HANOI - After nearly 11 years of
negotiations, the US and Vietnam last week signed
an agreement on the terms and conditions for
Vietnam's accession to the World Trade
Organization (WTO). The deal will be finalized
once, as is expected, the US Congress grants it
approval for Permanent Normal Trade Relations.
The key sticking point in the negotiations
was Vietnam's non-market economy status, which
significantly will determine how Vietnam's
production costs will be assessed in possible
future anti-dumping cases brought before the
global trade body. Under the new pact, Vietnam
agreed to accept non-market economy
status for 12 years after
joining the WTO, a notably better deal than the 15
years China agreed to on its accession to the
global body.
The final round of talks in
early May also included a battle over Vietnamese
subsidies for its garment industry, with
Vietnamese negotiators arguing that the actual
level of state support for the industry was $300
million rather than the $4 billion figure that the
US cited from local newspaper reports. Vietnam
will have five years to totally drop its subsidies
to the garment industry.
The US also
agreed to remove quotas on Vietnamese textiles and
garment imports, which has prompted some US-based
textile producers to say that the new pact came up
short and would lead to American job losses. Jim
Chesmutt, chairman of the National Council of
Textile Organizations, a Washington-based lobby
group, said, "The agreement is a victory for
Vietnam more than for the US, a victory for
unbalanced and job-destroying trade policy."
Looking outward, Vietnam's WTO membership
is essential for US enterprises hoping to get
access to one of the Asia's fastest-developing
markets. Two-way trade between Vietnam and the US
grew to more than US$7.8 billion last year, a more
than 400% increase on 2001 trade figures - the
year the former war adversaries first signed a
bilateral trade agreement.
The bilateral
agreement will substantially lower tariffs on US
industrial and agricultural products, remove
non-tariff barriers on US service providers and
eliminate barriers to US exports in key areas such
as pharmaceuticals and petroleum products.
Vietnam's WTO admission should also boost
opportunities for US information technology
companies to export software programs and other
computer-related services.
A recent
multi-million dollar investment by the Intel
Corporation to build a chip fabrication plant in
Ho Chi Minh City, and a high-profile visit by
Microsoft founder Bill Gates to Vietnam, indicates
that major US technology companies believe there
is potential in the country, which could pave the
way for more international foreign investment in
the sector, industry analysts say.
Vietnam
hopes to formally join the WTO in November, when
it hosts the annual Asia-Pacific Economic
Cooperation (APEC) meeting in Hanoi with US
President George W Bush scheduled to be in
attendance. The deal with the US legally binds
Vietnam to further market reforms and economic
liberalization.
Setting the ground
rules One key component of the bilateral
deal was Vietnam's vow to establish a dispute
resolution agency to be governed by common
international laws. Vietnam's legal system is
still widely viewed as beholden to the government
and the country's courts are largely untested in
adjudicating business disputes that pitch foreign
against local interests.
Many foreign
investors are hopeful that the new legal mechanism
and preparations for entering the global trade
body will encourage significant legal, political
and economic reforms aimed at creating a level
playing field for foreign businesses. One
recurring foreign investor complaint concerns the
lack of transparency in Vietnam's political
processes, including how economic and financial
reforms are made.
Tran Dinh Thien, of the
Vietnam Institute of Economics said, "[WTO]
membership would create momentum for the
government to push through more economic reforms,
a major theme of last month's Communist Party
National Congress."
Vietnam's leadership
definitely needs to improve its oversight over
infrastructure development, a sector in which
foreign investors are salivating to participate.
The recent Transport Ministry scandal, which saw
millions of dollars of foreign aid earmarked for
construction projects looted and gambled away by
corrupt Transport Ministry officials, has raised
hackles among international donors and lenders,
who provide around 40% of all funding for current
infrastructure projects.
The World Bank
has dispatched a new audit team to Vietnam with a
brief to thoroughly examine all of its ongoing
projects. Klaus Rohland, the World Bank's country
director, tiptoed around this issue when he said,
"New challenges are emerging, such as the need to
mobilize new sources of finance, accelerate
urbanization, environmental issues and increased
recognition of governance issues."
Denmark's leading political party,
Venstre, is contemplating cessation of all aid to
Vietnam, according to media reports. Danish
foreign policy spokesman Troels Lund Poulsen said,
"Vietnam's economy is now booming, and Danish aid
would make no sense in three [to] five years." As
Vietnam becomes richer and steps up as a member of
the WTO, many other donor countries are expected
to re-examine the terms and conditions of their
future disbursements.
Vietnam's leadership
obviously hopes that WTO membership will pave the
way for more private sector participation in the
economy. Foreign private investors are likely to
be a more discerning lot than their multilateral
lending predecessors, and judging by attendance at
recent investment promotion events, private
capital groups are eagerly waiting to enter the
market.
Potential for
upheaval If the experience of other
developing countries, particularly China, is any
indication, the uneven distribution of benefits
from WTO membership between rural and urban areas
will present a major challenge to Vietnam's
communist leaders.
WTO membership requires
that the government drop state subsidies on many
agricultural products. Vietnam's agricultural
sector, which employs more than 70% of the
country's population, is plagued by low
competitiveness for various products.
Cheaper imports of sugar and maize, both
now subsidized by the government, will hit
Vietnamese producers hard. In China, for example,
the precipitous fall in sugar prices caused by
WTO-facilitated cheaper imports put huge masses of
sugar farmers in Guangxi province out of business
and caused them to abandon their fields
altogether.
It's not clear yet that the
government has devised WTO-approved strategies to
boost added value to Vietnam's uncompetitive
agricultural products through improved quality,
processing or marketing. Nor is it readily
apparent that the government is moving to adjust
labor market policies that would allow workers to
quickly gravitate to more competitive sectors of
the economy.
If masses of unemployed,
under-skilled farmers began to flock to the cities
in search of work, as witnessed in China's eastern
coastal areas, it could lead to serious social and
security problems, analysts say. The demographics
for disaster are there: nearly 45% of Vietnam's
rural population lives below the poverty line and
that figure could rise once the WTO opens the
country to lower cost global imports.
Effective implementation of projects and
agreements has always been a trying task in
Vietnam, and especially problematic when
international standards are involved. And in
Vietnam, still nominally a communist country, the
leadership is still keen to avoid seeming to favor
capital over labor considerations.
Yet
Vietnam's young population is widely viewed by
foreign investors as a potential source of
low-cost labor. Less than 20% of Vietnam's
workforce has finished senior secondary school.
The country currently has 233 schools, 404
so-called learning centers and 212 colleges that
specialize in vocational training. As more
sophisticated and technology-oriented industries
are established, this will put a strain on
Vietnam's vocational training system.
These represent the tip of the iceberg of
issues that Vietnam's leaders will need to contend
with once they enter the WTO. The recent 10th
Communist Party Congress notably promoted a group
of younger officials to the politburo, where the
average member age is five years younger than at
the outgoing body. It also acted to promote more
officials from the more capitalistic southern
areas of the country.
But as Vietnam
enters the world stage, the international
community will quickly come to expect a lot more
from the country's traditionally opaque leaders.
Whether WTO accession proves a boon or a bane to
Vietnam as a whole will largely be determined by
the crucial policy decisions the Communist Party
makes about the country's capitalist future.
Karl D John is chief executive
officer of The TCK Group, a
Vietnam-based consulting group. He has more than a
decade of involvement with Vietnam.
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