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Clock ticking down

Released at: 03:31, 08/10/2014

Clock ticking down

The signing of the Trans-Pacific Partnership and free trade agreements with the EU and others are just around the corner but preparations in Vietnam remain well behind schedule.

by Minh Tien

A number of foreign trade activities with the EU have been conducted over recent months. A delegation of more than 50 Polish enterprises visited Vietnam seeking new markets and opportunities, while Hungary opened the Hungarian National Trading House (HNTH) just across the road from Hoan Kiem Lake. While time is needed to determine the effectiveness of the HNTH, the Polish delegation returned home virtually empty-handed. It seems that Vietnam has failed to properly prepare for international trade activities, especially given that free trade agreements (FTAs) with various partners are to be signed and implemented in the very near future. EuroCham Executive Director Csaba Bundik noted that “EuroCham will continue its efforts and collaboration with the Vietnamese Government to address issues both within and outside of the remit of the EU-Vietnam FTA to ensure the best possible business climate for our members.”

At the Mid-term Vietnam Business Forum (VBF) on June 5, Mr Vu Tien Loc, Chairman of the Vietnam Chamber of Commerce and Industry (VCCI), emphasised that whether benefits come from FTAs depends on two factors. The first is whether the results of negotiations allow access to partner markets under preferential conditions and whether the opening up of Vietnamese markets provides businesses with the best materials, equipment, technologies and investment, and the second factor is whether businesses have the best conditions to access opportunities and overcome challenges. Negotiation results and subsequent conditions come not only from the efforts of governments and related authorities but also from the endeavours of enterprises.

Government efforts

Vietnam has signed six major bilateral and multilateral trade agreements and is expected to sign 16 free trade agreements with 55 countries and territories by 2015, including the Trans-Pacific Partnership (TPP) and FTAs with Russia, the EU and South Korea. Deputy Prime Minister Nguyen Xuan Phuc believes that FTAs will open up trade development and, most importantly, help build an independent economy with less reliance on China. “The government has been diversifying trade partners since 2010 to ensure that Vietnam does not become dependent on a single market,” he said. “The FTAs are expected to be effective tools in this mission and be a driving force for the country’s economic restructuring.”

From a wider perspective, Mr Tran Du Lich, Member of National Assembly’s Economic Commission, emphasised solutions and policies the government could pass to achieve the goal of being less reliant on any economy, not just China. “The FTAs in the pipeline will be very effective solutions in economic dependence, not only from the rising tensions in the East Sea but also for the sake of economic balance over the long term,” he said. It can’t be denied that the tensions have created a totally new context and put pressure on the government to come up with appropriate commitments and implementation measures. “Preparing the necessary conditions for Vietnam to be ready to seize the opportunities these FTAs may bring has become more urgent than ever,” said Mr Loc.

Six months ago the VBF recommended that it was the right time to implement necessary reforms to create a more competitive environment, with procedures becoming simpler and decrees and decisions made faster. More importantly, existing regulations should be applied equally so that businesses can compete based on their intrinsic value, including access to capital and land, and for opportunities from FTAs to be seized on that basis. This preparation process may require not only changes in trade and commerce activities but also macro-economic reforms. “FTAs are not merely about tax rates anymore, but are more about issues behind borders and their socio-economic impact,” said Mr Vo Tri Thanh, Vice Director of the Central Institute of Economic Management. “Thirty chapters of the TPP are dedicated to such issues, and each member country will have to reform to adapt.”

The country’s determination has been affirmed by Prime Minister Nguyen Tan Dung, who told the VBF that to fulfil the goals mentioned above Vietnam must introduce a number of solutions and policies. He confirmed that Vietnam will continue to improve its socialist-oriented market economy institutions towards modernity, dynamism and efficiency in order to accelerate the process of global economic integration. The country will fully follow market economy rules, especially price systems and resource allocation, and beef up its reform process and sharpen its economic competitiveness. Against this background the government is redoubling its efforts to improve the business environment and reform administrative procedures in order to create favourable conditions for the people and for enterprises in all economic sectors to conduct business and production activities in a more transparent and fair environment.

Restructuring the economy with a view to quickly enhancing the competitiveness and effectiveness of the national economy is considered a solution of decisive importance to Vietnam’s rapid and sustainable development. Restructuring is being conducted across all sectors of the economy, including industry, agriculture, services, investment, the banking system and financial institutions, business methods and especially State-owned enterprises (SOEs). Mr Dung promised that policies would be supplemented to further encourage domestic and foreign investment in socio-economic infrastructure development, including transportation, power, energy, environmental protection, healthcare and education, in which the private-public partnership (PPP) model is to be encouraged.

Besides commitments to ensuring effective governance and a strong and transparent State in order to tackle corruption, the Prime Minister also guaranteed that the government would ensure the physical security and safety of foreign organisations, enterprises and nationals working, studying, doing business and living in the country. He believes that Vietnam’s political system has sufficient capacity to realise this determination as the country is resolved to taking peaceful measures to protect its national sovereignty in accordance with international law, and the damage to property seen recently will not be repeated in the future.

The orientations and commitments from the government are clear but there are still criticisms from the business community about failures in implementation. Nevertheless, in the case of FTAs, the business community also shares responsibility for being fully able to seize the opportunities.

Business preparations

Senior economic Ms Pham Chi Lan is concerned that Vietnamese enterprises are losing their enthusiasm for anticipating and overcoming difficulties. “Businesses should be well aware of what is going on and respond accordingly,” she said. Not many firms are interested in contributing to or participating in negotiations over FTAs. The International Trade Policy Advisory Committee under VCCI said that 58 to 63 per cent of business associations have never consulted with authorities over international trade policies. Ms Nguyen Thi Thu Trang, Director of VCCI’s WTO Centre, said that most of the associations that did consult did so indirectly through VCCI or the media and only 2 per cent of these lodged opinions on their own initiative. Only 10 per cent, meanwhile, were specifically asked by the government to submit their views.

In 2012 the Prime Minister passed Decision No 06 on consultation with the business community on international trade agreements but the situation has not changed to any great extent. Regarding TPP negotiations, some 64 per cent of business associations have not had any involvement. Preparations and participation by the business community in these negotiations only began to have any substance last year, when it was expected the agreement would be signed in October. Economic experts have warned that this paints a rather disturbing picture for Vietnam, as businesses, who are directly subject to the results of negotiations, appear largely apathetic.

An examination of sectors poised to benefit most from the TPP, such as footwear, textiles and apparel, uncovers some interesting facts. For the footwear industry, preparations for international integration lay not so much with manufacturers as with suppliers, as the TPP requires that materials have domestic origins. “TPP markets require sleek designs and high quality, both of which most Vietnamese suppliers are incapable of providing,” said Mr Le Quang Doan, CEO of Minh Dieu Corporation, a shoe sole supplier. “Due to limited financial capacity we only invest in new product lines when we have secured orders.”

A similar situation can be found in the fashion industry. Vietnamese firms significantly rely on supplies of accessories from China and Taiwan and are quite used to processing specific orders with sales and distribution being taken care of by overseas traders. They earn more than enough as it is and feel no need to prepare for new FTAs. Opportunities have already been lost to foreign investors who see potential in the upstream segments of the industry, such as spinning and weaving. There are very few Vietnamese enterprises that have succeeded in these segments, while others remain sidelined due to obstacles such as capital access, investment licences, and environmental requirements, among others. It is important to note that while domestic firms are idle, investors from China, Taiwan and Hong Kong have managed similar projects successfully.

Vietnam has signed an FTA with ASEAN and joined the WTO, but domestic enterprises are yet to fully utilise the advantages such agreements present to expand their markets.
“It is a great opportunity that Vietnam is successful in attracting the attention of the international community in joining high level FTAs,” said Ms Virginia Foote, CEO of Bay Global Strategies and Co-founder and Board President of the US - Vietnam Trade Council. “Vietnam is a negotiating partner in the TPP - Thailand, Indonesia, and the Philippines, for example, are not! But if you negotiate without a true desire to attract investment, then foreign partners will come and go. Preparation is key to success.”

The TPP and other FTAs, especially the FTA with the EU, appear to attract greater interest among foreign enterprises than their local counterparts in terms of investment to seize opportunities. It will require effort from the government and from domestic enterprises to get Vietnam on board with foreign partners, as once the train has left the platform it will be too late.

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