FOREIGN ECONOMIC POLICYFOCUS: VIET NAM KaoriSueyoshiJanuary10, 2017 IntroductionThe ??i M?i initiatives of the 1980s lifted Viet Nam out of economic despair,transforming it into one of the world’s fastest growing economies — eventuallyaveraging a remarkable 6.4 GDP per capita growth over the 2000s1. While the governancemodel remains officially socialist, economic policy reforms of the past threedecades drastically shifted Viet Nam’s economic model from that of a centrallyplanned economy to one that champions free enterprise.
Underpinning this rapidgrowth are tenets of inclusivity: Viet Nam reduced extreme poverty rates ofnearly 50% to 3% between 1993-20172. Classified as adeveloping economy by the United Nations3, Viet Nam facesvulnerabilities to tides of exogenous pressures. To buffer the volatility ofexternal shocks, Viet Nam may pursue sustainable growth by reinforcement of itsMSMEs and developing its strategy within global value chains (GVC). Strategicdiplomatic efforts reflect Viet Nam’s grasp on its situational dependencies andopportunities based on regional integration.
Asthe host for the Asia-Pacific Economic Cooperation (APEC) in 2017, Viet Namdemonstrated diplomatic acumen and advanced several key interests in economicintegration, MSMEs, security, and climate change. In the face of rising tidesof protectionism in the West, APEC provides a foundation for the leaders of theAsia to hold a collective voice in favor of trade openness and liberalization. ForViet Nam, APEC can support sustainable growth through facilitating technologytransfer and bolstering GVCs.
Under the four major themes set forth in the ?à N?ngDeclaration, Viet Nam stands to benefit from knowledge exchange for MSMEs, sustainablewater management, security cooperation, and diplomatic balances. CurrentLandscape: Viet Nam Foreign Economic Policy Recoveryfrom severe human and economic costs of war in the 1970s, Viet Nam pursued simulationby reshaping its economic model from that of a centrally planned economytowards market orientation between the 1980s and 2000s. In integrating into theregional and global economy, Viet Nam focused on comprehensive reform easingtrade restrictions, attracting FDI, and supporting the private sector. Thisshift in governance brought the arrival of Viet Nam’s stock market in 2000. Priorto the market oriented readjustment of the 1990s, Viet Nam translated itssocialist legacy into trade policies, where the state effectively monopolizedtrading rights: entry into foreign trade was made restrictive such that it was possiblelargely only to state owned enterprises (SOEs). In 1998, trade licenses wereabolished, opening up the trade market for domestic enterprises — increasingthe number of registered trading enterprises from 2,400 in that year to 18,000 inless than 20 years. Inthe spirit of free market economics, Viet Nam significantly eliminated non-tariffbarriers (NTBs) throughout the 2000s4.
Ascension into varioustrade agreements, including ASEAN and the 2001 Viet Nam – U.S. Bilateral TradeAgreement (BTA), precipitated this liberalization. Among the eliminated NTBsincluded quantitative restrictions and authorization/licensing requirements.
Reductionof average bound tariff rates was most significant under ASEAN, decreasing from6.7% to 2.8% between 2005-2007. In the same time frame, reductions were moregradual under the WTO, with a reduction from 17.4% to 14.2%5. FDIattraction is at the core of the Vietnamese success strategy in economicdevelopment.
In 2017, Viet Nam had registered FDI from 126 foreign investorsvalued at $25.5 billion, up a staggering 34.3% from the previous year. FDIsfortify Viet Nam’s booming export economy: exports from FDI enterprisescomprised 72% of Vietnam’s total export value and 60% of its import.
The growthtrend of FDI is captured below (Figure 1). The notable peak in 2008 is followedby a stark reduction in orientation to the global financial crisis. The numberof projects continue to grow, however, despite a stagnation in aggregate registeredcapital. Figure 1: *Source: General Statistics Office ofViet Nam Foreignconfidence in Viet Nam’s economic prospects is based in its substantialparticipation in bilateral and multilateral trade agreements. In recognizingeconomic potential in free trade agreements, Viet Nam is a signatory to 16trade agreements both regional and global in scale (Table 1).
Bui Tanh Son, Vietnamese Deputy Minister of ForeignAffairs noted that “joining tradeagreements can help Vietnam access foreign markets, seek long-term and stablemarkets for local goods, particularly agro-forestry-fishery products, footwearand electronics, and improve competitiveness of Vietnamese businesses”. Table 1. Viet Nam TradeAgreements by Year Trade Agreement Year EU – Viet Nam 1992 ASEAN 1995 WTO 2007 APEC 1998 Vietnam-U.
S. Bilateral Trade Agreement 2000 RTAS ASEAN – Australia – New Zealand 2009 ASEAN – China 2007 ASEAN – Japan ASEAN – Korea, Republic of ASEAN – Free Trade Area (AFTA) Chile – Viet Nam Eurasian Economic Union (EAEU) – Viet Nam Global System of Trade Preferences among Developing Countries (GSTP) Japan – Viet Nam Korea, Republic of – Viet Nam The only other ASEAN economy to be involved in negotiationsfor RCEP, APEC, ASEAN, EU FTAs and the now defunct TPP is Singapore. Thecentrality of Viet Nam in the “noodle bowl” of Asian trade agreements positionsit for significant advantages in its interests in GVCs, to be elucidatedfurther in the next section. Engagementin Global Value Chains In assessing this period ofoutstanding growth, Viet Nam may look to the future of its shifting landscapeby considering the potential in its interaction with global value chains. Currently,the export economy is heavily based on the intermediary level, with aconcentration in labor-intensive, assembly-based manufacturing on behalf ofprimarily foreign firms. Such activity acquires low value add to the domesticeconomy in comparison to further up the value chain, in final productionstages. Through supply-side approaches, Viet Nam has successfully specializedin low-value add production. The strategy has paid off: between 1995 and 2011,Viet Nam grew its own domestic value add through gross exports by 17% – a ratejust below China6.
Between 2006 and 2014,Viet Nam’s global export market share grew at an annual 9.8% per year,culminating in the millions for job creation for the domestic labor market.However, the nature of manufacturing as a competitive advantage may prove ephemeralin the long run. For Viet Nam to continue its specialization in intermediaryproduction, it must face risks of inherent in in rapidly evolving productiontechnologies and newly emerging competitor economies. Supply side interventions to achievethe present export balance include accumulating factors of production andoverall efficiency gains.
Along with the trend towards trade liberalization,Viet Nam transformed from a primarily agricultural exporter to includingmanufacturing and services. As Chinaprogresses, Viet Nam was able to gain from redirected FDI as the costs of laborincreased in coastal areas of China7.However, Viet Nam is not exempt from similar risks: as GDP per capita continuesto flourish, its current competitive advantage in low-cost unskilled labor maybe jeopardizing by neighboring budding competition like Myanmar.
Looking ahead, if Viet Nam seeks to pivot towards a positionhigher up the value chain, it may focus on evolving its current GVC reachthrough trade agreements, diversification of its production, or invest infacilitation of domestic firms such that they may compete with foreign firms inthe GVC. One focus for this last solution is discussed further in the nextsection. MSMEsin Viet Nam Significantpotential for the future of Viet Nam’s sustainable growth model, particularlyas it pertains to its shift in GVCs, lies in its investments in Micro, Small,and Medium Size Enterprises (MSMEs). MSMEs comprise representing 50% of theemployment market8. Astudy by the OECD in 2000 categorizes MSMEs, including the APEC economies, into3 categories. 1-3% of global economies represent “technology leaders”, 10-15%are “leading tech users”, and 80-85% are the “technology followers”9. Proportionally speaking, LDCsfall largely into the third category. For Viet Nam to find stable footing, itwill pursue growth towards entry into the first category.
Despitethe proliferation of MSMES writ largeFIND STATISTIC ON HOW MUCH THEY’VE ADDED- GRANT THORTON AGAIN??, Vietnamese MSMEs struggle for integration intoforeign markets due to technology gaps and inefficient business management.Many MNEs have been investing in Viet Nam, but only few local MSMEs can developpartnership with investors. (HA 2014). Inits ambition for taking an expanded role in foreign economic policy, MSMEs mustgain in competitiveness through research and development (R&D), humanresources, and technology transfer. The former is best supported by domesticeconomic policy approaches. For the latter, APEC opens a fertile grounds uponwhich to establish knowledge sharing agreements in exchange for exportliberalization10.
Regarding R&D, the government has pledged support via financial programs,namely the “SME Development Fund” FIND CITATION created in 2013, whichsupports acquisition of equipment as well as innovation. However, banks facechallenges in appropriating funds to rural MSMEs due to geographical barriers.In a pattern not unfamiliar to other LDCs, Viet Nam also struggles withexpatriation of human capital capable of technological innovation. This notonly hampers entrepreneurship and expansion for MSMEs, but it further limitsMSME absorption of new technologies – an obstacle to knowledge transfer. Nonetheless,MSME competitiveness was improved 72.41 percent of over the last five years(GSO of Viet Nam 2017, online (accessed August 25, 2017)). HOW THE FUCK WOULDTHIS HAVE BEEN CALCUALTED??. Further technology transfer can be facilitatedthrough bilateral trade and multilateral efforts, particularly APEC.
Opportunities for training and exchange programs for specialists haveaccompanied significant FDI11. Domestic efforts, likethe Vietnam Academy of Science and Technology (VAST), serve as institutionalgrounds for international exchange. VAST acts as a conduit for exchange with anumber of economies, including the EU (European Union External Action 2016) andRussia (Far East Division of the Russian Academy of Science (FED RAS). TheUnited States Committee for Science and Cooperation invests approximately 115billion over 200 grants to science and technology development in Viet Nam12. APECplays a vital role in enhancing technological progress and cooperation amongmember economies. With MSMEs as a notable theme in Da Nang Declaration, APECcommits to the assistance of MSMEs, particularly as they serve as primarydrivers of growth in LDCs. Tothis end, APEC has organized MSME development meetings and committees. The APECSME Working Group and Economic and Technical Cooperation (ECOTECH) groupstrengthens partnerships between APEC economies.
In 1998, it initiated the Integrated Plan of Action for SME Development (SPAN). Adecade later, in 2009, it opened the SME Innovation Center in Korea followingthe Daegu Initiatives, which hosts short-term training and educationalinitiatives led by developed economies. BilateralDiplomacy Through APEC VietNam’s leadership in APEC Summit 2017 was noted as a diplomatic success,particularly in balancing the dynamic and ever-important Sino-U.S. relations.In its recovery path from the 2014 oil rig crisis in the South China Sea, VietNam made significant bilateral efforts over the past few years to regain positiverelations with China. Chinese President XiJinping has paid two state visits to Hanoi in two years, one of which was hisvisit immediately proceeding APEC 2017 in Danang. In November 2015, Mr Xi paidhis first state visit to Vietnam as China’s supreme leader.
The 2017visit appears, at least on the surface, to reinforce the trend of strengtheningties. However, the strategic context and the dynamics of bilateral ties haveundergone important changes over the past two years, making it difficult togauge the visit’s true significance to bilateral ties as well as the regionalstrategic landscape. On the other hand, Viet Nam also made headway in bolsteringties with the U.S, despite the turn against multilateralism demonstrated by theTrump Administration. Currently the U.S.
‘ largest trade partner in SoutheastAsia CITE THIS, Viet Nam has stakes in maintaining stable relations throughTrump’s “belligerent man strategy” OR WHATEVER ITS CALLED. APEC 2017 resultedwith It managed to expand trade and With the United States, Viet Namlooks forward to the implementation of the Trade and Investment FrameworkAgreement (TIFA) and $12 billion in new commercial agreements. In our bilateraltrade efforts, Viet Nam welcomes more open agricultural trade on products likestar apples from Viet Nam and distilled dried grain from the U.
S. Importantly,we look forward to increasing imports of natural gas from the U.S. as well. In performing various bilateral diplomatic efforts, as theones mentioned above, Viet Nam signals to its trading partners that not oneother economy will hold invariable and immutable influence over Viet Nam’sdevelopment. In strengthening bilateral agreements – it currently holds someform of developing or completed agreement with all members of the UN SecurityCouncil – it ensures a part in the larger international political economy, yetis not at risk for rogue economic actors or particularly strong protectionisttendencies or other volatilities from any one economy.
CITE THIS. Climate ChangeAs a party to the United Nations’ Paris Agreement, Viet Nam is committed tobetter mitigate as well as adapt to climate change. We are ready to takeproactive actions to enhance food security in the Asia-Pacific in partnershipwith both the public and private sector of APEC member economies. Furtherassistance and cooperation is needed from the developed countries of APEC tobridge the technological and knowledge gap between member countries.Development of regional food markets and better integration to regional valuechains are important in sustaining food supply in the region.Viet Nam recognizes the importanceof water management. It is estimated that 70% of the world’s water is used onagricultural production; thus, we understand sustainable water management andfood security are intrinsically bound together.
To this end, we encourage thedevelopment and implementation of integrated management strategies. It is ofutmost importance to strengthen regional and international cooperation inmanaging water resources management, given that water is a transnationalresource. As a coastal nation particularly susceptible to the effects ofclimate change and increasing sea levels, we also note our geographicsignificance in standing for this objective. Viet Nam also collects two thirdsof its water supply downstream from two major international rivers. For bothour nation and APEC partners, it will require a collective effort insustainable water management to effectively plan for the future. Conclusion Following three decades of growth, Viet Nam successfullyhosted the APEC for the second time in November 2017.
In continuing itseconomic success, Viet Nam looks forward to boosting its technologycapabilities through bolstering MSMEs. With climate change as a particularlyimpactful issue for agriculture heavy and coastal Viet Nam, it successfullyadvocated for accordance with the Paris Agreements at APEC and will continue topush for sustainable water management. With notable volatility rising from theU.S. regarding multilateral agreements, Viet Nam sought diplomatic successthrough the APEC platform. 1 World Development Indicators, The WorldBank2 World Development Indicators, The WorldBank3 DESA (2017), WorldEconomic Situation and Prospects 2017, UN, New York.
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