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The Trans-Pacific Partnership (TPP) will create a free-trade zone among 12 nations around the Pacific region that accounts for 40 percent of the world’s economic output.
Vietnam signed the trade agreement in February, allowing the agreement to be put in front of lawmakers for consideration before the final decision is made, said Deputy Minister of Industry and Trade Tran Quoc Khanh on Wednesday at a workshop on how Vietnam can seize the opportunities arising from new-generation free trade agreements.
Signing does not mean ratifying, Khanh added, because the pact can take effect only if it is agreed on by half of the participating countries representing 85 percent of the trade zone’s gross domestic product.
Khanh said each country has up to two years to consider the deal.
“The U.S. is the largest economy among the 12 TPP member countries. Without the approval of the U.S. Congress, the trade accord won’t come into effect even it is ratified by all the other countries,” the deputy minister said.
It remains unclear whether U.S. legislators will sign on to the TPP. However, during his landmark three-day visit to Vietnam last month, President Barack Obama said he was optimistic that Congress would pass the proposed trade agreement this year.
Vietnam is getting ready for the TPP
Vietnam’s economy must continue to grow and integrate further into the global market and do so through free trade agreements such as the pending TPP and the free trade agreement with the European Union (EVFTA), Deputy Prime Minister Vuong Dinh Hue reiterated at the workshop co-hosted by the World Bank and the Ministry of Industry and Trade.
New-generation free trade deals, which will eliminate tariffs and non-tariff barriers on Vietnamese products, will offer commercial opportunities by opening and expanding export markets for Vietnamese enterprises.
“The Vietnamese government is trying its best to stabilize the macro-economy and facilitate economic restructuring, emphasizing the need to reform state-owned enterprises and the banking system. [The government] is focusing on clearing bad debts, balancing the state budget, keeping public debt under control and restructuring the industry, services and agriculture sectors,” said the deputy PM.
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Deputy Prime Minister Vuong Dinh Hue said Vietnam’s economy must continue to grow and integrate further into the global market and do so through free trade agreements. Photo by VGP. |
The TPP does require certain changes to Vietnam’s laws and regulations, and Vietnamese lawmakers have already made some legislative and regulatory changes with the aim of increasing enforcement before the country can enjoy the TPP's benefits.
For instance, the TPP will require the Vietnamese government to allow independent labor unions to come into being within five years. If after those five years Vietnam has not fulfilled such commitment, the U.S. can unilaterally re-impose tariffs or cancel ongoing tariff incentives on Vietnamese products.
“I can’t say the exact number of legal documents that have been amended, however, I can tell you that we haven’t gone over our planned number,” said Deputy Minister of Justice Nguyen Khanh Ngoc.
Reluctance to change holds back domestic businesses
Local Vietnamese businesses have become more aware of the TPP agreement, according to a survey conducted by the Vietnam Chamber of Commerce and Industry (VCCI).
About 88 percent of respondents have heard of the TPP and half of them have carefully studied the trade pact.
Nearly 90 percent plan to improve their product quality, utilize technological innovation and gain access to new markets in the next three years in an attempt to get themselves ready for the TPP's benefits.
However, the Vietnamese business community is also aware that in addition to opportunities, the TPP will bring many challenges.
“One of the challenges to local businesses is poor competitiveness," said Nguyen Thi Thu Trang, head of the WTO Center under the VCCI.
“They are faced with many difficulties in their efforts to enhance their competitiveness including cumbersome bureaucracy, excessive customs paperwork, weak infrastructure and an unskilled labor force,” Trang continued.
She also highlighted other difficulties such as the lack of information regarding the TPP and tariff reductions.
“Vietnamese businesses are now aware of the upcoming changes but they haven’t got the courage to change,” Trang said.
“There aren’t many things that small and medium-sized companies in the steel industry can do to survive under the current circumstances,” said Nguyen Van Sua, vice chairman of the Vietnam Steel Association.
“They have to either merge or expand their businesses to be more competitive,” he suggested.
The free trade agreement holds great potential for Vietnamese enterprises in various sectors.
“If Vietnam can make use of tariff incentives, Vietnam’s exports of textiles and garments could generate $50 billion by 2020,” said Le Tien Truong, chief executive of the Vietnam National Textile and Garment Group (Vinatex).
The potential of free trade agreements are significant. According to the World Bank, the TPP could potentially raise Vietnam’s GDP by eight percentage points by 2030.
“Vietnam is preparing and getting ready itself. However there are still a lot of things to do to get where it can maximize the benefits. And it is particularly important to get the private sector ready,” said Victoria Kwakwa, the World Bank’s Regional Vice President for East Asia and Pacific.
Vietnam cannot afford to miss out on the benefits of the TPP, Kwakwa pointed out. If Vietnam isn’t well prepared for the trade pact, it will not only lose market share in the fastest growing region in the world, but also pass up on the opportunity to boost economic reform.
The World Bank’s Trade and Competition Practice Manager Mona Haddad urged the Vietnamese government not to see free trade agreements such as the TPP and EVFTA as an end in itself but rather a tool to push institutional reform.
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