Vietnam: Vietnam's Accession to the WTO in 2006?

2006

Associate Professor Binh Tran-Nam

Prior to the WTO's sixth Inter-ministerial meeting held in Hong Kong in December last year, Vietnamese leaders had openly admitted that Vietnam would be unable to meet its self-imposed deadline of joining the world trade body by 2005. This failure is considered by many Vietnamese as a blemish on the country's otherwise very positive economic performance in 2005. Vietnam's leaders and trade officials have reaffirmed that the country aims to finalise negotiations with three key trade partners, namely the US, Australia and New Zealand, in the early part of 2006 so that it can enter the WTO before the conclusion of the APEC Summit in November 2006.

As it turned out, Vietnam's initial target of joining WTO by 2005 was overoptimistic. Although Vietnam officially applied for WTO membership in January 1995, it did not begin negotiations until 2003. After successfully completing bilateral WTO agreements with 22 partners (including partners generally considered as difficult like the EU, Japan and Canada), Vietnam has encountered considerable difficulties in its negotiations with the US. In particular, Vietnam could not satisfy the US demands for (i) legally binding commitments and enforceable laws in the areas of financial services (banking and insurance), telecommunications and intellectual property rights protection, and (ii) reduction in the periods of phase-in and further transparency and predictability in the reform process (particularly the privatization of SOEs, tariffs, etc).

The year 2005 saw an ongoing war of words in the media. From the US side, warnings were made in January 2005 by Ms Charlene Barshefsky, former US Trade Representative, about the US-Vietnam textile agreement, and in late June by Mr Michael Smith, former US Deputy Trade Representative, that the WTO is not a free traffic lane. In September, the US Ambassador to Vietnam accused Vietnam of failing to fulfill its obligations under the US-Vietnam BTA reached in 2000. From the Vietnamese side, in March, the Minister of Commerce could not hide his discontent with what he regarded as the US unacceptable demands. In an interview granted to a local Vietnamese newspaper in November, Vietnam's Ambassador to the WTO criticised the US for its lack of goodwill over Vietnam's bid to join the WTO.

Clearly, the failure of the US and Vietnam to conclude their negotiations has been the result of unrealistic expectations of both sides.

" The US demands on Vietnam appear to be high, especially in view of the transition nature of the Vietnamese economy. In a report, Oxfam noted that Vietnam is being forced to cut tariffs and subsidies by twice as much as neighbours like Thailand, the Philippines and Nepal, which are already members of the WTO. This view was echoed in a Wall Street Journal commentary on 28 November 2005. " Vietnam's preparation for admission to the WTO has been inadequate, especially in terms of legal reform and improvements in competitiveness. " Vietnam's trade policy and negotiations lack a decisive political will and are still greatly influenced by special interest groups.

Another external factor that has complicated bilateral discussions between the US and Vietnam is China's failure to fully implement their WTO undertakings.

It is nevertheless apparent that Vietnam has grossly underestimated the difficulty in concluding a bilateral WTO agreement with the US. In particular, it did not try hard enough to start negotiating earlier with the US and as a first priority. Perhaps the Vietnamese Government incorrectly assumed that bilateral WTO negotiations with the US (which will grant Vietnam permanent normal trade relations status) would not be much more difficult than those of the US-Vietnam BTA (which granted Vietnam limited normal trade relations status). Many Vietnamese still do not fully comprehend the time lag created by the two distinct components of the process of obtaining a bilateral agreement with the US: the economic component of trade negotiations and the political component of the US Congress ratification. Many Vietnamese, including leaders and officials, mistakenly interpreted Mr Bush's verbal expression of support of Vietnam's bid to join WTO to imply that the US President will take active steps to accelerate the conclusion of the US-Vietnam WTO negotiations.

Based on empirical evidence, the potential, aggregate benefits of Vietnam's accession to WTO are apparent. Thanks to the US-Vietnam BTA, Vietnam's exports to the US have increased significantly from US$800,000 in 2000 to US$7.6 billion in 2005. The US granting of a permanent normal trade relations status to Vietnam is crucial in ensuring Vietnam's continuing rapid growth and development. It is estimated that, as a full member of the WTO, Vietnam's GDP can grow at a rate of 9 to 10 per cent per annum. At the same time, it is unwise to underestimate the short-run adjustment costs to Vietnam of free trade. In particular, Vietnam's global trade liberalisation would cause contractions in several key industries including agriculture, food processing, chemicals, metals, machinery and electronics (see Le (2003),'Vietnam's international economic integration', in Tran-Nam and Pham (eds.), The Vietnamese Economy, London: RoutledgeCurzon, p.129). Not surprisingly, a large proportion of the Vietnamese population believes that Vietnam should join the WTO when the economy is fully prepared. In any case, it is not premature for Vietnam to begin designing a post-WTO plan that will minimise the short-term distributional impact and adjustments costs arising from resource reallocation.

Vietnam's accession to the WTO in 2006 would be a fitting tribute to the 20th anniversary of the country's first official embrace of the market-based renovation policy. The January 2006 round of negotiations in Hanoi has already produced some positive outcomes. However, it would be naive to think that APEC can effectively assist Vietnam in its bid to enter the WTO by 2006. Such an outcome can only be realised by Vietnam's internal desire and political will, as well as a plausible trade deal from the US.

WATCHPOINT: The results of the US-Vietnam negotiations in the next three months will determine whether Vietnam can join the WTO by the end of 2006.

 

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