Why Vietnam is delaying TPP ratification

Xuan Loc Doan September 29, 2016 3:28 PM (UTC+8)
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Vietnam’s National Assembly (NA) will not include the ratification of the Trans-Pacific Partnership (TPP), a US-led trade agreement, on its agenda for the upcoming session – its last this year – which starts on October 20 and ends on November 21.

That means the trade pact would not be approved until early next year – probably March or April, when the NA, the one-party state’s rubber-stamp parliament, meets for its first session of 2017.

At a meeting of the NA’s Standing Committee on September 15, Nguyen Thi Kim Ngan, the NA chairwoman, was cited by Thanh Nien, one of the country’s most read newspapers, as explaining that Vietnam’s ratification would depend on the guideline of the Communist Party’s Central Committee and developments in other countries, including the outcome of the US elections.

According to the legislative body’s news portal, at the meeting Ha Ngoc Chien, head of a parliamentary committee, also suggested the NA should not endorse the agreement during its impending session “because many countries [in the 12-member trade pact] have not approved it so we should not take the lead.”

Concerns over the deal’s fate

Judging by these remarks, it is Vietnam’s concern over whether other countries, notably the US, will approve the deal that prompted Hanoi to delay voting on the agreement.

In fact, the Southeast Asian country is an ardent supporter of the multinational trade deal. As the ruling Communist party approved it at its 12th national congress in January, the NA’s ratification of it is only a formality and a matter of time.

Just last month, Prime Minister Nguyen Xuan Phuc announced that his government had already completed a dossier for TPP ratification and Vietnamese legislators would approve it during their coming one-month session.

Speaking at a meeting with the US-ASEAN Business Council in Hanoi on August 25, Phuc also said his country has carried out necessary reforms so as to effectively implement the trade agreement and help companies operating in the country to capitalize on it.

Equally, in his meeting with this group on the same day, NA Deputy Chairman Phung Quoc Hien said the legislature would consider ratifying it shortly and expected the US Congress to make a similar demarche soon.

To show the country’s strong commitment to the trade agreement, its government even planned to submit the TPP to the National Assembly for ratification in July 2016. Vietnam proactively participated in TPP negotiations, signed the agreement and was eager to approve because it would greatly benefit from it – economically, politically and strategically.

As a strong export-led and low-wage economy, it is predicted to be the biggest winner of this trans-regional trading zone of 12 members – with a combined population of 797 million people and a combined GDP of $27 trillion (about 40% of the world’s GDP). A study last year estimated that if the agreed pact became a reality, in 10 years it would increase the  GDP of Vietnam – a country of 93 million people – by 11%, or $36 billion.

Joining the comprehensive and advanced agreement will also mean that the communist-ruled country has to carry out major reforms in a wide range of areas – for example its state-owned enterprises (SOEs) and on workers’ rights. This has raised some apprehensions among some Party members, especially those who want to maintain SOEs’ monopoly and are concerned about independent labor unions.

Yet, overall it is widely believed that such reforms will be worthwhile as they will enhance the country’s transparency and competitiveness, people’s prosperity and welfare and the ruling party’s legitimacy and leadership.

Vietnam also has other strong strategic incentives to endorse the TPP. Being part of one of the world’s biggest trading pacts – one that includes its key global and regional partners, for example the US, Japan and Singapore – will help Hanoi diversify its relations and fortify its leverage, especially when China’s regional hegemonic ambitions have become a real concern.

Though China has been Vietnam’s biggest economic partner, the latter has faced a massive trade deficit with the world’s second largest economy. Relying too much on its giant communist neighbor economically is also not good for Vietnam because this can lead to other dependencies on Beijing. This will limit Hanoi’s room for maneuver when dealing with Beijing on critical issues like the South China Sea dispute.

In fact, China’s aggressiveness in the South China Sea was seen as a major reason behind Vietnam’s concerted efforts to strengthen its ties with the US and join the TPP in recent years.

The relationship between the two communist neighbors has become a little bit warmer, or at least less tense, following Nguyen Xuan Phuc’s latest six-day China trip, which ended on September 15 – the day Nguyen Thi Kim Ngan made the comment on the TPP ratification. This might have influenced Hanoi’s decision to postpone the TPP vote.

Her comment that the TPP ratification would also depend on the instruction of the ruling party’s all-powerful 175-member Central Committee though the deal had already been endorsed during the party’s January congress has raised speculations about Hanoi’s rethink on the trade deal.

Yet, if there is such a reconsideration, it is not because of recent positive developments in its relations with Beijing or anything else, but rather because of its concerns over the TPP’s fate. Indeed, the defining factor behind Vietnam’s delay in formally approving the signed pact is its uncertainty over whether the US Congress will pass it.

And such a caution is understandable, and indeed very wise, because its approval will be completely meaningless and strategically problematic if the US, the driving force and lead architect of the TPP, fails to vote to implement the agreement.

Wave against deal in the US

The prospect that the TPP will not be passed by American lawmakers and, consequently, will fall apart has become increasingly likely.

President Barack Obama, who has made the deal as the central plank of his pivot to Asia policy, is running out of time.

Both the two presidential candidates, Donald Trump and Hillary Clinton, who are vying to succeed him, as well as many other American politicians who are running for election or re-election in November, have publicly said that they are opposed to the agreement.

They come out against it because most American voters from both the right and the left are anti-TPP. The appearance of numerous anti-TPP signs at presidential campaign rallies, including the Democratic Party’s convention in Philadelphia in July, is a testament to this.

The anti-TPP movement is spreading across the US, particularly among its working-class voters and labor unions, who are concerned about its impact on their wages and jobs.

In fact, anti-trade and anti-globalization sentiments are popular in other Western countries, e.g. the United Kingdom. For many working class and lower income people, globalization has increasingly become globaloney.

As a populist candidate, it is no surprise that Donald Trump has abandoned his Republican Party’s pro-trade orthodoxy and adopted a strong anti-trade and anti-TPP rhetoric during the presidential campaign. The Republican candidate, who has even pledged to renegotiate the NAFTA (North American Free Trade Agreement) that came in effect in 1994, has repeatedly said that he will abandon the TPP.

Hillary Clinton, who was once seen as the co-architect of the US rebalancing to Asia and the champion of the TPP, has also rejected it. At a campaign rally in Ohio last month, the former Secretary of State, unequivocally said: “I oppose it now, I’ll oppose it after the election, and I’ll oppose it as president.”

During the first presidential debate on Monday night (September 26), Clinton was again forced to clarify her TPP position and reiterated that she opposed it.

As his legacy is significantly shaped by the agreed trade deal, Obama has robustly lobbied for it to be approved by US lawmakers in his last few months in office.

The only chance for him to get it through is during a so-called “lame-duck” session of the Congress between the November 8 presidential election and his departure from office in January.

Though it is very slim, it is still possible that the Obama administration can achieve the passage because once they are no longer concerned about their (re-)election, US lawmakers may objectively see the real or potential values of the pact and approve it.

Huge implications of TPP failure

In effect, it is not only the legacy of President Obama but also the US’s role in Asia that is at risk if the TPP fails to materialize. From the outset, it is not merely a trade agreement. It is also a political pact with far-reaching geostrategic significance.

A key – if not the primary – reason why the Obama’s presidency has pivoted to Asia and initiated the TPP and why many regional countries like Australia, Japan, Singapore and Vietnam have been very receptive to the American moves is their shared concern over China’s rise and its regional hegemonic ambitions.

A vote to pass the deal will cement the American role in shaping Asia’s trade rules and security issues in the years and decades to come.

In contrast, the US’s failure to move ahead with the multilateral trade agreement will result in it ceding that leadership role to China and greatly dent its credibility among its Asian allies and partners.

Given such high stakes, though it appears less likely, it is not ruled out that the US Congress will approve it after the November election, especially if Hillary Clinton triumphs. In the past, some presidential candidates, including Hillary Clinton’s husband, Bill Clinton, abandoned and even reversed some of their promises made on the campaign trail once they were elected.

Moreover, Clinton was very supportive of the US pivot to Asia and the TPP in particular while serving as the US’s top diplomat.

In a widely-read article in Foreign Policy in 2011, Hillary Clinton, the US then Secretary of State, wrote: “The future of [global] politics will be decided in Asia” and “one of the most important tasks of American statecraft over the next decade will therefore be to lock in a substantially increased investment—diplomatic, economic, strategic, and otherwise— in [this] region.”

Speaking on her trip to Australia in 2012, during which the partner nations were still negotiating it, she said: “This TPP sets the gold standard in trade agreements to open free, transparent, fair trade, the kind of environment that has the rule of law and a level playing field.”

Therefore, her current opposition to the TPP may be political rhetoric, rather than a principled position.

Nonetheless, due to the current hostility toward it in the US, the trade deal’s collapse is a likelihood. So, it is very wise for other countries, especially small Asian members like Vietnam to be watchful and explore other alternatives in preparation for any possible TPP meltdown.

Xuan Loc Doan
Dr. Xuan Loc Doan is a UK-based researcher. He holds a PhD in International Relations and researches and writes on a number of areas. These include Vietnam’s domestic and foreign policy, ASEAN, EU, UK’s politics and international politics in the Asia-Pacific region.
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