VietNamNet Bridge - Vietnam can use strategic ports and harbors, such as Cam Ranh, to provide inventories and logistics, anchoring, repair and maintenance services for international ships passing through the maritime route from the East Sea to the Indian Ocean and vice versa.

Cam Ranh Port

In China’s provoking strategy in the East Sea in order to monopolise the region, the strength of Vietnam/the Philippines is they have international public opinion on their side.

The adventurous point of China’s strategy is it increasingly pushes the US and its allies as Japan, Western Europe, including Australia, and India, to have to confront China in a competition in the freedom of navigation.

Specifically, the future conflict of freedom of circulation and maritime security in the Western Pacific, which can spread to the Indian Ocean, once Vietnam/the Philippines and other countries in the region gradually lose sovereignty and fall into the orbit of China.

Thus, in parallel with the game of provoking and bullying the small countries, China conducts another game to win the position and strength in the competition or confrontation in the future in making the new regional order with the US, Japan, Australia and even India. At the present time, the two games are also associated together.

Specifically, before China’s oppression, the group of nations, linked together to get stronger in terms of institution, trade exchange, and maintenance of regional security will allow Vietnam/the Philippines to defend their sovereignty more effectively.

Once the autonomous capabilities of Vietnam/the Philippines in terms of institution, economics, and security increase, it will help increase the “rebalance” of geopolitical influence of the great powers in Southeast Asia, ie increasing the possibility of dialogue and cooperation in the second game, in order to protect the existing order in the region.

The above analysis shows that, the game that China conducts with the smaller countries in the region has changed in nature. Now, it is connected to another game, in order to determine the order of maritime between China and America. The second game is not merely a frontal confrontation between the two superpowers. It is mixed in shaping blocks of nations with various links in many aspects of international relations, such as the signing of the Trans-Pacific Partnership (TPP), to counter the growing influence of China in Southeast Asia, in which the East Sea dispute is the focus.

To understand what outcomes may occur in the future, we will realize the game of bilateral compression of China, described in the previous article, by adding another choice of Vietnam (or the Philippines) to participate in blocks of cooperation between countries, such as the TPP.

The game discussed in this article is different from the bilateral compression game of China because Vietnam has more choices to involve in partnerships in various fields with a block of countries, with the TPP as a specific example.

We simplify the unnecessary details and assume that the TPP only includes Vietnam and the US. After Vietnam joins the TPP, the US and Vietnam will attend a coordination game, determine the future of the TPP. An optimistic outlook isthe US and Vietnam will be committed to promoting changes in economic institutions, such as the termination of subsidies for state enterprises.

More importantly, it is the gradual introduction of progressive governance institutions from the modern market economy into the traditional society in Vietnam. As a result, labor productivity and profitability of the capital increases, ie increasing the ability to attract FDI as well as creating high-quality labor flows into Vietnam [4].

Consequently, there will be an increase of two-way trade and sustainable economic growth of both countries. This took place in the bilateral relations between the US and Singapore, Hong Kong, Taiwan, or Korea, in the 1960s-1970. And that cooperative relationship has been growing until today.

In the medium and long term prospects, the increase in economic-trade strength of the whole block will allow the rebalancing of the influence of the major powers in the Asia - Pacific, before a rising China. In this context, the United States would have greater benefits (and less cost) in the "commitment" of protecting regional order and freedom of navigation in the East Sea, which is a necessary condition for free trade in the TPP.

If China "respects agreements", including the UNCLOS, the United States will benefit from 4 points. Conversely, if China wants to "redefine" the regional map, but the US maintains the "commitment" to defend the existing order, the US still gains 1 point, provided that the TPP is effective.

On its part, China will find profitable in the "respect of commitments", since it promotes international trade and benefit the economic growth of China (1 point). That choice is clearly better than the "redefinition" of the regional map, because China will encounter the commitment of the United States and other countries in the maintenance of international conventions on the sea, including the UNCLOS, including provisions on the exclusive economic zones of each country, and freedom of international navigation (losing 1 point).

Thus, the ability to maintain regional order commitments is effective. That implies: instead of being bilaterally impeded, Vietnam will benefit from multilateral cooperation through the TPP (1 point). Seeing that prospect, Vietnam will join the TPP and committ economic institution reform. The historic visit of Party General Secretary Nguyen Phu Trong to the United States marked the beginning of such a process.

But realistically, we must admit another possibility: after Vietnam joins the TPP, the game of coordination between Vietnam and the US will bring about bad outcomes: expanding differences in institution and organization, the gap of labor productivity and competitiveness between the two economies. The TPP is still the playground of the most developed countries. And institutional change, in the direction of promoting economic progress and economic development in developing countries like Vietnam, will stall or be turned upside down.

Before a rising China, which will become the largest economy within the next decade, the small countries in the periphery, including Vietnam, will fall into China's orbit. And the strategy of "rebalancing" the US will be seriously undermined; or at risk of bankruptcy. America will stand before a prospect of getting less benefit (and much higher cost) in the "commitment" of protecting regional order, including the maintainance of international convention on the Law of the Sea (UNCLOS) in the East Sea. Meanwhile, the free trade agreement between China and ASEAN, or the Republic of Korea and Japan, can promote influence and weaken the TPP connection. Meanwhile, China will become more assertive in East Sea disputes.

So there is a change in expectations of gain – lose in the strategy of the US and China. Namely, if the US continues to hold the "commitment", the losses may be larger compared to the US’s "compromise" with China, once the Chinese are more assertive in affirming unilateral sovereignty in the East Sea. On the contrary, China will take more losses, if it does not hold control of the life-line sea route. Because it guarantees that China's trade with Asia and the rest of the world will not be affected by disputes, leading to clashes at sea.

In other words, China has the dominant strategy of "redefining" regional order, while the US will incur higher costs if it maintains "commitment", rather than "compromise". Therefore, America will incline toward "compromise". (See annex).

This outcome is like the last branch, on the right in Chart 2. It shows that China will choose "redefinition" of regional order (gaining 3 points), rather than "respecting the agreement." It is clear that China will benefit much more once the rebalancing "commitment" in Asia - Pacific of the US is not made effective. And America will suffer (loss L point); but the loss is stil less than the loss in case it does not accept "compromise" with China. Vietnam will suffer biggest lost in this case (-K point, and K is a very large number), since it is abandoned by most of the major countries in the geo-political chessboard of the region.

Thus, the combination game between the USA and Vietnam, after Hanoi joins the TPP, is decisive.

If the cooperation between the US and Vietnam in institutional reform makes clear progress, there will be an increase in bilateral trade relations. That helps narrow the differences between the two countries, as in the relationship between the US and the four Asian dragons. Then all parties concerned, including China, will benefit in cooperation to maintain regional stability and trade development. Thus regional disputes will be resolved through peaceful negotiations.

Conversely, if the cooperation between the US and Vietnam fails, then it increases the possibility of hotter disputes in the East Sea, the United States will be less affected if it makes deal with China in re-dividing the influenced zone.

Anyway, the failure of the rebalancing strategy will remain a long-term strategic loss. If losses due to declining geopolitical influence in Asia for the US (L) are very large, its rebalancing "commitment" needs to be made effective. That implies in the game of coordination between the US and Vietnam, the US needs a careful design of policies to support institutional reform in Vietnam.

The problem is, institution is a form of capital, and like all forms of capital, the institutional change can only take place slowly (Arrow, 1994). Therefore, reform in Vietnam needs to have a roadmap and clear goals, to increase institutional commitment to innovation (Dixit, Nalebuff, 1992). Vietnam will gradually modernize the economy in the framework of the TPP. That will contribute to the rebalancing of geopolitical influence between the US, Japan and India, to China in Asia.

In other words, the game of coordination between the US and Vietnam is a long-term process (repeated game). It's not a one-short game, in which just the name of TPP membership can create an economic miracle as many people in Vietnam think or expect.

More importantly, the idea that the TPP will bring quick profit, without efforts to modernize organization to import technological advances, will only further increase the possibility that a bad outcome will happen. There will not be a miraculous transformation, but instead institutional and economic setbacks. Or the process of modernization, industrialization will be overturned. (See the proof in the appendix).

Thus, to make people understand that the TPP is a long-term cooperation process, in order to bring stability and prosperity to the region, is to increase the ability to achieve better outcomes for everyone in the region, including China, the US and Vietnam. And creating an illusion of quick and miracle change after the TPP negotiation will only increase the possibility of taking the opposite outcome: the bankruptcy of the rebalancing strategy of America. And Vietnam may be abandoned in the division of geopolitical and economic influence between major countries in the region.

The TPP is not a "magical rod" nor the protective umbrella of a big country for Vietnam, before the impediment of a third country. Vietnam must actively increase the ability to coordinate with the countries that have developed in the fields that Vietnam has the greatest comparative advantage. Based on geographical standpoint in international trade, the biggest advantage of Vietnam is not cheap labor, but its important position in maintaining stability and increasing the efficiency of trade through the East Sea.

Thus, the combination can begin by taking advantage of geographical position to exploit marine resources, which are not simply oil or seafood but more importantly, it the strategic sea route through the East Sea, with more than 1/3 of the value of global trade passing through it.

Economic development potential and strategic geographical position of Vietnam can create synergy, allowing Vietnam to attend more and more in the exploitation of the huge and increasing resources [6]. Vietnam can use strategic ports and harbors, as Cam Ranh, as inventories and the places to supply logistics, anchoring, repair and maintenance services for he international ships passing through the maritime routes from the East Sea to the Indian Ocean and vice versa.

Logistic services allow increasing safety and efficiency, or reducing costs and risks in the air and sea transport. Thus, it increases the contribution of Vietnam to trade value of international route along the East Sea. Here comes the pairing between commercial interests and the multilateral security guarantee, which the concerned parties benefit. Therefore, the value of the collaboration is huge.

From the coastal strategic locations, such as Cam Ranh, the boom of international transactions and transport will allow the flow of capital, technology, and effectively organizational methods to spread to Vietnam, which did take place in Singapore in 1960 -1970. These resources will create growth based on organizational innovation and creativity (or intellectual capital); accompanied by the strong integration of Vietnam into the global trade chain, through TPP cooperation.

Though TPP does not appear tomorrow, such a cooperation process can begin from today. Such cooperation can alter the calculations of geopolitical moves of large countries, in favor of the modernization process in Vietnam. Specifically, the exploitation of the advantages of trade and strengthening of international trade is increasing the economic value of the sovereignty and the strength to protect sovereignty of Vietnam.

Le Hong Nhat

[3] Currently 80% of China's oil volume is transported via this international sea route, which is anticipated to increase from 10 million barrels a day in 2002 to 20 million barrels a day in 2020.

[4] This is in contrast with the thinking of many policy-makers in Vietnam, who said that the advantage of cheap labor and low tax rates levied on the use of natural resources such as land is the attraction of FDI. If there is no progress on organization and technology, the ability to attract FDI will slow down, when the FDI/GDP ratio increases.

[5] In diagram 2, the bilateral holdup problem is abbreviated as Vietnam’s "no response". And besides, Vietnam can choose to join the Trans-Pacific Partnership (TPP).

[6] According to some experts and reputable organizations, by 2050, China and India can account for 50% global GDP. Therefore, the trade value on the international sea route through the East Sea will be huge in the future.