying a simulation model that is based on the partial equilibrium approach. For this
purpose amodeling tool included in the World Integrated Trade Solution (WITS) trade
database and software suite provided jointly by the World Bank and the United Nations
Conference on Trade and Development called SMART (Software for Market Analysis and
Restrictions on Trade) will also be used.4Using the SMART model to analyze the future
impactof aFTAisincreasinglycommonduetotheusefulnessofthisapproachin assessing
trade impacts at disaggregated level to provide better implications for governments and
enterprises(Vu,2016).
TheSMARTmodel focusesononeimportingmarketanditsexportingpartnersandassesses
the impact of a tariff change scenario by estimating new values for a set of variables. It
represents a counterfactual simulation analysis–it shows howtradeflowswouldhave been
differentiftariffsweredifferent,inotherwords,whatwouldbethechangesiftheimporting
countrychangesthetariffstoone/someoftheexporters.
ThesetupofSMARTisbasedonseveralassumptions:
4TheSMARTmodeliscontainedintheWITSsoftware,availableathttps://wits.worldbank.org

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Economic Alternatives, Issue 4, 2018
of joining a RTA it does not provide specific
estimations. Hence the analysis will be
expanded by applying a simulation model that
is based on the partial equilibrium approach.
For this purpose a modeling tool included in the
World Integrated Trade Solution (WITS) trade
database and software suite provided jointly
by the World Bank and the United Nations
Conference on Trade and Development called
SMART (Software for Market Analysis and
Restrictions on Trade) will also be used.
3
Using the SMART model to analyze the future
impact of a FTA is increasingly common due to
the usefulness of this approach in assessing
trade impacts at disaggregated level to
provide better implications for governments
and enterprises (Vu, 2016).
The SMART model focuses on one
importing market and its exporting partners
and assesses the impact of a tariff change
scenario by estimating new values for a set
of variables. It represents a counterfactual
simulation analysis – it shows how trade
flows would have been different if tariffs were
different, in other words, what would be the
changes if the importing country changes the
tariffs to one/some of the exporters.
The setup of SMART is based on several
assumptions:
yOn the export supply side, different
countries compete to supply (export
to) a given home market with a given
good. Export supply of a given good by
a given country supplier is assumed to
be related to the price that it fetches
in the export market. The degree of
responsiveness of the export supply to
changes in the export price is given by
the export supply elasticity. By default,
SMART assumes infinite export supply
elasticity (value of 99). That, referred
as the price taker assumption, means
that an increase in demand for a given
good will always be satisfied by the
3 The SMART model is contained in the WITS soft ware,
available at https://wits.worldbank.org
producers and exporters of that good
without changing the world prices of
each variety which are exogenously
given. Such an assumption is justified
(as most developing countries including
Vietnam are usually price takers on the
world market) and reasonably realistic in
the Vietnam-EU relations.
yOn the import side, SMART relies on
the Armington assumption that imports
are differentiated by national origin, i.e.
goods (defined at the HS six-digit level)
imported from different countries, albeit
similar, are imperfect substitutes. That
means that a RTA does not shift the
overall import demand to the beneficiary
of the preferential tariff, given that the
importing country purchases different
varieties from different countries and
not only from the cheapest destination,
because of existing quality differences.
The SMART model further rests on
the assumption that the representative
consumer maximizes welfare through
a two-stage optimization process. First,
given a general price index, consumers
choose the level of total spending/
consumption on an imported good.
The relationship between changes in
the price index and the impact on total
spending is determined by a given import
demand elasticity whose values in the
SMART model have been empirically
estimated for each country and every
HS six-digit product based on Stern et
al. (1976). Then they allocate the chosen
level of spending among the different
varieties of the good from different import
sources, depending on the relative price
of each variety. The rate of change of
expenditure between two varieties from
different origin with change of relative
prices is known as import substitution
elasticity. In the SMART model, the import
substitution elasticity is considered to be
1.5 for each good.

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yThe SMART model supposes perfect
competition that among other things
means that tariff cuts are fully reflected
in the prices paid by consumers.
The SMART model requires the following
data inputs:
-
values for the 3 elasticities (export
supply elasticity, import demand elasticity
and import substitution elasticity);
-
the tariffs applied by the importer on
each exporter;
-
values of the bilateral trade flows;
-
scenario of the preferential tariff
liberalization.
The SMART software calculates the
percentage change in the price of each variety
sourced from different countries and applying
the three elasticities computes the change in
each bilateral trade flow. As it is embedded
within the World Bank’s WITS it uses trade data
included in the database - from COMTRADE
and tariff data from UNCTAD’s TRAINS.
Findings
The EU-Vietnam Free Trade Agreement
has an impact on producers and traders in
the EU and more specifically in Bulgaria in
two directions – on EU imports of Vietnamese
goods and on EU exports to Vietnam. In the
case of imports, the impact is mainly related to
the possible increase in competitive pressure
due to the easy access of Vietnamese goods
to the EU internal market. Exports will have an
impact on export conditions for EU goods to
Vietnam both in terms of the expected export
size and the export prices and, therefore, the
profitability of exports.
When Vietnamese goods are imported into
the EU, the preferential regime under the so-
called Generalized System of Preferences –
GSP
4
will continue to be implemented until the
entry into force of the EU-Vietnam Free Trade
Agreement.
Until 2023, the GSP has three sub-regimes,
ranked by the amount of preferences given
(from stronger to less pronounced):
¾GSP ++ (Everything except weapons). It
is implemented in the 49 economically
least developed counties, mainly in Africa.
It is the most favorable customs regime
in the EU, in which all commodities in
the EU with the exception of weapons
are imported with a zero tariff. Countries
in Asia include Afghanistan, Bangladesh,
Bhutan, Cambodia, Laos, Myanmar,
Nepal, East Timor, Yemen.
¾GSP + is a special regime for those
countries that fulfill certain conditions
related to the implementation of
international agreements in the fields
of ecology, social relations, fight against
drugs, etc. Nine developing countries
benefit from this regime. Countries from
Asia include Pakistan, the Philippines
and Sri Lanka.
¾GSP – a standard regime that has fewer
preferences than the above-mentioned
preferential regimes but is also much
more advantageous than the conventional
non-preferential WTO regime known as
“Most Favourite Nation” treatment or
MFN. The standard GSP is applied in
18 developing countries among which
the Asian ones are – India, Indonesia,
Tajikistan, Uzbekistan, etc. Vietnam is
also included here.
The preferences under the standard GSP
regime are mainly in the area of industrial
goods where the level of EU development
is high enough to withstand any additional
competitive pressure. The total value of
4 Regulation (EU) No 978/2012 of the European Parliament
and the Council of 25 October 2012 applying a scheme
of generalized tariff preferences and repealing Council
Regulation (EC) No. 732/2008, Official Journal of the
European Union, L 3030/1-82, 31.10.2012.

Expected Impact of EU-Vietnam Free Trade Agreement
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Economic Alternatives, Issue 4, 2018
preferences under the standard scheme, in
terms of duty foregone if the same imports
had been declared for MFN treatment, stands
at about €1.5 – 2.0 billion per year.
5
The European Commission takes into
account the “sensitive” nature of some
sectors in the EU. This applies above all to
textiles, clothing, sports shoes, steel products,
some types of chemical products where
preferences are lower. Moreover, in order to
avoid problems in production in the EU, the
so-called graduation mechanism is applied. It
relates to the following:
yWhen the average value of imports from
a GSP beneficiary country (divided by
the total value of all GSP imports for
that Section) over 3 years exceeds the
general threshold of 57%.
yFor vegetable products, animal or
vegetable oils, fats and waxes and
mineral products, graduation applies
when the percentage share referred to
exceeds 17.5%.
yFor textiles, graduation applies when the
percentage share referred to exceeds
47.2%.6
According to Article 2(j) of Regulation (EU)
No 978/2012
7
restrictions on preferences have
been imposed on four countries benefiting
from the GSP - Standard regime - India,
Indonesia, Kenya and Ukraine. Thus, the
consideration is that there is no such group of
goods produced in Vietnam and imported into
the EU that pose a threat to some “sensitive”
production in the EU.
This shows that the entry into force of
the EU-Vietnam Free Trade Agreement
will lead to a transition from one type of
5
European Commission, Generalized System of Preferences,
file:///C:/Users/dimit/Desktop/tradoc_143051.pdf (4.8.2018).
6 European Commission, Trade Helpdesk, Standard GSP,
http://trade.ec.europa.eu/tradehelp/standard-gsp
(04.08.2018)
7
Commission Implementation Regulation (EU) 2016/330 of 8
March 2016, Official Journal of the European Union, L 62/11,
Brussels, 9.3.2016.
preferential trade to another kind of slightly
more pronounced preferential trade. Under
the current preferential trade, according
to WTO figures, approximately 90% of
Vietnamese agricultural imports and about
71% of non-agricultural imports enter at zero
duty in the EU.
8
After the entry into force of
the agreement this percentage will become
approximately 99% for all commodities.
It is quite a different picture when analyzing
the effects of the EU-Vietnam Free Trade
Agreement in the other direction of movement
of goods - from the EU, respectively from
Bulgaria to Vietnam. This is because the
import of European goods into Vietnam will
result in a transition from a completely non-
preferential customs regime such as the MFN
to the most preferential tariff regime (‘free
trade’, i.e. zero-duty trade). The magnitude of
tariff change by commodity groups is shown
in Table 3, where the current duties are
included, most of which are quite high. The
table lists these commodity groups where the
EU and respectively Bulgaria have the largest
export opportunities in Vietnam.
Table 3. MFN applied duties on Imports in Vietnam
by some product groups (2016, %)
AVG Max
Dairy products 10.3 20.0
Sugars and confectionery 17. 8 40.0
Beverages & tabacco 42.7 135.0
Minerals & metals 8.2 45.0
Chemicals 3.1 27.0
Non-electrical machinery 3.3 50.0
Electrical machinery 7.8 35.0
Transport equipment 17.8 75.0
Manufactures, n.e.s. 9.7 35.0
Source: Based on data of WTO, Vietnam Tariffs
and Imports: Summary and duty ranges, http://
stat.wto.org/TariffProfile/WSDBTariffPFView.
aspx?Language=E&Country=VN
More specifically, in order to identify the
product groups with the highest potential
8 WTO, Viet Nam Tariffs and Imports: Summary and duty
ranges, http://stat.wto.org/TariffProfile/WSDBTariffPFView.
aspx?Language=E&Country=VN (3.8.2018).


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for increased Bulgarian exports to Vietnam,
the RCA index for both countries has been
calculated. The bigger the difference between
countries’ RCA, the stronger the export
potential between them (Plummer, et.al., 2010,
op. cit. p.38).
Table 4 presents data on the two-digit
HS product groups in which Bulgaria has
comparative advantages on the world market
and is also more competitive than Vietnam.
In addition, the table presents data on the
actual export value in these groups from
Bulgaria to Vietnam and the average tariff
rates faced by the EU (respectively Bulgaria)
on the Vietnamese market. We can basically
distinguish four cases:
yProduct groups where the tariffs have
been high and still Bulgaria exported
to Vietnam. These products have the
highest potential to increase their
exports after the EVFTA takes effect
and the high tariffs are eliminated.
Such products are “Meat and edible
meat offal”, “Animal or vegetable fats
and oils and their cleavage products”,
“Sugars and sugar confectionery”,
“Preparations of cereals, flour, starch
or milk”, “Tobacco and manufactured
tobacco substitutes”, “Essential oils and
resinoids; perfumery, cosmetic or toilet
preparations”, “Albuminoidal substances;
modified starches; glues; enzymes”,
“Glass and glassware”, “Toys, games
and sports requisites and their parts”.
yProduct groups where the tariffs have
been high and Bulgaria didn’t export at
all to Vietnam. The elimination of the
tariffs could possibly provide some cost
advantage compared to other suppliers
and opportunity for Bulgarian products
to reach the Vietnamese market but it
is unrealistic a huge growth of exports
to be expected. This group of products
consists of “Dairy produce; birds’ eggs;
natural honey”, “Cereals”, “Cocoa and
cocoa preparations”, “Preparations of
vegetables, fruit, nuts or other parts of
plants”, “Articles of stone, plaster, cement,
asbestos, mica or similar materials”,
“Ceramic products”, “Miscellaneous
articles of base metal”.
yProduct groups where the tariffs have
been low and Bulgaria exported to
Vietnam. Here we would expect the
EVFTA to have weak positive effect
on the competitiveness of European
producers and a slight increase of
Bulgarian exports might be anticipated.
Among these products are “Oil seeds
and oleaginous fruits”, “Residues and
waste from the food industries; prepared
animal fodder”, “Pharmaceutical
products”, “Miscellaneous chemical
products”, “Copper and articles thereof”.
yProduct groups where the tariffs have
been low but Bulgaria did not export
to Vietnam. Obviously other factors
such as transportation costs, consumer
preferences, etc., play a more important
role than tariffs; hence EVFTA would
not have a significant impact on these
products exports, namely “Live animals”,
“Ores, slag and ash”, “Inorganic
chemicals; organic or inorganic
compounds of precious metals”,
“Fertilisers”, “Aluminium and articles
thereof”, “Lead and articles thereof”,
“Zinc and articles thereof”, “Railway or
tramway locomotives, rolling stock and
parts thereof”.

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Economic Alternatives, Issue 4, 2018
Table 4. Two-digit HS product groups with (higher) comparative advantages of Bulgaria over Vietnam in 2015-2017
HS
code Product group RCABG
(2015-17 av.)
RCAVT
(2015-17 av.)
Exports
of BG to VT in
2017 (000 $)
Tariff
faced by
BG (%)
01 Live animals 1.31 0.28 0 4
02 Meat and edible meat offal 1.00 0.07 1 372 16
04 Dairy produce; birds’ eggs; natural honey 1.62 0.19 0 8
10 Cereals 6.34 1.98 0 19
12 Oil seeds and oleaginous fruits 4.51 0.08 223 2
15 Animal or vegetable fats and oils and their cleavage products 2.00 0.20 98 12
17 Sugars and sugar confectionery 1.34 0.28 21 53
18 Cocoa and cocoa preparations 2.14 0.04 0 13
19 Preparations of cereals, flour, starch or milk 2.29 0.70 8 18
20 Preparations of vegetables, fruit, nuts or other parts of plants 1.44 0.83 0 28
23 Residues and waste from the food industries; prepared animal fodder 1.95 0.66 36 1
24 Tobacco and manufactured tobacco substitutes 5.01 0.53 943 106
26 Ores, slag and ash 1.87 0.07 0 0
28 Inorganic chemicals; organic or inorganic compounds of precious
metals 1.59 0.69 0 2
30 Pharmaceutical products 1.06 0.02 7 407 2
31 Fertilisers 2.72 0.34 0 3
33 Essential oils and resinoids; perfumery, cosmetic or toilet prepara-
tions 1.46 0.21 328 14
35 Albuminoidal substances; modified starches; glues; enzymes 1.74 0.28 51 10
38 Miscellaneous chemical products 1.03 0.26 6 056 2
51 Wool, fine or coarse animal hair; horsehair yarn and woven fabric 6.22 0.04 260 8
68 Articles of stone, plaster, cement, asbestos, mica or similar materi-
als 1.09 0.66 0 16
69 Ceramic products 2.07 0.76 0 25
70 Glass and glassware 3.64 1.15 14 16
73 Articles of iron or steel 1.44 0.63 32 8
74 Copper and articles thereof 10.27 0.34 63 2
76 Aluminum and articles thereof 1.38 0.37 0 5
78 Lead and articles thereof 14.17 0.77 0 0
79 Zinc and articles thereof 6.70 0.10 0 0
83 Miscellaneous articles of base metal 1.20 0.35 0 20
86 Railway or tramway locomotives, rolling stock and parts thereof;
railway or tramway track fixtures ... 1.50 0.01 0 0
95 Toys, games and sports requisites and their par ts 1.59 0.96 315 13
Source: authors’ calculations based on ITC data
In order to present a more detailed picture
of the products that are likely to enjoy the
largest increase in the exports from Bulgaria
to Vietnam as a result of EVFTA, the analysis
proceeds with a simulation using the partial
equilibrium model WITS-SMART. We apply a
scenario in which there is a full liberalization,
i.e. a 100% immediate tariff reduction to all
products at the HS-6 level. While this scenario is
not entirely in line with what EVFTA envisages,
given that for some sensitive products the
liberalization will be partial and progressive, it
aims to identify more clearly the liberalization
effect by representing the maximal possible
impact on Bulgaria’s exports.

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Table 5. Increase in Bulgarian exports to Vietnam after EVFTA
HS
Code
Product Exports
Before
(‘000 USD)
Exports After
(‘000 USD)
Exports Change
(‘000 USD)
Exports
change
(in %)
Tariff
schedule
category
1001 Wheat and meslin 20571 30425 9854 47.9 B3
2401 Unmanufactured tobacco; tobacco refuse 1968 4185 2218 112.7 B10-in quota
5515 Woven fabrics containing predominantly, but < 85% synthetic
staple fibres
747 1425 678 90.8 A
3004 Medicaments consisting of mixed or unmixed products for
therapeutic or prophylactic uses, put up in measured doses
11781 12231 451 3.8 A/B7
2836 Carbonates; peroxocarbonates “percarbonates”; commercial
ammonium carbonate
6581 6852 271 4.1 A/B5
3808 Insecticides, rodenticides, fungicides, herbicides, anti-sprouting
products and plant-growth regulators
3462 3600 138 4.0 A
6204 Women’s or girls’ suits, ensembles, jackets, blazers, dresses,
skirts
213 322 109 51.2 A/B3/B5/B7
2106 Food preparations, n.e.s. 328 434 107 32.3 B7/B5
8536 Electrical apparatus for switching or protecting electrical circuits,
or for making connections
378 480 102 27.0 B5/B3
2507 Kaolin and other kaolinic clays, whether or not calcined 1291 1391 100 7.7 A
5206 Cotton yarn containing predominantly, but < 85% cotton by
weight
33 125 92 278.8 A
0307 Molluscs, fit for human consumption 530 611 81 15.3 A/B3
4202 Trunks, suitcases, vanity cases, executive-cases, briefcases,
school satchels
31 75 44 141.9 B5
3902 Polymers of propylene or of other olefins, in primary forms 526 566 40 7.6 A
5210 Woven fabrics of cotton, containing predominantly, but < 85%
cotton by weight
75 114 39 52.0 A
6203 Men’s or boys’ suits, ensembles, jackets, blazers, trousers 72 109 37 51.4 A/B3/B5/B7
1905 Bread, pastry, cakes, biscuits and other bakers’ wares, whether
or not containing cocoa
54 91 36 68.5 B5
Source: WITS-SMART simulation; EU-Vietnam Free Trade Agreement: Agreed text as of January 2016
Legend: A-customs duties eliminated entirely since the date of entry into force of EVFTA; B3 – customs duties eliminated in 4 equal
annual stages since the date of entry into force of EVFTA; B5 - customs duties eliminated in 6 equal annual stages; B7 - customs
duties eliminated in 8 equal annual stages; B10-in quota – the in quota customs duties eliminated in 11 equal annual stages, the out
of quota cus toms duties are unbound.
The results from the simulation present
what would have been the value of Bulgarian
exports for the last year with available data
(2016) had there been no tariffs in the trade
relations with Vietnam. In total, Bulgarian
exports to Vietnam would have been higher
by 14.8 million USD (almost 16% growth) in a
tariff-free trade regime. The biggest Bulgarian
gainers from EVFTA will be the exporters
of unprocessed agricultural products such
as wheat (increase of 9.8 million USD) and
tobacco (increase of 2.2 million USD). Other
products expected to gain from increased
exports include woven fabrics, medicaments,
carbonates, insecticides, apparel, food
preparations, electrical apparatus. Here
it is useful to look at the tariff liberalization
schedule stipulated in EVFTA for Vietnam.
Only products which fall into tariff schedule
category A will experience immediate
elimination of customs duties. Other customs
duties will be eliminated over a transitional
period of up to 10 years. In the case of
tobacco, which is among the products with
the largest increase of exports in the case
of full and rapid removal of customs duties, a
tariff rate quota will be maintained albeit with
reduction of the in-quota rate to zero over 10

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478
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Economic Alternatives, Issue 4, 2018
years. Therefore, producers of sensitive goods
will have to wait quite some time before being
able to take full advantage of the EVFTA.
Conclusions
The first conclusion that can be drawn
is that there are very good traditions in
the development of trade and economic
cooperation between Bulgaria and Vietnam,
and these traditions can be used as a basis
to realize significant positive effects of the
liberalization of mutual trade through the
EU-Vietnam Free Trade Agreement. Positive
influence can be expected not only in the
international trade but also in investments,
industrial and scientific cooperation.
Another conclusion is that given that
Vietnam has already been using a customs
regime with strong preferences such as the
Generalized System of Preferences, the
transition from this type of customs treatment
to treatment following the entry into force of
the EU-Vietnam Free Trade Agreement will not
have a significant impact on EU imports and
on competition on the EU internal market as a
whole, and more specifically on the Bulgarian
market. Some significant impacts from trade
liberalization can be expected in the other
direction of trade - from the EU to Vietnam.
Specifically with regard to Bulgarian
exports, the partial equilibrium simulation by
using the SMART model shows that in the
case of full liberalization, Bulgarian exports
to Vietnam will increase by almost 15 million
USD which is less than 0.1% of total exports
of Bulgaria to the world. On macroeconomic
level this is not a significant value, yet in the
long run EVFTA would open up good export
opportunities for producers of goods in which
Bulgaria possesses comparative advantages.
Both the trade indicators analysis and the
SMART model simulation suggest that these
are products from the food and beverages
industry (cereals, tobacco, meat, sugar
confectionery, food preparations, etc.), the
chemical industry (pharmaceuticals, inorganic
chemicals, insecticides and herbicides,
essential oils and cosmetics, etc.) the textiles
industry (woven fabrics, cotton yarn).
Since the EVFTA envisages long transition
periods for sensitive goods, some Bulgarian
producers (exporting tobacco, processed
food, apparel) will need to wait for some
years to reap the benefits arising from the
Agreement.
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