The trans pacific partnership (TPP) opportunities and challenges for vietnam

The aims of this short article are to give an overview about the TransPacific Partnership (TPP) and outline the opportunities and challenges, which Vietnam may face with after it becomes a full membership of this agreement in the coming years. The author hopes to arrive at a more profound understanding about the TPPand its possible effects to the countrys economy. The methodologies used in this article include qualitative, quantitative research tools and descriptive analysis.

Ho¹t ®éng nghiªn cøu khoa häc THE TRANS-PACIFIC PARTNERSHIP (TPP): OPPORTUNITIES AND CHALLENGES FOR VIETNAM 1, 2 Hoang Chi Cuong 1 Graduate School of Asia-Pacific Studies, Waseda University, Tokyo, Japan 2 Faculty of Business Administration, Hai Phong Private University Abstract The aims of this short article are to give an overview about the Trans-Pacific Partnership (TPP) and outline the opportunities and challenges, which Vietnam may face with after it becomes a full membership of this agreement in the coming years. The author hopes to arrive at a more profound understanding about the TPP and its possible effects to the country's economy. The methodologies used in this article include qualitative, quantitative research tools and descriptive analysis. 1. INTRODUCTION he ongoing 2008 global financial and economic crisis revealed both the strengths and weaknesses of the global trading system under the WTO regime. It is known that the global trade liberalization under the WTO is the best existing policy for the world as a whole. However, the current round of multilateral trade negotiations under the WTO, the Doha Development Agenda (DDA), has been deadlocked. Thus, a large number of countries have become unsatisfied with the WTO due to the slow progress in multilateral trade liberalization and limited coverage of the WTO rules. Faced with these concerns, many countries (including Vietnam) have turned to free trade agreements (FTAs) such as the Trans-Pacific Partnership (TPP), the Comprehensive Economic Partnership for East Asia (CEPEA), etc. under which trade barriers are removed among the member countries. The TPP may bring both the opportunities and challenges to Vietnam as a nature of international economic integration. As for the business sector and the society at large, the lack in experience with the TPP and apprehension over the consequences of market liberalization, demand more details about the benefits of the membership and question the possible impact of the TPP rules on the country's economy. Particularly this begs the question, what are the effects of the TPP on Vietnam or what are the opportunities and challenges, which Vietnam may face with when this agreement comes into effect? Using this inquiry as a starting point, this article will seek to comprehensively answer this question. The article is organized as follows. T The subsequent section, 2 will first give an introduction to the TPP. Section 3, then, discusses the opportunities and challenges, which Vietnam may face with when the TPP enters into force. The last section outlines some concluding remarks and recommendations. 2. AN INTRODUCTION TO THE TPP The Trans-Pacific Partnership (TPP) is a proposed regional free trade agreement (FTA) currently under negotiation between Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. The negotiating partners have expressed an interest in allowing this proposed “living agreement” to cover new trade topics and to include new members that are willing to adopt the proposed agreement's high standards. Canada and Mexico are the most recent countries to join the negotiations and Japan has participated in consultations with the partner countries about the possibility of joining. The TPSEP was previously known as the Pacific Three Closer Economic Partnership (P3-CEP). Its negotiations launched on the sidelines of the 2002 APEC Leaders' Meeting in Los Cabos, Mexico, by Prime Ministers Helen Clark of New Zealand, Goh Chok Tong of Singapore and Chile President Ricardo Lagos. Brunei first took part as a full negotiating party in the fifth round of talks in April 2005, after which the trade bloc became known as the Pacific-4 (P4). Although all original and negotiating parties are members of the Asia-Pacific Economic Cooperation (APEC), the TPSEP and TPP are not APEC initiatives. However, the TPP is considered to be a pathfinder for the proposed Free Trade Area of the Asia-Pacific (FTAAP), an APEC initiative. 7 Ho¹t ®éng nghiªn cøu khoa häc The original agreement was concluded by Brunei, Chile, New Zealand, and Singapore on 3 June 2005, and entered into force on 28 May 2006 for New Zealand and Singapore, 12 July 2006 for Brunei, and 8 November 2006 for Chile. It is a comprehensive free trade agreement, affecting trade in goods, rules of origin, trade remedies, sanitary and phytosanitary measures, technical barriers to trade, trade in services, intellectual property, government procurement and competition policy. Among other things, it called for reduction by 90 percent of all tariffs between member countries by 1 January 2006, and reduction of all trade tariffs to zero by the year 2015. On the last day of the 2010 APEC summit, leaders of the nine negotiating countries endorsed the proposal advanced by United States president Barack Obama that set a target for settlement of negotiations by the next APEC summit in November 2011. However, negotiations have continued through 2012 and into 2013. The TPP negotiations have taken center stage as the most significant trade initiative of the 21st century. As of May 2013, negotiators have made extensive progress in 17 negotiating rounds since the talks began in March 2010, though hard work remains to finish the deal in the coming year or so. The TPP would strengthen ties between Asia and the Americas, create a new template for the conduct of international trade and investment, and potentially lead to a comprehensive free trade area (FTA) in the Asia-Pacific. It could stimulate trade by benefiting the competitive industries of both emerging-market and advanced economies. And it could yield an innovative model for consolidating the “noodle bowl” of existing trade agreements. Asian agreements, in turn, have aimed to promote the ASEAN Economic Community in 2015, improve political relations in Northeast Asia. The TPP emerged as a US priority some years ago, but it has recently become identified with the “rebalancing” of US foreign policy toward sustaining a US presence in Asia. The proposed TPP and its potential expansion are important due to the economic significance of the AsiaPacific region for both the participants and the world. The region is home to 40% of the world's population, produces over 50% of global GDP, and includes some of the fastest growing economies in the world. Along with increasing economic influence these economies account for a growing share of world trade. The region is significant not just as a burgeoning market, but also as an integral part of international supply chains. 8 B¶n tin Khoa häc - ®µo t¹o Table 1: TPP Members and Economic Statistics, 2011 Mem ber GDP ($ billions) Population (millions) GDP/capita (in $ at PPP) Real GDP grow th (%) A ustralia B runei C anada C hile M alaysia M exico N ew Zealand Peru Singapore V ietnam U S. T otal 1,487 16 1,739 24 8 28 8 1,154 15 9 17 7 26 0 12 3 15,076 20,727 22.4 0.4 34.4 17.2 28.6 113.7 4.4 30.0 5.3 89.3 311.9 657.8 4 0,847 4 9,536 4 0,519 1 7,361 1 6,240 1 4,653 2 8,012 1 0,062 5 9,710 3,359 4 8,328 - 2.14 2.21 2.41 5.92 5.08 3.94 1.35 6.91 4.89 5.89 1.81 - Source: International Monetary Fund, World Economic Outlook, October 2012. The 11 countries that constitute the current group of TPP participants are economically and demographically diverse. As shown in Table 1 above, the United States is much larger than the other members in terms of its economy and population. Compared to the next closest TPP member in each category, the United States has nearly three times as many people as Mexico has and more than eight times the GDP of Canada. GDP per capita at purchasing power parity (PPP), a rough measure of a country's level of economic development, ranges from just over $3,000 in Vietnam to nearly $60,000 in Singapore, more than $10,000 higher than that of the United States. These countries vary greatly in their geography as well. They range from Australia, a large and resource rich continent, to Singapore, a small, tradedependent city-state. What are the opportunities and challenges for Vietnam resulting from the TPP's participant? The answer partially comes from the next section. 3. THE OPPORTUNITIES AND CHALLENGES FOR VIETNAM According to some analysts, Vietnam would be the largest beneficiary on the TPP track and of an AsiaPacific-wide Agreement. Five factors explain this result are: (1) strong trade with the United States; (2) high protection abroad against apparel and footwear, which are Vietnam's principal exports; (3) strong competitive positions in these and other manufacturing industries where China's comparative advantage is fading; (4) high initial domestic protection; and (5) powerful scale effects in Vietnam's principal production clusters. Ho¹t ®éng nghiªn cøu khoa häc The first three factors boost Vietnam's exports and terms of trade under the TPP. The last two amplify these benefits by stimulating productivity gains. Higher incomes in turn enable Vietnam to invest more and grow more rapidly. The TPP will benefit the economy of Vietnam thanks to import tax incentives pledged by TPP members for the major exports of Vietnam, including garments and textiles. The garment and textile sector has become Vietnam's spearhead industry with a large amount of export revenue among other export items. With nearly 4,000 businesses, which generate jobs for about 2.5 million people, the sector created revenue of nearly US$20 billion and registered over US$17 billion from exports in 2012. In which, the US has become the largest importer of Vietnamese garments and textiles, accounting for about 50% of the country's total exports. However, in order to benefit from such incentives, Vietnamese garment and textile products have to satisfy the “Yarn Forward” ROO (Rule of Origin), which requires TPP nations to use TPP member-produced yarn in their textiles to have duty-free access. This greatly affects Vietnam's garment and textile industry as 90% of materials used in the sector are imported from foreign countries, with most being non-TPP members. So, Vietnam ought to boost support industries to ensure local supply of materials and reduce dependence on imports while improving the quality of the design sector, in a bid to ensure the stable and sustainable development of the garment and textile industry. Also, the Government should build exclusive policies for the industry and zone off industrial zones specializing in garments and textiles, with a focus on the dyeing sector. Of course, Vietnam would also face significant challenges in implementing an agreement that requires stringent disciplines in areas such as labor and government procurement. It also faces tough challenges in maintaining a macroeconomic environment that permits adjustment and encourages long-term investments. Particularly, Vietnam's political system differs from that of the United States but domestic issues will also have a large impact there. State-owned enterprises play an important role in the economy and could face significant adjustments under the competition policy chapter. Labor provisions calling for “freedom of association” would be difficult to reconcile with Vietnam's single, state-sponsored labor union. Producers in several industries worry that the TPP's environmental provisions could raise costs. As the country with the lowest per capita income in the TPP, Vietnam hopes for “special and differential treatment”, but the TPP is unlikely to include such provisions. Much will depend on whether provisions affecting its critical textile and apparel exports are favorable enough to justify hard concessions. In the regards to the structure of Vietnam's exports, it has been still constructed by a focus on traditional products with the country's comparative advantages in natural resources like raw materials (e.g., crude oil, coal, and iron ore, etc.), agriculture, forestry and aquatic products (e.g., rice, coffee, cashew nut, pepper, cash fish, etc.) and some light industry products (e.g., garment, textile, and footwear, etc.) with low added value. Low competitiveness and disadvantageous export structure can hinder or prevent Vietnam from reaping the possible benefits of trade liberalization under the TPP. Overall, Vietnam is projected to gain the most from the TPP and has shown flexibility on difficult issues. But overall, Vietnam's participation in the agreement is well founded. 4. CONCLUDING REMARKS The proposed Trans-Pacific Partnership FTA would be a significant FTA for Vietnam and could eventually become the platform for an Asia-Pacific free trade area, an area that encompasses 40% of the world's people and over half of global production. It would be the largest Vietnam's FTA based on trade flows. Due to the great diversity among the TPP participants, there may be challenges in achieving a comprehensive and high standard agreement. TPP countries vary in terms of population, economic development, and geography. To this end, what are the implications for Vietnam? It must be noted that to facilitate the competitive ability of Vietnam's merchandises in TPP member's markets and sustain an effective paradigm of foreign trade is not a simple task. It requires a careful analysis of related information (e.g., information on each industry, each merchandise, etc.) That the author could not cover in a short time. Generally, the followings are some recommendations to allow Vietnam to achieve sustainable development and enjoy the benefits in the coming years when the TPP enters into force. 9 Ho¹t ®éng nghiªn cøu khoa häc Firstly, Vietnam should develop an effective and efficient physical infrastructure in terms of roads, railways, ports, airports, electric, water supply system, etc. This creates convenient conditions for trade by reducing time and costs in both transportation and transactions. Good infrastructure may also induce FDI that has taken an important role in diversifying Vietnam's exports and in improving the quality and competitiveness of Vietnam's merchandises in international markets. Secondly, the country should speed up the changes of export structure by taking it to the next level in the global value chain. In conclusion, the nature of international integration will always see some fields/sectors of the economy prosper while others may not. Membership of the TPP is essential for Vietnam because nowadays it is very hard for a developing country to stay outside of the global trading system, bearing in mind that the TPP opens up the doors of opportunity. But, it is not an end itself. Also, it is not a “magic wand” of “Harry Potter” that fixes ails of an economy or protects it from global ups and downs. And, one should remember that participation to the TPP is just one more step after WTO accession in a long-term development strategy introduced in the process of Renovation (“Doi moi” in Vietnamese) since the late 1980s. Again, to maximize the benefits offered by the TPP, Vietnam should undoubtedly continue to review its long-term strategies to enhance the country's competitiveness. Export increase, to some extent, is one of the most important indicators of national competitiveness over the long-term, as the factor that makes the export increase is also one that determines its competitiveness. REFERENCES [1] Brock R. Williams, 2013. “Trans-Pacific Partnership (TPP) Countries: Comparative Trade and Economic Analysis”, CRS Report for Congress. [2] Jeffrey J. Schott, Barbara Kotschwar, and Julia Muir, 2012. “Understanding The Trans-Pacific Partnership”, retrieved 23 July 2013 from website h t t p : / / w w w. a m c h a m v i e t n a m . c o m / 9 3 7 0 / t p p understanding-the-trans-pacific-partnership/. [3] Peter A. Petri and Michael G. Plummer, 2012. “The Trans-Pacific Partnership and Asia-Pacific Integration: Policy Implications”, Working Paper No. PB 12-16. 10 B¶n tin Khoa häc - ®µo t¹o [4] Peter A. Petri, Michael G. Plummer, and Fan Zhai, 2012. “The Trans-Pacific Partnership and Asia-Pacific Integration: A Quantitative Assessment”, retrieved 23 J u l y 2 0 1 3 f r o m w e b s i t e http://www.amchamvietnam.com/30436144/tpp/. 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