TPP, opportunities and challenges – our action

NDO/VGP - PM Nguyen Tan Dung has released an article on opportunities, challenges and actions needed following Vietnam's signing of the Trans-Pacific Partnership. The following is the translation of the article for reference. 

Prime Minister Nguyen Tan Dung
Prime Minister Nguyen Tan Dung

The Trans-Pacific Partnership (TPP) was signed on February 4, 2016 by 12 countries -Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam - representing 40% of global GDP and 30% of global trade. This is a new-generation free trade agreement (FTA) which is expected to become a model for regional and international trade development with higher standards in the context of fast production force development, and increasingly deep and wide international integration.

Vietnam’s signing of the TPP was the outcome of the five-year negotiations under the spirit of both co-operation and struggle, based on the top objective of national interest. More importantly, this is the fruit of the 30-year renovation process, in which economic integration is a vital component which has been strongly asserted and clearly interpreted in the resolutions of the Party. This is also experience withdrawn from the country’s international integration realities following the signing and implementation of the Vietnam-US bilateral trade agreement; the participation in the ASEAN free trade area, FTAs between ASEAN and its partners, the accession to the World Trade Organisation, and others. Economic integration is also an important aspect of the modern socialist-oriented market economy institutions that are under construction.
In pursuant of the orientation of proactive and active international integration, the Politburo (tenures 10th and 11th) approved the government’s proposal of joining talks on several new FTAs. These are agreements with higher commitments to market access compared to the commitments of the World Trade Organisation and other FTAs inked earlier. The TPP and the Vietnam-EU FTA are comprehensive and balanced trade pacts featuring higher commitments on market access to trade in goods and services, investment, protection of intellectual property rights as well as commitments on market economy institutions, State-owned enterprises, public procurement, and others in order to create a transparent business environment and equal competition. These agreements also cover trade related issues like the environment and labour. The aforementioned contents make the TPP and the Vietnam-EU FTA new-generation FTAs.

The TPP is a comprehensive market access agreement, which ensures the free movement of goods, services, capital and technology at a higher level through fast elimination of import-export tariffs and non-tariff barriers to trade and investment; formation of an equal and non-discriminatory business environment; and facilitation of trade and investment, thereby bringing more benefits to businesses, labourers and consumers.

The TPP will speed up the formation of a new production network and supply chain among 12 member countries; facilitate intra trade development; improve economic effectiveness; accelerate growth; support job generation; increase incomes and improve people’s living conditions; contribute to handling challenges of the current economy; encourage innovation, creativity and development of the digital economy; establish competition policies and operation rules of State-owned enterprises; and protect of the basic rights of labourers and environment. The agreement also includes regulations to guarantee that member economies with different development levels and enterprises of all sizes can gain benefits; and helps small and medium-sized enterprises to overcome challenges and make the best of opportunities for development. The TPP also includes commitments on technical assistance, capacity building, and flexibilities in terms of the implementation roadmap according to the levels of development for signatories to satisfy commitments and take full advantage of the benefits of the agreement. At the same time, it includes regulations on implementation supervision mechanisms and sanctions.

The TPP respects the political system of each country; recognizes the requirement of full compliance of national laws in accordance with international commitments, and excludes contents related to national defence and security. The agreement is also expected to create a new foundation for economic integration in the region as well as opportunities for other countries on the Asia-Pacific belt to join.

Despite the low development level of the economy and numerous difficulties, the decision to actively participate in the new-generation FTAs, especially the TPP, with the spirit to accept competition, surmount challenges, and grasp opportunities for fast and sustainable development demonstrates the timely vision of our Party and State. This is also evidence of the belief in the will, ability and power of the Vietnamese people and nation.
The TPP along with the Vietnam-EU FTA will bring a lot of opportunities along with numerous challenges and difficulties.

These agreements will add more force to socio-economic development, particularly in investment attraction and export acceleration with the world’s biggest economies. In comparison of size, the 28-member EU has a combined GDP of US$18 trillion and the TPP, currently comprising 12 members, has a combined GDP of more than US$20 trillion. These economies have source technologies and have been the major importers and the biggest investors in Vietnam over the past years. Taking into account the resonant effects of the two agreements and the FTAs still under negotiation or already signed, opportunities are greater as our country has established free trade relations with 55 countries, including 15 members of the G20.

Export and investment are of decisive importance to economic growth, job creation, and improvement of living standards, especially considering the average income per capita and domestic consumption are low. The proportion of import/export between Vietnam and these markets also makes the country’s overall trade relations more balanced. The commitments of the agreements are the framework and standards which contribute to the improvement of the modern market economy institution and acceleration of restructuring and growth model transformation. Joining these agreements is also a new step forward in the consistent pursuit of the country’s foreign policy of independence, self-reliance, diversification and multilateralization of relations, and to the improvement of Vietnam’s position in the international arena, especially as strategic competition is becoming increasingly fiercer in the region.

Beside opportunities, these agreements also bring huge challenges and difficulties, including fiercer competition among the TPP members as well as within each of the markets in all three levels – product, business and national– especially the competition in terms of the quality of institutions and business environment. In the face of competition, some enterprises, after being transformed or restructured may be dissolved or go bankrupt if they fail to better themselves, and some labourers will lose job; the agriculture sector and farmers will be vulnerable; and income inequality will be more significant if we cannot effectively realize the strategy on fast and sustainable development and ensure that all people benefit from the growth. Challenges in terms of implementation are also huge, ranging from improving the legal system to workforce training, and capacity building for cadres, technical and legal experts. Labour and union issues also present new challenges and requirements for the operation of the Vietnam General Confederation of Labour and the whole political system of our country.

It is important to be deeply aware that favourable opportunities cannot transform themselves into economic power, interests and competitiveness without the efforts and goal-oriented activities exerted by stakeholders – the State, people, and enterprises. Difficulties and challenges will not be minor, but the magnitude of their pressure depends on response. If opportunities are fully taken, challenges can be pushed back and new greater opportunities will come. If this is not done, difficulties and challenges will dominate and we will lose things we can’t recover. Opportunities generated from FTAs always go hand in hand with challenges and challenges always contain opportunities – this is dialectical development.
Against the backdrop of globalisation and increasingly deep and wide international integration, establishment of the ASEAN Economic Community, participation in new FTAs, including the TPP and the Vietnam-EU FTA, information technology and the Internet boom, the rising proportion of cross-border transactions in global trade and service, advancement of multimodal transport and logistics services and flattening the boundary between domestic and foreign markets, the classic nuances of the export-replacement or export-oriented industrialisation models are fading. Many countries have shifted to industrialization models based on competitiveness, exploited and developed comparative advantages, conversed comparative advantages into competition advantages, joined global production networks and value chains while striving to control high value added steps of such value chain.

To fully take advantage of opportunities and overcome challenges, improving the competitiveness of the whole economy becomes an urgent matter, in which, the role and actions of the stakeholders need to be clarified.

Businesses determine the micro competitiveness, reflecting the strength and the competitiveness of the economy. Businesses must be brave to accept competition and implement solutions proactively and creatively to ceaselessly sharpen the competitiveness of their goods and services, not only in the domestic market but also in regional and global markets. However, businesses themselves cannot decide all. They must perform in a defined institutional framework and business environment and this totally depends on the State.

Extensive research and real conditions of different countries show that national governance institutions are the most decisive factor to the macro-competitiveness and the development of the economy. Fast and sustainable development or stagnation and lagging behind are mainly due to the quality of institutions. Good institutions, law-governed State, people’s right to democracy and compatibility with modern market economy rules will stimulate the market to the fullest level and resources for development. Thus, institutions play a decisive role in the effectiveness and competitiveness of enterprises.

To have good institutions, it is necessary to precisely define the relations between the State, market, businesses and society. The State must perform its role as a development creator, especially in stabilising the macro-economy; develop the system of laws, policies, strategies and planning and apparatus organisation to create an open, transparent business environment to ensure the right to business freedom and equal competition; use its resources, policies and tools to develop culture, pursue social equality and progress, ensure social security, improve social welfare and living standards; protect the environment; ensure the provision of essential services, develop socio-economic infrastructure system, train the workforce, enhance national security potential; and firmly maintain political security, social order and safety.

The market decides the mobilization, allocation and effective use of resources. Businesses are free to decide the business lines that are not prohibited by law and must raise high their social responsibility and corporate culture. Society contributes constructive ideas, comments and supervises the implementation of policies through citizens and organisations, professional associations, experts and independent researchers in order to mitigate shortcomings of the market and the State.

Based on understanding of the aforementioned relations, we need to quickly improve institutions and the legal system to meet the requirements of a modern market economy, international integration and commitments to the FTAs, especially new-generation FTAs with the spirit of comprehensive and synchronous innovation in both economic and political dimensions; and exert all efforts in building and improving the law-governed and law-abiding State of the people, by the people and for the people. Citizens can do whatever the laws do not prohibit. Cadres and civil servants can only do and must do things prescribed by law.

Reforms should continue to ensure the compatibility and synchronicity of laws, structural organisation and contingents of cadres and civil servants. Overlapping organisation will cause a waste of resources and hinder development. We must dare to accept innovation, overcome old ways to perfect the system of leadership and administration, improve national governance capacity to meet the requirements of national construction and Fatherland protection in the new stage of development.

The improvement of the business environment needs to be part of the requirement of institutional reform. Institutions create a framework and limits for improvement of the business environment. The business environment cannot be considered good without suitable institutions. Advances in institutional reform must be translated into improvements of the business environment. This does not only relate to the apparatus organisation but also the quality of cadres and civil servants. There is a need to focus on building a contingent of capable cadres and civil servants who devote themselves to serving the people. Special attention is needed in the training of legal staffs, and business administrators meeting the requirements of international integration, competition and development.

Only by reforming national governance institutions properly, can we improve the quality, effectiveness of the process of restructuring and growth model transformation, accelerate the application of science and technology, raise productivity, and improve the competitiveness of products, businesses and the whole economy. And only by properly reforming institutions can we facilitate the accumulation and concentration of land and the formation of large-scale production regions and clean, high-value added agriculture with sustainable supply to quickly raise global market share. Otherwise, opportunities from the TPP, Vietnam-EU FTA and other new-generation FTAs will be lost.

The TPP as well as the Vietnam-EU FTA requires open and transparent operations of State-owned enterprises and their equal competition with enterprises of other economic sectors. The country needs to beef up the process of restructuring, improving the effectiveness of State-owned enterprises along with encouraging the development of Vietnamese business circles, especially private ones, as the driving force for improving the competitiveness and self-reliance of the economy.

To ensure the success of international integration and effective implementation of the FTAs, especially the TPP and the Vietnam-EU FTA, there must be resolutions of the Party and the National Assembly as well as the action plans of the government, sectors and the business community. Communication work needs to be carried out well to create awareness, consensus and unity in action, and to strive to raise competitiveness for fast and sustainable development.
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We are living in the era of rapid development as the world is entering the 4th industrial wave, making the industrialization process shorter. With great determination and a strong will to better themselves, creativity and proper growth strategies, countries with lower development levels can catch up with and surpass countries with higher levels of development and new small-sized enterprises could become big ones quickly.Joining these agreements opens more opportunities for Vietnam to improve economic effectiveness and create favourable conditions for the establishment of big enterprises in association with individualization of businesses. This is also an opportunity to nurture the spirit of innovation and creativity, encourage the business start-up movement among all people and improve the development of the economy.

The whole Party, people, army and business community should raise high the national pride and work together to proactively bring opportunities into full play, and strive to overcome difficulties and challenges emerging in the integration process to strengthen the nation.