VietNamNet Bridge – Vietnam appears poised to potentially benefit more than any of the 11 other nations in the recently concluded Trans-Pacific Partnership agreement. After five years of negotiations, the trade liberalisation agreement offers easier access to bigger markets for an economy already positioned for rapid growth.

The assembly industry is one of sectors that can potentially benefit from the TPP when it comes into effect.

The question is not whether Vietnam will benefit from the TPP - encompassing 40% of the global economy - but how to maximise its benefits.

Once approved by all member countries – the United States, Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam – the TPP will create a Pacific economic bloc with fewer barriers hindering the flow of goods and services. “The recently concluded TPP will not only improve market access, but will also serve as a critical anchor for the next phase of structural reform in Vietnam”, said Sandeep Mahajan, lead economist of the World Bank in Vietnam. “The Vietnamese economy is estimated to grow by an additional 8%-10% at least until 2030”.

Tariff reductions and liberalised service sectors will mean cheaper imports of goods, services and factors of production. That means labour-intensive manufacturing sectors facing high import tariffs will benefit the most, including textiles, apparel and footwear, along with food processing and electronic industries.

Among the current TPP signatories, Vietnam has unique comparative advantages, particularly in labour-intensive manufacturing. By enhancing access in key export markets, the TPP is expected to create opportunities for Vietnamese manufactured exports to replace Chinese exports in some places – notably the major markets of the United States and Japan. This trend began before the conclusion of the TPP negotiations, and the new agreement is expected to further enhance the manufacturing sector.

TPP Impacts on Key Economic Impacts

The TPP also is expected to considerably increase foreign direct investments to build up export capacity, including in upstream suppliers to sectors subject to strict rules of origin such as the textile and garment industry.

At the same time, the implementation of the TPP will present several challenges for Vietnam. The country’s primary export sectors, including agriculture, could be at risk amid structural transformations that reallocate resources to manufacturing. Reforms to modernise and commercialise the agriculture sector will have to be accelerated to cope with this risk.

According to Nguyen Thi Thu Trang, Director of WTO unit of VCCI, “for all sectors, especially those that are poised to be negatively impacted by the TPP, such as animal husbandry and agriculture, efforts should be made to identify key bottlenecks to the sectors’ development, so that remedies can be proposed for implementation. Their competitiveness should be gradually improved to take full advantage of new market conditions. The government is the key negotiator, and fully and comprehensively understands all of the commitments under the TPP. As such, it is the most suitable agency to provide guidance on the commitments to enterprises”.

Real Exports Change, by sector, 2020-35

The agreement also requires countries to adopt stricter rules. In Vietnam, this means changes affecting a broad spectrum of issues related to governance and the business environment, including regulatory quality, intellectual property rights, investor protection, competition, state-owned enterprise management, labour and environmental standards, food safety, public procurement, and liberalisation of services, including financial and telecommunications services.

Finally, the TPP’s strict rules of origin could be a hurdle for Vietnam, where exports are highly dependent on imported materials and intermediate goods. Vietnam currently imports between 60 and 90 percent of textiles from other countries. The majority of these imports come from China and Taiwan, non-TPP countries, which means non-compliance with TPP rules of origin requirements.

The required restructuring to maximize TPP benefits poses a short-term challenge for Vietnam, but will also likely boost foreign direct investment in upstream businesses and build production capacity. As evidenced, a number of Japanese, Chinese and South Korean firms are already investing heavily in fibre production in Vietnam.

Additionally, information and guidance on taking advantage of the TPP should be provided to businesses as soon as possible, making them well prepared for economic integration. “Information should be provided to all sectors and areas of business, with close coordination of the VCCI, business associations and government agencies. In the business community, the VCCI is actively working on this plan and we expect further guidance from the Government and cooperation from ministries and agencies”, said Vu Tien Loc, Chairman of Vietnam’s Chamber of Commerce and Industry.

For Vietnam to position itself to fully benefit from the TPP when implemented, complementary reforms are necessary to improve competitiveness and strengthen the capacity of the production sector to meet TPP standards.

As noted by Sherry Boger, Chairwoman of Amcham, “The TPP is still a promise, not yet a reality. It is a framework for action, and should be a focus in 2016”.

Implementing such changes will be demanding for Vietnam on its gradual path of reform, impacting the sectors of large state-owned enterprises and other institutional legacies of the past 40 years.

“Vietnam has taken important steps recently to improve and enhance the market institutions that underpin a successful and sustainable economy”, stated David W. Carter, AusCham Director at the Annual Vietnam Business Forum 2015. “Nevertheless, as Vietnam integrates deeper into the global economy, particularly following the conclusion of the Trans-Pacific Partnership and other free trade agreements, it is imperative that Vietnam take bold steps to continue improving market institutions and economic freedom”.

The determination to implement reforms and TPP commitments will bring Vietnam to a new level of economic development, creating a firmer foundation for the country to progress toward the goal of becoming a modern, industrialised upper middle-income country.  

Nhan Dan