Vietnam could have a tough time fulfilling its obligations related to state-owned enterprises (SOEs) committed under new-generation free trade agreements as its privatization plans of the businesses remained at a snail’s pace, experts warned.

Vietnam Pharmaceutical Corporation failed to complete their divestment plan

The Comprehensive and Progressive Trans Pacific Partnership (CPTPP) agreement, which has officially taken effect since January 14 this year in Vietnam, not only mentions traditional issues regarding tariff cuts, the services market, intellectual property, and technical barriers related to trade; but also addresses new and non-traditional issues related to SOEs, labor and environment.

Under the deal, member countries must disclose certain information about their SOEs to other members to encourage transparency and good corporate governance.

The deal also seeks to treat private and state firms equally, promoting a level playing field for SOEs and their private competitors so that businesses operating in or seeking to expand into CPTPP markets are able to compete fairly with SOEs.

It also prevents a member from causing adverse effects or injury to the interests of another member through non-commercial assistance to an SOE.

The pact means Vietnam’s SOEs will soon be subject to a new set of international rules as well as increased competition from abroad as tariffs are reduced. The government therefore wants to reduce the number of SOEs to meet the obligations.

Rajiv Biswas, Asia Pacific chief economist at IHS Markit in Singapore, told Forbes that Vietnam’s ratification of the CPTPP obligates the country to liberalize the state sector, and a trade deal expected to be signed soon with the European Union could exert more pressure to achieve these reforms.

"Over the next decade I would expect to see a gradual transformation, more competition in the state sector, because they have to transform under the terms of the trade agreement," Biswas said.

Sharing the same view, Raymond Mallon, senior economic advisor for the Australia-Vietnam Economic Reform Program, said many international economic co-operation agreements include commitments to ‘competitive neutrality.’ It means all enterprises should be able to compete equally, regardless of whether they are state-owned, domestic private businesses or foreign enterprises.

These provisions, to which Vietnam has committed, are included in agreements to maximize potential for both national and regional productivity growth, Mallon said.

Bolder measures taken

However, the country’s privatization of SOEs now still fails to meet targets despite the government’s efforts. Reports from the Ministry of Finance (MoF) showed only 15 SOEs were privatized last year, versus the planned 85.

The MoF has announced the names of many major SOEs that failed to complete their divestment plan as requested by the government, including Vietnam Engine and Agricultural Machinery Corporation, Vietnam Pharmaceutical Corporation, eight under the Ministry of Construction and 17 under Hanoi’s management.

To step up restructuring, selling and divesting of SOEs, Prime Minister Nguyen Xuan Phuc has recently issued a directive, in which he required equitization plans for nearly 100 SOEs to be approved this month.

Under the directive, the prime minister also instructed ministries, agencies, localities, economic groups and corporations to review and adjust the list of businesses in need of equitization in the phase of 2018-2020 to ensure feasibility.

They should look into those who failed in state capital withdrawal in the phase of 2016-2018 and transfer them to State Capital Investment Corporation (SCIC) to implement the divestment in the phase of 2019-2020.

Individuals and organizations must take responsibility for delay in equitization, divestment and stock market listing, Phuc said, adding there would be sanctions to handle violations and prevent them from recurring.

Hanoitimes