Despite unusual global economic conditions, Vietnam has implemented its commitments to the World Trade Organization without delay over the last three years, and has become a reliable trading partner recognised by the international community, said Professor Claudio Dordi, team leader of the Multilateral Trade Assistance Project, EU-Vietnam, in an interview with VIR’s Binh Chau.
Prof. Claudio Dordi Vietnam has enjoyed its first three years as a WTO member. What do you think of the country’s implementation of its WTO commitments, and how has it taken advantage of the opportunities brought about by its membership?
Soon after its accession to the WTO, Vietnam was hit by a number of negative economic events. First, there was a very high inflation rate, mainly due to an excess of liquidity following a spectacular increase in foreign investments. Next, there was a sudden rise in the price of raw materials and commodities, and, later, the international economic and financial crisis.
Most analysts recognise that Vietnam has implemented its WTO commitments properly, even though some problems still exist, especially in service sectors such as distribution and with customs-related procedures.
What the international community has realised is that Vietnam has become a reliable international trading partner. Its accession to the WTO has had two important and immediate effects, which are not measurable straight away. Firstly, on the imports side, although unusual global economic conditions have been a feature of its first three years as a WTO member, Vietnam has continued to implement its commitments without any particular delay. Indeed, on the domestic side, it is clear that Vietnam did not apply protectionist trade policies in this period.
Secondly, the worst economic crisis of the global economy since the 30s has affected Vietnam only partially. This is even due to the important role played by WTO rules, which limited the recourse of members to trade protectionist measures. What would have happened, in such an economic and financial crisis, if Vietnam were not a member of the WTO?
Regarding the way Vietnam has exploited the opportunities brought about by its WTO membership, I think that it is too early to come to a conclusion. From the point of view of the institutional membership, however, Vietnam has benefited from the advantages of the rights granted by its WTO membership.
Since 2007, Vietnam has participated in all relevant WTO organs and it is fully integrated into the WTO system. All ministries are aware of the implications of WTO membership. The situation is different in the business sector, where many enterprises still seem unaware of the opportunities offered by participation in the WTO.
Several weeks ago, the Minister of Trade and Industry, Vu Huy Hoang, announced that only about 20 per cent of Vietnamese enterprises had made use of the opportunities brought about by the country’s WTO membership. What are the main reasons for this?
The unsatisfactory level of exploitation of the opportunities brought about the WTO membership by Vietnamese enterprises can be explained from different perspectives. First of all, it should be pointed out that the Vietnamese value added is still low in many exported products. This makes it difficult to accumulate the necessary capital for further investments in the country, for upgrading technological equipment and for Vietnamese enterprises to adopt a more aggressive strategy in international markets, preventing them from fully benefiting from the reduction in trade barriers.
Secondly, for private enterprises, and especially for small- and medium-sized ones, it is difficult to understand the complications of a number of trade instruments, such as the rules of origin, customs classification and other trade-related policy measures.
For example, in many cases, enterprises prefer to export the goods without benefiting from the preferential treatment afforded by a free trade agreement or by the generalised system of preferences because the administrative burden of applying for such preferences is too great.
During her December visit to Vietnam, former US Trade representative Susan Schwab suggested Vietnam should be more vocal in Doha negotiations and should join the WTO’s Government Procurement Code to open up more markets for its exports. Do you agree with her? Why? In your opinion, in what areas of negotiations should Vietnam have a stronger voice?
The situation of Vietnam in Doha negotiations is peculiar and different from most of the others WTO members. As a “very recent accessed member” (VRAM) Vietnam is not required to deepen its commitments to WTO obligations outside of those agreed to during the procedure of accession.
For this reason, Vietnam’s “wait and see” attitude during the Doha negotiations is reasonable. Moreover, this attitude does not mean that Vietnam does not participate actively in Doha negotiations, especially in NAMA (non agriculture market access), rules (anti-dumping, subsidies) and agriculture.
Participation in the Government Procurement Code has its pros and cons. Of course, allowing foreign enterprises to participate with the same rights to the Government Procurement procedures will increase the potential of Vietnam in attracting foreign investments, and will improve the credibility of Vietnam as a trading partner.
However, it should not be forgotten that Vietnam is still a developing country and Vietnamese enterprises still lack competitiveness. Participation in the Government Procurement Code could have negative consequences, in the short term, for Vietnamese enterprises.
The best solution would be a sort of “programmed accession” to the code, i.e. a declaration by the government providing a deadline for participation in the code. This would set a deadline for enterprises wishing to improve their competitiveness and efficiency (including SOEs). It would provide a signal to other WTO members that Vietnam is carrying on its policy of improving its market economy structure.
In 2010, according to its WTO commitments, Vietnam will open its market much wider and deeper than it has in the past three years. Do you have any recommendations for Vietnam to prevent further trade deficit and protect its domestic production in compliance with WTO regulations?
Vietnam’s trade deficit is caused mainly by the import of materials and machinery. This is somewhat the price to be paid for its rapid development. Any move to protect domestic production would amount to an increase of the costs of imports, and, as a consequence, an increase in the cost of production in Vietnam.
Moreover, it should be remembered that Vietnam’s main exports have a very high foreign content. Increasing the cost of its imports would reduce its competitiveness on the export side. Furthermore, protecting domestic production could increase costs for consumers and could slow the restructuring of inefficient national enterprises.
The best way of fighting the trade deficit is to increase the value of what is produced in Vietnam, widen the value chain, change the patterns of production, promote the most competitive sectors (private) and force the restructuring of the least competitive ones, especially SOEs.