Vietnam and other remaining signatories to the failed Trans-Pacific Partnership (TPP), a potentially landmark multilateral arrangement, are still keen to see if an alternative trade deal can be worked out.
State media say Hanoi remains hopeful that an alternative deal will be agreed on. And it is easy to see why: Vietnam is the poorest of the 12 TPP signatories and observers tend to agree that it had the most to gain, including the largest proportional boost to gross domestic product.
Vietnam’s ascension to the World Trade Organization (WTO) in 2007 and signing of several other bilateral and multilateral trade agreements represent a remarkable opening and integration of its formerly planned and isolated economy.
In line with Doi Moi – the “opening and reforming” policy adopted in 1986 – which began gaining steam in the mid-’90s as the US ended its trade embargo, ascension to the TPP was seen by many Vietnam-watchers as the next logical step in its market-reform trajectory, which has seen tremendous success over the past 20 years.
It has come a long way since 1990, when the country had virtually no trading partners after the collapse of the Soviet Union, becoming a leading exporter of furniture, garments, footwear, sea products, rice, coffee, spices, and more recently, electronic products and software.
The Vietnam Business Forum said that while people hoping to see further opening and development of the economy were disappointed by US President Donald Trump keeping his campaign promise to kill the TPP, Vietnam was pursuing other strategies in a bid to compensate. The existing multilateral WTO Trade Facilitation Agreement (TFA) came into force in February, and the Vietnam-South Korea FTA and ASEAN-China FTA have all had positive effects on Vietnam’s economy.
Other institutional reforms and agreements may also help to mitigate potential losses, such as full implementation of several circa-2007 WTO commitments that the Vietnamese government has been lagging on. The elimination of redundant and ineffective administrative procedures for distribution of foreign products is one such commitment.
Other domestic policies, such as a rigorous commitment to improving infrastructure in a country still mostly dependent on French-colonial-era railways, and continued reduction of the clout of economically stagnant and often corrupt state-owned enterprises are on the docket.
Vietnam could benefit from disciplined pursuit of the ASEAN Economic Community’s roadmap for regional integration. It is already the Association of Southeast Asian Nations’ top exporter to the US, but further integration with neighboring states would allow Vietnamese enterprises to boost their clout within the region.
Other such multilateral agreements are the EU-Vietnam FTA and the Regional Comprehensive Economic Partnership (RCEP). The latter is an agreement that involves India, China, Australia and most of Southeast Asia.
The American Chamber of Commerce in Vietnam has previously painted the RCEP and TPP as competing trade deals between Beijing and Washington. While the former has China as a key founding member and excludes the US, the latter, with Washington in the lead, sought explicitly to exclude China. Vietnamese state media have referred to the successful implementation of the RCEP and failure of the TPP as “the US slowly losing Asia to China.”
Further, given President Trump’s preference to pursue bilateral trade deals rather than multilateral arrangements, his administration is keen on a bilateral FTA with Vietnam. The United States reportedly has a US$32 billion annual trade deficit with Vietnam, its sixth largest, which Trump would like to see reduced under his “America first” policy.
TPP-11: New NZ leader wants draft change
Finally, the push for TPP-11 has been met with enthusiasm by the remaining signatories: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, Peru, Singapore and, of course, Vietnam. New Zealand’s new leader, Jacinda Ardern, has said she supports the TPP and lifting exports – but wants changes to prevent foreign speculation in the housing market. She said she would lobby to achieve that at the summit next month.
Vietnam hopes to get an alternative deal done, which inched closer to realization at a summit in Sydney in August and is likely to be discussed at the upcoming APEC (Asia-Pacific Economic Cooperation) Summit in Da Nang. An example of how Vietnam may benefit is that the deal is likely to eliminate an existing 9.5% Australian tariff on swimwear, a type of product that Vietnam manufactures in abundance. Elimination of this tariff would surely boost the Vietnamese economy.
A Trans-Pacific agreement without the US might also allow Vietnam to avoid the scaffolding inherent in the deal. For example, the US had previously insisted that Vietnam raise its labor standards and legalize verifiably independent labor unions in order to achieve the deal. This obligation, which Vietnam only accepted under intense pressure from the Barack Obama administration, is no longer a sticking point.
While this can be seen as a victory lost for Vietnamese workers, the absence of the US insistence to alter Vietnamese domestic laws and policies makes the prospect of completing the deal more tenable. On the other hand, there is a consensus that Vietnam will allow independent trade unions in the future, though little agreement on when that may happen.
The primary challenges the 11 signatories face include the fact that at present the TPP can only become valid if ratified by at least six countries, with those states accounting for 85% of the GDP of the original 12. The US alone accounted for 60%, so that presents a major hurdle. Japan now accounts for nearly half the GDP of the remaining signatories, so its position could prove pivotal.
Japan is also anxious to avoid China gaining a leadership role as Beijing attempts to fill the trade void left by the US, by forming its own trade pact. For Japan, pursuing the TPP-11 may offset a Chinese trade victory in a region previously reliant on US leadership. Japanese Prime Minister Shinzo Abe has told Vietnam that the two countries should “unite” via the TPP. However, Vietnam, Malaysia and Singapore are motivated to make any new deal not appear as an affront to China.
Vietnamese Prime Minister Nguyen Xuan Phuc visited the Oval Office on May 31. He and Trump discussed bilateral trade, and a potential FTA may also be possible.
See IMF comparative data between RCEP, TPP and TPP-11.