INTRODUCTION TO THE WORLD TRADE ORGANIZATION
Snapshot of the WTO
The WTO, established in 1995, is the principal institution for today's international trade In order to understand this institution, it is necessary to know something about its predecessor, the General Agreement of Trade and Tariffs (GATT) The GATT history is significant because the WTO charter makes it clear that the WTO should be guided by the decisions, procedures and customary practices followed by the contracting parties of GATT 1947 This is particularly important given that customary practices are important for the framing and interpreting of international laws.
The initiative leading to the establishment of GATT was taken by the United States during the World War II (WWII) together with its allies At that time, there was a need for an institution for trade to help countries recover after the War A group of 23 countries, with a view to foster the postwar reconstruction, negotiated the GATT which would consist of complicated schedules of tariff reductions and some general clauses of obligations related to the tariff obligations The role of the GATT progressively evolved as nations turned to it as the forum in which an increasing number of problems of their trading relationships would be handled The 8th multilateral trade round (or the Uruguay Round) launched in September 1986 in Punta del Este was the most remarkable in the history of GATT as it was the longest round with the participation of 123 countries During the round, the official proposal for a new institution called WTO was tabled by Canada in 1990 The draft charter of the WTO was signed at a ministerial meeting in Marrakech in April 1995.
The principal purposes of the WTO, as of the GATT, set out in its Preamble are raising standards of living, ensuring full employment, expanding production and trade, and allowing optimal use of the world's resources Besides, the Preamble states the objective of sustainable development, which is, "seeking both to protect and preserve the environment" More importantly, it identifies the need for effort to ensure that developing countries and least developed countries, can "secure a share
Letter of ApplicationEstablishment of Working PartyMemorandum on Foreign Trade Regime
Submission of Working Party’s report to General Council Negotiation of policy changes & 3 schedules of commitments
Review sessions of the Working Party Approval of the General Council in international trade commensurate with the needs of their economic development".
In addition, it is due to the fact that GATT problems are solved by the WTO that makes the institution a promising thing countries wish to achieve.
The WTO offers two ways of becoming its member The first, "original membership", including governments which were Contracting Parties of the old GATT ("GATT 1947") is governed by rules The second approach is by "accession," which means by negotiating the terms of membership with governments that are already members Although original members and members by accession are all subject to the same terms, the possibility of joining the WTO by the first route was available only for a limited number of countries.
Figure below describes briefly all the accession procedures
Vietnam has gone more than all of the way to the WTO membership Vietnam applied to join the WTO in 1995 Though a memorandum of its foreign trade regime was provided to the WTO Working Party in September 1996, it did not provide a copy of its applied tariff schedule until 2003 Members asked questions about Vietnam's trade regime and how it intends to adjust its trade policies and practices in conformity with WTO rules Replies to the questions were received and meetings of the Working Party have now been repeated 10 times with the most recent one held in September 2005 Vietnam commenced its market access negotiation in Novembẹr
2000 and the second round was initiated in May 2003 when the revised offer on goods and services was provided The Working Party, since 10 December 2003,started working on the "elements" of draft working party report which means that the terms of Vietnam's membership is being defined Once finalized this report will be submitted to the General Council, together with schedules of commitments on tariffs and services, and a protocol of accession However, before all these are done, Vietnam had to finalize its bilateral negotiations with as much members as possible. The important thing is how Vietnam makes concession and how members value the concession ln order to understand more about this, attention should be paid to principles of the WTO agreements
1.3 Principles of the WTO's Agreements
Five principles are of particular importance in understanding both the pre-1994 GATT and the WTO: nondiscrimination, transparency, reciprocity, enforceable commitments, and safety valves
Non discrimination has two major components: the most-favored-nation (MFN) rule, and the national treatment (NT) principle Both are embedded in the main WTO rules on goods, services, and intellectual property, but their precise scope and nature differ across these three areas See Appendix 3 for a deeper insight into the MFN rule and NT principle.
Transparency has a number of important benefits It reduces the pressure on the dispute settlement system, as measures can be discussed in the appropriate WTO body Such discussions can address perceptions by a member that a specific policy violates the WTO Besides, transparency is also helpful in reducing uncertainty related to trade policy The principle of transparency makes it compulsory for governments to publish their trade regulations in a transparent manner Besides, members are also pushed to establish and maintain institutions allowing for the review of administrative decisions affecting trade, to respond to requests for information by other members, and to notify changes in trade policies to the WTO. While the first two principles are more likely to be mentioned, three other remaining principles are no less important Reciprocity is a fundamental element of the negotiating process It reflects both a desire to limit the scope for free-riding that may arise because of the MFN rule and a desirẹ to obtain "payment" for trade liberalization in the form of better access to foreign markets Liberalization commitments and agreements to abide by certain rules of the game have little value if they cannot be enforced This principle (enforceable commitments) is especially of interest for small countries who would have a great stake in a rule-based international system as the system will reduce the likelihood that they will be confronted with bilateral pressure from large trading powers changing policies that are not to their liking
A final principle embodied in the WTO is safety valves which mean that in specific circumstances, governments should be able to restrict trade These exceptions are listed in WTO agreements such as national security, health, safety and environment,serious balance of payment difficulties or anti-dumping measures.
The trading system under World Trade Organization
A key rule of the multilateral trade system is that reductions in trade barriers should be applied, on a most-favoured nation basis, to all WTO members This means no WTO member should be discriminated against by another member's trade system. However, regional trade agreements (RTAS) are an important exception to this rule. Under RTAS, reductions in trade barriers apply only to parties to the agreement. This exception is allowed under Article XXIV of the General Agreement on Tariffs and Trade (GATT) for trade in goods, in Article V of the General Agreement on Trade in Services (GATS) for Trade in Services and in the Enabling Clause
There are two major types of regional trade agreements under the WTO - customs unions and free trade areas Some countries may also sign temporary agreements, which operate during a transition period, ultimately leading to the creation of a customs union or a free trade area
Bilateral and multilateral trade activities can be mutually reinforcing Free trade agreements can accelerate trade liberalization and set higher benchmarks for the multilateral system The knowledge and skills gained through FTA negotiations can be transferred to multilateral trade negotiations within the WTO Compliance with the WTO rules is important to ensuring an agreement is beneficial to all parties in the multilateral system.
WTO'S AGREEMENT ON SOME MAIN FIELDS
WTO’s agreement on Agriculture
The Agreement on Agriculture (AoA) is a product of the Uruguay Round of theGeneral Agreement on Tariffs and Trade (GATT) negotiations (1986-94), which came into force on 1 January 1995 GATT'S Uruguay Round of trade talks led to the foundation of the World Trade Organization (WTO) Its purpose is to establish a fair and market-oriented agricultural trading system The AoA provides the rules governing international agricultural trade and production It also comprises specific commitments to reduce support and protection in the areas of domestic support, export subsidies and market access, and through the establishment of strengthened and more operationally effective GATT rules and disciplines The Agreement, as well, takes into account non-trade concern, including food security and the need to protect the environment, and provides special and differential treatment for developing countries, including an improvement in the opportunities and terms of access for agricultural products of particular export interest to these Members.
The AoA permits countries to determine the support measures they want for their agricultural sectors Unlimited spending is allowed for programs that support low income and resource-poor farmers in developing countries as well as for insurance programs, infrastructure provision, and public food stocks (at world prices) in all countries.
The Agreement on Agriculture focuses on three areas:
Market Access: liberalizing markets, i.e allowing the free flow of goods, services and investments without obstacles.
Export Competition: export subsidies that governments can give companies to export goods to other countries.
Domestic Support: The Amber, Green and Blue boxes - the amount of subsidies that governments can give their farmers.
By far the most stressed is the Market Access because this represents the real
Nowadays, the new rule for market access in agricultural products is "tariffs only". Before the Uruguay Round, some agricultural imports were restricted by quotas and other non-tariff measures These have been replaced by tariffs that provide more-or- less equivalent levels of protection if the previous policy meant domestic prices were 75% higher than world prices, then the new tariff could be around 75% among WTO members (which can be called "tarriffication") In some cases, the calculated equivalent tariffs were too high to allow any real opportunity for imports So a system of tariff-rate quotas was created to maintain existing import access levels, and to provide minimum access opportunities This means lower tariffs within the quotas, and higher rates for quantities outside the quotas.
The newly committed tariffs and tariff quotas, covering all agricultural products, are to be reduced by an average 36 per cent in the case of developed countries within the period of over 6 years (1995 -2000) and 24 per cent in the case of developing countries within the period of 10 years (l995-2004) Least-developed countries are not required to reduce their tariffs.
Imports entering under the tariff-quota (up to 1,000 tons) are charged 10% Imports entering outside the tariff quota are charged 80% Under the Uruguay Round agreement, the 1,000 tons would generally be based on actual imports in the base period or an agreed "minimum access" formula Tariff quotas ale also called "tariff- rate quotas".
The main complaint about policies that support domestic prices, or subsidize production in some other way, is that they encourage over-production This squeezes out imports or leads to export subsidies and low-priced dumping on world markets. The Agriculture on Agreement distinguishes between support programmes that stimulate production directly, and those that are considered to have no direct effect. Domestic policies that do have a direct effect on production and trade have to be cut back WTO members have calculated how much support of this kind they were providing (using calculations known as "total aggregate measurement of support" or
"Total AMS") for the agricultural sector per year in the base years of 1986-1988. Developed countries have agreed to reduce these figures by 20% over six years starting in 1995 Developing countries are making 13% cuts over 10 years Least developed countries do not need to make any cuts.
In WTO terminology, subsidies in general are identified by "boxes" which are given the colours of traffic lights: green (permitted), amber (slow down - i.e be reduced), red (forbidden) In agriculture, things are, as usual, more complicated The
Agriculture on Agreement has no red box, although domestic support exceeding the reduction commitment levels in the amber box is prohibited; and there is a blue box for subsidies that are tied to programmes that limit production There are also exemptions for developing countries.
Measures with minimal impact on trade can be used freely - they are in a "green box"
("green" as in traffic lights) They include government services such as research, disease control, infrastructure and food security They also include payments made directly to fanners that do not stimulate production, such as certain forms of direct income support, assistance to help farmers restructure agriculture, and direct payments under environmental and regional assistance programmes.
Also permitted, are certain direct payments to farmers where the fanners are required to limit production (sometimes called "blue box" measures), certain government assistance programmes to encourage agricultural and rural development in developing countries, and other support on a small scale when compared with the total value of the product or products supported (5% or less in the case of developed countries and 1 0% or less for developing countries) For agriculture, all domestic support measures considered to distort production and trade (with some exceptions) fall into the "amber box” The total value of these measures must be reduced. Various proposals deal with how much further these subsidies should be reduced, and whether limits should be set for specific products rather than having overall
At the moment, the blue box is a permanent provision of the agreement Some countries want it eliminated because the payments are only partly separated from production, or they are proposing commitments to reduce the use of these subsidies. Others say the blue box is an important tool for supporting and reforming agriculture, and for achieving certain "non-trade" objectives, and argue that it should not be restricted as it distorts trade less than other types of support The EU says it is ready to negotiate additional reductions in amber box support so long as the concepts of the blue and green boxes are maintained.
The Agriculture Agreement prohibits export subsidies on agricultural products unless the subsidies are specified in a member's lists of commitments Where they are listed, the agreement requires WTO members to cut both the amount of money they spend on export subsidies and the quantities of exports that receive subsidies. Taking averages for 1986-90 as the base level, developed countries have agreed to cut the value of export subsidies by 36% over the six years starting in 1995 (24% over 10_years for developing countries) Developed countries have also agreed to reduce the quantities of subsidized exports by 21% over the six years (14% over 10 years for developing countries) Least developed countries do not need to make any cuts.
During the six-year implementation period, developing countries are allowed under certain conditions to use subsidies to reduce the costs of marketing and transporting exports.
The Agreement on Agriculture provides for some limited flexibility between years in terms of export subsidy reduction commitments and contains provisions aimed at preventing the circumvention of the export subsidy commitments and sets out criteria for food aid donations and the use of export credits.
Numerial targets for cutting subsidies and protection in agricultural trading
Numerical targets for cutting subsidies and protection
The reductions in agricultural subsidies and protection agreed in the Uruguay Round Only the figures for cutting export subsidies appear in the agreement The other figures were targets used to calculate countries' legally-binding "schedules" of commitments.
Average cut for all agricultural -36% -24% products
Total AMS cuts for sector -20% -13%
Source: Viet Nam and International Economics Organizations, National Committee for International Economics Cooperation, National Politics Publishing House 2002.
WTO’s agreement on Textile and Clothing (ATC)
The ATC/WTO Agreement came into effect in 1995 and has been fully complied with until January 2005 It was a 1o-year non-extendable agreement for the gradual integration of the textile and clothing sector into the WTO All members of theWTO were subject to the ATC, regardless of whether or not they were signatories to the MFA, and only members of the WTO were entitled to the benefits of the ATC.Under the ATC, WTO members were required to gradually eliminate textile and clothing quotas in a series of four stages during 1995, 1998, 2002 and 2005 to allow those countries affected by MFA (both importers and exporters) to take steps to adjust to a new "free trade" environment The ATC clearly stipulated that there would be no retreat from this time frame Also, from January 1st 2005, WTO member countries, which import textile and garment products have to stop application of quota regime to these products imported from other WTO member countries (Agreement on Textile and Clothing, the World Trade Organization) After this date the textile and clothing sectors will no longer be regulated by a quota system However, the ATC only eliminates import quotas, not the import tariffs. Tariffs must be applied based on MFN principles subsequent to the completion of the ATC.
According to some experts, the quota system does not truly reflect the principle of having a free and open markets When the system is abolished, only countries that can offer the most competitive prices can export their products Meanwhile, non- WTO members will have to face an unequal competition and the risk of losing clients and market shares, resulting in lower demand for exporters because countries free from quota regime will be noticed more This will affect non-WIO members as it fails to show competitive advantages in the non-quota markets For example, its market share in Japan is only 5 percent and that of the EU is merely 1.4%, which is by far behind other competitors like China Since January 2005, the two biggest competitors for the Vietnam garment industry, China and India are forecast to dominate the world garments and textiles In the EU market, China is likely to raise its market share from 18 percent to 29% and the Indian's garment and textile industry's growth rate is expected to reach 9% this year.
Also, the most significant change for Vietnam garment industry is the free quota business environment that will allow the Vietnamese enterprises to gain foothold in foreign markets with their best efforts without being restricted by quota allocation like the pre-WTO membership However, it may cause some difficulties for the domestic producers due to the tough competition in international markets and even right at the "home ground" as foreign businesses rush into the Vietnam market.
WTO s Legal Framework over Retail service
The WTO legal framework consists of the "Marrakesh Agreement Establishing the World Trade Organization" (often referred to as the WTO Agreement), which is composed of a brief Preamble, sixteen articles, some Explanatory Notes, which sets up the legal and institutional foundation, a set of four annexes The focus of this part is going to be placed on the General Agreement on Tariffs and Trade (GATT) and General Agreement on Trade in Services (GATS) It is attributed to the fact that retailing, under the WTO, is classified as one of 155 service sub-sectors. Nevertheless, retailing does not have to do with only services What this service actually provides is goods so GATT is also taken into account An overview of GATT is mentioned with a view to understand its framework and main content. Then more attention is paid to GATS in which the classification of services under GATS, modes of service supply and a schedule of GATS commitments are emphasized
The GATT, as mentioned in its name, mainly handle issues related to trade in goods.
It can be thought of as the code of conduct for government behavior in regulating international merchandise trade Its obligations apply to all products, regardless of whether such products are imported or exported, or whether they appear in a tariff concession schedule The central topic of GATT is the tariff concessions, the most favored nation and national treatment
The GATS is the first multilateral trade agreement to cover trade in services The GATS rests on two main pillars: ensuring increased transparency and predictability of relevant rules and regulations, as well as promoting progressive liberalization through successive rounds of negotiations This can be achieved by improving market access and extending national treatment to foreign services and service suppliers across an increasing range of sectors At the same time, the Agreement recognizes governments' rights to regulate and introduce new regulations, to meet national policy objectives and the particular government's need of developing countries to exercise this right
For purposes of structuring their commitments, WTO Members have generally used a classification system comprising of 12 core service sectors, of which one is distribution The 12 sectors are further subdivided into a total of 155 sub-sectors.Under this classification system, retail service belongs to the distribution sector which includes three other sub-sectors - wholesale, commission agent and franchising
In order to have a deep insight in the commitments made by country members in service sector, it is important to understand thoroughly modes of service supply. Indeed, GATS introduces four kinds of service depending on the territorial presence of the supplier and the consumers at the time of the transaction as follows:
Cross-border: services supplied from the territory of one Member into the territory of another An example is sọftware services supplied by a supplier in one country through mail or electronic means to consumers in another country.
Consumption abroad: services supplied in the territory of one Member to the consumers of another For example, retailing service is supplied to foreign tourists or in other words, foreign tourists buy souvenir abroad
Commercial presence: services supplied through any type of business or professional establishment of one Member in the territory of another An example is a retailing company owned by citizens of one country establishing a branch in another country.
Presence of natural persons : services supplied by nationals of one Member in the territory of another This mode includes both independent service suppliers, and employees of the services supplier of another Member Examples are a doctor of one country supplying through his physical presence services in another country, or the foreign employees of a foreign retailing company.
3.3.3 Schedule of GATS Commitments in Retail Service
As part of the national schedule, the schedule of commitments in retail service inscribes the service sector and activities to which each country member will apply the market access and national treatment obligations of the GATS The level of access provided by a commitment depends on the character of the existing regulatory regime and the nature of the limitations, if any, to which the commitment is subject.
General commitments are applied to all or almost all sub-sectors listed in the specific commitments They can be defined as minimum commitments that foreign service suppliers can enjoy if there are no specific commitments lf Members want to give more detailed commitments for specific sectors, they can do so in specific commitments where they list down all their commitments through 4 modes of supply: cross border supply, consumption abroad, commercial presence, presence of natural person For example, commitments that a country made in commercial presence are "Representative offices of foreign service suppliers are permitted to be established in country Unless otherwise indicated in each sector and sub-sector of this schedule, the establishment of branches is unbound" This means that in any service sectors (among services listed in sectoral commitments), foreign suppliers are allowed to set up a representative office but the establishment of branches is basically restricted Sectoral commitments will make clear in which service activities foreign suppliers are permitted to have branches.
It should be noted that it is unnecessary to offer commitments in all service sectors of the whole economy The number of sectors or sub-sectors that have commitments depends on the capability of the country member and the negotiations between that country and other members Besides, some words like "none" and
"unbound" should be taken into consideration to have a thorough understanding of the offer "None" represents "no limit" which means that foreign suppliers, under one mode of supply, are not imposed any restrictions This is the most open market access "Unbound", on the other hand, indicates the meaning of "not yet committed".
In this case, the host country has neither offered any favorable treatment to foreign suppliers in this service sector nor promised to have a specific schedule for this commitment in the future In other words, "unbound" can be understood as a polite refusal
CHAPTER II: VIETNAM’S COMMITMENT ON SOME FIEDLS – OPPORTUNITES AND CHALLENGES AND THE IMPACTS
VIETNAM’S AGRICULTURAL SECTOR
Requirement and commitment for Vietnam’s agricultural sector
Following the Party and Government's policy to actively strengthen the process of international economic integration, the Vietnamese agriculture has conducted a number of actions and has achieved considerable results The Vietnamese agriculture is now entering a new stage of development So it is necessary to maintain food security, meeting the various demand of the population for food, foodstuffs of higher and safer quality on the other hand to enhance the competitiveness of the Vietnamese agricultural products in order to sustain the domestic market and develop exports, create more jobs and increase income for the population on the other hand Agriculture is always a sensitive problem, which is difficult to be solved in trade relations among countries After 8 years of negotiations at the Uruguay Round, the Agreement of Agriculture was signed in
1994 This agreement strengthened WTO regulations and 1aws to adjust agricultural-rural policies of member countries, which can be seen in the three major contents:
Vietnam is committed to tarify all non-tariff measures and tariff-related commitments, considering tariff as the only measure for domestic production protection Actually, in agricultural sector, Viet Nam's latest offer is to bind agricultural tariffs at an average level of 25.3%, in other words, to set this as a ceiling The current applied rate is 27.1%.
Commitments related to export subsidies are raised in Article 8 to Article 11 of the Agreement of Agriculture, with the basic period from 1986 to 1990 According to this, developed countries have committed to cut off the export subsidies by 36% on value and 21% on quantity in the period of 1995-2000 Meanwhile, the percentage for developing countries is 240/0 on value and 14% on quantity in the period 1995-
2004 Least developed countries do not have to cut off this kind One important thing is that no countries, even the least developed ones can implement any more new export subsidies However, in the period 1995-2000, developing countries, in a particular circumstance, are allowed to give export subsidies involving the marketing expenses and export freight cost Another important is that AoA does not include some kind of export subsidies like export credit
Domestic support is raised in Article 6 and Appendix 2,3,4 of the Agreement ofAgriculture According to this Agreement, developed countries will have to cut 36% within 6 years, and developing countries will have to cut 24% within 10 years of their total subsidies Most measures considered to be "green box" compatible The10% de minimis level (domestic support budget equivalent to 10% of production value) allowed for developing country members of the WTO would be sufficient.
Opportunities and challenges for Vietnamese agriculture in accession to WTO
Becoming a member of WTO, Vietnam certainly has lots of opportunities and challenges as well In the past ten years, Vietnam's agriculture has dramatically changed to an export-oriented production system However, there are still many difficulties for Vietnam to enter the world markets, especially in the agricultural sector One reason for this situation is the low competitiveness Countries who have imported agricultural products have applied an extremely high protection measures for domestic production Joining WTO, Vietnam enjoys the MFN status offered by WTO member countries, with more preferential import tariff rates and non- discrimination treatments And especially, following the spirit of the Doha Declaration, the impact of market opening for agricultural products will be larger. The reduction of import tariffs on agricultural products, extension of tariff quotas, gradual reduction of progressive tax for processed agricultural products and elimination of non-tariff barriers will all create favorable conditions for agricultural products from developing countries, including Vietnam, to enter the markets of developed countries Their markets for agricultural products will be expanded not only in the region but also in the rest of the world.
The stabilized socio-economic environment and the promising future of world integration have had positive impacts on foreign investments in agriculture So far there have been 558 licensed foreign investment projects with a total investment of USD2.86 billion The total implemented capital was USDI.39 billion, accounting for nearly 50% of the total These projects have had considerable contributions to the development of Vietnam's agriculture in the recent period, enhancing the capacity of agriculture not only in investment capital, technologies and equipment, markets but also in infrastructure development Many countries have had large investments into Vietnam, namely Taiwan, Hong Kong, France and China Vietnam's integration policy will continue to create an open and flexible environment for inducing more foreign investments The expanded markets for Vietnam's agricultural products will also be an attractive condition for foreign investors to enhance their investments in Vietnam.
Scientific, technical and technological cooperation and capacity building are the major contents of the WTO in all fields, though under various forms Developing countries, including Vietnam, are expecting to participate more into science- technology cooperation programs as well as to be given more technical assistance and enhance their capacity The Vietnamese agriculture will have more opportunities to access to new sources of technology, which in turn will contribute to improving productivity, quality and competitiveness of Vietnam's agricultural products.
2.1.4 Pressures to self-develop and enhance the competitiveness of domestic enterprises:
Becoming a WTO member, Vietnam does not only enjoy benefits offered by other members but also have to commit to offer preferential treatments to them That is, Vietnam also has to open its market for agricultural products from other member countries to come in, to have more transparent and equal policies, and to gradually eliminate policies on agricultural subsidies, which are incompatible to WTO regulations Therefore, Vietnamese enterprises, especially State-owned enterprises, cannot bend forward State subsidies any longer For their survival and development, they have to win in the competition It is this pressure that forces Vietnamese enterprises to make greater efforts to enhance the competitiveness of their products
Viet Nam is a low-income heavily-indebted developing country which is facing a range of development challenges The Vietnamese government is concerned that the economy has to deal with fierce international competition while the level of its development is low, productivity is still not high, and its ability to complete is weak 3
It is also concerned about having to introduce new trade rules which are costly or may limit its development strategy.
One result of further agricultural import liberalization will be a fall in farm incomes due to increased competition from overseas This will increase the inequalities in rural and urban incomes Furthermore, losses of agricultural income can have strong effects Research carried out by the Institute of International Food Policy Research suggests that for every dollar earned in farm income, another four dollars are added through exchange in the rural economy Conversely, losses suffered by farmers will be felt elsewhere in the rural economy Vietnam should not be asked to increase its commitments to liberalize agriculture over what has already been offered.
The very low starting point of Vietnam in general and Vietnam's agriculture in particular and the more and more demanding regulations of the WTO will create big challenges for Vietnam's agriculture, specifically:
2.2.1 The competitiveness of Vietnam’s agricultural products is still 1ow
The competitiveness of Vietnam's agricultural products is still low largely due to low productivity, low quality and high cost, such as sugar, com, Soya bean, cotton, tobacco, milk and pork etc., When import tax rates are reduced, non-tariff barriers are eliminated, these products will have to face with a fiercer competition with imported ones It is certain that a number of enterprises and agricultural production industries will have to shorten their production size, or will not survive if they do not enhance their capacity This will result in a decline in jobs and income of a part of agricultural labor force, especially the poor
2.2.2 The competitiveness of agricultural processing and business enterprises remained low.
Most of the processing factories are small-sized with backward technologies and equipment, as compared with those of countries in the region and the world Many of the commercial enterprises are also small in size About 70% of the all enterprises under the Ministry of Agriculture and Rural Development have a capital level of only about VND 10 billion each Their ability to meet market requirements is still weak Market opening, therefore, is a big challenge for Vietnamese enterprises The systems of infrastructure, services and laws still have a number of weaknesses and do not meet requirements of world integration Although the system of transportation has been considerably improved, about 400 communes (or 6% of the total) have not had motor roads to their centers, 50% of the all village roads are in poor condition There still 1acks infrastructure bases serving the trade of agri-forest aquatic products: lack of specialized ports, high costs of goods loading and unloading (for example, at-the-port costs of every ton of export rice of Vietnam is nearly twice higher than those of Thailand); and other requirements of consumers concerning veterinary and foodstuffs sanitation have not been met.
In the agriculture sector, under considerable pressure from WTO members, Vietnam's latest offer is to bind agricultural tariffs at an average level of 25.3%, in other words, to set this as a ceiling The current applied rate is 27.1% As a developing country, the majority of population is heavily dependent on agriculture for its livelihood, Viet Nam should not have to lower rates further We can see the fact in China that it agreed to bind its average agricultural tariffs at the relatively low level of 15.5% However, China has a huge domestic market Demand for food is growing extremely fast, so the country is able to absorb rising food imports without much damage to local producers The same cannot be said for Viet Nam.
There are some products that are quite sensitive in Viet Nam, including sugar and maize Oxfam research in the sugar-producing province of Guangxi in China found that increased competition post-WTO accession from heavily subsidized EU sugar has forced poor farmers out of business To prevent a similar situation in Viet Nam, these sensitive products must continue to enjoy a 'measure of protection from international competition through tariff rate quota (TRQs).
Viet Nam is particularly concerned to be able to use TRQs and special safeguards (SSGs) against import surges that cause prices to fall, as so many farmers are in or living in poverty At many negotiation sessions, Viet Nam was asked to apply, SSGs, though Viet Nam's proposal was much more modest than that of China: Viet Nam asked to apply SSG measures for only pork, beef, and poultry, and apply TRQS for eight other products Those who did not ask Viet Nam to remove TRQS and SSGS asked for reduced tariffs
Some Working Party members in WTO are putting pressure on Viet Nam to eliminate all its agricultural export subsidies at the moment of accession-a WTO- plus demand which goes well beyond obligations of both developed and developing country members In the negotiation framework for the next phase of the DohaRound, adopted in July 2004, there still no firm date for the elimination of rich country export subsidies Elimination could take another ten or fifteen years The framework also specifies that developing country Members will benefit from longer implementation periods for the phasing out of all forms of export subsidies. According to the Centre for Rural Progress, Viet Nam provides around 1,103bn VND (US$73.5m) per year (1991-2005) in export subsidies This figure falls into insignificance when we consider that rich countries spend US$6- 7bn a year on export subsidies and cheap export credits Asking Viet Nam to eliminate subsidies immediately is a clear case of double standards by the most powerful members of the WTO Viet Nam can reasonably argue for continued use of export subsidies in order to achieve its poverty reduction and development goals Although Oxfam research has shown that export subsidies used in the past in Viet Nam on rice and coffee have not always benefited the poorest farmers, better-targeted export subsidies could help to achieve poverty reduction For example, the government can help to market a new product, which is important to poor farmers, or to cover agricultural transportation costs from remote areas where the incidence of poverty is highest and agriculture the main source of household income.
Viet Nam should not be pressed into making any WTO-plus commitment to reduce domestic support to farmers, as this would threaten livelihoods in poor and disadvantaged areas Viet Nam should fully benefit from WTO rules that recognize the special needs of developing countries with regards to domestic support Under the de minimis rule, developing country members are allowed to spend up to ten per cent of the value of production on subsidies (excluding green box payments, which are not capped, and subsidies for low-income and resource- poor farmers, which are not subject to reduction commitments) even without the de minimis provision, most of the domestic support in place in Viet Nam should be exempt from reduction commitments as it is minimally trade distorting and for low-income and resource- poor farmers For instance, Oxfam research in Viet Nam identified several positive examples of state-owned companies aiding poverty reduction efforts in Nghe An and Tra Vinh provinces through domestic agricultural support schemes In Nghe An, a state company subsidizes the transport of agricultural inputs to farmers in remote rural areas However, even in such schemes, the inputs are normally only brought as far as the local commune center It may be a further 20-60 km from the villages to the local center only on foot This is a journey frequently undertaken by women,who will often spend a whole day walking to collect an important input The total subsidy involved in these schemes is small and non-trade distorting Despite the remaining challenges of access, yields have improved and the effects on poverty reduction are very positive.
Case study: Maize trade in Vietnam
3.1 Past trend in maize price, imports and exports
In the world market of staple foods, wheat, rice and maize have relationship with other because consumers can substitute one for another The common price trend of staple products has been a decline over the period from 1980 to 1990, and prices were fairly stable over the period 1990-1998 The lowest price level was in 1993: US$ 96 per ton From 1998 to 2002, rice prices reduced, while maize prices remained stable at a fairly low level of around US$ 100 per ton Grain price started to recover in 2002.
Viet Nam's maize prices have shown an average upward trend over the period 1999-
2003, but the prices fluctuate seasonally In Red River Delta markets for example, maize prices decline to a low in September-October, which is during and some time after harvesting in key areas (especially Son La, which is close to the Red River Delta), and an increase in price afterwards, to reach a peak at around March to June (see figure with retail prices in the Red River Delta).
Maize is the second most important staple food crop grown in Viet Nam, after rice, and is also important as input into animal feed The total number of farm animals in the period of 1993-2003 increased with a rate of 5.1% per year, pigs increased by 5.3 % per year and poultry by 7.1 % per year The share of animal feed in total maize produced increased from about 20% in 1 990 to about 70% in 1997, and it remained more or 1ess stable since then This includes the maize for feed used on farm, and the maize sold and processed by the animal feed industry.
In the 1980's and early 1990's, Viet Nam exported some maize, mostly to neighboring countries The peak export volume of 250,000 ton in 1996 reflected sudden high prices in the world market The animal husbandry sector developed fast since the late l990's, which increased domestic demand that could not be met by domestic production, and Viet Nam changed from a net exporter of maize to a net importer The annual import of maize fluctuates strongly but overall suggests an upward trend since 1997 It was 50,000 ton in 2001, 300,000 tons in 2002, 100,000 ton in 2003, and about 70,000 ton in 2004 The initial figure of maize import in 2004 is provided by the Planning Department, MARD…The import volume of maize is still low compared to total maize production in Viet Nam, i.e no more than 15 % in the peak year of 2002.
Comparison of the average domestic prices and import prices in Viet Nam indicates that the gap has narrowed down since 1999 In 1999-2000, the domestic maize price was about US$ 14-17 per ton higher than the import price But in 2001-2002 the import prices were higher than domestic prices, i.e US$ 8 per ton higher in 2001 and US$ 0.8 per ton higher in 2002.
3.2 Import tariff for maize grains under Viet Nam’s trade agreements
The general tariff for maize grains was 10% in 1987 and was reduced to 7% in
1992 However, import was negligible Before 1997 maize export was around 50- 100,000 ton per year, with 1996 a peak year of about 250,000 ton The general tariff for maize increased to 7.5% in 1999 Since then any business can import or export maize, animal feed, and other materials for animal feed, i.e this is no longer restricted to State owned enterprises (SOES) There was a sudden increase in import in 2002 (300,000 ton, mainly from China), and in 2003 the Government introduced a quota-based system for maize imports (and an over-quota tariff of 10%) However, this quantitative restriction has never been applied and was removed from April
2005 (which is a demand for WTO accession)
The maize tariff on imports from ASEAN countries was reduced to 5% on 1 January
2004 The import tariffs for maize grains under different trade agreements is as follows:
Import tariff for maize grains under Viet Nam’s trade agreements
Source: CD Trade, WTO and Development + Question and Answer WTO (MUTRAP)
The tariffs on maize have thus been low for some time, they are getting lower, and there have been no sudden changes in maize tariffs over the past 20 years The tariffs have had very little impact on the local market price because the imported volume has until now been quite limited, when compared to total domestic production and consumption Domestic prices have been reasonable to good over the past years Furthermore, the tran8port costs were too high for small traders Import was limited to some large animal feed companies Indeed, the tariffs barely affected import decisions of large companies such as CP, which are based mainly on quality and on seasonal price.
The tariff reduction is thus small lower (to 0-5%), but impact on the profitability of local maize production for animal-feed is likely to be felt because of rising imports and improved efficiencies in Viet Nam Bulk imports are set to increase, because demand for animal is probably rising more rapidly than domestic production Larger bulk reduces transport costs per kg, and infrastructure will improve further so that transport costs reduce further The barriers of a (low) tariff and transport inefficiencies will thus both come down, and the domestic market will be exposed to the artificially low price of internationally traded maize (especially due to subsidies and other support measures in the USA).
Recent situation of agricultural development in Vietnam
The process of international economic integration has been bringing a lot of opportunities and challenges to the economy of Vietnam in general, and to the agriculture industry in particular In order to carry out international commitments, non-tariff trade protection needs to be removed and the tax barriers need to be gradually reduced Vietnam has been adopting the CEPT/AFTA program in relation to tax reduction and exemption for agriculture products and carried out tax reduction from 0-5% in 2006 With requirements from the integration process as mentioned above, agricultural products of Vietnam are facing many difficulties Besides the products with high competitiveness like rice, coffee, cashew nuts, pepper, etc., others need to find out strategies and solutions for improvement in order to have a sustainable agricultural development in the process of global integration
The agricultural sector in Vietnam has reached stable and sustainable growth rate during the recent 15 years, with an average development rate of 4.3 per year, focused on diversification of agricultural products and export targets and strongly and rapidly changed from a self-supporting production system to an export-oriented one The greatest achievement in agricultural products are food production with an average productivity increase of 5.8%/year, about 1.3 million tons per year and twice up as much as that of 1 90 Coffee production also grew by 20 times, rubber- up by 3.5 times, tea-1.8 times and cashew nuts-up by 4 times Positive changes were made in agricultural production in most regions of the country Rapid developments can also be seen in the export of agro-forestry products; both in export volume and export value The export of agro-forestry often account for about 30-35% of the total agro-forestry output value For example, the export of rice made up 20% of the total rice production, while that of coffee is 95%, rubber-85%, cashew nuts-90%, tea-over
80% and pepper-95% Some of Vietnam's agricultural products have had strong positions in the world markets, both in quantity and quality, such as rice, coffee, cashew nuts and pepper In 2006, the total export turn over of agro-forestry products was USD 2.8 billion, that is, up by 3.1 times as compared with that of 1990 The markets for Vietnam's agri-forest exports were expanded, not only in traditional markets for Vietnam's agricultural products like China, ASEAN, Russia and East European countries but also in other countries and regions such as the Middle East,
EU, America, Japan and South Africa with increasing export volumes The structure of agricultural and rural production has been gradually changed with higher efficiency Agricultural reforms in the recent years have been set up step-by-step exploiting the strengths of each area, relating more closely with markets for agricultural products For example, the ratio of industrial crops, vegetables, flowers and fruit increased from 30.6% in 1999 to 35% in 2006 The share of livestock breeding also increased, from 17.9% in 1990 to 19.7% of the total income from agricultural production in 2006 (cultivation, livestock breeding and services) Large- scale specialized commodity production regions have been established, for instance, coffee in the Central Highland, rice in the Red River delta and Mekong River delta, tea in the Mid-land and mountainous provinces of the North and in Lam Dong province; rubber in Eastern regions of the South, sugar in Northern and coastal provinces of the Central, Eastern regions of the South and Mekong River delta, ect. Non-agricultural industries in rural areas have been gradually restored and developed, which thus created many jobs and increased income of the rural population The agricultural and rural services have also developed strongly with diversified products, contributing to job creation, increase of income and restructuring of the rural economy.
Improvements in the rural infrastructure have been made in many regions The life of rural people has also beẹn improved, with an average income from VND7.7million per household in 1993 to VND10 million in 1998 The problem of food security has been solved from the perspective of national food security to that of regional security and to household security The number of rich households increases, while that of poor households declines The ratio of rich households rose from 8% in 1 990 to 20% in 1999, while that of poor households went down from29% in 1993 to 14.5 % in 2006 (that is, a 1% point decrease of poor households per year) Many provinces of the country no longer have hungry households In 2001, there were 1870-communes from 49 provinces having hungry households in the whole country.
The cultural life of rural areas has also been improved, with increasing number of households with televisions and radios: from 3 % of households with televisions in
1990 to 15 % in 1994 and 78% in 2006; from 11 % of households with radios in
1990 to 67% in 2006 Thanks to improvements made in the material and cultural life of the rural people, the average life-expectancy of the population has also increased, from 65 years in 1990 to 87 in 2006; the ratio of mal-nourished children under five went down from 51 % in 1993 to 24% in 2006.
Along with the above-said achievements, however, the Vietnamese agriculture in the recent time has also faced a number of weaknesses Many resources in agriculture have not been exploited There remains a large area of bare and unexploited land and hills The efficiency of the currently used agricultural land area (8.1 million ha) was low with an average income of only 1,000 USD/ha/year 25 million of the rural workers are under-employed, who could use only about 60-70% of their working time with low productivity Though the number of labor is larger, the knowledge and skill of people are still very limited There also existed a large source of idle capital among the rural population, which has not been mobilized It is estimated that there were about VND 10,000 to VND 17,000 billion temporarily reserved under the form of savings, gold, US dollars and agricultural products which were not used for the business of production
The Vietnamese agriculture and rural economy now tend to depend on 10 million rural small-size households, with an average 0.5 hectare of arable land each, out of date production tools, low productivity, low quality and efficiency, and poor competitiveness in the markets for agricultural products 8 million hectares of agricultural arable land area have been divided into 75 million plots, which are very small and thus become a large obstacle in the process of agricultural and rural industrialization and modernization On average, one hectare of farming land has created an income of about 1,000 USD per year; one rural labor has earned an income of 300 USD per year, which is much lower than those of countries in the region Poor-harvest processing industries have slowly developed, small-sized and incompatible to the large-scale commodity production The development of markets for agricultural products and other agricultural services remained poor and weak
Life of the people in general is still poor, especially that of people in the mountainous and remote regions There are 2.25 million poor households in the whole country, accounting for 14.5% of the total Of these, 90% are rural households There are also 300,000 hungry households and 400,000 nomadic farming and living households The living gap between the urban and the rural has been widening, which now is 5 times
Natural disaster constantly happens every year namely hurricanes, floods, drought,pests, diseases and forest fires causing great losses to crops and giving rise to environmental pollution, land erosion, water pollution, and forest exhaustion (the forest coverage is now only over 30%).
VIETNAM’S RETAIL SERVICE SECTOR
Horizontal Commitments
Horizontal commitments are the minimum treatment that members can enjoy if no other commitments are offered in specific sectors In the case of Vietnam, it has offered commitments in 4 modes of supply: cross-border supply consumption abroad, commercial presence and presence of natural person Regarding mode 1 and mode 2, commitments are specified in each individual sector and sub-sector which will be detailed in the next section Regarding mode 3 in limitations on national treatment, Vietnam's commitment reads as "unbound, unless otherwise specified in each sector or sub-sector" and "unbound for subsidies granted to Vietnamese service suppliers" In other words, Vietnam has not committed to remove subsidies granted to Vietnamese service suppliers or there has not been a schedule for removing such subsidies.
As far as limitations on market access are concerned, there are commitments in mode 3 and 4 Accordingly, foreign enterprises are allowed to establish commercial presence in Vietnam under the Law on Foreign Investment in the form of business cooperation contracts, joint-venture enterprises, and 100% foreign invested enterprises One thing that should be noted is the permission to lease the land to carry out investment project As for foreign investors, in general and retailers, in particular, land is always of their great concern before the decision on investment is made Once Vietnam has committed that the land will be leased by foreign investors and the land leasing period shall correspond to the time of operation of those enterprises and shall be stipulated in their investment license, it will create a safety feeling among investors It is attributed to the fact that commitments are binding under the WTO, and if Vietnam will not follow its commitments, it will be punished by the institutions Thereby, investors can assure that their land as well as their site on the land will not be discretionarily appropriated by the government.
As mode 4 of supply, under the WTO, refers to presence of natural person, Vietnam made commitments relating to entry and temporary stay of natural persons These natural persons are classified into 3 main groups: (i) managers, executives and specialists temporarily moving as intra-corporate transferees, (ii) managers, executives, and specialists that participate in the operation of a commercial presence in Vietnam, and (iii) service sales persons The common condition for the first two kinds of natural persons is that they cannot be substituted by Vietnamese The later are persons engaged in activities related to representing a service provider with a view to negotiating the sale of the services of that provider in 2 cases The first is where such sales are not directly made to the general public The second case is where the sales person is not directly engaged in supplying the service The stay of such natural persons depends on each group and case
In short, these horizontal commitments are guidelines for foreign investors before making their own investment decision when no specific commitments are identified in individual sector and sub-sector It can also be seen that Vietnam still reserves the right to protect local service suppliers for social reasons which may be difficult forWTO members to accept.
Specific commitments in Retail Services
Distribution service as well as its sub-sector, retail service, is considered one of the most restricted in the economy of most countries Even countries which are already WTO members were cautious when making commitments relating to this service. Vietnam, like other countries, does not make commitments on every single product due to national policy objectives In fact, oil and oil derivatives, gas, fertilizers, insecticides, wines/spirits and other alcoholic drinks, cigarettes and cigars, medicines, precious metals, explosives, rice and wheat flour are excluded from the commitments It means that foreign retailers may engage in the retailing of all products except for these goods
As the most concerning issue of foreign retailers is how to get a foothold in other countries, countries members often make more commitments in mode 3 of supply commercial presence than other modes of supply The same thing can easily be seen in the commitment schedule of Vietnam Vietnam has no specific schedule for reducing limitations on market access and national treatment in cross-border supply.
Besides, there is no limitation on market access and national treatment in consumption abroad In terms of mode 3, foreign retailers, once they have entered the domestic market, will be treated equally as the local one as Vietnam has set out no limitations on national treatment But as far as the market access is concerned, foreigners are only allowed to enter the market in the form of joint-ventures with foreign capital contribution not exceeding 49% of legal capital This condition on capital limitation will be changed depending on the period of Vietnam's membership Specifically, after 3 years from the date of accession foreign services suppliers could establish joint- ventures in which foreign capital contribution may not exceed 50% of legal capital Five year afterwards, this capital limitation shall be removed In short, foreign retailers can set up their supermarkets, hypermarkets or shopping malls if they want but they have to find at least one local partner to cooperate with them This commitment seems to be more liberal in comparison to the current situation when foreign retail groups are only allowed to penetrate the local market with the government's specific approval on a case-by-case basis The Parkson Group from Malaysia, for example, formed a joint- venture with Saigon tourists to carry out retailing in Vietnam.
The commitments in mode 3 also include the establishment of outlets for retailing services and the online retailing services Retailing outlets can be established with the involvement of foreigners; however, they shall be considered on a case-by- case basis This commitment will be argued by other members during negotiation and Vietnam should clarify the reason for this commitments as well as conditions to make approval for this kind of retailing With regards to online retailing, although this kind of retailing is rather new to Vietnam, is still developing at a slow pace, the commitment in this field presents the long-term perspective of the country. However, it also shows restrictions, specifically, the commitment reads as "online retailing services may be geographically restricted" In fact, given the current development of Vietnam, this commitment seems to be unnecessary as consumers in rural areas, for example, do not have the access to the Internet and retailing infrastructure is not available to facilitate this kind of retailing
Last but not least is the commitments in mode 4; Vietnam did not make any specific commitments in the presence of natural persons except for those stated in the horizontal commitment part In short, foreign retailers can base on the categories mentioned in the horizontal commitments to identify limitation on market access and national treatment they have to face.
Opportunities and Challenges
2.1.1 Infrastructure Development by Foreign Investment
Once Vietnam becomes a WTO member, retailers from other country members will have wider access to the domestic market Besides, barriers to foreign investment will be gradually removed Together with the entry of foreign retailers and other investors is the inflow of investment which is in great need for the development of infrastructure Although it seems that outlets, shops, or houses and warehouses are the only things that retailers are concerned, other parts of infrastructure system such as roads, electricity and water supply are of importance to their performance. Therefore, WTO membership will foster the inflow of investment to develop infrastructure of the whole country, thus facilitate the performance of retailers.
Reality shows that many supermarkets have been booming since the opening policies were adopted The number of goods traded in these supermarkets keeps increasing Moderate-sized supermarkets often deal with about 5000 to 6000 types of products while in some large supermarkets, traded goods range from 8000 to
15000 types It is clear that without modem warehousing system, supermarkets can not handle such huge amount of goods Besides, the computer system also plays a vital role in maintaining and preserving inventory Thanks to the modern technology, supermarkets can flourish at a fast pace Besides, online retailing has emerged and is expected to prosper in the near future It is apparent that international integration together with its latest technology is attributed to the development of the domestic retail market
It is owing to joint-venture projects that Vietnamese enterprises can access to not only latest technology but also up to date trading method and management expertise.Actually, knowledge has been transferred from both government/non-governmental organizations and foreign retailers to Vietnam's partners For example, the SwedishUnion of Consumer Co-operatives is a non-governmental organization that has provided training to Saigon Co-op in Ho Chi Minh city since 1998 Their training courses include such topics as display design, administration, and customer relations One major investor in Vietnamese retail, the Bourbon Group of France,opened the first Vietnamese branch of its chain of hypermarkets under the nameCora in 1998 Bourbon Group had had previous business interests in Vietnam - including sugar refining Cora was launched with a management team sent from the parent company's French headquarters Two more Cora hypermarkets have since opened Essentially every new technology or procedure employed is a matter of technology transfer, including the design of the facility, procurement, merchandising, and human resource practices Other retailers could visit the facility and observe many technologies Indeed, with the prospect of Cora expanding, it would become increasingly necessary for other retailers to compete with the store in assortment, pricing, and customer service
2.2.1 Lack of capital, insufficient infrastructure
The majority of Vietnam's enterprises are of small and medium size so they will face a lot of difficulties when establishing their own retail network and particularly large- scale vertical integration In the meantime, foreign retailers, in most cases, have large amount of capital so it is likely that they will be more advantageous in investing large-scale supermarkets than local partners In addition, they can employ pricing strategy to attract customers and push local rivals out of the market At present, foreign retailers are restricted to enter the domestic market, but when WTO commitments are phased in, local retailers will face an intensified competition. Therefore, they should take full advantage of their own strength such as thorough understanding of local consumers' tastes and preferences, prime locations (for state- owned trading enterprises), etc
2.2.2 Newly-Established and Vulnerable Integration
It can be said that the domestic distribution channel and retail network are built on vulnerable relations As Vietnam has just moved from the command economy to market economy, most of vertical and horizontal integrations in the retail network have just been established Local retailers are on the way to project their own images Given WTO accession and increasingly fierce competition, local retailers should cooperate with each other to enhance vertical and horizontal integration as well as improve themselves to survive.
The competitiveness of Vietnam in terms of 3 levels (nation, enterprises and products) is much lower as compared to other countries in the region According theWorld Economic Forum, Vietnam, at the moment, stays at the 10 th position in the competitiveness ladder among 11 countries and regions (including ASEAN-6,Japan, Korea, Taiwan, Hongkong and China) Vietnamese enterprises are not so good in accessing modem distribution channel, understanding market needs and cooperating with other partners They themselves have not created their own corporate culture as well as images so they can not stay firm in their own market As far as products are concerned, they are not of high quality, eye-catching package as well as reasonable prices All these things combined erode the competitiveness of domestic enterprises, which is likely to make them a loser in their own playing field.
2.2.4 Incomplete and Inconsistent Legal Framework
One of the WTO requirements that Vietnam has to meet is the transparent,consistent and predictable legal framework However, at present, foreign investors often complain about frequent changes in regulations which discourage their activities Besides, the legal documents are not transparent enough for enterprises to carry out their businesses which lead to misunderstanding and misuse of legal documents The government should pay attention to the national treatment and most favored nation principle to avoid disputes In conclusion, WTO membership is not a magic wand that could only bring about good things to Vietnam Therefore,Vietnamese government as well as the business community should be aware of all the pros and cons of the WTO so that all benefits can be obtained.
Current Situation of the Retail Sector
Under the Decree 75/CP dated 27/10/1993, Vietnam's service sector does not include public utilities and construction while under GATS classification, Vietnam has 9 service sectors and 16 sub-sectors in which wholesale and retail trade, repair of motor vehicles, motor cycles and personal and household goods is considered as the corresponding distribution service under GATS classification With regards to statistics, there has not been a clear cut in data among the 4 distribution sub-sectors (wholesale, retail, agent commission and franchising) which causes difficulties in collecting and analyzing statistics in services Luckily, figures for wholesale and retail trade are more available though they are often published in combination Thus in some sections of this part the combined data are used
Retail trade together with wholesale trade plays a vital role in the national economy due to its direct contribution in GDP and job creation as well as the development of domestic services and exports
The contribution of wholesale and retail trade; repair of motor vehicles, motor cycles and personal and household goods to GDP keeps increasing in terms of absolute value lf its value was merely VND37491 billion in 1995, it tripled to roughly VND
62836 billion in 2000 Thanks to the opening policies of the government, it tripled that of 1995, reaching VND 99,397 billion in 2006 Indeed, it stood at the highest level as compared to other service activities
Besides its increasing contribution to GDP, the retail trade also attracts a huge number of employees Thanks to the enterprise survey carried out in April 2001, July 2002 and March 2007 by the GSO, data for job creation by retail trade was collected in separation with that of wholesale trade and repair of motor vehicles; motor cycles, personal and household goods Actually, its total employees in 2006 were nearly 3 times higher than that in 2000 lf there were 239,335 employees joining the retail trade in 2000, this number increased to 704,843 persons in 2006. This represents the expansion of retail service as well as its attraction.
Investment to the sector remains insignificant with comparison to other sectors, for example, transport, storage and communications and community, social and personal service activities While its investment increased to VND10,849.5 billion in
2006 from VND2310.6 billion in 2000, transport, storage and communication attracted VND15159.l billion and VND43968.2 billion of investment in 2000 and
2006 respectively This real value of investment reflected the sector's small scale.
It can be said that the retail trade, like other services, is developing, despite its small scale Retail sales keep increasing over periods It is estimated that retaịl sales in
2008 will reach nearly $28 billion especially with the participation of foreign retailers in the market.
The domestic retail market, in general, is rather fragmented and underdeveloped with household-owned businesses dominating the market These retailing enterprises serve a wide range of needs and sell both food and non-food items Wet markets and independent grocers still play a traditional role in selling food to meet daily basic needs However, the sector has recently seen a greater degree of foreign investment, and the market has experienced some instances of merger and acquisition, leading to the formation of larger shops and shopping centers The commercial presence of well- known retailers such as Big C and Parkson has also been witnessed in Hanoi,
Ho Chi Minh City and other provinces According to the Ministry of Trade, there are
110 supermarkets and 37 trading centers nationwide in 2006 But there is a large gap between big cities and rural provinces in terms of retailing infrastructure Less- developed cities and provinces, which account for about 80% of the population,have a larger number of traditional retail outlets and markets It is only the few big cities, including Ho Chi Minh City and Hanoi that have recorded a large increase in the number new modern retail outlets, both local and foreign
The key players in the domestically owned supermarket segment comprise Saigon Co-op Mart and Maximark Saigon Cọ-op Mart was modernized in the mid-1990s and has since opened 1arger stores Currently the chain operates 13 stores, which set aside around 25% of retail space to non-food items ln January-September 2004 Saigon Co-op Mart recorded revenue of nearly VND 1.3 billion (Us$83m), up by around 50% year on year, and it claims to hold a 50% share of the supermarket trade in Ho Chi Minh City Maximark, which opened its first store in the mid-1990s, now operates four outlets Its largest, which opened in 2002 in Cong Hoa, is part of a complex in a 19,000-sq meter building
One of the largest foreign-owned retail players in Vietnam is the Bourbon Group, which operates Big C supermarkets through its Vindemia retailing branch The group's first French-style shopping mall in Vietnam, Big C (formerly Cora) Dong Nai, was opened outside Ho Chi Minh City in 1998 Two other malls were opened in Ho Chi Minh City in early 2001 The first Big C supermarket in Hanoi, the Big C Thang Long Trade Centre, opened in January 2005, covering 12,000 sq meters and costing USSi2m Around 90% of the goods stock at the Big C Thang Long Trade Centre is of Vietnamese origin
In addition, one of the Malaysian largest retailers - Parkson opened its first shopping mall in Ho Chi Minh City With 2,000-square-metre retail centre and supermarket, it signed the understanding memorandum with Saigon Tourists to form a ioint venture.Actually, Parkson's plan is prospering as its investment license application has been approved by the city's department of planning and investment Another giant Asian retailer, Hong Kong's Dairy Farm, is also eyeing Vietnam's $20 billion retail and service market Dairy Farm operates 2,680 outlets in China, Malaysia, Singapore,Indonesia, India and South Korea Last year it posted sales of $4.5 billion.
VIETNAM’S GARMENT INDUSTRY
Vietnam's Commitments
Horizontal commitments are the minimum treatment that members can enjoy if no other commitments are offered in specific sectors In the case of Vietnam, it has offered commitments in 4 modes of supply: cross-border supply consumption abroad, commercial presence and presence of natural person Regarding mode 1 and mode 2, commitments are specified in each individual sector and sub-sector which will be detailed in the next section Regarding mode 3 in limitations on national treatment, Vietnam's commitment reads as "unbound, unless otherwise specified in each sector or sub-sector" and "unbound for subsidies granted to Vietnamese service suppliers" In other words, Vietnam has not committed to remove subsidies granted to Vietnamese service suppliers or there has not been a schedule for removing such subsidies.
As far as limitations on market access are concerned, there are commitments in mode 3 and 4 Accordingly, foreign enterprises are allowed to establish commercial presence in Vietnam under the Law on Foreign Investment in the form of business cooperation contracts, joint-venture enterprises, and 100% foreign invested enterprises One thing that should be noted is the permission to lease the land to carry out investment project As for foreign investors, in general and retailers, in particular, land is always of their great concern before the decision on investment is made Once Vietnam has committed that the land will be leased by foreign investors and the land leasing period shall correspond to the time of operation of those enterprises and shall be stipulated in their investment license, it will create a safety feeling among investors It is attributed to the fact that commitments are binding under the WTO, and if Vietnam will not follow its commitments, it will be punished by the institutions Thereby, investors can assure that their land as well as their site on the land will not be discretionarily appropriated by the government.
As mode 4 of supply, under the WTO, refers to presence of natural person, Vietnam made commitments relating to entry and temporary stay of natural persons These natural persons are classified into 3 main groups: (i) managers, executives and specialists temporarily moving as intra-corporate transferees, (ii) managers, executives, and specialists that participate in the operation of a commercial presence in Vietnam, and (iii) service sales persons The common condition for the first two kinds of natural persons is that they cannot be substituted by Vietnamese The later are persons engaged in activities related to representing a service provider with a view to negotiating the sale of the services of that provider in 2 cases The first is where such sales are not directly made to the general public The second case is where the sales person is not directly engaged in supplying the service The stay of such natural persons depends on each group and case
In short, these horizontal commitments are guidelines for foreign investors before making their own investment decision when no specific commitments are identified in individual sector and sub-sector It can also be seen that Vietnam still reserves the right to protect local service suppliers for social reasons which may be difficult for WTO members to accept
1.2 Specific commitments in Retail Services
Distribution service as well as its sub-sector, retail service, is considered one of the most restricted in the economy of most countries Even countries which are already WTO members were cautious when making commitments relating to this service. Vietnam, like other countries, does not make commitments on every single product due to national policy objectives In fact, oil and oil derivatives, gas, fertilizers, insecticides, wines/spirits and other alcoholic drinks, cigarettes and cigars, medicines, precious metals, explosives, rice and wheat flour are excluded from the commitments It means that foreign retailers may engage in the retailing of all products except for these goods
As the most concerning issue of foreign retailers is how to get a foothold in other countries, countries members often make more commitments in mode 3 of supply commercial presence than other modes of supply The same thing can easily be seen in the commitment schedule of Vietnam Vietnam has no specific schedule for reducing limitations on market access and national treatment in cross-border supply.
Besides, there is no limitation on market access and national treatment in consumption abroad In terms of mode 3, foreign retailers, once they have entered the domestic market, will be treated equally as the local one as Vietnam has set out no limitations on national treatment But as far as the market access is concerned, foreigners are only allowed to enter the market in the form of joint-ventures with foreign capital contribution not exceeding 49% of legal capital This condition on capital limitation will be changed depending on the period of Vietnam's membership Specifically, after 3 years from the date of accession foreign services suppliers could establish joint- ventures in which foreign capital contribution may not exceed 50% of legal capital Five year afterwards, this capital limitation shall be removed In short, foreign retailers can set up their supermarkets, hypermarkets or shopping malls if they want but they have to find at least one local partner to cooperate with them This commitment seems to be more liberal in comparison to the current situation when foreign retail groups are only allowed to penetrate the local market with the government's specific approval on a case-by-case basis The Parkson Group from Malaysia, for example, formed a joint- venture with Saigon tourists to carry out retailing in Vietnam.
The commitments in mode 3 also include the establishment of outlets for retailing services and the online retailing services Retailing outlets can be established with the involvement of foreigners; however, they shall be considered on a case-by- case basis This commitment will be argued by other members during negotiation and Vietnam should clarify the reason for this commitments as well as conditions to make approval for this kind of retailing With regards to online retailing, although this kind of retailing is rather new to Vietnam, is still developing at a slow pace, the commitment in this field presents the long-term perspective of the country. However, it also shows restrictions, specifically, the commitment reads as "online retailing services may be geographically restricted" In fact, given the current development of Vietnam, this commitment seems to be unnecessary as consumers in rural areas, for example, do not have the access to the Internet and retailing infrastructure is not available to facilitate this kind of retailing
Last but not least is the commitments in mode 4; Vietnam did not make any specific commitments in the presence of natural persons except for those stated in the horizontal commitment part In short, foreign retailers can base on the categories mentioned in the horizontal commitments to identify limitation on market access and national treatment they have to face.
2.1.1 Infrastructure Development by Foreign Investment
Once Vietnam becomes a WTO member, retailers from other country members will have wider access to the domestic market Besides, barriers to foreign investment will be gradually removed Together with the entry of foreign retailers and other investors is the inflow of investment which is in great need for the development of infrastructure Although it seems that outlets, shops, or houses and warehouses are the only things that retailers are concerned, other parts of infrastructure system such as roads, electricity and water supply are of importance to their performance. Therefore, WTO membership will foster the inflow of investment to develop infrastructure of the whole country, thus facilitate the performance of retailers.
Reality shows that many supermarkets have been booming since the opening policies were adopted The number of goods traded in these supermarkets keeps increasing Moderate-sized supermarkets often deal with about 5000 to 6000 types of products while in some large supermarkets, traded goods range from 8000 to
15000 types It is clear that without modem warehousing system, supermarkets can not handle such huge amount of goods Besides, the computer system also plays a vital role in maintaining and preserving inventory Thanks to the modern technology, supermarkets can flourish at a fast pace Besides, online retailing has emerged and is expected to prosper in the near future It is apparent that international integration together with its latest technology is attributed to the development of the domestic retail market
It is owing to joint-venture projects that Vietnamese enterprises can access to not only latest technology but also up to date trading method and management expertise.Actually, knowledge has been transferred from both government/non-governmental organizations and foreign retailers to Vietnam's partners For example, the SwedishUnion of Consumer Co-operatives is a non-governmental organization that has provided training to Saigon Co-op in Ho Chi Minh city since 1998 Their training courses include such topics as display design, administration, and customer relations One major investor in Vietnamese retail, the Bourbon Group of France,opened the first Vietnamese branch of its chain of hypermarkets under the nameCora in 1998 Bourbon Group had had previous business interests in Vietnam - including sugar refining Cora was launched with a management team sent from the parent company's French headquarters Two more Cora hypermarkets have since opened Essentially every new technology or procedure employed is a matter of technology transfer, including the design of the facility, procurement, merchandising, and human resource practices Other retailers could visit the facility and observe many technologies Indeed, with the prospect of Cora expanding, it would become increasingly necessary for other retailers to compete with the store in assortment, pricing, and customer service
2.2.1 Lack of capital, insufficient infrastructure
The majority of Vietnam's enterprises are of small and medium size so they will face a lot of difficulties when establishing their own retail network and particularly large- scale vertical integration In the meantime, foreign retailers, in most cases, have large amount of capital so it is likely that they will be more advantageous in investing large-scale supermarkets than local partners In addition, they can employ pricing strategy to attract customers and push local rivals out of the market At present, foreign retailers are restricted to enter the domestic market, but when WTO commitments are phased in, local retailers will face an intensified competition. Therefore, they should take full advantage of their own strength such as thorough understanding of local consumers' tastes and preferences, prime locations (for state- owned trading enterprises), etc
2.2.2 Newly-Established and Vulnerable Integration
It can be said that the domestic distribution channel and retail network are built on vulnerable relations As Vietnam has just moved from the command economy to market economy, most of vertical and horizontal integrations in the retail network have just been established Local retailers are on the way to project their own images Given WTO accession and increasingly fierce competition, local retailers should cooperate with each other to enhance vertical and horizontal integration as well as improve themselves to survive.
Opportunities and challenges
The Vietnam garment industry is considered to be the first sub-sector to gain benefits when the country becomes WTO membership There are many factors that will facilitate the industry in the new freer business environment
First of all, the country will have better position and firmer stand in the international community, with more significant voice in directing the overall development of the world economy though negotiation For instance, Vietnam will gain the right to participate in negotiations of the Doha Round that will shape the rules of trade for the coming years Also, modem regulations brought to WTO standards will ensure a stable and predictable regulatory environment that will be good for both local and foreign investors Moreover, it will be given access to a fair settlement mechanism for trade disputes, more rights to protect its interests and implement the obligations in the nation's interests, which helps reduce the discrimination in the global trade For example, the Vietnam garment industry will no long be imposed any quotas by the US but play in a level-field like other WTO country members This fact will stipulate the home producers to perform their best, which helps boost the total garment exports
Secondly, there are lots of opportunities awaiting the sub-sector to tap the potential through diversified cooperation with many foreign partners to expand markets The country's accession to the WTO, which makes up 90 percent of the global trading, will open golden In addition, the global tendency to import garment products from developing countries has brought about a new opportunity, creating a new inspiration for the Vietnamese garment enterprises There will be more orders from the garment importers in the world, which provide the country with more foreign currency
Furthermore, the Investment and Enterprise Law and many supporting regulations will be amended or changed to go in line with the WTO’s rules, which will make the Vietnamese policies and legal framework more transparent and less complicated Also, the discrimination between foreign and local enterprises will be resolve, which appeals more foreign investors and international business partners In this way, the investment in the Vietnam garment and textile industry will be promoted that helps raise the industry's competitiveness As a result, the local enterprises can make the best use of the international capital flows, technology transfers, management skills and "know-how" provided by foreign partners These elements are the key to the industry's innovation as well as the infrastructure improvement to contribute to the whole sector's development.
Thirdly, the orders brought about also create thousands of jobs for the redundant workers Labourers can take the advantage of the foreign investment and business expansion Besides, the worker's income and their working condition will be improved in accordance with the WTO regulations Skilled workers also have more choices to work for the enterprises which offer them the good working environment and perks.
2.2.1 The WTO regulations related to the garment industry
Countries have to comply with regulations on market access, tariff reduction and phasing out of protection barriers and subsidies As soon as the foundation of the WTO, its member countries have committed to cut down the tariffs on garments and textiles by 32 percent Therefore, Vietnam becomes its membership, it has to fulfil the WTO rules in terms of tariff as mentioned above It is also estimated that after the abolition of the quotas, there will be a 20-30 percent decline in the price of the garment products, which will kick 90 percent of 125 garment exporters out of the field ("Facing Losses", 2004) That challenge imposes a hazard burden on the Vietnamese garment exporters because they will have to cut the price down to the garment exports to win customers in the international market For example, Viet Tien Garment company has reduced the price of its exports by 10-15 percent in 2005 as compared to that of previous years.
Customs will no longer apply the minimum price to calculate import tariffs because they have to refer to the customs valuation agreement of the WTO This also means that the garment industry has to face rising competition from such a large exporter like China and the Asean group In particular, the industry which requires roughly 90 percent of the material import is currently in short of raw materials and extra materials production for garments due to the limited labour skills, management, capital and technology of the textile sector.
2.2.2 Impacts on Firms and Workers
When participating in the WTO, Vietnam has to reduce its tariffs and non-tariff barriers, applying MFN for foreign invested enterprises in the home market. Therefore, the biggest challenge for Vietnamese enterprises, first of all, is time. Although the desire of a WTO member is coming nearer for Vietnam, most businesses are not ready for the changes and the fierce competition they will probably encounter According to Mrs Pham Chi Lan, an advisor to the Prime Minister, most private and SOES are suffering from time pressure due to the necessity of the country's WTO entry As SOES do not have the power and the will needed for competition, they will have to cope with strong and rapid competition from foreign rivals in the domestic market without the government's protection. Meanwhile, private companies have those factors but not the capital, manpower and good management ("Businesses need to” 2005).
Secondly, the lack of awareness among business people about what WTO accession will bring or get from them is a worrying issue In Ho Chi Minh city, for example, up to 97 percent of city-based enterprises have poor knowledge of necessary information on the country's WTO entry (Vietnam News, 2005) Private enterprises would have to face the competition soonest because they are involved in production items subject to the government's first tax exemption and reduction plans during the country's the WTO integration process ("Businesses need to", 2005).Only by being provided enough information would domestic businesses be able to formulate effective strategies to sharpen their competitive edge
Thirdly, the Vietnam garment exporters will also face the challenge of maintaining its competitiveness in the current environment, of diversifying its product range and markets, and of shifting out of its CMT focus and into higher value added activities Most garment enterprises are operating as sub-contractọrs who indirectly export products to the foreign importers through intermediaries. Hence, those enterprises will run the risk of depending too much on middle men, resulting in the lack of market information, foreign businesses, and the input suppliers Furthermore, the small amount of earnings from sub-contracting can not 'compensate for the losses they may have to suffer because of the increasing tough competition in such an open business environment like WTO
As for workers, despite the benefits they may gain due to the WTO labour regulations which ensure their health and working condition, they may also run the risk of losing their jobs It is understandable as they heavily depend on the "life cycle" of the SMES When those enterprises are prosperous, the workers will benefit from having a stable job better perks However, if the situation worsens as the small enterprises are unable to fight against their rivals in both local and foreign markets,more Vietnamese manufacturers will have to shut down, leading to the rising unemployment rate Furthermore, the workers obtaining limited skills and qualifications may get displaced by those who access to higher education and technology for the benefits of the enterprise innovation It is a possible situation that may affect the development of the economy and society as a whole.
Current export situation of the Garment Industry
Since Vietnam garment companies “go international” the industry has continuously increased its export turnover annually and become a leading exporter of apparel in the world The garment and textile industry has achieved great success with high turnover of export, just following the crude oil and gas sector It can be seen through the positive export performance during the last five years, the export turnover has almost tripled, the industry's export value reached USD 5.386 billion in 2006, up from USD 3.687 billion in 2003, and accounting for about 16.5 percent of the country's total merchandise export value The figure is also expected to reach USD7-7.5 billion by the year 2010, which shows a promising prospect of the garment industry in the international market The Ministry of Trade has reported that in the first eight months of 2007, the country obtained a turnover of USD 4 billion from textile and garment exports In particular, in August, earnings from textile and garment exports have been maintained at a month-to-month growth rate of 15 percent, reaching USD 500 million Textile and garment exports on quota to the US have surpassed USD 1 billion In addition, non-quota articles have also shown rapid growth with about USD 500 million, 50 percent higher than the same period last year Trade experts forecast that at the current pace, earnings from textile and garment exports could amount to between USD 480 and 600 million in September
Vietnam’s main Textile Garment Markets in 2007
(Source: Ho Chi Minh City Investment and Trade Promotion Centre)
With regard to export markets, the US, the Europe and Japan turn out to be the most potential partners for Vietnamese garment exports Vietnam's major garment and textile export markets include the US, EU, Japan, Taiwan, Korea, Canada, ASEAN and other European countries In general, there has been a remarkable improvement in the export growth rate to most countries except for Eastern Europe, Australia andSouth Korea
The Garment Export Turnover of Some Companies to the E.U Market
Proportion of the export turnover
(Source: The Export-Import Department of Hanosimex, Garment 10, Vinateximex)
The Garment Export some Companies to the Japan Market
Proportion of the total export of the company (%)
(Source: The Export-Import Department of Hanosimex, Garment 10, Vinateximex)
The Garment Export of some Companies to the U.S.Market 2005
Proportion of the total export of the company (%)
(Source: The Export-Import Department of Gament 10, Hanosimex Vinateximex)
As we can see in the tables, the US market topped the list of Vietnam's main markets with more than USD 2.4 billion export turnover in 2004, following by the EU market Japan ranked the third with about USD 500 million, which led other Asian destinations for Vietnam Considerably, a 25.4 percent rise of export turnover in the
US market has reflected the positive impacts from the US-Vietnam BTA that encouraged Vietnam exports to meet this large potential consumption The growth also truly reflects the three influencing markets- the most powerful block of economies on Vietnam
In 2004, the US and EU were the biggest importers, accounting for 57 percent and
17 percent of Vietnam's total garment and textiles export respectively The third largest market for Vietnam exports belonged to Japan with 12 percent of the total market shares The facts and data have indicated the position and trustworthy quality of Vietnam products in foreign markets
However, many trade experts supposed that the industry would only reach about USD 4.8 billion of export turnover in stead of USD 5.2 billion as planned because of some reasons First of all, the US and EU have moved to lift quotas on many products from China and India Although the US, the largest garment importer of Vietnam, continues to impose quotas on four garment categories imported fromChina, Vietnamese players, at present, can not fight against its rivals Local garments are also unable to compete with products from Bangladesh, Sri Lanka andCambodia because they enjoy a non-quota status in the US market, in addition to other import tax exemptions and reduction policies in the outlet, said Le Quoc An, general director of the Vietnam General and Textile Association (Vitas) Meanwhile, most of Vietnamese garment categories, which account for large export rates, reported sharp falls in the first three months such as cat.3381339, cat.347/348, and cat.647/648.
Another reason for the slowdown is poor competitiveness of Vietnamese garment enterprises Thus, to enhance competitiveness, Vietnamese businesses must implement measures to improve management and reduce production costs At present, many enterprises, which have export ability, do not have enough quotas while others have quotas but no ability Although the Government has allowed transferring quotas, exporters still wait for export opportunities or price hikes so the quota transfer among enterprises is very slow All these factors contribute to the slower pace of the growth rate of the garment industry than expected Therefore, in order to boost garment and textile exports in the remaining months of this year, the Ministry of Industry reveals that domestic and international cooperation need to be strengthened, production methods should be re-organized to reduce costs and increase the competitiveness Moreover, a long-term cooperation strategies with materials suppliers need to be mapped out to ensure sufficient input for production.
Sub-contracting: the typical form of export
Sub-contracting is the typical form of export business in Vietnam dominated by assembling, so-called Cut-Make-Trim (CMT) business, which mainly exports goods to the EU and Japanese market The business is chiefly controlled by companies from Hong Kong, South Korea and Taiwan, who use Vietnam as a subcontracting base These companies provide all fabrics, accessories, patterns and fashion information to the Vietnamese assembling enterprises, which then manufacture on behalf of their Asian intermediaries The final buyers are mostly EU or other Western companies Larger Japanese companies have their own purchasing and handling offices in Vietnam The cooperation has been realized since Vietnam offers low wages and reasonable manufacturing quality on a subcontracting basis. Currently, this export method is still rather popular, recording for more than 80 percent of the total garment export value However, the value-added for the industry is rather low In other words, the "real income" for the Vietnamese garment enterprises can not account for more than 20 percent of the Cut-Make-Trim price. According to the table below, the total mid-costs of production in Vietnam is about
30 percent higher than that of China, thus the total value added of Vietnam garment enterprises recorded for only 14 percent, just equivalent to a half and one third of that of China and Hong Kong respectively Whereas, the remaining export value is in the hands of the buyers and intermediaries It can be attributed to the fact that more than 80 percent of total Vietnamese garment enterprises are small and medium sized Therefore, most of them lack direct marketing links to the final buyers, capital and sufficient know-how with respect to where and how to purchase fabrics and accessories.
SOLUTION TO DEVELOP SOME MAIN FIEDLS IN THE
RECOMMEDATION FOR AGRICULTURAL SECTOR IN THE
1 For the Agreement on Agriculture
We cannot deny the role and impacts of Agreement on Agriculture in the agricultural sectors However, what we can see its limitations and problems can lead to a better way and reforms: the AoA must be changed or reformed to allow developing countries flexibility to use a range of trade and domestic support programs All export dumping must cease The AoA must be oriented towards governing agricultural trade in a way that enhances food security and sustainable rural livelihoods.
The launch of the AoA offers a new opportunity to reorient global trade rules in a way that promotes food security, environment and strong economies Such a transformation would require rules that recognize how agricultural production and trade differ from the production and trade of other goods and services It would also require rules that prohibit dumping and increase transparency in world commodities markets Finally, it would require elimination from "one size fits all" policies to rules that enable a diversity of agricultural trade policies to consider each country’s level of development, degree of trade dependence and agricultural production situation
Developing countries in particular are dependent on agriculture as a major source of employment and foreign exchange, and AoA rules should be changed to allow these countries to enhance their domestic agricultural production and markets Exemptions from tariff and domestic support reductions should be considered to take into account relative economic dependence and poverty rather than relying only on the country categories of developed, developing, and least developed
One clear goal for the AoA is to prohibit all forms of agricultural dumping For certain grains, prices both in the U.S and overseas are below the cost of production. This distorts the market for food exporters who seek to access the U S market or who compete in other markets where U.S grain is sold It also distorts the market for domestic producers in countries that import U.S grains, creating artificially low prices that take local farmers away of their livelihoods.
Finally, it's essential that the rules for governing agricultural trade-as well as agricultural policy as a whole-should be pursued within a framework that enhances food security and promotes sustainable agriculture It's highlighted that hunger is primarily caused by the lack of access to adequate food, and point to a number of food surplus countries (such as the U.S., India, and Brazil) that still have high rates of hunger as evidence that suggests that increased production alone, let alone greater trade in agricultural commodities, will not by itself lead to enhanced food security.
As such, governments should be allowed the freedom to internationally take policies to achieve such objectives Moreover, as agriculture is a critical component of sustainable rural livelihoods, programs that recognize and reward farmers for the environmental services they provide should be strengthened And countries should fight the market power of the large agribusiness trading companies through the use of anti-trust and anti-competition policies
The Government should strengthen investments in agriculture by means of "green box" policy group (investments for infrastructure development, breeds, scientific and technological development, training and agricultural promotion activities ect,), shift from policies on output subsidies to those of input subsidies in agricultural production Enhance the foreign affairs negotiation: this is the important requirement for Government developing countries Developing countries should continue struggle to protect their legitimate interests; strengthen their voice in the international field Negotiation and foreign affairs efforts basically can be divided into 3 big groups: multilateral and bilateral negotiations and to promote the role of foreign affairs and trade representatives overseas
- To create conditions for farmers and enterprises in market research, market and information access, Government should support in finance, information and an open environment for their activities.
- Policies on agricultural subsidies mush follow WTO rules in order to promote domestic production, not to create conditions for enterprises to depend on and rely on State subsidies
- Reform of tax policies must associate with subsidy policies for agricultural development in the framework of WTO rules ("green box" policies) in order to enhance the competitiveness of agriculture
- To create an equal and transparent competition environment for enterprises of all economic sectors
- To apply some selective protection measures, with certain conditions and suitable time frames in some agricultural branches, basing on their competitiveness.
As the direct subject of subsidies policy, enterprises in developing countries are always in a passive position and can not change the policies but just limit the negative impacts in some ways Agricultural products of enterprises must fully meet product standards of developed countries and to pass the very strict barriers before entering the market To do that, enterprises should focus on making business plan and strategy, market research and trade promotion, investments on management and technology and necessary document preparation for penetrating the market.
- Firstly, enterprises should develop long term business plan and strategy, which count the impacts of protection barriers They also should define their goals and difficulties they will face in future In their business strategy, on the one hand, specific policies should be raised to fully meet the requirements of market and exploit the main agricultural products, on the other hand, diversify products and markets should be focused, which will help enterprises be more active when facing unexpected risks suchas anti-dumping cases or changes in import policy Enterprises in developing countries receive special treatment from developed ones but on the one hand take advantages of these preferential, on the other hand should be aware that these special treatments will reduce and they do not depend much on them but have to strengthen the competitiveness of their products.
- Market research and trade promotion are often mandatory requirements for all enterprises Enterprises should give up depending much on State but be more active in their market research If possible, they should build up a specific and professional department for market research in key developed countries, especially in the field of trade preferential, import tariff, import procedures, etc These activities will cost much but markets in key developed countries have big purchasing power with high revenue so that investment will be deserved To access market information, enterprises could exploit from many resources like domestic and overseas trade promotion agency, embassy overseas, or potential Vietnamese community living in foreign countries This type of accessing information costs little money but only inclines to macro information It's also necessary to enhance the relation among importers based on the mutual benefits because thanks to them, they can catch the very fast information and take advantage of their support in unforeseen incidence. Moreover, in developed countries, they also have Imports Promotion Organizations that encourage importing some kinds of products and to help the importer contact the foreign sellers In some necessary and specific circumstances, enterprises could use consultation and lawyer agency to get the detailed, exact and real information _ though the fees are quite high In trade promotion, they should exploit various types of channels For instance, to cooperate with partners to develop an advertising strategy in public media, usually and directly take part in trade exhibitions, scientific conference to advertise and circulate their products
- To provide technical supports for Vietnam in the work of training and consultation
- To provide supports for building modem technical bases for diagnose new diseases from animals, such as the mad-cow disease, Nipa virus and find toxic chemicals in food, antibiotic residuals from animal products and food
- To work out standards for animal and plant epidemic control in accordance with world standards, and provide guidelines for implementation To improve the diagnostic skills and prevention of epidemics, basing on risk assessments.
- To provide supports to Vietnam so that Vietnam can sign bilateral agreements with countries on plant and animal epidemic control in order to promote the export of agricultural products
- To provide loans with preferential conditions for enhancing national competitiveness and enterprise competitiveness.
RECOMMEDATION FOR GARMENT INDUSTRY IN THE
The government should have policies supporting enterprises in terms of capital,land use right and market information First of all, to solve the capital gap of many enterprises, there should be more incentive policies to grant capital for feasible projects to enhance the competitiveness of the Vietnam garment industry.Commercial banks should limit as many conditions as possible t o support t he garment enterprises For example, they could provide the garment and textile enterprises with cheap lọans for long term, providing that their development strategies and plans are profitable It will offer the start- up enterprises more choices and opportunities to develop the business As for private SMES, there should not be any discrimination in accessing to bank loans For example, the Ministry of Trade can guarantee some promising enterprises so that they can be granted capital without any difficulties This innovation will encourage firms to expand and perform more effectively.
Secondly, the taxation policy should be innovated by decreasing the protection tariff level to help improve the creativeness and competitiveness for the home enterprises Simultaneously, there should be a priority on the direct trading process, for example, importing inputs and exporting finished-goods This will encourage the Vietnamese garment enterprises to conduct direct export in stead of the traditional sub-contracts with Low earnings Moreover, foreign invested companies should be given more priorities in terms of tax break and income tax For instance, at present the income tax for direct foreign invested enterprises varies from 10-25 percent, which is still higher than that of neighbouring countries Furthermore, the corporate tax for the enterprises producing inputs for the garment sub-sector should be lower.
In addition, there should bẹ more tax incentives for enterprises using their profits to re-invest in the business In this way, it will not only help spur the production to serve the local demand and for export but also encourage new foreign investors to develop the supply source for the garment firms As a result, the local garment enterprises can improve the competitiveness with lower production and export price in the international market Thirdly, the government should support the Vietnam Association of Garment and Textile in providing land for building material production centers to supply the garment enterprises These steps are greatly important to help shift the production modality from sub-contract to direct export, which contributes to the potential higher value added for the industry Also, the favorable land use right will facilitate private and foreign invested enterprises to invest in and conduct business in the garment industry.
Currently, the customs procedure for Vietnamese exporters in order to import raw materials is still very complicated because of the ambiguous policies For example, as for the same category of goods, the duty tariff may vary depending on the use purpose The imported duty of woolen cloths is 40 percent, whereas the level applied fur the same category that serves production or export purpose is much lower Therefore, it is difficult for Vietnamese exporters to be exempted from the import duties on raw materials because of the complicated and time-consuming process In particular, the current typical form of export for the Vietnamese garment firms is subcontracting, which causes troubles for customs officials when distinguishing imported inputs for either production or consumption purpose. Furthermore, the ambiguity of the customs procedure has led to some unclear cases of importing materials for consumption but reported as for production that serves export target in order to be exempted for import duty In other words, the lack of transparency has encouraged corruption and "un-ethical" behavior of some customs officials, which causes difficulties for the enterprises and hinders the import-export process.
Therefore, the law markers should clarify the customs law by classifying clear standards and specific regulations for imported items to facilitate the import-export process with less costs and time It needs to be reformed so as to match international standards in terms of simplicity and transparency.
Human resource training is one of the most urgent duties for the Vietnam garment industry in enhancing productivity and quality to meet the international standard. The present lack of skilled and qualified laborers has posed a threat to most enterprises For example, at present, colleges and highschools specializing in training human resource in garments and textiles in Ho Chi Minh city can only supply 100-150 engineers, 200-250 college level workers and over 2,000 technicians a year- a small figure as compared to the actual demand from business Thus, the support from the government is badly needed at this time In addition, there should be more training courses offered with low-cost for students and those who want to improve their skills For instance, the garment staff such as industrial sewing workers, technicians and designers should be given a free course to promote their dedication to work and improve the competitiveness of goods for the enterprises In addition, the training materials and methods should be updated and more appropriate to keep up with the rapid growth 'of the industry Furthermore, training for the
Vietnamese garment industry must be based on effective practice It should be a balance of knowledge and operating skills.
Besides, either the Ministry of Trade or the Vietnam Chamber of Commerce and Industry should responsible for providing the training courses which focus on legal issues, for example, in doing managing business, investment, protect their trade- mark or the new law issued relating to the garment industry.
Overall, the government assistant will not only encourage the garment labourers, which solves the insufficient human resource in most enterprises but also help improve the skills and qualification of workers to meet the international requirements.
The Vietnam Association of Textile and Garment established in November 21st
1999 has made an important premise for the implementation of the development strategy for the garment and textile industry It is seen as the "common house" for all garment enterprises to share experience and link to each other to overcome challenges with the hope for the better development The association also performs as the bridge that combines the government and its enterprises by putting the policies into practice for the enterprises' interests lt also strives for a total export of USD 5 billion and 50 percent local content requirements of the products in 2005 and the industry's better export performance in 2010
Performing as the bridge among enterprises, the association should link the material production enterprises and centers with the garment producers In this way, the garment enterprises will save time and costs on seeking input suppliers Similarly,there will be more opportunities for textile and accessory manufacturers to develop,thus raising the product quality to meet the international standard Moreover, the co- operation among the members of the association in production and trading, scientific research, economic information, training, experience exchanging on the management and technology application is emphasized to ensure the smooth chain development.
Besides, it is essential for the association to play the role of an information and Communication channel, collects, classifies and processes the information of different fields like markets, prices, partners, technology,
Regarding the garment enterprises competitiveness, they have to improve and innovate the marketing scheme, human resource and technology These factors contribute to the success of the Vietnamese garment enterprises to gear up for the WTO entry.
Marketing is always one of the most important concerns for all enterprises, especially for those who wish to go internationally As for the garment firms, products, price and trade mark should be focused more to raise the competitiveness. With regard to the product strategy, the enterprises should follow the product diversification-market expansion to meet the customers' demand Therefore, the designs should be paid more attention to diversify the product ranges In addition, the quality of the garment outputs is also concentrated on to come up to the consumers' expectation It is also advisable for the local producers to penetrate into new markets, for instance, to pursuit non-quota markets to reap the full advantage of the great potential demand like Japan market By combining market and product scheme, the garment firms can boost the export turnover as well as the world market share.
As for pricing, it can be evaluated as a disadvantage for the Vietnamese producers despite the lower labour cost than that of other countries For example, the average cost of a garment worker in Vietnam is only USD 0.1 8 per hour, which is a half and a fifth of a Chinese and Thailand labourer's respectively However, the price of the local production is still high due to the lack of materials and low productivity.Therefore, the production capacity should be improved by investing in training and technology The raw material issue should be dissolved by the linkage between enterprises for the benefits of the whole industry As a result, there will be a decline in the production cost that leads to the lower exporting price to improve the Vietnamese competitiveness.
Over recent years, along with the lively development of the market, trade-marks have become a major issue for Vietnamese business executives.
Yet, a majority of enterprises have not fully understood the importance of the trade marks A recent survey of 500 enterprises shows that about 20 percent of the total 'has never invested in trade mark building and over 70 percent of the enterprises have only invested 5 percent of their earnings in trade-marks Therefore, to improve the Vietnamese garment image in the global market, it is significant for the local enterprises to engage in building and developing trade marks In order to put in into practice, the local enterprises should be encouraged to get their goods registered and protected in the domestic and foreign markets In addition, the image and prestige of the products must be continuously enhanced through the improvement of the product’s quality and the distribution network Furthermore, promotion tools such as advertisements and public relation should be implemented at the same time to preserve and strengthen the enterprises' trade marks.
RECOMMENDATION TO DEVELOP RETAIL SERVICES SECTOR
Actually, laws and regulations governing retail activities have been passed. However, these laws and regulations are not truly sufficient to give direction to retail activities Take the Commercial Law as an example Although the Law has been effective as of 1 January 2006, implementing decree has yet been released to give guidelines to legal acts Besides, others law such as Law on Land, Law on Investment still need to be revised to be transparent and consistent so that enterprises can avoid misuse and misunderstanding.
Another issued that should be mentioned is the frequent changes in the legal system.
It is such changes that discourage and keep investors away from Vietnam What is more, the enforcement of laws and regulations is always a hot topic Under theDecision 1371/2004/QD-BTM on supermarkets and trading centers, many supermarkets and trading centers violate the regulations on floor areas as well as names on billboards but authorities, instead of imposing penalties, can only call for their voluntary action to correct their mistakes It is due to the fact that this decision writes that any violation will be imposed penalty by law But what specific penalty will be given is not clearly stated This is one factor to hinder the enforcement of laws and regulations.
In short, the legal system should be reviewed and revised in a way that creates a consistent and transparent framework for business activities At the same time, it encourages the development of modern retail activities and restricts the violation of enterprises.
The Government and Ministry of Trade should carry out regularly training courses for business community to enhance their understanding of opportunities and challenges that the WTO will bring to them as well as its rules and principles.
Besides the domestic retail market, the government should also provide Vietnamese overseas with opportunities to establish and develop their retail network abroad In doing so, the government should, on one hand, tighten the diplomatic relations with other countries and on the other hand, provides Vietnamese overseas with assistance to access other markets or expand their sites abroad This assistance may include seminars on overseas market introduction, training courses for sales staff,…
The crucial part of improving management system is to improve the communication system of each retailer New technologies help to innovate the organization as well as cooperation in the retail network thus reduce costs Thanks to modern technology, retailers can reidentify their target markets and better cooperate with other members in the network Retailers should clearly identify what information is truly needed for their performance This source of information is likely to include general information relating to sales and other information such as target markets, competitors, etc.Retailers should use a computerized system so that they can directly connect with their main suppliers and customers At the same time, they can control their inventory
If local retailers, like any other business, want to gain success in the market, they must out their long term strategy This strategy mainly deals with operation, marketing and management In terms of marketing strategy, retailers should move from sales-oriented method to customer-oriented method In other words, retailers must bear in mind that they will sell what customers need, serve how customers want and when and/or where they desire In doing so, retailers should work out their own marketing strategy so as to identify their potential customers as well as their target market Then they should identify their need and wants that they should satisfy Besides, they should develop a long-term strategy so that they are more proactive in managing their retail outlets This strategy, besides marketing, should include financial plans so that a well-prepared marketing strategy does not fail due to limited capital and resources In brief, retailers should gradually improve themselves to avoid becoming losers in their own playing field.
Vietnam in the course of “renovating” its economic system and administrative infrastructures Its economic performance in recent years has been impressive, propelled mainly by reconstruction and increased trade with the rest of the world While improving its supply side capacities in main sectors (agricultural sector, garment industry and retailing services), Vietnam has also begun to address the demand side by domestic market deregulation and penetrating more markets worldwide Although problems and weaknesses persist, the general impression that comes across this essay is as follows: Vietnam has only begun to show its vast potentials in the main sectors (agricultural sector, garment industry and retailing services).
Through the analysis in chapter I, II, III, readers can have a comprehensive view of main sectors: agricultural sector, garment industry and retailing services – the opportunities and challenges they will have in the accession to WTO Thus we find out the necessity to join the WTO to the development of such sectors in the current process of integration Efforts from Government, the whole sectors are needed to strengthen the integration and accession of Vietnam’s main sector: agricultural sector, garment industry and retailing services and to create conditions for enterprises showing their internal and potential force Enterprises themselves should have their production improvement, suitable adjustment in strategic plans and pay attention to feedbacks and suggestions from markets, consumers and internal organizations to raise their competitiveness of products and services in the more and more fiercely competitive trade environment worldwide.
Agricultural sector, retailing services and garment industry are always considered a very sensitive and complicated sectors in the international trade nowadays, which cannot be covered by just a very limited context of an essay I always expect to have feedbacks and suggestions from teachers and friends to make the essay in a more detailed research and analysis.
CHAPTER I: WORLD TRADE ORGANIZATION AND ITS AGREEMENT
I INTRODUCTION TO THE WORLD TRADE ORGANIZATION 1
1.3 Principles of the WTO's Agreements 3
2 The trading system under World Trade Organization 4
II WTO'S AGREEMENT ON SOME MAIN FIELDS 4
2 WTO’s agreement on Textile and Clothing (ATC) 9
3 WTO s Legal Framework over Retail service 10
3.3.3 Schedule of GATS Commitments in Retail Service 12
CHAPTER II: VIETNAM’S COMMITMENT ON SOME FIEDLS –
OPPORTUNITES AND CHALLENGES AND THE IMPACTS ON THESE
1 Requirement and commitment for Vietnam’s agricultural sector 14
2 Opportunities and challenges for Vietnamese agriculture in accession to WTO 15
2.1.4 Pressures to self-develop and enhance the competitiveness of domestic enterprises: 16
2.2.1 The competitiveness of Vietnam’s agricultural products is still 1ow 17
2.2.2 The competitiveness of agricultural processing and business enterprises remained low 17
3 Case study: Maize trade in Vietnam 20
3.1 Past trend in maize price, imports and exports 20
3.2 Import tariff for maize grains under Viet Nam’s trade agreements 21
4 Recent situation of agricultural development in Vietnam 22
II VIETNAM’S RETAIL SERVICE SECTOR 25
1.Vietnam’s Commitments on the Retailing Service 25
1.2 Specific commitments in Retail Services 26
2.1.1 Infrastructure Development by Foreign Investment 28
2.2.1 Lack of capital, insufficient infrastructure 29
2.2.2 Newly-Established and Vulnerable Integration 29
2.2.4 Incomplete and Inconsistent Legal Framework 30
3 Current Situation of the Retail Sector 30
2.2.1 The WTO regulations related to the garment industry 34
2.2.2 Impacts on Firms and Workers 35
3 Current export situation of the Garment Industry 36
CHAPTER III SOLUTION TO DEVELOP SOME MAIN FIEDLS IN THE
I RECOMMEDATION FOR AGRICULTURAL SECTOR IN THE
1 For the Agreement on Agriculture 42
II RECOMMEDATION FOR GARMENT INDUSTRY IN THE
III RECOMMENDATION TO DEVELOP RETAIL SERVICES SECTOR 51
4 Long-term Strategy Development 53CONCLUSION
1 ATC: Agreement of Textile and Garment
7 GATS: General Agreement on Trade in Services
12.MOT: Ministry of Trade of Vietnam
13.MPI: Ministry of Planning and Investment of Vietnam
14.MUTRAP: Multilateral Trade Policy Assistance Project
17.OECD: Organization for Economic Cooperation and Development 18.RTA: Regional Trade Agreement