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Trans-Pacific Partnership: Opportunities and challenges for Vietnam
Author: Updated: 28/12/2015 Views: 3


On October 5, 2015, Ministers of the 12 Trans-Pacific Partnership (TPP) countries – Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, and Vietnam – announced conclusion of their negotiations. The result is a high-standard, ambitious, comprehensive, and balanced agreement that will promote economic growth; support the creation and retention of jobs; enhance innovation, productivity and competitiveness; raise living standards; reduce poverty in our countries; and promote transparency, good governance, and enhanced labor and environmental protections.

Five defining features make the Trans-Pacific Partnership a landmark 21st-century agreement, setting a new standard for global trade while taking up next-generation issues. These features include:

· Comprehensive market access. The TPP eliminates or reduces tariff and non-tariff barriers across substantially all trade in goods and services and covers the full spectrum of trade, including goods and services trade and investment, so as to create new opportunities and benefits for our businesses, workers, and consumers.

· Regional approach to commitments. The TPP facilitates the development of production and supply chains, and seamless trade, enhancing efficiency and supporting our goal of creating and supporting jobs, raising living standards, enhancing conservation efforts, and facilitating cross-border integration, as well as opening domestic markets.

Addressing new trade challenges. The TPP promotes innovation, productivity, and competitiveness by addressing new issues, including the development of the digital economy, and the role of state-owned enterprises in the global economy.

· Inclusive trade. The TPP includes new elements that seek to ensure that economies at all levels of development and businesses of all sizes can benefit from trade. It includes commitments to help small- and medium-sized businesses understand the Agreement, take advantage of its opportunities, and bring their unique challenges to the attention of the TPP governments. It also includes specific commitments on development and trade capacity building, to ensure that all Parties are able to meet the commitments in the Agreement and take full advantage of its benefits.

· Platform for regional integration. The TPP is intended as a platform for regional economic integration and designed to include additional economies across the Asia-Pacific region.

Opportunities for Vietnam

Attracting Investment

While all member countries stand to benefit from TPP, Vietnam is poised to be TPP's biggest winner. In a 2012 study, the Peterson Institute estimated that—compared to a baseline with no TPP—Vietnam's income gains in 2025 with a comprehensive TPP would be over 13 percent higher, while its exports in 2025 would be over 37 percent greater. Much of these gains would come—especially initially—from Vietnam's growing production and export of apparel and footwear, resulting from the phase out of high duties in TPP partner countries, especially the United States.

But a high-standard TPP—along with Vietnam's new trade agreement with the European Union—will also require Vietnam to make—and adhere to—major structural adjustments. These will include important steps to enhance transparency and the rule of law, implement new labor and environmental standards, foster digital commerce, and revise the competitive landscape for state-owned enterprises, among other significant changes.

As Vietnam transitions towards a network of new, higher-standard trade agreements, it has an obvious interest in the track record of current comprehensive FTAs. There are five vital contributions that high-standard FTAs can potentially make in advancing country's economic development:

Attracting Investment

High-standard FTAs can play a vital role in attracting foreign direct investment (FDI). In choosing where to invest, foreign investors seek countries with stable investment environments and strong rules to assure transparency, freer trade, and open financial markets—elements that are among the most important commitments in modern FTAs.

Vietnam is seeing increased levels of FDI in anticipation of the TPP. History suggests that the new agreement—together with an ongoing commitment by Vietnam to a favorable investment environment—could help assure that this vital investment continues and grows.

Moving Up the Value Chain

FTAs in general and TPP in particular can also play an important role in helping countries "move up the value chain," enabling them to compete in more advanced economic sectors and supporting higher quality jobs. Vietnam is already a significant player in advanced economic sectors like electronics. Further increasing the sophistication of production in Vietnam will, of course, require additional investment, growing skills, and an array of other commitments.

Enabling SME Trade

Small and Medium-Sized Enterprises (SMEs) are key drivers of growth and good jobs in countries worldwide. But in many countries—including the United States—only a small percentage of SMEs export. A key reason for this is that foreign barriers to trade—including high duties, complex regulations, and en trenched bureaucracy—often pose much larger challenges for smaller firms with limited resources and experience.

Surveys by the U.S. International Trade Commission show that free trade agreements can boost small business exports by reducing trade costs, lowering risks, and opening new markets for SMEs. As a nation with a vibrant entrepreneurial culture and growing numbers of SMEs, Vietnam and its many small firms can benefit significantly from the TPP, which is being negotiated with an unprecedented focus on promoting trade by SMEs. And, because e-commerce is a powerful tool for innovative SMEs, TPP provisions that foster digitally enabled trade could provide key support for Vietnam's ambitious goal to boost direct exports by SMEs to a quarter of Vietnam's total exports

Negotiating More FTAs

The "heavy lifting" of concluding comprehensive trade agreements with the United States and its FTA partners also makes it easier for countries to negotiate—and benefit from—additional higher-standard FTAs with new trade partners.

Vietnam's growing roster of high-standard trade agreements—especially TPP and Vietnam's new agreement with the EU—could similarly enhance Vietnam's already strong position as a globally competitive hub for trade, production, and investment.

Helping the Broader Economy

Finally, high standard free trade agreements can provide economy-wide benefits that go well beyond trade or FDI. Studies of NAFTA, for example, have shown that the agreement helped Mexico move closer to levels of economic development in Canada and the United States, helped boost the productivity of Mexican manufacturing plants, aided Mexican manufacturers in adopting U.S. technological innovation more quickly, and had a positive effect on the number and quality of Mexican jobs. Other free trade agreements partners note that free trade agreements can boost national productivity and promote higher GDP growth by providing domestic manufacturers with access to lower-cost imported inputs and better technologies. Free trade agreements can also drive beneficial domestic reforms.

Conclusion

As it seeks to advance its economic development, Vietnam has placed considerable emphasis on expanding international trade. Growing trade can be a powerful tool for economic development, as Vietnam's regional neighbors—including Japan, South Korea, and China—have demonstrated repeatedly over the last seven decades.

Vietnam has taken a major step by joining in trade negotiations with some of the world's largest and most advanced economies, and is playing a important and constructive role in the effort to conclude a high-standard TPP. A comprehensive TPP would benefit all TPP partners, and would provide Vietnam with significant new access to major markets in Japan and the United States for its major exports, including apparel. Perhaps even more importantly, however, Vietnam's ongoing commitment to key structural adjustments under TPP can lead to growing investment and innovation, technological advancement, broader participation in trade, and other transformational changes that could promote stronger, deeper, and lasting economic growth.

References

Ed Gerwin, TPP and the Benefits of Freer Trade for Vietnam: Some Lessons from U.S. Free Trade Agreements, Progressive Policy Institute

Summary of the Trans-Pacific Partnership Agreement, USTR News


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