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Much change on way after TPP

Released at: 09:03, 08/08/2015 Trans-Pacific Partnership

Much change on way after TPP

Dr. Nguyen Duc Thanh, Head of the Vietnam Institute for Economic and Policy Research, spoke to VET about the possible scenarios post-TPP and its impact on Vietnam's economy.

The Vietnam Institute for Economic and Policy Research has recently released its “Analyzing the Impacts of the TPP on Vietnam’s Economy’ report. What are its main points?

Our research has identified six major impacts of the TPP on Vietnam’s economy.

Firstly, import turnover will rise while export turnover will tend to decrease.

Secondly, when the TPP comes into being various tariffs will fall gradually to zero and, consequently, State budget revenue from taxes may decline.

Thirdly, joining the TPP will not only require its members to cut tariff barriers but also to simplify non-tariff barriers such as transportation costs and import processing procedures.

Fourthly, Vietnam may no longer maintain its advantage in cheap labor costs as the demand for skilled workers will increase and, consequently, national economic growth may not be sustained, as has happened in China. The free movement of human resources will not only occur within one member country but among all of them.

Fifthly, member countries tend to apply technical barriers to replace tariff barriers and protect their domestic manufacturing industries. With fierce competition in terms of quality, Vietnam may lose ground in exports.

Sixthly, with the concessions made in joining the TPP, investment from other countries into Vietnam may increase remarkably.

What scenarios could face Vietnam’s economy when the TPP comes into being?

In almost all scenarios simulated by using the GE model, Vietnam has the highest GDP growth. The impact of the ASEAN Economic Community (AEC) will be minor compared to the impact of the TPP.

Investment into Vietnam will be the most impressive, roughly matching the growth rate seen in Japan, which is nearly twice the rate of Australia, Malaysia or the US in value terms. Meanwhile, investment into countries outside of the AEC and the TPP should decrease significantly, especially to China and Europe.

Simulations have shown that trade activities between Vietnam and other TPP members will increase as trade activities with members outside of the TPP see substantial increases in import turnover and slight decreases in export turnover.

What risks will the TPP pose?

Vietnam joined the WTO with a great deal of expectations. Exports and foreign investment increased significantly but such substantial amounts of capital flowing into the country came at a time when we barely had any experience in monetary and fiscal management, and it played a role in the real estate bubble and the double-digit inflation seen from 2008 to 2011. The dependence of Vietnam on imports and foreign investment as well as the prolonged internal weaknesses in the post-WTO period was a lesson in Vietnam not being overly optimistic when signing promising agreements such as the TPP or joining the AEC.

The TPP is now being negotiated quite quickly, and without full preparations its pros and cons may lead to uncontrollable consequences. When the TPP is signed and comes into being, industries with low competitiveness such as the livestock industry, forestry, and mining, etc., will likely suffer losses.

Moreover, with tariffs decreasing gradually to zero, State budget revenue from taxes will fall and the government will have to find other ways to offset the loss to stabilize the State budget. Some policies may prevent the economy from recovering, however, while increasing the likelihood of macroeconomic instability.

What policies should Vietnam adopt to deal with the negative impacts of the TPP?

Following the commitments made in the TPP will require changes in policies and laws and regulations in Vietnam. It will need to have legal support polices to promote the development of industries with comparative advantages. For those who will benefit after the TPP comes into being, such as textiles and garments, fisheries, and agricultural products, etc., they will need to be more active in managing their labor, capital, land and other resources. For those who may benefit less, such as the livestock industry and forestry, etc., they will need to restructure to increase their efficiency and productivity.

The State will need to adopt appropriate policies to encourage production and consumption. Those policies should focus on regular spending. Critically, after joining the TPP Vietnam will also need to adjust commercial factors such as those relating to labor and intellectual property rights, etc. These confirm the urgency of implementing institutional reforms in regard to the market liberalization of inputs such as labor, capital, and land.

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