COURSE: INTERNATIONAL ECONOMICS

(INE 2020-E)

FINAL ASSIGNMENT

Course coodinator: Dr. Hoang Thi Bao Thoa

Assoc. Prof. Nguyen Dac Hung
Assoc. Prof. Nguyen Thi Kim Anh
Name of student: Bùi Khánh Linh
Date of birth: 19/10/2001
Student ID: 19051324

Hanoi, 2021

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Part 1: Analyze the trade pattern of Vietnam in two years 2018 and 2019. Which
international trade theories can be used to explain Vietnam’s trade pattern?
Supporting your answers with relevant arguments and data.
Vietnam is a developing country, however, it has quickly successfully implemented
bilateral and multilateral Free Trade Agreements (FTAs), contributing to expanding
market scope and increasing investment expanding domestic production, boosting
Vietnam's export growth. 2018 and 2019 were a challenging year for not only Vietnam
but the whole region as it had to accept many risks surrounding the "US – China trade
war". This makes the trend of trade protectionism in countries increase. However, thanks
to the proactive and timely monitoring and response by the Ministry of Industry and
Trade and other ministries, Vietnam's trade situation is well controlled, thereby creating a
balance of payments surplus for Vietnam at very high levels of 7.39 and 9.01 billion USD
for 2018 and 2019 respectively.

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 Export and import turnover by continent, country block and some major markets in 2018
According to statistics from the General Department of Customs, in 2018 Vietnam's
goods trade with other continents increased compared to 2017. The total value of
Vietnam's goods exchange with Asia in 2018 reached 321.4 billion USD, an increase of
11.9% compared to 2017 and is the continent accounting for the highest proportion in the
total import and export turnover of the country. Next is the import and export between
Vietnam and the countries of the Americas with a turnover of 78.37 billion USD, up
14.6% over the previous year; with Europe reached 64.11 billion USD, up 10.5%;
Oceania reached US$ 9.31 billion, up 19.1%; Africa reached 6.98 billion USD, up 3.9%.
In all markets where Vietnam has signed a Free Trade Agreement (FTA) recorded good

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growth. In which, import and export between Vietnam and China is the largest, reaching
106.7 billion USD, accounting for 22.2% of the total import and export value of the
country. Followed by South Korea with 65.7 billion USD (accounting for 13.7%), the US
with 60.3 billion USD (accounting for 12.6%), Japan with 37.8 billion USD (accounting
for 7.9%).

Export and import turnover by continent, country block and some major markets in 2019
In 2019, in the context of the world economy having many risks and a decline in global
trade, Vietnam still maintained a positive import and export growth rate. Vietnam's
import and export of goods with Asia reached 338.35 billion USD, continued to account
for the highest proportion of 65.4% of the total import and export turnover of the country.
Asia's import and export value increased by 5.1% compared to 2018, of which export
value was 135.45 billion USD, up 2.9% and import value was 202.9 billion USD, up
6,6%.

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Import-export turnover between Vietnam and other continents is: Europe: 65.9 billion
USD, up 2.8%; Oceania: 9.6 billion USD, up 4% and Africa: 7.07 billion USD, up 1.2%
compared to 2018. In 2019, China continues to be Vietnam's largest import-export
partner South, reaching 106.71 billion USD, followed by South Korea with 65.7 billion
USD, the United States reaching 60.28 billion USD and Japan reaching 37.86 billion
USD.
Following the Gravity Model:
The gravity model is an econometric model, and is an effective tool in explaining the
volume and direction of bilateral trade between countries, and is widely used in
international trade. The gravity model in international trade was first used to measure the
value of exports between two countries, built and developed by two scientists Timbergen
(1962) and Poyhonen (1963). The basic gravity model picks up two important stylized
facts of international trade: bigger countries trade more, and more distant countries trade
less. This model is clearly a useful starting point in applied international trade research.
Countries in Asia such as China, Korea, Japan, etc. have a shorter distance to Vietnam
than countries in other continents. That is the reason why Asia was continuously
Vietnam's largest trading partner during 2018 and 2019. In which, China was Vietnam's
largest trading partner in both years and was the largest trading partner of Vietnam in
both years, which is fitted with the gravity model because Vietnam and China share a
border, so the distance between the two countries is very close. Moreover, China is also a
country with a large economy (ranked 2nd in the world after the US). Although the US is
a very distant country compared to Vietnam, it is continuously the third largest trading
partner of Vietnam. That is because the US is the country with the largest economy in the
world, so the ratio of the size of the US is much higher than the distance between the US
and Vietnam.
Export of Vietnam in 2018:

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 Source: General Department of Customs
According to the report of the General Department of Customs, in 2018 Vietnam's total
export value reached 243.48 billion USD, up 13.2%, equivalent to 28.36 billion USD
compared to 2017. In which, the total value commodity exports in 2018 of the group of
FDI enterprises reached 171.53 billion USD, up 12.4% (equivalent to 18.98 billion USD)
over the previous year, accounting for 70.4% of the total export value of the whole
country.
Phones and components are still Vietnam's largest export group in 2018. The export value
of this group of goods reached 49.08 billion USD, up 8.4% compared to 2017. China
continues to be the market. ranked first in importing all kinds of phones and components
from Vietnam in 2018 with a turnover of 9.38 billion USD, up 31.1% compared to 2017.
The second largest market was the United States with a turnover of 5,41 billion USD, up
46.1% compared to 2017. The second largest export group is textiles, with a value of
30.49 billion USD in 2018, up 16.7% compared to 2017. Third on the export list are
computers, electronic products and components. The export value of this group of goods
reached 29.32 billion USD, up 12.9% compared to 2017. Holding the fourth position is
machinery, equipment, tools and other spare parts. Exports of this group of goods reached
16.55 billion USD, up 28.2% compared to 2017. Footwear is the fifth largest export

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group. Footwear exports of all kinds in 2018 reached 16.24 billion USD, up 10.6% over
the previous year. Wood and wood products ranked 6th. The export value of this
commodity group reached 8.91 billion USD, up 15.7% over the previous year. Wood and
wood products are mainly exported to the US market with a value of 3.9 billion USD; to
Japan with 1.15 billion USD; to China with 1.07 billion USD. Seventh place is seafood.
The export value of this item in 2018 reached 8.8 billion USD, up 5.8% compared to
2017. In 2018, seafood products were mainly exported to the US market with 1.63 billion
USD, up 15.7%; to the EU reached 1.47 billion USD, a slight increase of 0.7%; to Japan
reached 1.39 billion USD, up 6.4%. The eighth is means of transport and spare parts with
an export value of 7.96 billion USD, up 13.5% compared to 2017. The group holding the
9th largest export position are cameras, camcorders and cameras. accessories. The export
value of this commodity group of Vietnam reached 5.24 billion USD, an increase of
37.8% compared to 2017. And the 10th largest export group of Vietnam is iron and steel
of all kinds, reaching 4.55 billion USD.
Import of Vietnam in 2018:

Source: General Department of Customs

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The total import value of Vietnam in 2018 reached USD 236.69 billion, up 11.1%
(equivalent to USD 23.68 billion) compared to 2017. The main increasing items are:
Computer products electronics and components increased by 4.42 billion USD; crude oil
increased by 2.27 billion USD; plastic materials increased by 1.48 billion USD; fabrics
and other common metals increased by 1.39 billion;… compared to the previous year.
Specifically, computers, electronic products and components reached 42.2 billion USD,
up 11.7%. With this import scale, computers, electronic products and components still
maintain the leading position established since 2017. The main markets supplying this
product group to Vietnam include: Korea with metal turnover of 17.26 billion USD, up
12.6%, accounting for 41% of the total import turnover of this commodity group of the
country; China with 7.83 billion USD, up 10.6%; the Japanese market with 4.06 billion
USD, up 27.2%... In second place was machinery, equipment, tools and spare parts with
33.73 billion USD, down slightly by 0.5%. Phones and components ranked third with
15.87 billion USD, down 3.5%. Following in fourth place is the group of textile and
garment materials, leather, shoes (cotton, textile fibers, fabrics of all kinds, textile
materials, garment, leather, shoes) reaching 23.91 billion USD, up 13. 9%. Iron and steel
products ranked fifth with 13.53 million tons, worth 9.89 billion USD, down 9.8% in
volume but up 9% in value. Ranked 6th is plastic materials with 9.07 billion USD.
Petroleum is the 7th largest commodity group imported into Vietnam, reaching 11.43
million tons, worth 7.64 billion USD, down 11.4% in volume but up 8.1% in value. .The
8th place is other common metals with 7.25 billion USD, an increase of 1.39 billion USD
compared to 2017. The 9th is plastic products with 5.89 billion USD. And finally, raw
materials for textiles, leather and shoes reached 5.71 billion USD.
Export of Vietnam in 2019:

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 Source: General Department of Customs
According to statistics of the General Department of Customs, the total export value in
2019 increased by 8.4%, equivalent to an increase of USD 20.49 billion compared to
2018. In which, the export of phones and components continued ranked first, reaching a
record of 51.38 billion USD, up 4.4% compared to 2018. In which, the export of this
group of goods to the EU (28 countries) reached 12.36 billion USD, down 7%; exports to
the US market reached 8.9 billion USD, up 64.3%; to the Chinese market reached 8.29
billion USD, down 11.9%; to Korea reached 5.15 billion USD, up 13.5%... compared to
the previous year. Next, in second place are computers, electrical products and
components. The export value of this group of goods in 2019 reached 35.93 billion USD,
up 21.5% compared to 2018. Textile and garment exports ranked third, reaching 32.85
billion USD, up 7.8%. Footwear exports of all kinds of the whole country in 2019 ranked
4th, reaching 18.32 billion USD, up 12.8% compared to 2018. Export value of
machinery, equipment, tools and spare parts others reached 18.3 billion USD, ranked 5th
and increased 11.9% over the previous year. In sixth place is wood and wood products
with 10.65 billion USD, up 19.5% over the previous year. Vehicles and spare parts
ranked seventh and reached 8.51 billion USD, up 6.1% compared to 2018. Next, ranked
8th were plastics and plastic products with 4.7 billion USD, increased by 0.69 billion

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USD compared to 2018. In 9th place are gems and precious metals with 2.08 billion
USD. And finally in 10th place are domestic products made from materials other than
wood reaching 1.69 billion USD.
Import of Vietnam in 2019:

Source: General Department of Customs

By the end of December 2019, the import value of goods of the whole country reached
253.07 billion USD. In which, there were 38 main commodity groups with over 1 billion
USD, accounting for 90.7% of the total import value of the country. With this result, the
import value of goods in 2019 is 16.2 billion USD higher than 2018, corresponding to an
increase of 6.8% compared to 2018. Computers, electronic products and components
continue to is the group of goods that Vietnam imports the most, reaching 51.35 billion
USD, up 19.1% compared to 2018. The largest export markets of computers, electronic
products and components to Vietnam are: Korea with a value of USD 16.84 billion,
China with a value of USD 12.11 billion, Taiwan with a value of USD 5.53 billion,...
Ranked second is machinery, equipment, tools and spare parts. reached 36.75 billion
USD, up 11.8% compared to 2018. Total import turnover of plastic materials and plastic
products in 2019 reached 15.53 billion USD, ranked 3rd and increased 3.5% compared to
2018. Ranked 4th is chemicals and chemical products, the import value of this
commodity group reached 10.55 billion USD, up 3.4% over the previous year. Ranked
5th is auto parts and accessories with 4.16 billion USD. Ranked 6th is iron and steel
products reaching 4.07 billion USD. Next, the import value of the 7th ranked commodity

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group, coal, reached 3.79 billion USD. Ranked 8th is crude oil reaching 3.6 billion USD.
Ranked 9th is complete car with 3.16 billion USD. And finally ranked 10th is ores and
other minerals reaching 1.53 billion USD.
In 2018 and 2019, phones and components have always been the group of goods with the
largest export value of Vietnam. It is due to the influence of the "US – China trade war"
that multinational corporations in technology such as Samsung, LG, ... invested in
building factories in Vietnam. That is also one of the reasons for Vietnam's BOP in 2018
and 2019 have a large surplus.
The comparative advantage:
Comparative advantage is an economy's ability to produce a particular good or service at
a lower opportunity cost than its trading partners. Generally, a nation has a comparative
advantage if it has lower relative cost and higher productivity. According to comparative
advantage, all of Vietnam's imported products are products that Vietnam does not have a
comparative advantage in production such as: electronic products, machinery, equipment,
tools, car, mineral fuel, mineral oil, etc. That's because Vietnam has outdated technology
and mostly unskilled labor. So the productivity of that good is very low and the cost of
production is very high. It makes the price of imported goods lower than that of the
country's own product. Also, Vietnamese should import those goods to take advantage of
it.
The Hecksker – Ohlin theory:
The Heckscher – Ohlin model is an economic theory that proposes that countries export
what they can most efficiently and plentifully produce. It's used to evaluate trade and,
more specifically, the equilibrium of trade between two countries that have varying
specialties and natural resources. The model emphasizes the export of goods requiring
factors of production that a country has in abundance. It also emphasizes the import of
goods that a nation cannot produce as efficiently. According to the Heckscher – Ohlin
theory, Vietnam does not have capital abundant and the production cost of high-capital
(such as car, computer, ... ) is more expensive than other nations. So, Vietnam should
import the capital intensive product.
Conclusion:
Overall, there are many international trade theories that can explain Vietnam's trade
pattern. However, within the framework of this article, I only present a gravity model to
explain the main import and export markets of Vietnam. In addition, I also use
Heckscher–Ohlin theory and comparative advantage to explain the main import and
export goods of Vietnam.

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Part 2: What are the methods that an MNC applies to carry out transfer pricing in its
intra-firm trade? Give examples to illustrate.
Transfer pricing is an activity of multinational corporations and firms to reduce the
amount of tax payable by valuing the purchase and sale of products, raw materials, etc.,
between companies with common control, don't follow the market price to get the best
profit. Through transfer pricing that MNC use to cross-transfer with their subsidiaries,
often to avoid taxes.
The methods that an MNC applies to carry out transfer pricing in its intra-firm trade:
- Transfer pricing through tangible asset transfers: A transfer of tangible property is
the sort of transaction traditionally considered when evaluating a company’s
transfer pricing practices. Tangible assets include raw materials, finished products
and goods of the corporate. This method is intended to help the corporate not need
to pay tax obligations. In this way, parent companies tend to declare materials
higher than the market price for the subsidiary. Thereby, helping companies
transfer profits abroad through payment for imported goods with the parent
company.
- Transfer pricing through intangible transfers: this is often a preferred sort of
capital contribution with foreign investors with intangible assets like technology
software, material possession rights,... particularly, it's very difficult to audit intra-
firm transfers of intangible assets thanks to the subsequent ambiguous nature of
intangible assets. Firstly, it's easy to transfer intangible assets across countries
without accompanying production. Thus, MNC tend to locate their intangible
assets in tax havens to minimise tax payments. For example, profits shifted to eire
via royalties accounted for about 23% of Ireland’s annual GDP between 2010 and
2015. Secondly and more importantly, finding appropriate fees or royalties of
intangible assets is difficult, because there's often no comparable transaction for
intangible assets
For example, Adidas Itd AG is a multinational company founded in Germany in
1948, which is the largest manufacturer of sports equipment in Europe. Adidas
products came to Vietnam in 1993 and in 2009, Adidas established a subsidiary in
Vietnam, Adidas Vietnam limited company. Since the end of 2012, Adidas
Vietnam has operated under a business registration license as a wholesale
distribution right, but the list of expenses of this business appears many costs of a
retail business such as: support costs, support for retailers, international marketing
fees, regional management fees, purchase commissions and especially, Adidas
Vietnam is not the manufacturer, but royalties arise. In fact, Adidas Vietnam pays

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 Adidas AG Company a royalty fee of 6%, international marketing expenses of 4%
of net sales for the products sold and also the value of the licensed product. In
addition, under the Southeast Asia service contract between Adidas Singapore and
Adidas Vietnam, Adidas Singapore and its local subsidiaries, including Adidas
Vietnam, provide a service and agree on the collection of related fees. mandarin.
With too many input intermediary costs, the import price of Adidas products in
Vietnam market has been inflated, making Adidas Vietnam always fall into a state
of loss and not have to pay corporate income tax.
- Transfer pricing through internal service provision: Internal services include
management and administrative costs, etc. This method is a common method that
subsidiaries perform to transfer profits abroad. Subsidiaries hire qualified
managers with high salaries, and at the same time they also have to pay a sum to
the parent company for providing managers. Or businesses send employees to
practice and learn at the parent company at a high cost. In addition, the
subsidiaries can also hire consultants from the parent company and pay the costs,
but it is difficult to determine the effectiveness and whether the costs are
appropriate. Although tax authorities may notice irregularities, there is no basis to
determine the business's false declaration. For example: In October 2007,
Keangnam Vina Company of Keangnam Group signed a contract with Keangnam
Enterprise Company - also a member of Keangnam Group of Korea to act as EPC
general contractor. The total contract value is up to 871 million USD. Keangnam
Enterprise Company not only undertakes surveying, project design, equipment and
machinery supply, construction, but also provides financial consulting services,
loan arrangement for Keangnam Vina. In 2008, the financial advisory fee was paid
by Keangnam Vina investor for Keangnam Enterprise Korea up to 30 million
USD. Loan arrangement service fees up to 20 million USD and other expenses.
Due to these expenses, Keangnam Vina continuously reported losses and therefore
did not pay corporate income tax. This loss translates into a profit of Keangnam
Enterprise in Korea. Meanwhile, Keangnam Enterprise only has to pay contractor
tax to Vietnam at a much lower tax rate than corporate income tax in Vietnam.
- Transfer pricing through lending: When a profitable subsidiary is located in a
country with high corporate income tax, it lends to the parent company or other
subsidiaries at low or even zero interest rates in order to help all MNC has capital
to expand the market. On the other hand, this subsidiary can borrow from the
parent company at a very high interest rate, thereby making its pre-tax profit
negative and avoiding corporate income tax. For example, Keangnam - Vina One

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 Member Company Limited is an enterprise with 100% Korean capital, belonging
to Keangnam Group, established in 2007, operating in the field of construction,
real estate and hotel service business. , offices, commercial centers and apartments
for rent in Hanoi. From 2007 to 2011, the business continuously reported losses of
tens of billions of dong per year. In 2011, the Company started to have revenue
from the Landmark Tower project, reaching over 5,200 billion VND, but losing
more than 140 billion VND. Through investigation by tax authorities, in May
2007, Keangnam - Vina Company signed a loan contract from Kookmin Bank, a
member unit of Keangnam Group in Korea. So far, this company has borrowed a
total of 400 million USD from this bank and the total interest and financial costs
of the loan has reached over 2,000 billion VND. Keangnam Vina company has
paid an average interest rate of about 12%/year on a loan from Kookmin Bank.
Meanwhile, the interest rate on loans in USD in Vietnam recently is only 5-7% per
year.
Part 3: Should the current account deficit be a cause for an alarm for policy-makers? Describe
and present the current situation of balance of payments in Vietnam since 2010? Propose
solution(s) to improve the deficit in current account in Vietnam.
- The current account deficit is a measurement of a country’s trade where the value
of the goods and services it imports exceeds the value of the products it exports.
The current account includes net income, such as interest and dividends, and
transfers, such as foreign aid, although these components make up only a small
percentage of the total current account. The current account represents a country’s
foreign transactions and, like the capital account, is a component of a country’s
balance of payments (BOP). [ CITATION Car201 \l 1066 ]
In some developing countries, the current account deficit is normal because it
depends on the policy of each country. At an early stage of development, a current
account deficit indicates that a country's economy is growing well. Because, when
an economy has good growth potential, there are many investment opportunities
with high returns, investment demand is higher than domestic saving capacity.
Thereby causing foreign capital flows to flow into that country to meet investment
needs. For example, Vietnam is an industrialized - modernized country and is on
the way of development, so it has to import high-priced equipment. As a result, the
capital intensive level is high and the import turnover increases. So it's normal to
have a current account deficit. On the other hand, in some cases, current account
deficits in developed countries are not good. According to economic theory, when
the current account deficit is large and prolonged without necessary measures such

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 as raising interest rates, devaluation, cutting government spending, etc., the
economy can will face the risk of a currency crisis. For example, Thailand's
currency crisis in 1997, when the country due to the current account deficit was
too large above 8%, along with short-term loans that were unable to pay, could not
be kept. the price of the currency and foreign exchange reserves are exhausted. In
addition, the UK ran a current account deficit following the 2016 Brexit vote. The
UK ran a current account deficit because it was a country that used high levels of
debt to finance excessive imports. A large portion of the country's exports are
commodities, and falling commodity prices have resulted in lower profits for
domestic companies. This fall in commodity prices causes less income to flow
back into the UK, increasing the current account deficit.
In conclusion, the current account deficit is only bad when the deficit that is too
large, prolonged and thereby leads to balance of payments crises. To assess
whether the current account deficit is alarming for policymakers or not, it is
necessary to consider each case by case, not just looking at the current account
deficit number and saying that the economy of that country is weak.

Source: General Department of Customs

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 - According to statistics from the General Department of Customs, Vietnam's total
export turnover in 2011 was 78.9 billion USD and increased gradually over the
years to reach 218.8 billion USD in 2019. From 2014 to 2019, Vietnam's total
export turnover is always higher than the total import turnover, and since then,
Vietnam's BOP started to run a surplus, and from 2014 to 2011, Vietnam's BOP
always in deficit. 2011 marked a year with a large deficit in Vietnam's BOP at
8.92 bilion USD. However, by 2012, the deficit in Vietnam was only 0.31 billion
USD and by 2014 Vietnam's BOP started to run a surplus. The BOP deficit in
Vietnam is the result of rapidly growing investment, outstripping domestic
savings. The imbalance between savings and investment in Vietnam for many
years as a root cause of large macroeconomic imbalances in Vietnam, including
the trade deficit. Thus, the trade deficit can be reduced by policies that address
overinvestment. In addition, the opening of the economy, the reduction of trade
and investment barriers, including the implementation of the Vietnam – US Trade
Agreement (BTA) and Vietnam's accession to the World Trade Organization
(WTO) as one of the most important factors contributing to the growing BOP
deficit. On the other hand, the balance of payments deficit in Vietnam is a
consequence of the distortion of the economic structure. In addition to capital
goods imports, the export industry in Vietnam is overly dependent on imported
raw materials and intermediate inputs to produce and assemble exports. As a
result, export industries are characterized by heavy import dependence and low
domestic value added. Then there are the consequences of the failure of export
industries to move up the value chain and diversify away from exports with low
cost, limited skills, and reliance on mass production and volume of goods.
According to statistics of the General Department of Customs, in 2014 Vietnam's
export value of goods reached 124.1 billion USD, while the import value reached
121.4 billion USD, creating a surplus of 2.72 billion USD. However, the BOP
surplus in 2014 was not really sustainable, there were still many limitations,
highlights and concerns, especially when the domestic economic sector had not yet
escaped the persistent trade deficit with scale up to tens of billions of dollars. The
added value from exports is not high because it is still mainly at the level of
processing and assembly. The increase in export turnover in some product groups
is still passive, depending on the strategies and plans of a few transnational
corporations while lacking the initiative right from the calling to approval and
implementing large FDI projects. As forecast, in 2015, Vietnam's BOP was in
deficit at 3.18 billion USD. The reason for this situation is that Vietnam's imports

16
 in 2015 increased too sharply. Vietnam mainly imports machinery, electrical
goods and components. Therefore, this increase also shows that Vietnam is
continuing to expand its production capacity. The shift in the value chain of
electronics production in the region requires sustained growth in imported inputs.
Besides, imports of FDI enterprises increased much higher than that of domestic
enterprises, a factor that shows that imports are mainly inputs of export goods.
With an economy that does not have a competitive advantage in the production of
basic goods, as Vietnam's production capacity expands, machinery and equipment
for production are mainly imported. Thereby, it can be seen that the BOP deficit in
2015 is good because it helps to increase the production capacity of the economy
in the long run. From 2016 to 2019, Vietnam's BOP continuously had a surplus
from 2.53 billion USD to 9.01 billion USD. That is because, Vietnam has
implemented policies of cooperation and integration, and implemented the stages
of multilateralization and diversification, in which, implementation of investment
and integration measures as well as implemted policíe of multilateralization and
cooperation. These measures have helped Vietnam's export path prosper and
turned Vietnam's trade balance in recent years into positive parameters.
- According to the theory of interest rate parity, the currency of a given country with
a lower interest rate inevitably forms forward premiums for the forward contract
against the currency of a high interest rate country. than. In other words, the
forward premium on the forward price is approximately equal to the interest rate
differential between the two currencies. The international Fisher effect again
focuses on how the spot rate of a currency will change over time, asserting that the
spot rate will change with the difference in interest rates between the two
countries. Equilibrium in the foreign exchange market requires interest rate parity,
whereby the expected returns on deposits of any two currencies are equivalent.
Only when the expected rates of return for all currencies are equal, i.e. when the
interest parity condition is satisfied, will no currency be in a state of oversupply or
oversupply and the market The exchange rate will be in equilibrium. Therefore, it
can be said that the foreign exchange market will be in equilibrium when there are
equal conditions for returns. The policy of high interest rates tends to support the
appreciation of the local currency, because it attracts foreign capital inflows into
the country. If domestic interest rates are higher than foreign interest rates, capital
inflows will result. This causes an increase in the supply of foreign currency in the
market (which also means an increase in the demand for the domestic currency),
so that the foreign currency will tend to depreciate in the market, or the domestic

17
 currency will appreciate. In the opposite case, if the domestic currency interest rate
is lower than the foreign currency interest rate, the foreign currency tends to
appreciate or the domestic currency will depreciate. Thus, the policy of high
interest rates will promote the appreciation of the domestic currency, which in turn
will stimulate imports and reduce exports, or increase the trade and current
account deficits. On the contrary, when interest rates are low, foreign currencies
tend to appreciate, which increases the competitiveness of domestic goods and
promotes narrowing of the trade balance deficit, reducing the current account
deficit. In addition, Vietnam can use direct tools of trade policy, tariff measures
within the bounds of most favoured nation treatment (MFN) commitment and
non – tariff measures such as the use of technical barriers and import quotas;
consider applying the BOP exception clause in the WTO rules to emergency
situations. Besides, Vietnam can reduce the current account deficit through cutting
spending and public investment by drastically cutting public spending, stopping
short-term public investment but must be applied on a prudent basis and strictly
control investment activities of state-owned enterprises. Another solution is that
Vietnam can seek more capital flows that can be offset in the short term by
boosting the attraction of foreign investment, especially FDI, but on the basis of
caution to avoid the risk of receive poor quality FDI in order to leave negative
impacts in the long term, utilize this capital effectively and create favorable
conditions to attract remittances. The Vietnamese government should also
continue to tighten monetary policy and allow the Vietnamese dong to fluctuate
more flexibly. [ CITATION Ngu11 \l 1066 ]

REFERENCES

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Vietnamese:
1. Thương, B. C. (2019). Báo cáo xuất nhập khẩu Việt Nam 2018. Hà Nội: Nhà xuất
bản Công Thương.
2. Thương, B. C. (2020). Báo cáo xuất nhập khẩu Việt Nam 2019. Hà Nội: Nhà xuất
bản Công Thương.
3. Trang, N. T. H., Anh, N. N., & Chúc, N. Đ. (2011). Thâm hụt tài khoản vãng lai:
Nguyên nhân và giải pháp. Trung tâm nghiên cứu và chính sách (DEPOCEN), Hà
Nội, 17(3), 2011.
English:
1. Adam, H. (2020). Comparative Advantage. Investopedia
2. Baistrocchi, E., & Roxan, I. (Eds.). (2012). Resolving transfer pricing disputes: a
global analysis. Cambridge University Press.
3. Banton, C. (2020). Current Account Deficit. Investopedia.
4. Carol, M., Kopp (2020). Heckscher-Ohlin Model. Investopedia
5. Choi, I., Furusawa, T., Ishikawa, J., Tørsløv, T., Wier, L., Zucman, G., ... & Perry,
V. (2021). Transfer pricing of intangible assets with the arm’s length
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