1.2. Trans-Pacific Partnership Agreement (TPP)
1.2.7. Advantages and disadvantages of TPP for participating members
As mentioned in the introduction, TPP is under negotiation, so advantages and disadvantages of countries are quite confidential and complicated. In addition, TPP mentions many issues and every issue has two sides – both pros and cons. However, this thesis will focus on basic and traditional issues in the case of Vietnam and Vietnam and U.S. relations. In general, there are two main advantages from TPP. First, TPP shall create more chances for Vietnam export. Second, it will help to strengthen the competition capacity of Vietnam enterprises through chances of cooperation, reasonable pressure and supporting services for enterprises. In addition, TPP also contributes to three main questions for Vietnam: how to minimize the factors that can nullify the expected benefits, how to support vulnerable groups and how to compete with TPP competitors on domestic market. The study will justify these ideas through following issues.
(a) Tariffs for trade in good
In foreign market: This issue is an advantage when Vietnamese goods can enter these markets with lower tariffs or at zero. Thus it is practical only if Vietnamese goods currently have to bear a high level of tariffs and tariff is the unique problem that hampers their competiveness. As an export – oriented economy, the fact that Vietnam can access large markets such as the United States with duties at zero or lower level will contribute to a comparatively competitive advantage as well as bright prospects for many industries, followed by employment for a large labor force in export sectors. Not only does this benefit affect industries which own strength of exports such as footwear, textile and aquaculture but it also cultivates potential industries to improve competitiveness. In other words, advantages of tariffs can be seen in both present and future time. However, tax issues should be considered more carefully. Firstly, in fact,
the opportunity to sharply increase exportation is not true for all. In U.S. market, for example, tariffs for unprocessed aquaculture or woodened furniture are approximately zero, which is not affected considerably whether TPP happens or not. In addition, although it is not assured, some industries can be listed to enjoy GSP if Vietnam makes an effort to negotiate. For industries of this group, benefits from tariff is no or negligible. The same situation happens in some other markets such as Australia, New Zealand and Peru which apply duties of 0 for Vietnamese seafood such as fishes, shrimp and crab. Secondly, for commodities which enjoy significant benefits from tariff reduction, non tariff measures may be applied strictly. U.S. will be a typical example where goods from non-market economy will have to meet strict standards of TBT, SPS and rules of origin.
In domestic market: On one hand, tariff reduction for imported goods can bring cheap goods and materials for consumers and manufacturers using imported inputs can enjoy, which reduces expenditures for living and manufacturing, strengthening competitiveness. On other hand, commitments to reduce tariffs on substantially all commodities in TPP are expected to cause adverse impact on budget revenue from import duties and competition tougher in domestic market. Firstly, decrease in revenues from import duties is an evitable and direct result. However, it has been suggested that this loss is not really big compared to the current situation. The reason is that most of TPP partners have FTA with Vietnam so tariff was and will be cut according to these FTAs without TPP coming into force. Second, tariff reductions may lead to an increase in imported products from other TPP countries into Vietnam with more competitive price, which adversely affects domestic industries. This is especially dangerous for agricultural products which associate with vulnerable groups in the integration - farmers and rural areas. However, there are some optimistic ideas that in the case of TPP, the loss is not too serious. For example, the goods from U.S. are different from similar goods of Vietnam in segmentation and target customers;
therefore, the competition happens between U.S. with other foreign competitors on the market, not with Vietnamese enterprises.
(b) Market access for trade in services and investment
When service markets in TPP partners are currently widely open and are quite limited in Vietnam, the issue does not bring about strong affect. This explains why there are some ideas that developed countries will benefit from market access in services and investment while smaller economies such as Vietnam hardly enjoy anything from this advantage. Furthermore, compared to a positive – list approach in the WTO, a negative – list approach in TPP negotiations is expected to create dramatic changes. The strong and free participation of services suppliers with great potentials and long-term experience (especially the United States) can cause serious troubles for Vietnamese enterprises.
However, the actual situation is not completely disadvantageous. Specific competition may be the incentive for enterprises to carry out innovation and build capacity for better development. Competition also helps remove weak companies which are unsuitable to new situation. Furthermore, possibility of cooperation between Vietnam and partners companies should be considered. Opening markets is also an opportunity to attract investment in service sector; especially industries requiring strong capital and high technology. This could be a basis to develop more services industries in the future.
(c) Public procurement
Although the level of opening in public procurement market in TPP has not been specified but contents in the WTO will be likely to be applied in this agreement. In the case of Vietnam, this issue can be presumed to cause adverse effects. The attack of the foreign suppliers can make local firms not to compete in the big biddings while it is unlikely that Vietnam can access public procurement of other TPP countries.
However, if it is considered carefully, there are certain advantages such as transparency and diversity in suppliers. Therefore perhaps Vietnam should be positive to accept at the appropriate level and with the appropriate route.
(d) Standards of labor and environment, TRIPs, TBT, SPS and Safeguard Labor and Environment: In fact, these requirements in foreign market (particularly the United States) have been or are causing a lot of challenges for Vietnamese goods (e.g.
the rules of origin for products containing wood). So this is always a tricky problem for Vietnam export industries. However, environmental or labor regulations are applied in TPP partner market, especially the United States regardless of origin. In other words, they will be applied whether Vietnam has involved in TPP or not. In addition, carefully considering, some of criteria would be a good opportunity for Vietnam to better environmental problems and protect domestic employees.
TRIPs: It has become a big problem for Vietnam where violence rate is high and regulations are ineffective. Strict protection of TRIPs will lead to immediate difficulties for many Vietnamese enterprises when they have to invest more capital and for consumers when they have to pay higher price. In this issue, it also must be fully aware that current situation should gradually cease in the future if Vietnam wants to achieve an industrialized and modern economy. As a result, TRIPS and TRIPS + implementation should be considered as a good opportunity to promote this difficult problem.
TBT, SPS and Safeguard: They are among problems Vietnamese enterprises have dealt with for many years in exporting markets, especially in the United States.
Therefore, the danger that benefits from tariffs may be disabled by these commitments is not without basis. Nevertheless, relevant provisions in FTAs that U.S. and its TPP partners have signed recently mostly include these contents. Similar to the environment or labor, Vietnamese goods with or without TPP still have to meet requirements of TPP partners. On the one hand, implementation of these requirements would be a great burden to the State including accessing to the conventions concerned, amending domestic laws and building mechanism and procedure. The implementation also creates costs for businesses such as technological change in farming - production, change of material supplies, supplementing of control mechanism. In addition, there
are institutional issues that are uneasy to change such as rights of association or collective bargaining. On the other hand, as mentioned above, implementation of these commitments would be a good opportunity for Vietnam to improve the legal system, especially from the view of sustainable development (environment) or human rights (labor) or transparency and administrative reform (remaining issues).
To summarize, TPP is indeed an important FTA. Firstly, it includes global trade policy when it plays as a solution to Doha stalemate which can avoid bilateral agreements and a progress with like-minded partners. Secondly, the agreement helps to link Asia- Pacific trade. One point easily seen is that TPP strengthens development and create employment among members. In addition, it enhances the relationship between Asia and the United States as well as supports and impacts on existing FTAs within the region. Last but not least, TPP plays as 21st century template which is reflected in comprehensive, behind border liberalization; consolidation of existing FTAs like a noodle bowl; supporting for new sectors such as technology, services, investment; and promotion in cooperation in sectors including SMEs, development, labor or environment.