CHAPTER 2: PROSPECTS FOR TRADE RELATIONS BETWEEN VIETNAM
2.4.2. Challenges Vietnam and the United States have to face in TPP
According to “The Trans-Pacific Strategic Economic Partnership Agreement” (Ian F.
Fergusson and Bruce Vaughn, 2009, p.8 to p.11), TPP negotiations may have to deal with the following main issues.
Agricultural products
Daisy: There is an issue relating daisy between the United States and New Zealand.
The National Milk Producer Federation (NMPF) has sought exclusion for the dairy industry in any potential FTA negotiations with this country. U.S. claims the New Zealand dairy cooperative Fonterra to act as a monopoly and controls 90 percent of milk production in New Zealand. If the case of Fonterra is true it can exert pricing power through cross-subsidization and provide marketing and other subsidized services. However, New Zealand officials contend that Fonterra has no monopoly powers and that producers are free to sell their product to which they wish. According to the most recent WTO Trade Policy Review, New Zealand no longer holds a statutory monopoly, but the company does hold exclusive licenses to export to some markets for periods up until 2010. Dairy products were included in the U.S.-Australian FTA but were subject to an 18-year phase-out period.
Beef: There is another problem between U.S. and New Zealand - beef cattle production. Currently, New Zealand is allocated a tariff rate quota (TRQ) of 4.4 cents per kilogram inside a 213,402-ton quota for imported beef and 26.4 cents outside the TRQ. Nevertheless, some U.S. cattle producers are concerned that the TRQ on imported beef will be eliminated as a result of the FTA negotiations. The U.S.
Cattleman’s Association, therefore, has favored the imposition of a quantity-based safeguard during a phase-out period and a tariff snapback to MFN rates if imports surge once tariffs are eliminated.
Intellectual Property Rights
The United States has sought increased intellectual property rights (IPR) protection in its FTAs with two clear objectives: (1) to apply the existing IPR protection to digital media and (2) to negotiate trade agreements in terms of IPR that “reflect a standard of protection similar to that found in U.S. law”. This phrase opened the door to the negotiation of provisions that go beyond the level of protection provided in the WTO Trade Related Aspects of TRIPs agreement.
Pharmaceuticals
Pharmaceuticals are among the controversial issues between countries on maintaining the formulary. The United States has expressed concern that the practices and procedures of the Pharmaceutical Management Agency (Pharmacy) puts “innovative pharmaceutical products,” at a disadvantage to older, generic products. Meanwhile, New Zealand administers a national formulary for medicines that the government purchases for its national health service. In negotiations with Australia over a similar system, the United States and Australia agreed to a series of consultation and transparency mechanisms, designed to afford U.S. manufacturers an opportunity to make their case for inclusion in the formulary.
Government Procurement
The United States is a member of the pluri-lateral WTO Government Procurement Agreement (GPA) and has offered government procurement provisions in its FTAs.
For example, U.S. FTAs with Australia, Peru, Chile, and Singapore include sections on government procurement, which provide opportunities for firms of each nation to bid on certain federal, state, and municipal contracts over a set monetary threshold.
However, New Zealand is not a member of the GPA although according to the country, it maintains a more liberalized procurement regime than is specified by the GPA.
Environment and Labor
Environment and Labor have also been an important provision in U.S. FTAs recently.
TPP, as a result, contains a labor memorandum of understanding (MOU) and an
environmental cooperation agreement between the parties. These agreements pledge the parties to work together to promote sound labor and environmental practices, while respecting the right of parties to set, administer, and enforce their own labor and environmental laws. It commits the parties neither to set or use labor or environmental laws or practices either for trade protectionist purposes nor to weaken such laws or practices to encourage trade and investment. However, many parties can not implement these deep commitments in the near futures. It means that some parties would like to lower these standards or call for support from others in order to complete the application.
Trade Promotion Authority
In order for any TPP agreement negotiated to come into force, legislation implementing the agreement must be passed by both Houses of Congress. Most of the previous trade agreements have received congressional consideration under “fast- track” procedures known as trade promotion authority (TPA), which last expired in 2007. TPA allows the President to negotiate reciprocal trade agreements that are to receive expedited congressional consideration (i.e., limited debate and committee consideration, no amendments, and an up or down vote) as long as the President adheres to specific deadlines and consultation requirements. TPA allows Congress to exercise its constitutional authority over trade, while giving the President added leverage to exercise his authority to negotiate trade agreements by effectively assuring U.S. trade partners that final agreements are given swift and un-amended consideration. Some observers have expressed concern that future trade agreements, including FTAs under the TPP framework, will be difficult to negotiate in the absence of TPA.
(b) Internal challenges to the United States
While determination of the United States in TPP negotiations is relatively clear with targets and objectives of commercial development being emphasized by Obama administration, and therefore the likelihood to conclude negotiations with specific
results comparatively high, there are still many concerns about implementing TPP commitments in reality.
The first problem lies in political conflict between two Republican Party and Democratic Party in attitudes towards free trade. Furthermore, TPP is expected not to include shortened procedures (fast-track) with the participation of the Parliament. TPP will have to be fully considered and approved by the Parliament before it comes into effect. Consequently, the support of the Parliament is the prerequisite factor for TPP, a relatively difficult support in the context that Parliament and Government belong to two different parties. There are some ideas that the Republicans have always supported free trade initiatives in general and TPP in particular. TPP even in the past was the subject received broad support of the Republicans under President Bush and orientation of a party for a specific problem which has been identified previously is not easy to change (unless there are big changes). In the past, President Bill Clinton (in Democratic Party) has received support from the Republican Party when the Agreement North American Free Trade (NAFTA) was passed. Therefore, it is an optimistic opinion that the Republicans’ victory in the election is actually a strong motivation for TPP to be adopted. However, a more conservative opinion holds that for that the Republicans in the Parliament who are against Obama Administration will not approve TPP (not because of the nature of matter of this Agreement). In addition, from the situation of signing and negotiating FTAs of U.S. mentioned in chapter 1, some FTAs are still in “pending” status (FTAs with Panama, Colombia and South Korea), the approval of TPP is predicted to be difficult.
The second problem occurs when the "suspicion" always exists in the United States and particularly increases in the crisis period. Relating to the TPP negotiations, many industries in the United States supported the government to enter the talks with the aim to exploit benefits from TPP country markets in U.S. important industries including agriculture (except for dairy),industrial products, textiles, footwear, furniture, high-tech industries, electronics and other service sectors (especially services medical, insurance,
investment banking and so on). Besides, as in many other cases, the groups of protectionism such as dairy and textiles industry remain deeply suspicious attitudes towards benefits that the TPP can bring about and therefore, they are indifferent or even disapprove when government invests resources into TPP negotiations. Although in comparison in quantity, group of approving the TPP is still overwhelming, this is a considerable issue when evaluating the likelihood to negotiate with this country.
Last but not least, situation of signing and negotiating FTAs of U.S. as mentioned in chapter one can cause a problem. Besides inaction on pending FTAs which reduces belief from other partners, singed FTAs with TPP partners also result in many challenges for U.S. Up to now, there are four BFTAs between the United States and TPP countries – Australia, Chile, Peru and Singapore which put constraints on U.S.
negotiators. In order to avoid overlapping between existing FTAs and TPP, U.S. has to revisit their aspects so that it can propose the most proper and beneficial commitments.
(c) Internal challenges to Vietnam
The first challenge for Vietnam is FTA related problems as mentioned in chapter 1.
The tendency as well as characteristics of contents and scope in recent FTAs will put pressure on Vietnam whether it – a developing country can catch up with these high quality agreements. In addition, the diversity in characteristics of participating parties explain why Vietnam should pay careful attention to signing partners so that the difference in development and similarity in competitive advantages will not be barriers in cooperation.
The second challenge lies in intrinsic factors of Vietnam economy. They can be mainly listed as: incomplete awareness and knowledge in economic integration;
unfinished legal system, management policy; weak competition of industries as well as the whole economy; unsatisfactory export capability and unqualified staffs in negotiations. These factors are analyzed quite carefully in chapter 1 – situation of negotiating and signing FTAs in Vietnam.
The last but the most important point is challenges in negotiating TPP. A chronic problem is that Vietnam has not been recognized as a market economy by all TPP countries, especially the United States. U.S. lists statutory criteria to justify whether a nation is market economy or not, namely: currency convertibility, internationally accepted worker rights or free bargaining for wages; foreign investment; government ownership or control of means of production; government control over allocation of resources and so on. SOEs are eligible for preferential treatment with generous loans from state banks, which is an important feature of Vietnam's economic system, quite similar to "state capitalism" model in China. One of the main goals of U.S. in TPP is a trade agreement in which private and state owned companies compete fairly, which reflects the real grievances of U.S. towards the unfair advantage of Chinese SOEs in international trade. The problem of SOEs will complicate the possibility that Vietnam can successfully negotiate to join the TPP. Because of the dissatisfaction with the Chinese SOEs - not just from U.S. – it will be more difficult for Vietnam to maintain special treatment for SOEs. It means that Vietnam has to reform legal systems on labor, finance as well as the structure of economy to standards acceptable to TPP members. However, if this problem is not solved, a variety of other consequences will happen. U.S will continue to use NME methodology such as applying current anti – dumping and countervailing duties measures on Vietnamese commodities. The United States only removes in certain domestic administrative track and will use trade remedy measures against exports which are suspected to be dumped or subsidized. Moreover, even if TPP is passed, Vietnam can hardly enjoy non-conforming measures which allow it to take liberal exceptions from its GATS MFN obligations because U.S has thus-far resisted very strongly. TPP implementation and capacity constraints are also a considerable concern. As mentioned in 2.1.7 – the disadvantages of TPP for participating countries, there are many strict standards in TRIP plus IPR commitments, government procurement, environmental commitment and SOEs.
To sum up, TPP contributes to Vietnam, the United States as well as their trade relations both opportunities and challenges. It is actually an opportunity for bilateral relations when the United States has specified its own objectives and interests in TPP and has expressed the willingness in inviting Vietnam to participate for several times.
It proves that U.S puts a lot of expectations in TPP in general and Vietnam – U.S trade relation in particular. However, there have existed problems from the two countries.
Subjectively, general controversies among TPP members put the results of negotiation at danger. Some remarkable issues can be named here are daisy or beef manufacture, Intellectual Property Right, Pharmaceuticals, Environment and Labor, Government Procurement and Trade Promotion Authority. However, internal problems stemmed from the two countries are actually considered. In the case of the United States, the conflict in attitudes of the two Parties and adverse effects from pending agreements are major problems. Vietnam, similarly, has to face difficulties due to limitation in management capability and lack of FTA knowledge. Cross – cutting issues in such as SOEs, SMEs or market economy are not recognized by all TPP partners. It means that once these problems are not solved thoroughly, opportunities that TPP brings to bilateral trade relations may result in nothing at all.