International finance topic the impact of globalization on vietnam’s trade activities

HANOI OPEN UNIVERSITY FINANCE AND BANKING INTERNATIONAL FINANCE TOPIC: THE IMPACT OF GLOBALIZATION ON VIETNAM’S TRADE ACTIVITIES FULL NAME: LY ANH DUONG HONG STUDENT ID: 20A45010043 CLASS: 2045A01 TEACHER INSTRUCTIONS: TRAN NGOC ANH Table of Contents Introduction I II Overview of globalization What is globalization? History of globalization III The globalization of the Vietnamese economy-some important events IV Benefits and opportunities of globalization to the Vietnam’s trade activities Increasing export revenues Rapid increase in foreign direct investment (FDI) Increase in enterprises’ awareness, adaptation, and performance 10 More favorable legal system for trading activities 11 V Challenges of globalization to the Vietnamese economy .12 For import-export fields 12 For domestic production 12 For the field of investment: 13 VI Solutions 13 For state management agencies: .13 For industry associations: 13 For Businesses: 14 VII References 15 References 15 I Introduction Vietnam has been a development success story Economic reforms since the launch of Đổi Mới in 1986, coupled with beneficial global trends, have helped propel Vietnam from being one of the world’s poorest nations to a middle-income economy in one generation Vietnam’s foreign trade policy has been increasingly adjusted to be a more flexible, open mechanism, creating a favorable environment for both domestic and foreign enterprises to develop production, promote imports and exports In order to understand more about globalization and its effects on Vietnam’s trade activities, I would like to write this paper to discuss the opportunities and challenges of this process upon Vietnamese trading and what can be done to overcome these challenges II Overview of globalization What is globalization? Globalization is defined as a process that, based on international strategies, aims to expand business operations on a worldwide level, and was precipitated by the facilitation of global communications due to technological advancements, and socioeconomic, political, and environmental developments The goal of globalization is to provide organizations a superior competitive position with lower operating costs, to gain greater numbers of products, services, and consumers This approach to competition is gained via diversification of resources, the creation and development of new investment opportunities by opening up additional markets and accessing new raw materials and resources Diversification of resources is a business strategy that increases the variety of business products and services within various organizations Diversification strengthens institutions by lowering organizational risk factors, spreading interests in different areas, taking advantage of market opportunities, and acquiring companies both horizontal and vertical in nature Industrialized or developed nations are specific countries with a high level of economic development and meet certain socioeconomic criteria based on economic theory, such as gross domestic product (GDP), industrialization and human development index (HDI) as defined by the International Monetary Fund (IMF), the United Nations (UN) and the World Trade Organization (WTO) Using these definitions, the top ten industrialized countries are Norway, Ireland, Switzerland, Iceland, Hong Kong (China), Germany, Sweden, Australia, the Netherlands, and Denmark History of globalization Although many people consider globalization a twentieth century phenomenon, the process has been happening for millennia Examples include the following: - The Roman Empire Going back to 600 B.C., the Roman Empire spread its economic and governing systems through significant portions of the ancient world for centuries - Silk Road trade These trade routes, which date from 130 B.C to 1453 A.D., represented another wave of globalization They brought merchants, goods and travelers from China through Central Asia and the Middle East to Europe - Pre-World War I European countries made significant investments overseas in the decades before World War I The period from 1870 to 1914 is called the golden age of globalization - Post-World War II The United States led the effort to create a global economic system with a set of broadly accepted international rules Multinational institutions were established such as the United Nations (UN), International Monetary Fund, World Bank and World Trade Organization to promote international cooperation and free trade The term globalization as it's used today came to prominence in the 1980s, reflecting several technological advancements that increased international interactions IBM's introduction of the personal computer in 1981 and the subsequent evolution of the modern internet are two examples of technology that helped drive international communication, commerce, and globalization Globalization has ebbed and flowed throughout history, with periods of expansion and retrenchment The 21st century has witnessed both Global stock markets plummeted after the Sept 11, 2001, terrorist attacks in the United States, but rebounded in subsequent years More recently, nationalist political movements have slowed immigration, closed borders, and increased trade protectionism The pandemic has had similar effects on borders and immigration and disrupted supply chains However, overall, the early 21st century has seen a dramatic increase in the pace of global integration Rapid advances in technology and telecommunications are responsible for much of this change III The globalization of the Vietnamese economy-some important events To Vietnam, since the country began the “Doi Moi” process in 1986, the economy has gradually integrated into the global market With the guideline “Vietnam is prepared to be a friend and reliable partner of all countries in the world community, striving for peace, independence and development.” Vietnam has gradually joined international organizations and economic institutions as well as cooperated with other countries for mutual development “Vietnam re-joined the World Bank (WB), International Monetary Fund (IMF) and Asian Development Bank (ADB) in 1992 and 1993 The year 1995 saw many significant external economic events Vietnam joined the ASEAN and committed to implement the ASEAN Free Trade Area (AFTA), signed a Cooperative Agreement with the European Union (EU) and normalized relations with the US and applied for WTO membership In 1998 Vietnam officially became a member of the Asia Pacific Economic Cooperation (APEC)” In order to enhance trade among Vietnam and other countries, many bilateral and multilateral trade agreements have been signed On July 13th, 2000, the Viet Nam-United States Bilateral Trade Agreement was officially signed Our country has signed over 80 bilateral trade agreements – 40 bilateral investment agreements and 40 agreements on avoidance of double taxation Most significantly, after eleven years of negotiation, in 2007 Vietnam became the official member of the world trade organization (WTO)-the world’s biggest trade organization Since then, Vietnam has entered the largest trade “playground” where every country is equal in both opportunities and challenges So, it can be summarized that Vietnam has taken part in the international integration for over the past twenty years and fully joined in the globalization process for three years dating from 2007 IV Benefits and opportunities of globalization to the Vietnam’s trade activities Increasing export revenues As a result of integrating into the regional and global market, export revenues have increased continually since 1990, speeded up since 1995 when Vietnam joined ASEAN and grew sharply since Vietnam joined WTO in 2007 Exports and imports of goods by Value and Index, Year and Export and import in 2000-2008 160000 140000 120000 100000 80000 60000 40000 20000 -20000 -40000 Total Exports Imports Balance(*) Source: General statistics office of Vietnam (GSO) The second year of WTO membership saw a sharp increase in the country’s export turnover Export turnover in 2008 reached US$62 billion, 29.5 percent higher than that in 2007 (GSO) In 2009 the export turnovers were estimated to be US$56.6 billion, reflecting a drop of 9.7 percent from 2008.However, it was due to price drops during the economic crisis As of April 2016, Vietnam has participated in the establishment of 12 Free Trade Agreements (FTAs) with 56 countries and economies in the world, including new generation FTAs: Vietnam - EU and TPP Agreement The process of implementing tariff reduction commitments in international economic integration, perfecting the customs management system according to international standards and tariff barriers has created collection Positive on import and export activities of Vietnam The growth in export revenues is illustrated in the following table: Exports and imports of goods by Value and Index, Year and Export and import in 2011-2021 800000 700000 600000 500000 400000 Source: General statistics office of Vietnam (GSO) 300000 200000 100000 -100000 Total Exports Imports Balance(*) The biggest opportunity is to expand the market by cutting taxes and removing trade barriers to participate more deeply into the production chain and global supply If in 2007, the total import and export turnover of Vietnam was 111.3 billion USD (of which export was 48.5 billion USD and import was 62.7 billion USD), then by 2021, the total import and export turnover of goods reached US $ 669 billion, up 22.6% compared to 2020 and an increase of times compared to 2006 For Some main goods for exportation 50000 45000 40000 35000 30000 25000 20000 15000 10000 5000 2015 2016 2017 Crude oil Electronics, computers and components Electrical Wires and Cables Footwear Rattan, bamboo and rush products Pepper Rubber Shelled cashew nut Wood and wooden products 2018 2019 2020 Coal Articles of plastic Rucksacks, bag, pockets, wallets Textile, sewing products Fresh and processed vegetables fruit Coffee Rice Tea Fishery products restructuring production and export: International economic integration has promoted the restructuring of the economy, especially the restructuring of export goods production in a positive and suitable way for the owner The industrialization is in a modern direction, which is more focused on processed and manufactured goods with higher technology and high value added In 2015, the proportion of exporting groups of textile products, shoes and agricultural products tends to decrease while the proportion of product groups such as computers, electronic components, phones increases, accounting for 27.7% of the total value of exported goods Rapid increase in foreign direct investment (FDI) Along with improving the investment environment, international economic integration has and will open great opportunities for Vietnam's investment field Investment in Vietnam, investors can access and enjoy tariff incentives from major markets that Vietnam has signed FTA as ASEAN, China, Korea, India In addition, the implementation of commitments in new generation agreements such as TPP, EVFTA (Removing measures to restrict investment and services, fair investment protection, regardless of treatment, not discriminate, open door Government shopping market, financial services ) will make Vietnam's investment environment more open, more transparent, more convenient from which will attract more investment capital The data for FDI into Vietnam over the past 20 years are summarized in the following table: Foreign direct investment projects licensed in period 2000 – 2020 80000 70000 60000 50000 40000 30000 20000 10000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Number of projects Implementation capital (Million USD) 10 Total registered capital (Million USD) (*) According to data from the Foreign Investment Department (Ministry of Planning and Investment), foreign direct investment into Vietnam rose by nearly percent year-on-year to USD 10.55 billion in January to July 2019 In addition, FDI pledges for new projects, increased capital, and stake acquisitions - which indicate the size of future FDI disbursements – surged from a year earlier to USD 20.22 billion The manufacturing and processing industry are set to receive the largest amount of investment (71.5 percent of total pledges), followed by real estate (7.3 percent) and wholesale and retail sector (5.4 percent) Hong Kong was the biggest source of FDI pledges in the first seven months of 2019 (26.9 percent of total pledges), followed by South Korea (15.5 percent) and China (12.3 percent) Foreign Direct Investment in Vietnam averaged 6.35 USD Billion from 1991 until 2019, reaching an all-time high of 19.10 USD Billion in December of 2018 and a record low of 0.40 USD Billion in January of 2010 Foreign direct investment projects licensed by main counterparts (Accumulation of projects having effect as of 31/12/2021) by Main counterparts and Items 10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 90000 80000 70000 60000 50000 40000 30000 20000 10000 Number of projects Total registered capital (Mill USD) (*) Majority of the foreign investments in Vietnam are from Korea, Japan, and Singapore Rather than been over-dependent on Asian countries, Vietnam must promote itself further and increase investments from the EU, US, and other countries outside Asia-Pacific With the EU-Vietnam FTA and the Comprehensive and Progressive Agreement for Trans- 11 Pacific Partnership (CPTPP), Vietnam has an opportunity to increase investments from countries outside Asia (Source: Vietnam Briefing) Increase in enterprises’ awareness, adaptation, and performance Joining WTO means that Vietnam has entered a large “playground” where Vietnamese enterprises must compete with many giant players-big foreign corporations with strong financial power and experience Moreover, the reduction of tariffs and non-tariffs measures, the open of servicing market have made the domestic market more competitive All these factors have forced domestic enterprises (both state-owned and private ones) to restructure and self-improve Being aware of these challenges, Vietnamese enterprises have invested money to standardize their operation and products Thousands of Vietnamese enterprises in different fields such as textile, transport, service, telecommunication, food production have met international standards: ISO 9000, ISO 14000 Furthermore, besides traditional markets such as the US, Japan, they have reached new markets such as Europe, the Middle East, and Africa More effort is put on employee training and attraction high quality employees Some big Vietnamese enterprises which have strong competitiveness are Co.opmart, Hoang Anh Gia Lai group, Sai Gon tourist, VNPT This is also a chance for state-owned enterprises pending on the Government protection and subsidies restructure their operation Otherwise, they will be defeated even in the domestic market So, under the competition pressure, the Vietnam’s enterprises will become more effective and competitive More favorable legal system for trading activities Global economic integration and accession to the WTO have given Vietnam a chance to refine its policy and legal system to be more transparent, sustainable, and predictable to be in line with WTO regulations and to attract more foreign investors For example, according to Law on Foreign Investment, there are flexible regulations of establishment “Enterprises with foreign investment are permitted to change the form of investment, and divide, consolidate or merge with other enterprises Existing joint ventures are allowed to 12 transform into wholly owned foreign capital enterprises under certain conditions In addition, there is no obligation to form a joint venture with a local partner Foreign investors are entitled to make their own choice from three forms of investment set forth by the Law on Foreign Investment” There is also the reduction of the administrative burden “The duration for investment licensing was cut from 60 working days to 45 working days for projects under the category of appraisal and issuance of investment licenses, and to 30 working days for projects under the category of registration for investment licenses” Furthermore, under the Government’s Project 30 to enhance administrative reform, about 5,700 administrative papers at all levels have been under consideration Duplicate or unnecessary documents will be abolished The Prime Minister has proposed a 30 percent reduction of all legal documents To enhance administrative procedures Vietnamese government are developing e-commerce and e-government to create effective links between administration agencies, businesses, and people Moreover, as a WTO member, Vietnam is treated as a full WTO membership Vietnamese enterprises have a healthy environment for development in foreign markets If there are trade disputes, they can be treated under WTO’s Dispute Settlement Mechanism “Vietnamese enterprises will be judged by the WTO international court, which means we have more advantages to protect our rights.” For example, the lawsuit is no longer imposed by domestic laws as the previous “catfish war” case- Vietnam’s tra and basa dumping disputes, and we can implement some legal retaliating tools within WTO regulations Vietnam will have equal status with other countries in the global trade policy-making process and an opportunity to participate in building a more equal and logical international trade cooperative framework Le (2008) V Challenges of globalization to the Vietnamese economy For import-export fields 13 Whether the tariff barrier is removed, whether or not to take advantage of tariff incentives to expand the market or not depends on the meeting of the requirements of the rules of export The country is as well as other requirements (food safety, epidemiological hygiene ) With the capacity of self -production and supply of raw materials, the requirements of the rules of origin of goods are posing challenges and concerns for Vietnamese businesses For domestic production The liberalization of import tax will lead to rapid increase in imported goods from other countries, especially from TPP and EU countries to Vietnam due to cheaper prices and quality And more diverse and richer designs will affect the field of domestic production In addition, when the tariff barrier is removed but the technical barriers are not effective, Vietnam will become a market for poor quality products, affecting consumers' health while not guaranteeing Guard is produced domestically In particular, agricultural products and Vietnamese businesses and farmers are facing fierce competition, while agricultural products and farmers are the most vulnerable subjects in integration For the field of investment: The increase in foreign capital flows into Vietnam also set a requirement on strengthening the capacity of the management agency in monitoring capital inflows, avoiding the risk of bubbles, or withdrawing capital In order for the economy to absorb capital effectively VI Solutions Therefore, to optimize positive impacts and minimize the negative impact of globalization to the commercial, in the coming time, it is necessary to implement the solutions: 14 For state management agencies: Strengthen propaganda for businesses information about the roadmap and commitment to international economic integration of Vietnam Improve the capacity to monitor the financial market in order to promptly deal with the fluctuations of capital flows, the influences spread from the financial crisis of a country in the region For industry associations: Continue to promote the role of a bridge between enterprises and management agencies, facilitating exchanges between members; Strengthen the dissemination of integration information on laws of countries, intellectual property, industrial property, quality management, rules of origin for members; Support branding businesses Organize trade promotion programs - investment by markets, industries, specific business fields to improve access to domestic and foreign markets as well as support the brand marketing enterprises of the production products and businesses to key export markets Deploying and advising activities for businesses on business law, knowledge about international economic integration as well as experience dealing with international lawsuits, trade barriers of the export market For Businesses: Proactively learn and research information and knowledge about international economic integration and international law Although Vietnam has signed many free trade agreements with countries and regions, the understanding of domestic enterprises about FTAs is quite limited, while FDI enterprises are very owned Dynamic and well prepared to catch and take advantage of the FTAs Proactively invest and renovate technological equipment in depth to improve product quality, because if they not meet international standards, the product of the 15 business cannot compete with other countries Thus, although the Agreement has opened opportunities, businesses cannot access the market and participate in the supply chain Proactively select and change the input materials The elimination of tariffs for partners in the TPP only applies to goods products of intra -origin In fact, with the signed FTAs, only about 30% of businesses have taken advantage of tariff incentives Therefore, businesses need to be proactive in choosing the origin of raw materials, meeting the standards of origin At the same time, it must be done as well as other requirements (hygiene, animal and animal quarantine, technical barriers ) Improve the quality of human resources, especially skilled workers, and highly qualified human resources In addition, it is necessary to proactively create a link between businesses and build a strategy for domestic and foreign market development strategies VII References References (2018, November ) Retrieved from UKEssays: https://www.ukessays.com/essays/economics/vietnamese-economy-good-or-badeconomics-essay.php?fbclid=IwAR2qzYTDlGjsP4OSCEh3PqJn34Uit77JgndT7KmACxqJYjGW8nhStySch8#citethis Lutkevich, B (2021, July) Retrieved from TechTarget: https://www.techtarget.com/searchcio/definition/globalization POLOGEORGIS, N A (2022, May 3) Retrieved from Investopedia: https://www.investopedia.com/articles/economics/10/globalization-developedcountries.asp 16