A less rosy view on Vietnam’s opportunity in TPP – by Hoa Duong
From 1994, Vietnam opened to trade and quickly entered multiple trade agreements, e.g. AFTA, FTA, AJCEP… It is fair to say that Vietnam has benefited much from these trades to make considerable economic development. Now, when it comes to the Trans-Pacific Partnership (TPP), Vietnam will experience a whole different story.
So-called ‘the most important trade agreement of the 21st century’, TPP attracts worldwide attention for its enormous extent. Currently, it involves 12 countries from three continents in negotiation, let alone five extra which are expressing interest. After its 19th negotiation round in last August, TPP has not yet been settled. TPP indeed promises Vietnam with plenty of advantages, but Vietnam may not ready enough for TPP.
Some economic gains from TPP for Vietnam are measurable. Joining TPP, Vietnam can mark its export value to other member countries at US$ 45.1 billion, equal to 39% of its total exports. Import value will be able to reach US$ 30.3 billion which is roughly 27% of Vietnam’s total import value.
Tariff can be eliminated up to 100%, and the loss of Vietnam government in import tariff revenue can be offset with a surplus trade balance. Vietnam garment exports to the US can raise its share in the US garment market by 125 percent (from 8 to 18 percent share). Estimated figures also appear optimistic for capital flow as well as future improvement of such fields as communication, finance or transportation.
Vietnamese consumers may welcome TPP the most. Once TPP be enforced, they can grab inexpensive high-quality products made from Canada or New Zealand at every nearby supermarket.
Most importantly, with the exclusion of China, Vietnam will become the main sources of cheap labor in TPP.
Every opportunity comes with a price. Under TPP, Vietnam will need to fulfill strict requirements on production conditions, e.g. environment, technique, patent rights, labors rights. These barriers pose real challenges for Vietnam, even in areas that Vietnam has comparative advantage.
Agricultural sector is an example. Low level of industrialization and technological application makes this sector not productively stable. Plus the fact that Vietnam’s agricultural products have not gained sound reputation in global market. How can these products compete with ones from developed members?
It is likely that Vietnam’s garment production will go through sheer modification. Vietnam can export apparel to TPP members only when ‘yarn forward’ ROO (rule of origin) is met. This means input materials (from yarn stage forward, e.g. fabric, thread) to produce garment need to be self-supported by Vietnam or exported from other members. Currently, Vietnam’s textile materials originate from Mainland China or South Korea.
Towards a foreseeable flux of foreign investment, Vietnam must prepare itself to facilitate cross-border transactions. This task is truly puzzling, due to Vietnam’s weak banking systems. In Vietnam, some banks still function with reserve ratio lower than the limit set by the State Bank of Vietnam. It is reported that capital adequacy ratio of Vietnam is 8.5%, far below that of China (11%), Thailand (15.6%), Philippines (15.2%).
Among 12 TPP participants, Vietnam may be the least developing, and thus facing the highest risk. Vietnam economy is dominated by state-owned companies, which enjoy favors from the government yet function inefficiently. Meanwhile private business sector is occupied by small and medium companies. Joining TPP will put Vietnamese enterprises in a harsh competition with big, mature players from the developed world. Will Vietnam innovate and catch up, or ever fall behind with a mass of broken firms?
Vietnam may not make the most of TPP if proper changes are not done in time. The history has told a lesson: Vietnam’s WTO membership in 2001 was once believed a spur to carry on institutional and legal reform. However, the adoption of market based regulations was not undertaken as widespread as expected. So can we look forward to radical changes of Vietnam in such a short time?
Despite lots of matters in dispute, TPP probably finalizes this year. A growing number of US firms and representatives has come to Vietnam recently as a result of TPP. In my opinion, Vietnam will win a seat in TPP. What I concern is the matter of internal development. Vietnam has been depending too much on external resources, trying to cling on such “opportunities” as FTA, WTO and now TPP. It is time for Vietnam to build up its competitiveness on its own feet.
Vietnam Chamber of Commerce www.vcci.com.vn
Trans – Pacific Partnership| US Trade Representative: http://vietnam.usembassy.gov/tpp.html