the impact of wto accession case study of vietnam

AY 2013 THE IMPACT OF WTO ACCESSION: -Case study of Vietnam- MA. HOANG CHI CUONG Major in International Studies 4010 S 311-3 GRADUATE SCHOOL OF ASIA-PACIFIC STUDIES WASEDA UNIVERSITY Chairperson of the Doctoral Thesis Guidance Committee PROFESSOR MASAYA SHIRAISHI ii ACKNOWLEDGEMENTS This thesis would not have been possible without the guidance and the help of several individuals who in one way or another contributed and extended their valuable assistance in the preparation and completion of this study. First and foremost, I would like to express my sincere acknowledgement in the support and help of my supervisor Professor Masaya Shiraishi, Graduate School of Asia-Pacific Studies (GSAPS), Waseda University, Tokyo, Japan, whose sincerity and encouragement I will never forget. He has not only been a tremendous mentor for me but has been my inspiration as I hurdled all the obstacles in the completion of this thesis. I would like to thank him for encouraging and motivating me in my research and for allowing me to grow as a research scientist. His advice and excellent assistance have been precious. I am especially grateful to my deputy advisor Professor Shujiro Urata, Graduate School of Asia-Pacific Studies, Waseda University for serving as my faculty committee member. He showed kind concern and consideration to me as well as providing me with brilliant comments and suggestions regarding my academic requirements. I would like to thank Professor Hideo Kobayashi, Graduate School of Asia-Pacific Studies, and Professor Tran Van Tho, School of Social Sciences, Waseda University, for their unselfish and unfailing support in helping me complete this study. I thank Professor Shozo Sakata, Senior Research Fellow, Southeast Asian Studies Group II, Area Studies Center, Institute of Developing Economies for his excellent comments in my final oral presentation. I would like to express my deep gratitude to the Vietnam International Education Development (Vied)-Vietnam Ministry of Education and Training and Hai Phong Private University for their financial support during my student life in Japan. I also express thanks to the Graduate School of Asia-Pacific Studies, Waseda University for offering an international research environment that contributes to the development of a student’s ability, and thereby enriching his or her academic experience. I am extremely grateful to Professor Tran Huu Nghi-Rector and Mrs. Do Thi Bich Ngoc- lecturer at Hai Phong Private University; Mr. Dang Huyen Linh and Mrs. Nguyen Thi Tuyet- Vietnam Ministry of Planning and Investment; Associate Professor Pham Thi Hong Hanh- University of Nantes, France; and the seminar’s students for their excellent assistance, comments and useful guidance on how to use the software needed for the estimation and construction of economic models. iii I am also grateful to Mrs. Delilah Russell for her proofreading and grammar checking prior to the submission of my doctoral thesis. It is a pleasure to thank the GSAPS staffs who have shared necessary information and moral support relating to my PhD. program at GSAPS, Waseda University. I thank the libraries at Waseda University and the Japan National Diet Library for supplying prized research materials. These materials have helped me much to improve my study. I thank Waseda International Dormitory and Kodaira city office for their support in supplying me a convenient dwelling during my academic life in Japan. My time in Japan was made enjoyable in large part due to many kind friends and friendly Japanese people. I want to thank the Embassy of the Socialist Republic of Vietnam in Tokyo, Japan, Mr. Do Van Trung-First Secretary, Mrs. Vu Thi Lien Huong, Ms. Bui Thi Thu Thuy, and Mrs. Nguyen Hong Thuy-officers of Vied for their tireless cooperation, management and support relating to my responsibilities as a Vietnamese citizen abroad. Last but not the least, it gives me immense pleasure to acknowledge my parents, my relatives, and especially my wife who tirelessly helped me and encouraged me to finish this research work. Words cannot express how grateful I am to all of them and for their sacrifices that were made on my behalf. This thesis is a gift for my beloved daughter Hoang Le Vy for being such a good girl and always cheering me up. Hoang Chi Cuong Graduate School of Asia-Pacific Studies, Waseda University, Tokyo, Japan November 16th, 2013 iv TABLE OF CONTENTS Page TITLE PAGE ACKNOWLEDGEMENTS.……………………………………………………………. ii TABLE OF CONTENTS.………………………………………………………………. iv LIST OF ABBREVIATIONS………………………………………………………… vii LIST OF FIGURES.… ……………………………………………………………… ix LIST OF TABLES …….……………………………………………………………… x CHAPTER 1 INTRODUCTION 1.1. INTRODUCTION.………….……………………………….…………….………. 1 1.2. BACKGROUND OF THE STUDY …………………………………… ………. 2 1.3. A BRIEF LITERATURE REVIEW ON THE IMPACT OF THE GATT/WTO ON ITS MEMBER COUNTRIES 5 1.4. THE OBJECTIVES AND ANALYSIS FRAMEWORK ……………………… 16 1.5. METHODOLOGIES AND DATASET ……………………………………… 18 1.6. CONTRIBUTIONS AND LIMITATIONS ……………………………………. 19 1.7. DEFINITION OF TERMS.……………………………………………………… 19 1.8. THE SUMMARY OF THE THESIS’S STRUCTURE ……….………………… 22 CHAPTER 2 VIETNAM’S ACCESSION PROCESS TO THE WTO AND THE MAIN CHANGES OF THE LEGAL SYSTEM IN THE ECONOMIC FIELD TO IMPLEMENT THE COMMITMENTS OF THE 5 MAIN WTO AGREEMENTS 2.1. INTRODUCTION.…………………………………………………………………. 24 2.2. INTRODUCTION TO THE WORLD TRADE ORGANIZATION (WTO)… 25 2.2.1. The Formation of the WTO……………………………………………… 25 2.2.2. The Main Functions and Objectives of the WTO……………………… 28 2.2.3. The Principles of the WTO………………………………………………… 29 2.2.3.1. Most-Favored-Nation (MFN): treating other partners equally 29 2.2.3.2. National Treatment (NT): treating foreigners and locals equally 29 2.2.3.3. Free Trade: gradually, through negotiations…………………… 30 2.2.3.4. Predictability: through binding and transparency…………… 30 2.2.3.5. Fair Competition………………………………………………… 30 2.2.3.6. Encouraging Development and Economic Reform…………… 31 2.2.4. The Structure of the WTO…………………………………………………… 31 v 2.3. VIETNAM’S ACCESSION PROCESS TO THE WTO………………………… 34 2.4. VIETNAM’S MAIN COMMITMENTS TO THE WTO MEMBERS.……… 38 2.4.1. Vietnam’s Plurilateral Commitments to the WTO……………………… 40 2.4.2. Vietnam’s Bilateral Commitments to the WTO Members …………… 43 2.4.2.1. Vietnam’s Commitments on Trade in Services ………………. 43 2.4.2.2. Vietnam’s Commitments on Trade in Goods………………… 51 2.5. REVISITING THE MAIN CHANGES OF THE LEGAL SYSTEM IN THE ECONOMIC FIELD TO IMPLEMENT THE COMMITMENTS OF THE 5 MAIN WTO AGREEMENTS 54 2.5.1. The Main Changes of the Legal System in the Economic Field to Implement the Commitments of the General Agreement on Tariffs and Trade (GATT) 54 2.5.2. The Main Changes of the Legal System in the Economic Field to Implement the Commitments of the Agreement on Trade-Related Investment Measures (TRIMs) 57 2.5.3. The Main Changes of the Legal System in the Economic Field to Implement the Commitments of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) 61 2.5.4. The Main Changes of the Legal System in the Economic Field to Implement the Commitments of the Agreement on Subsidies and Countervailing Measures (SCM Agreement) 64 2.5.5. The Main Changes of the Legal System in the Economic Field to Implement the Commitments of the General Agreement on Trade in Services (GATS) 68 2.6. CONCLUSION FOR CHAPTER 2 79 CHAPTER 3 THE IMPACT OF THE WTO ON FDI INFLOWS INTO VIETNAM 3.1. INTRODUCTION…………………………………………………………………. 80 3.2. THE LEGAL FRAMEWORK AND POLICY TO ATTRACT FDI OF VIETNAM 82 3.2.1. The Legal Framework……………………………………………………. 82 3.2.2. Policy to Attract FDI of Vietnam…………………………………… 83 3.3. AN ANALYSIS OF FDI INFLOWS INTO VIETNAM IN THE PERIOD FROM 1988 TO 2011 85 3.3.1. Approved and Implemented FDI Capital in Vietnam during 1988-2011 85 vi 3.3.2. FDI by Economic Sectors in Vietnam during 1988-2011….……………. 88 3.3.3. FDI by Countries in Vietnam during 1988-2011…………….………… 92 3.3.4. FDI by Regions in Vietnam during 1988-2011……………….………… 94 3.4. THE IMPACT OF THE WTO ON FDI INFLOWS INTO VIETNAM – A GRAVITY MODEL APPROACH 96 3.4.1. The Specification of Gravity Model and Decrypting the Dataset………. 96 3.4.2. An Analysis of the Empirical Estimation Results……………………… 101 3.5. CONCLUSION FOR CHAPTER 3………………………………………………. 111 CHAPTER 4 THE IMPACT OF THE WTO ON EXPORTS AND IMPORTS OF VIETNAM 4.1. INTRODUCTION…………………………………………………………………. 112 4.2. AN ANALYSIS OF EXPORTS AND IMPORTS OF VIETNAM IN THE PERIOD FROM 1995 TO 2011 113 4.2.1. An Analysis of Exports and Imports of Vietnam during 1995-2011…… 113 4.2.2. An Analysis of Vietnam’s Export-Import Markets during 1995-2011… 114 4.2.2.1. An Analysis of Vietnam’s Export Markets during 1995-2011…. 114 4.2.2.2. An Analysis of Vietnam’s Import Markets during 1995-2011…. 120 4.2.2.3. Vietnam’s Trade Balance with its Major Trading Partners during 1995-2011 122 4.2.3. An Analysis of Vietnam’s Export-Import Structures during 1995-2010. 131 4.2.3.1. An Analysis of Vietnam’s Export Structure during 1995-2010… 131 4.2.3.2. An Analysis of Vietnam’s Import Structure during 1995-2010 133 4.3. TRADE DEFICIT AND THE NATIONAL BALANCE OF PAYMENT IN THE CASE OF VIETNAM 135 4.4. THE IMPACT OF THE WTO ON EXPORTS AND IMPORTS OF VIETNAM – A GRAVITY MODEL APPROACH 139 4.4.1. The Specification of Gravity Models and Decrypting the Dataset……… 139 4.4.2. An Analysis of the Empirical Estimation Results……………………… 142 4.4.2.1. An Analysis on the Impact of the WTO on Vietnam’s Exports 142 4.4.2.2. An Analysis on the Impact of the WTO on Vietnam’s Imports 148 4.5. CONCLUSION FOR CHAPTER 4………………………………………………. 159 CHAPTER 5 CONCLUSION REFERENCES…………………………………………………………………………. 165 APPENDIXES vii LIST OF ABBREVIATIONS AANZFTA: ASEAN-Australia-New Zealand Free Trade Agreement ACFTA: ASEAN-China Free Trade Area ADB: Asian Development Bank AFTA: ASEAN Free Trade Area AIFTA: ASEAN-India Free Trade Agreement AJCEP: ASEAN-Japan Comprehensive Economic Partnership Agreement AKFTA: ASEAN-Korea Free Trade Agreement AoA: Agreement on Agriculture ASEAN: Association of South East Asian Nations ASEM: Asia-Europe Meeting ATC: Agreement on Textiles and Clothing CA: Civil Aircraft Equipments Agreement CEPT: Common Effective Preferential Tariff CH: Chemical Harmonization Agreement CVC: Customs Valuation Agreement DSU: Dispute Settlement Understanding EU: European Union FDI: Foreign Direct Investment FTA: Free Trade Agreement GATT: General Agreement on Tariffs and Trade GDP: Gross Domestic Product GNP: Gross National Product GSO: General Statistics Office GSP: Generalized System of Preferences IMF: International Monetary Fund ITA: Information Technology Agreement ITO: International Trade Organization JVEPA: Japan Vietnam Economic Partnership Agreement LDC: Least Developed Country ME: Medical Equipments Agreement MNC: Multinational Corporation MOIT: Ministry of Industry and Trade MPI: Ministry of Planning and Investment viii NTR: Normal Trade Relations PSI: Pre-Shipment Inspection ROO: Rules of Origin SCM: Agreement on Subsidies and Countervailing Measures SG: Agreement on Safeguard Measures SPS: Sanitary and Phytosanitary Measures TBT: Technical Barriers to Trade TNCs: Trans National Companies TPP: Trans-Pacific Partnership TRIMS: Agreement on Trade-Related Investment Measures TRIPS: Agreement on Trade-Related Aspects of Intellectual Property Rights TXT: Textiles Agreement UN: United Nations UNSD: United Nations Statistics Division USA: The United States of America USBTA: United States-Vietnam Bilateral Trade Agreement VCFTA: Vietnam-Chile Free Trade Agreement VEFTA: Vietnam-European Union Free Trade Agreement VKFTA: Vietnam-Korea Free Trade Agreement WB: World Bank WTO: World Trade Organization ix LIST OF FIGURES Figure No. Description Page 1.1: The Structure of Chapter 1 1 1.2: Timeline for Trade Liberalization and Economic Integration of Vietnam from 1986 to 2012 3 1.3: Theoretical Framework about the Potential Effects of the WTO on Vietnam 17 2.1: The Structure of Chapter 2 25 2.2: The Structure of the WTO 32 2.3: The Accession Process to the WTO 35 2.4: The Summary of Vietnam’s WTO Commitments 39 3.1: The Structure of Chapter 3 81 3.2: Approved and Implemented FDI Capital in Vietnam during 1988-2011 (USD million) 86 3.3: The Most Problematic Factors for Doing Business in Vietnam 109 4.1: The Structure of Chapter 4 112 4.2: Values and Percentage Changes of Exports and Imports of Vietnam from 1995 to 2011 113 4.3: Some Exported Products of Vietnam to Selected Countries in 1999 (USD million) 119 4.4: Vietnam’s Exports to the USA during 2000-2011 (USD million) 119 4.5: Exports, Imports and Trade Balance between Vietnam and China (USD million) 127 4.6: Components of Current Account and Capital Account (Financial Account) 138 4.7: Vietnam’s Exports and World’s Exports Annual Percentage Changes (%) 147 x LIST OF TABLES Table No. Description Page 1.1: Surveys Based on Empirical Studies that Focus on the GATT/WTO Trade Effects on its Entire Country Membership 6 1.2: Surveys Based on Studies that Focus on the GATT/WTO Effects on a Specific Developing Membership 7 1.3: Surveys Based on Studies that Focus on the GATT/WTO Effects on the Case of Vietnam 8 1.4: Surveys Based on Some Books and Dissertations Relating to the Accession Process of Vietnam to the WTO 9 2.1: The GATT Trade Rounds 27 2.2: Timeline for Vietnam’s Accession Process to the WTO 36 2.3: Vietnam’s Commitments on Some “Plurilateral” Agreements 43 2.4: Vietnam’s Commitments on Trade in Goods to the WTO Members 51 2.5: Vietnam’s Commitments on Some Main Agricultural Products 52 2.6: Vietnam’s Commitments on Some Main Industrial Products 53 2.7: Tariff Reductions of Some Commodities in 2007 55 2.8: The Summary of Chapter 2 72 3.1: FDI by Economic Sectors in Vietnam during 1988-2011 89 3.2: Top 15 Investors in Vietnam during 1988-2011 92 3.3: FDI by Regions in Vietnam during 1988-2011 94 3.4: The Gravity Model Estimations of the LnFDI jt Equation Using the Hausman- Taylor (1981) Estimator 101 3.5: The Gravity Model Estimations of the LnFDI jt Equation Using the Fixed- Effects (FE) and the Random-Effects (RE) Techniques 102 3.6: The GATT/WTO Rounds of Negotiation and Tariff Cuts 104 3.7: The Summary of Chapter 3 110 4.1: Values (USD Million) and Shares (%) of Vietnam’s Exports by Destinations during 1995-2011 114 4.2: Values (USD Million) and Shares (%) of Vietnam’s Imports by Sources during 1995-2011 121 4.3: Vietnam’s Trade Balance with its Major Trading Partners during 1995-2011 (USD Million) 123 [...]... accession process to the WTO and the main changes of the legal system in the economic field to implement the commitments of the 5 main WTO agreements Chapter 3 The impact of the WTO on FDI inflows into Vietnam Chapter 4 The impact of the WTO on exports and imports of Vietnam Chapter 5 Conclusion 1.2 BACKGROUND OF THE STUDY In the 1980s, Vietnam was one of the poorest countries in the world, dealing with... overview of the WTO; describe the accession process of Vietnam to the WTO; revisit the main changes of the legal system in the economic field to implement the commitments of the 5 main WTO agreements (GATT, TRIMS, 16 TRIPS, SCM, and GATS); (2) assess the possible impact of the WTO regime on FDI inflows into Vietnam; and (3) evaluate the impact of the WTO on exports and imports of the country Figure 1.3: Theoretical... causing the trade deficit of the country” Vo, Tri Thanh et al (2010) assumed that the elimination of trade barriers of country partners for 8 The first group of authors focuses on the impact of the WTO on economic institution changes of Vietnam The second group of authors emphasizes on the impact of the WTO on FDI inflows into Vietnam The third group of authors concerns about the effect of the WTO on... relating to Vietnam s accession to the WTO They concentrate on the introduction to the WTO and Vietnam or on an analysis on the opportunities and the challenges that Vietnam may be faced with after joining this institution Some of them focus on the accession process of Vietnam to the WTO or propose some experiences of regional countries in the WTO accession process Other works are concerned with the implication... to the WTO Then, it systematizes the accession process of Vietnam to the WTO from 1995 to 2006 After that, it summarizes the major commitments of Vietnam and the main changes of the legal system in the economic field to implement the commitments of the 5 main WTO agreements These include: the General Agreement on Tariffs and Trade (GATT); the Agreement on Trade-Related Investment Measures (TRIMs); the. .. for Vietnam to further integrate into the global trading system in the post -WTO accession The author hopes to arrive at a more profound understanding on the impact of the WTO on a developing country that joined the WTO after 1995 The main findings presented in this research can contribute to the existing literature concerning the possible impact of the WTO on a specific developing member in terms of. .. attracting FDI in the period 2006-2010 The Law factor has a more positive and stronger impact on FDI attraction of Vietnam than the WTO accession The WTO will stimulate the country’s exports through attracting FDI capital The WTO will also promote the country’s imports The WTO will expand Vietnam s foreign trade through attracting more FDI The WTO will speed up the reform of many legal documents The WTO will... interesting case study for several reasons First, there are plenty of previous studies focusing on the impact of the WTO on trade of its entire memberships, while there are a few studies concerning the impact of the WTO on a specific case of a developing country since its establishment in 1995 Second, among many developing countries, Vietnam has maintained high levels of foreign trade growth since the 1990s The. .. environment The accession of Vietnam to the WTO might be considered a major challenge to its government administration in various areas including the content of its trade policies The process of WTO accession involved years of detailed examination by a Working Party and lengthy rounds of negotiations However, the operation of the WTO should be of interest to Vietnam because the rules that are being decided therein... an impact on the country and on everything that relates to what the citizens of Vietnam eat, dress, and buy and sell in their daily lives As for the business sector and the society at large, the lack in experience with the WTO and apprehension over the consequences of market liberalization, demand more details about the benefits of the membership and question the possible impact of the WTO rules on the . about the Potential Effects of the WTO on Vietnam 17 2.1: The Structure of Chapter 2 25 2.2: The Structure of the WTO 32 2.3: The Accession Process to the WTO 35 2.4: The Summary of Vietnam s. titled “ The Impact of WTO Accession: Case Study of Vietnam ” will seek to comprehensively answer this question. The aim of this research is to assess the possible impact of the WTO on economic. on studies that focus on the impact of the WTO on a specific developing country Surveys based on studies that focus on the impact of the WTO on the case of Vietnam Surveys based on