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2 Vietnam's WTO hopes and
dreams By Karl John
HANOI - After nearly 11 years of
protracted negotiations and intense horse-trading
with the United States, Vietnam on Thursday
officially became the 150th member of the World
Trade Organization (WTO), opening the way for more
foreign trade and investment to speed the
communist country's capitalist transformation.
Vietnam's Communist Party leaders have
stutter-stepped toward a market economy since the
mid-1980s, at times encouraging foreign investors,
at others driving them away with xenophobic
regulations and restrictions.
Over the past three years, leading up to final WTO
negotiations, the pace of foreign-friendly reforms
has increased.
So, too, coincidentally,
has Vietnam's total economic output, which has
nearly doubled over the past five years. An
average economic growth rate of 7.25% over the
past decade has doubled per capita gross domestic
product (GDP). Economic growth reached nearly 8.2%
in 2006, the second-fastest clip in Asia, trailing
only China.
Many economic analysts predict
that Vietnam's accession to the WTO will
facilitate faster foreign-trade and capital flows
and push Vietnam's economic growth above that of
China this year. Even before WTO accession,
Vietnam presented stiff competition for
manufacturing-oriented foreign direct investment
(FDI) among its more established regional
neighbors, including Thailand, Indonesia, Malaysia
and the Philippines.
Some economic
analysts predict the investment-protection
guarantees required of WTO members and recent
anti-foreign investment signals from Thailand will
accelerate FDI flows away from other Southeast
Asian countries toward Vietnam. So will Vietnam's
comparatively cheap, but industrious, labor.
According to a survey last year by the Japan
External Trade Organization, Vietnam's minimum
monthly wage level was about US$50, significantly
lower than India's $74, Indonesia's $90, the
Philippines' $135, southern China's $92 and
Thailand's $110.
Creaky infrastructure
remains an investor concern, but US technology
giant Intel's decision to build one of the world's
largest chip-making factories in southern Vietnam
sent a warning to Thailand and Malaysia, which
both rely heavily on electronics exports for
economic growth. Likewise, Canon's recent decision
to build the world's largest laser- and
bubble-jet-printer factories indicates that
Vietnam has firmly established itself on the
FDI-led, export-oriented manufacturing scene.
"WTO is sort of the stamp of approval that
many, many large American companies have been
waiting for. They are just going to flood into
this country," said Tim Tucker, country manager
for Ford Motor, which already has one
auto-assembly plant in northern Vietnam.
It will also free Vietnam from prohibitive
US quotas imposed against its textile and apparel
industry, which stands to gain more from WTO
membership than any other Vietnamese industry.
With the European Union recently imposing new
quotas on Chinese textiles, some analysts believe
EU-based garment importers and China-connected
exporters will increasingly turn to low-cost
Vietnam to fill the gap.
The Hong Kong
Trade Development Council recently advised Hong
Kong companies affected by the EU quotas to expand
their operations in Vietnam. Jordan Lee, the
council's economist, predicted: "Vietnam aims [to
become] one of the major exporters of textile and
apparel goods in the world after its entry to the
WTO. The total projected export value of the
sector is $5.5 billion, an increase of 15% from
2006."
Still, Vietnam's economy is still
very much in transition from a command to a
free-market system. Many outward-looking local
businesses and entrepreneurs, while excited about
the prospects of WTO membership, are still
struggling to comprehend international business
practices. At the same time, more foreign imports
and competition will inevitably lead to wrenching
change and dislocation across many industries,
creating potential social pressures on the
government.
WTO-mandated removal of
subsidies and increased foreign competition will
directly hit and potentially send into bankruptcy
as many as 2,000 state-owned enterprises, which
currently account for 38% of GDP and provide
millions of jobs. The government has applied
pressure to speed up the privatization process,
which in Vietnam is referred to as "equitization".
How the government handles dismantling these
inefficient state industries will have huge
implications for social stability and the
country's future attractiveness as a destination
for FDI.
To deal with these weighty
issues, the Communist Party-led government is
already re-examining its now-meager social safety
net, particularly in relation to income insurance
and vocational training schemes. WTO accession
will require not only a drastic overhaul of human
resources, but retraining for thousands of
stuck-in-their-ways state bureaucrats.
That includes an overhaul of the
agriculture sector, which accounts for nearly 20%
of GDP and where more than half of the
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