VietNamNet Bridge – The European Union (EU) will continue its aid assistance for Vietnam even when Vietnam joins the group of middle-income countries, Chief of the EU mission to Vietnam Sean Doyle and Hungarian Ambassador Vizi Laszlo confirmed in a talk with VietNamNet’s Vietnam Economic Forum (VEF) on January 24.

Chief of the EU mission to Vietnam Sean Doyle

With the total ODA committed in 1996-1999 of $10 billion, the EU is the second bilateral ODA donor for Vietnam.

However, the EU’s current ODA policy for Vietnam will end at the end of 2013. Vietnam is now in the group of middle-income countries. This year the EU will work out an appropriate aid policy for Vietnam.

Ho Quang Minh, Chief of the Ministry of Planning and Investment’s Foreign Economic Relations, says that one of the problems for middle-income countries is the fast reduction of ODA.

However, Ambassador Sean Doyle said that Vietnam should not be so worried about the reduction of ODA because many middle-income countries still receive international assistance. Vietnam has become a middle-income country but it still has many poor people. Vietnam’s remote and underdeveloped regions still need assistance.

“The EU will still be an ODA donor for Vietnam. I think that Vietnam is using ODA very well,” Doyle said.

However, experts still worry about the “middle-income trap”. This is when a country moves from a poor to a middle-income country but is unable to become a developed country, even after many decades.

Many other countries have been caught in this trap. Thetypical examples in Asia are Malaysia, Indonesia, Thailand and the Philippines.

Hungarian Ambassador Vizi Laszlo says that the comparative advantages that helped Vietnam develop fast recently and become a middle income country will disappear. When Vietnamese’s income rises, workers’ salaries will also rise and Vietnam will lose its main advantage – cheap labor.

He says that Vietnam needs to change its economic model to not depend on cheap labor and the export of low value-added products.

Ambassador Sean Doyle believes that corruption is also one of the causes of the middle-income trap. “It is dangerous because capital and social resources will not be invested in developing the country but will go to the pockets of some officials,” he says.

Hungarian Ambassador Vizi Laszlo 

Another trap is free trade. When the country integrates into the world economy, tariff and non-tariff barriers are gradually removed. Goods from more developed countries will flood its market.

According to Doyle, it is a threat but it is not too dangerous because there will be a long negotiation time during which Vietnam canadjust its economy.

In recent years, Vietnam’s exports of its competitive goods like agricultural products or footwear have been facing a lot of difficulties in Europe. Vietnam and the EU’s recentlybegan the negotiation of Free Trade Agreement (FTA) which gives  Vietnamese producers some hope of entering the picky market.

Ambassador Doyle said that the current issues of Vietnamese goods are quality and safety. “We can’t help if products don’t meet quality and safety standards. Because there are rules that anyone has to obey,” Doyle said.

Explaining the anti-dumping tax on some Vietnamese products, Doyle said that the reason is the shortage of transparency in information and production resources which results  in vague production cost.

Some analysts say that the public debt crisis in Europe can harm global trade and Asia’s exports to Europe but the two ambassadors confirm that the threat is not remarkable now. This has been proven by Vietnam’s exports to Europe in 2010 which still grew by 16 percent.

Ambassadr Vizi Laszlo says that the crisis is one of the driving forces for some Asian countries to change their development models.

“Some countries that depended on export have focused on local consumption. Some others that focus on savings have gradually transferred to consumption economy,” he says.

Ambassador Doyle says that the biggest lesson for Vietnam is considering its spending and to further economize. It is also important to provide transparent and accurate data about the economy.

Lan Huong