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Impacts of free trade agreements on Viet Nam’s economy (Part 1)
Impacts of free trade agreements on Viet Nam’s economy (Part 1)
9/8/16
The
renovation initiated and led by the Party has created a bright socio-economic
picture for the country. To date, Viet Nam has established trade relations with
more than 200 countries and territories and has been considered as one of the
largest export-oriented economies in ASEAN. This process has been influenced by
free trade agreements which Viet Nam has signed.
Background
and issues
The completion of the legal system
and policies have contributed to improving the investment environment,
enhancing Viet Nam’s attractiveness to foreign direct investment (FDI) and
benefits from remarkable export growth from FDI, contributing significantly to
GDP and export turnover (65%). Overseas remittances have also increased. In
2013, more than US$ 8 billion were remitted to Viet Nam. In 2014, Viet Nam was
the ninth country in the world and the second largest recipient in ASEAN (after
the Philippines) of remittances worth US$ 11 billion.
Liberalization and integration have
made positive impacts on economic growth. With an import and export turnover
1.5 times higher than GDP in recent years, Viet Nam is considered a relatively
open economy. By signing the bilateral trade agreement with the United States
(BTA) in July 2000, we have committed to operating in accordance with
international rules, equality, elimination of discrimination between domestic
and foreign commodities and investment, opening even service sectors such as
telecommunications, and finance which were blocked for “national security”
reason.
In 2007, with the accession into the
World Trade Organization (WTO), we took a big step on the path to integration.
Viet Nam’s economy is likened to “a boat sails out into the ocean.” Pressure
from renovation has brought changes to several laws, such as the laws on
customs, taxation, investment and business. This is highly appreciated by
international investors.
Besides achievements, the economic
integration has not really created positive, and long-term impacts. The ability
to adapt to the market economy and proactively grasp opportunities is still
weak. Viet Nam has not yet been proactive and active in integration. There are
constraints in integration. Viet Nam has merely taken advantage of new
short-term benefits, not long-term ones. It has not yet generated motivation
for renovation and innovation, and brought into full play its internal strength
to reach position with higher added value in the global value chain. The
national interests obtained from the process of international economic
integration have not yet lived up to the country’s potential, geo-economic, and
geo-politic position.
Free Trade
Agreements and economic impacts on Viet Nam
Advantages and positive elements
Looking back, we can see three
successive generations of free trade agreement (FTA) in the processes of
globalization, and regionalization. By the end of 2013, Viet Nam has joined 8
FTAs, 6 of them are regional FTAs (ASEAN, ASEAN-China, ASEAN-South Korea,
ASEAN-Japan and ASEAN-Australia-New Zealand, and ASEAN-India) and two bilateral
FTAs (Viet Nam-Japan Economic Partnership Agreement (VJEPA) and Viet Nam-Chile
FTA with various liberalization scales and extents. The level of commitments to
international economic integration has gone from low to high, from narrow to
wide, and is consistent with the trend of economic development of the region
and the world.
Besides the 8 traditional FTAs, the
recently-signed Viet Nam-South Korea FTA (VKFTA) and the Viet Nam-Eurasian
Economic Union (EEU) FTA and the participation into the ASEAN Economic
Community (AEC) in December 2015, other special events include the completion
of negotiation for new generation FTA with the European Union (EVFTA) and the
promising Trans-Pacific Partnership Agreement (TPP).
The new generations of FTA have
broader scope and contents are beyond commitments on trade, services and
partially investment, referring more to the institution and legal issues in the
fields of environment, labor, State-owned enterprises, intellectual property,
government procurement, and “non-economic” or “political economy” rules. When
coming into force, these FTAs will strongly influence institutions of stakeholders.
Joining the FTAs, we have an opportunity to restructure export and import and
avoid heavy dependence on one market. Two-way trade between Viet Nam and its
partners will increase after signing the FTAs. However, this aspect is more
evident in the FTAs with partners which have highly supplementary structure of
export and import, such as Japan, Australia, New Zealand, and South Korea. The
remaining partners (ASEAN, China, and India), especially China are less
supplementary, if not competitive. With more FTAs, Viet Nam’s exports will
increase but now Viet Nam will also face anti-dumping and anti-subsidy
lawsuits.
With VKFTA, investment, trade and
tourism between Viet Nam and South Korea will be improved. The FTA between Viet
Nam-South Korea opens up opportunities to attract huge investment flows from
South Korea to Viet Nam, expectedly to supporting industry, electronics
industry, and agricultural processing. Especially, Viet Nam is South Korea’s
first FTA partner having access to its market. South Korea implements scheduled
elimination of sensitive products, such as fruits, processed fruits with tariff
of from 30% to 50%; some tropical fruits and vegetables especially garlic,
ginger, honey, sweet potato, red bean with high tariff from 241% to 420%, because
these commodities are sensitive to South Korea).
With EEU, we have resumed
large-scale, and long time trade, and investment relations with countries in
the bloc, especially Russia, Belarus and Kazakhstan. Bilateral trade turnover
between Viet Nam and the 3 countries are expected to increase 3 times than at
present at a rate of 18%-20%/year, and by 2020 it will reach approximately US$
7.2 billion to 8 billion.
When EVFTA is concluded, it will
help increase 7%-8% average growth of Viet Nam, with 90% of goods to the EU
market enjoying 0% tariff, creating an advantage in export volume and added
value. Viet Nam’s exports to the EU will increase by 10% by 2025.
TPP is currently considered a
“treaty of the twenty-first century”, a new playground to set new standards for
trade, investment, international economic integration, so standards and
objectives are very high. It is also an agreement of most strategic important
position and significance being negotiated at the moment in the world. TPP will
facilitate rebalancing trade relations between Viet Nam and other key market
areas to avoid excessive dependence on a certain market. Besides, free trade
relations with major markets will generate a breakthrough for Viet Nam’s
exports. In addition, access to large markets, such as USA, Japan, and Canada
with import tariff of 0%, and clearer commitments on improving investment
environment and protection of intellectual property rights will certainly
contribute to attracting foreign investment in Viet Nam, especially the
multinational groups. Viet Nam will also greatly benefit from the new wave of
investment, creating more jobs, building new production capacity to take
advantage of export opportunities and participate in the value chain in the
region and the world brought about by TPP. With deeper and broader commitments
than the WTO, TPP will help Viet Nam’s economy effectively reallocate
resources, thereby actively supporting the process of restructuring and growth
model innovation. TPP gears towards an equal competitive environment,
transparency and participatory approach in policy-making processes, hence is
very useful to complete the economic institutions as well as strengthen
administrative reform.
When joining TPP, growth in
investment and consumption is expected to rise from 1.03% to 2.11%. It is
estimated that each year, Viet Nam's GDP will increase from US$ 1.4 billion to
US$ 2.9 billion in absolute value. TPP also contributes to labor mobility
between sectors that Viet Nam no longer has comparative advantage such as
agriculture to the industries with more advantages, such as footwear, textiles,
and utility service. Obviously, with TPP we will speed up opening to the world,
creating a market economy in its true sense-a basis for building a competitive
economy. When negotiations complete, it is certain that the legal framework of
TPP will be a model for the economy in the 21st century, with the higher and
more comprehensive rules and regulations. Viet Nam will play on a high-level
playing field of big economic businesses, and will have more opportunities to
connect more deeply with the global economy and to grow faster, and stronger.
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All comments [ 10 ]
Market opening and international economic integration has put Vietnam’s economy right at the door of opportunities and challenges.
This door takes Viet Nam’s enterprises to the opportunities of doing business with attractive markets such as the USA, the EU, China, Korea, Japan, etc. However, the process of economic integration, particularly since Vietnam joined the WTO and greater participation of free trade agreements (FTAs), also revealed more clearly the immanent weaknesses of the Vietnam’s economy.
The current situation requires an extremely effective import-export strategy to improve efficiency of resource allocation, improve competitiveness of the economy and macroeconomic stability.
Although facing tremendous challenges in 2015, Vietnam’s economy had remarkable achievements. This year also saw Vietnam’s important progress in signing a flurry of Free Trade Agreements (FTAs).
In 2016, Vietnam will integrates comprehensively and intensively into the global economy, meaning that its economy, especially enterprises, will face many difficulties.
Vietnam has actively participated in negotiations to sign Free Trade Agreements so Vietnam’s economy will integrate more intensively into the world’s economy in 2016.
I believe that both the Vietnamese Government and enterprises have prepared well for challenges and opportunities.
Vietnam needs a more specific plan to help sectors and enterprises broaden knowledge and be fully aware of the international process, so they can take full advantage of opportunities and prepare readily for overcoming challenges.
It is necessary to work with associations and enterprises to build mechanisms and policies to strengthen its internal forces and draft a plan in detail to seize opportunities and overcome challenges.
I have to say that Vietnam is a wonderful country when you grow up from heavy consequences of war to achieve sweet fruits as today!
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