Spotlight: TPP not all roses for Vietnam

The Trans-Pacific Partnership (TPP)free trade pact will have huge beneficial economic impact on Vietnam, but the country will struggle to take advantages and cope with challenges, many Vietnamese and foreign officials and experts told Xinhua recently.

COMPARATIVE ADVANTAGES AND ECONOMIC IMPACTS

TPP will have a transformative effect on Vietnam's business environment and offers new opportunities to help the country's strategic drive to industrialize, modernize and globalize, said Adam Sitkoff, executive director of the American Chamber of Commerce (AmCham) in Hanoi. Meanwhile, the World Bank (WB) in Vietnam said the impact of the TPP on Vietnam is expected to be positive.

"The recently concluded TPP will not only improve market access, but will also serve as a critical anchor for the next phase of structural reforms in Vietnam," Sandeep Mahajan, lead economist for the WB Vietnam, said early in December.

Among the current TPP signatories, Vietnam, as the economy with the lowest per capita GDP, has unique comparative advantages, particularly in labor-intensive manufacturing. On the economic impacts, simulations suggest that the TPP could add as much as 8 percent to Vietnam's GDP, 17 percent to its real exports, and 12 percent to its capital stock over the next 20 years.

The factors that explain the estimates include the tariff elimination schedules of TPP that "will reduce the high levels of protection in countries against goods like apparel and footwear that are principal exports of Vietnam, strong competitive positions in these and other industries that favor Vietnam and, additional new foreign investments in Vietnam that are stimulated by the rules of origin of TPP and investor optimism", Nestor Scherbey, general director of CTRMS Vietnam based in Ho Chi Minh City, told Xinhua late in December.

These lead to increased productivity due to competition, involve greater participation in global supply chains and enhance momentum for reforms that boost growth and opportunities. Increased exports and imports will also provide for higher incomes that will allow Vietnam to invest more and grow more rapidly, Scherbey said.

TRADE FACILITATION IMPLICATIONS AND ECONOMY'S WEAKNESSES

However, prestigious foreign and Vietnamese experts have pointed out many TPP-related challenges faced by Vietnam. The country will face significant challenges in implementing an agreement that requires stringent disciplines in areas such as labor, government procurement and trade facilitation.

Over the past two years, the General Department of Vietnam Customs has made very good progress in trade facilitation by implementing an e-customs system for imports and exports and improving administrative procedures. The main challenges now to be tackled involve numerous other ministries and state agencies that regulate imported or exported goods and, which have not yet implemented the kinds of modernization that are in progress with Vietnam Customs, Scherbey stated.

"The benefits of TPP cannot be secured for legitimate business and economic development in Vietnam in an environment that tolerates trade fraud, smuggling and counterfeit goods. Vietnam's TPP partners will not allow non-compliance in their trade with Vietnam and will provide Vietnam with the technical assistance needed to enforce trade compliance," he said.

According to the experts, Vietnam will face tough challenges in maintaining a macroeconomic environment that permits adjustment and encourages long-term investments. Executive director of AmCham Hanoi Adam Sitkoff said like other countries, Vietnam needs to reform rules in order to create an attractive and competitive business and economic environment.

"Vietnam needs a more serious effort to fight corruption by implementing systems well known to reduce the opportunities for illegal payments. Corruption has become corrosive in Vietnam and is dangerous to the economy and society as a whole. A significant step forward would be actions that greatly limit the use of cash payments," Sitkoff told Xinhua recently.

He said that Vietnam also needs to ensure that WTO commitments are being implemented on-time, and with the spirit of creating a more efficient and competitive economic climate, especially in the areas of investment and services. Vietnam needs to invest adequate resources and welcome more foreign direct investment in education to ensure that it has a skilled workforce of managers, engineers and manufacturing technicians that can move up the value chain as labor costs continue to rise.

According to Sitkoff, Vietnam also needs to take more aggressive actions to address the ongoing problems in the banking system. And Vietnam needs to move forward with the difficult task of restructuring state-owned enterprises to ensure they are managed with transparency, responsibility, and accountability, and that they operate on a level playing field with both foreign and domestic private sector enterprises, he said.

CHALLENGES FACING CERTAIN INDUSTRIES

At least 10 TPP's goods and services commitments are higher than WTO's, said Luong Van Tu, former Vietnamese Deputy Minister of Trade. The commitments involve export tariffs, opening up of services and investment for foreign investors, state agencies' procurement market, state-owned enterprises' operation according to market mechanism, intellectual property protection, trade in connection with environmental protection, electronic commerce, transparency and anti-corruption, working conditions, and allowing investors to sue governments in certain special cases.

Foreign experts said the TPP will assist in tearing down trade barriers in areas such as market access and government procurement, while setting new standards for regulatory coherence, workers'rights,environmental protection and intellectual property rights. However, it will pose many difficulties for Vietnam in the very fields, Tu said.

"In developing countries like Vietnam, the government procurement often accounts for up to 40 percent of their GDP. The opening up of the government procurement market, excluding projects relating to security and national defense, will cause fierce competition between domestic enterprises and foreign investors for projects with medium and large capital," Tu said. Meanwhile, Vietnamese firms are limited in terms of capital, technology and management expertise, he noted.

All the TPP new commitments require Vietnam to amend many laws, including those relating to the government procurement, bidding, investment, enterprises and intellectual property, Tu stated.

Both local and foreign officials and experts assumed that Vietnam's many economic sectors have low competitiveness which prevents them from penetrating into other TPP markets. Vietnam mainly exports materials and semi-processed products with low added-value, while scales of exporters are still small, making it difficult for them to secure sustainable growth or dominate foreign markets.

Rules of origin, which requires an export item to be produced mainly from materials in the TPP members, not a third country outside the TPP grouping, will cause big headache for many Vietnamese producers in such fields as garment, textile, footwear and woodwork.

According to the Vietnam Timber and Forest Products Association, Vietnam has to import over 80 percent of timber used to make woodwork. On average, the country annually imports nearly 3.5 million cubic meters of wood, with 65 percent being timber. Besides, labor productivity in the Vietnamese woodwork industry is still low. A Vietnamese worker can produce, on average, only 1.9 wood-based chairs a day, compared with 4.5 similar products a day by a Chinese peer.

The Vietnamese Ministry of Science and Technology said regarding the domestic science and technology industry, TPP poses more challenges than advantages, especially strict requirements for intellectual property and goods quality. Under the agreement, intellectual property infringements will be criminalized, while Vietnam currently imposes only financial penalty.

According to statistics from the Vietnamese Ministry of Science and Technology, the country has nearly 600,000 enterprises, of which over 90 percent are small and medium, and mostly use backward technologies.

The situation in the Vietnamese agriculture is similar -- small scale, outdated technology and low labor productivity. Therefore, even Vietnam's key export items, including coffee, rice, pepper, cashew nuts and seafood, will find it hard to penetrate into big TPP exports such as the United States and Japan which will impose higher non-tariff barriers, said the experts.

Twelve Pacific Rim countries, including Singapore, Brunei, New Zealand, Chile, the United States, Australia, Peru, Vietnam, Malaysia, Mexico, Canada and Japan, reached TPP in October 2015 after more than five years of negotiations. TPP forms a trading block that makes up nearly 40 percent of global GDP. Endit