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Vietnam is likely to stand to benefit the most from the Trans-Pacific Partnership, U.S. President Obama said last April during his visit to Vietnam. Free trade and open markets, however, will require the Southeast Asian country to make difficult economic and structural adjustments, the Vietnam News Agency reported.
Vietnam is an important player
In a decade, the Pacific trade deal will boost Vietnam’s gross domestic product by 11 percent, news provider Bloomberg cited trade experts as saying.
The TPP will slash an estimated 18,000 tariffs among its 12 members. As a result, Vietnam’s exports may jump 28 percent in the same period, and the country's low labor costs will make it an attractive outsourcing hub.
Much of these gains will go to the country’s rapidly growing apparel and footwear sector. According to the Eurasia Group, Vietnam may record a 50 percent increase in garment, textiles and footwear exports in the next 10 years.
The TPP will also play a vital role in attracting foreign direct investment (FDI), and Vietnam is expected to see a huge surge in FDI inflows following the TPP, said Oliver Massmann, chief executive of the Duane Morris law firm.
He even forecast the country will rise to become a leading country in Southeast Asia over the next decades.
Pharmacy hub
According to Koen Kruijtbosch, vice chairman of EuroCham’s Pharmaceutical Sector Committee, Vietnam has the potential to become a pharmacy hub in the region, but this will require government support.
The country should relax industry rules, allowing 100-percent foreign ownership in pharmaceutical companies and implementing stricter intellectual property protection, Kruijtbosch added.
Vietnam cannot afford to miss out on the benefits of the TPP, said Victoria Kwakwa, the World Bank’s Regional Vice President for East Asia and Pacific at a workshop last month.
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 senior official added.
Major economic and structural reforms
High-standard new-generation free trade agreements like the TPP will require Vietnam to make significant economic and structural changes.
These changes will include stricter environmental and labor standards, fairer business and investment conditions and more comprehensive restructuring of state-owned enterprises.
Experts suggested the Vietnamese government should adjust polices to pivot around the private business sector and conduct a comprehensive reform of state-owned enterprises (SOEs). In doing so, Vietnamese policymakers need to change their mindset, developing laws to support and promote businesses rather than monitor and control them.
Vietnam started selling shares in SOEs in the 1990s in an attempt to bolster its economic reform. So far, the government has sold its stakes in 90 percent of state-owned companies. And in the face of both prospects and challenges under a variety of free trade agreements that Vietnam has signed in recent years, the Southeast Asian country is trying to accelerate the privatization of state-owned firms.
The World Bank suggested that because Vietnam has “too many” SOEs, the government should only retain its stake in about 20 “parent” companies by 2035.
After being either partly or wholly privatized, SOEs will no longer be able to get massive state subsidies, as well as cheap credit and land use rights, which will level the playing field with private companies.
The TPP will also encourage the Vietnamese government to enhance transparency to create a favorable investment environment to attract foreign investors looking for such conditions and strong rules, which are among the most important commitments in new-generation free trade agreements.
Another thing that the Vietnamese government can do to seize the benefits of new-generation free trade pacts is improve transport infrastructure, said Herb Cochran, executive director of the American Chamber of Commerce in Vietnam.
Better transport infrastructure will help Vietnamese companies save costs and increase their competitiveness, Cochran added, referring to the fact that Vietnam will gradually move up the global value chain when domestic businesses can compete in more advanced and developed markets.
Vietnamese businesses cannot leave all the work to the government without lifting a finger, said lawyer Oliver Massmann.
He said local companies should understand the commitments that Vietnam has made under the TPP, and all the benefits and challenges that the trade pact may bring in the future. Vietnamese businesses should also work with the government to develop business policies.
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.
Nguyen Huu Dat, an official from the Vietnam Fruit and Vegetables Association (Vinafruit), said trade associations should work with government authorities to set up an organization to support and protect Vietnamese exporters.
The Vietnamese government has confirmed that the newly-elected national legislature intends to ratify the TPP trade deal at its first plenary session taking place from July 20 to August 9.
Related News:
> Vietnam to ratify TPP trade deal by August 9
> Vietnam to approve TPP this year, but all efforts may be in vain
> Vietnam to shake up supporting industries to seize TPP opportunities
