Assessing potential impacts of the EVFTA on Vietnam’s pharmaceutical imports from the EU: an application of SMART analysis

This paper by adopting the Software on Market Analysis and Restrictions on Trade assessed the ex-ante impact of tariff elimination under the European-Vietnam free trade agreement (EVFTA) on Vietnam's pharmaceutical imports from the EU based on two scenarios. The results showed that although Vietnam's tariff removal for the EU's medicines would not result in a significant increase in Vietnam's imports from the EU, Vietnam's deeper integration with ASEAN + 3 and TPP (the Trans-Pacific Partnership) nations would affect quite slightly on its imports from the EU. Therefore, the EU would be still the most important and biggest source of pharmaceuticals for Vietnam in the near future. In addition, there might be an uneven distribution in Vietnam's import increases by the EU nation, pharmaceutical group and product. The simulation results also pointed out that the EVFTA's trade creation effect would be higher than trade diversion effect and therefore the agreement would improve welfare of Vietnam. When Vietnam extends its coverage of tariff elimination to also TPP and ASEAN + 3, Vietnam's welfare would potentially increase more but Vietnam would face with the relatively high increases of pharmaceutical imports from not only the EU but also the US, Australia, South Korea, Thailand and China. Bases on these results, the paper argued that both the Vietnamese government and pharmaceutical enterprises should not neglect the EVFTA and its impacts on the pharmaceutical sector, and perceive clearly the uneven distribution of Vietnam's import changes from the EU by nation and by product to design appropriate business and investment strategy. In addition, Vietnam should take measures to diversify its European import markets to be less dependent on the traditional ones in the current context of the EU. Finally, Vietnam should promote the integration in the pharmaceutical sector with all three groups of nations, especially ASEAN and ASEAN's key partners, to reduce trade diversion effect and raise the welfare of Vietnam, given that Vietnam should consider carefully the point of time to remove tariff for each group to avoid the sudden increase in its pharmaceutical imports.