By Cuong Nguyen
Hanoi, Vietnam. Source: Stephen Chipp’s flickr photostream, used under a creative commons license.
Officials from the 12 countries in the Trans-Pacific Partnership (TPP) trade agreement concluded talks on October 5, after years of heated negotiations. The deal must now be ratified by various individual governments before it takes effect. Nevertheless, the accord is one of the greatest accomplishments in the history of free trade agreements, gathering together countries whose gross domestic product (GDP) accounts for two-fifths of the global economy and potentially serving as the stepping stone to a larger free trade agreement for the Asia Pacific. But the TPP will surely bring about economic and institutional repercussions in a number of member economies.
In Vietnam, good news about the TPP is openly discussed on social media and among the country’s intellectuals. Vietnam is in a position of getting more gains than losses from participating in the TPP.
In economic terms, Vietnam will arguably be one of the biggest beneficiaries of the trade deal. Vietnam’s exports in apparel and footwear are expected to increase by about 50 percent. Reduction in export tariffs on Vietnamese-made products (to zero in some areas) will motivate growing foreign investment. For instance, foreign investors have bought $41.8 million in Vietnamese stocks in a few days after the signing. In general, Vietnam’s GDP and exports are anticipated to grow in the double-digits (11 percent and 28 percent, respectively) within a decade.
From a strategic standpoint, the TPP will reduce Vietnam’s economic dependence on China, which Hanoi fears Beijing may seek to exploit for political gains in the case of a conflict between the two countries.
However, the TPP will likely result in many challenges for Vietnam. Vietnam’s agricultural and pharmaceutical sectors will be vulnerable to foreign competition because the TPP will increase patent protection and be amenable to regulations that favor western-oriented business models. Dr. Nguyen Duc Thanh, director of the Hanoi-based Centre for Economic and Policy Research (VEPR), predicted in a report that Vietnam’s exports will suffer a net loss of $3.5 billion dollars, since its processed food and electronics industries will not be able to compete with those from other TPP countries such as the United States and Japan.
Moreover, major institutional and legal changes required by the agreement may not come in favor of party rule. Some of the TPP’s chapters will bolster working conditions of factory workers, increase wage rates, and prevent child labor. For instance, working hours are limited to 48 hours per week as part of the agreement. In addition, the TPP will boost workers’ bargaining power with government officials and companies. The TPP includes requirements upholding the International Labor Organization’s (ILO) Declaration of Fundamental Principle and Rights at Work. Of these requirements, the ruling Communist Party is most concerned about Convention 87, which grants workers the freedom of association and recognizes their right to strike. An independent labor union may undermine the existing system by decentralizing some decision-making power from government representatives to workers.
Businesses in Vietnam, particularly state-own enterprises (SOEs), will face many challenges in coming years. For years, Vietnamese SOEs have applied ample monopolistic practices in their commercial activities, resulting in deterioration of their service quality and lack of growth-inducing competition from the private sector. In addition, Vietnamese SOEs have also enjoyed greater access to cheap capital and credit from Vietnam’s central bank.
In contrast, the TPP’s provisions on SOEs not only go beyond existing obligations in the World Trade Organization and many of Vietnam’s existing free trade agreements in terms of transparency, but also limit any government support for SOEs that might cause adverse effects to “the interests of another TPP country.”
A central concern for most TPP members, including Vietnam, is the establishment of the investor-state dispute settlement (ISDS) mechanism consisting of an independent panel of three judges, who would have the authority to rule on disputes in accordance with the TPP’s terms without being subject to any appeal within a member country’ judicial process. While this may increase foreign investors’ confidence in Vietnam’s business environment by protecting them from arbitrary intervention by Vietnamese authorities, it remains to be seen whether Vietnam’s relatively weak legal system can slowly undergo a major revamp.
In a society where everyone is accustomed to non-legal means of settling disputes, rapid legal reforms cannot be carried out in the short term. Beyond difficulties in passing strict regulations for environmental safety, working conditions, and manufacturing standards, local firms and the Vietnamese government now need to push for serious legal reforms to play by international rules. Without domestic legal reforms, the use of international laws can be manipulated to benefit cynical corporate interests.
But the ISDS mechanism should not be seen simply as an ultimate tool for multinationals’ to challenge sovereign governments. According to existing records, out of 500 ISDS cases, only in 29 percent of these cases have arbitrators upheld some or all of business claims. Now is the time for Vietnamese businesses and political leaders to answer the question on how to tackle future difficulties that the TPP will likely bring about in the following decade.
Mr. Cuong T. Nguyen is a graduate of the Committee on International Relations (CIR) at the University of Chicago, and currently a lecturer in the Faculty of International Relations at the University of Social Sciences and Humanities in Ho Chi Minh City. The opinions expressed in this article are the author’s own.
