05:30 (GMT +7) - Wednesday 17/07/2019


Making the CPTPP work

Released at: 14:06, 20/01/2019

Making the CPTPP work

Photo: VET Magazine

VET sought the opinions of a number of interested observers on the challenges and opportunities the CPTPP may bring.

Mr. Sebastian Eckardt, World Bank Lead Economist for Vietnam

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is expected to generate positive impacts on Vietnam’s economy. This includes, among others, the potential attraction of additional FDI to Vietnam. In part this is because the CPTPP improves market access across CPTPP members and in part it because CPTPP commitments on issues such as intellectual property rights, public procurement, labor relations, competition, and investor dispute resolution are expected to enhance the legal and regulatory environment and therefore contribute to a better investment climate here in Vietnam. 

Vietnam has also signed more trade agreements than any other economy in Asia, except for Singapore. This openness has paid off, and with a trade-to-GDP ratio of 200 per cent Vietnam is one of the most integrated economies in the world. And its exports continue to soar, even as global trade remains relatively weak. FDI and local export industries have created millions of productive and well-paying jobs. As such, the CPTPP as well as the EU-Vietnam FTA (EVFTA) and other multi- and bilateral free trade agreements are crucial for Vietnam. 

Generally, the CPTPP reinforces Vietnam’s comparative advantage in labor-intensive manufacturing. Simulations suggest that traditional manufacturing, including garments, shoes and textiles, will benefit, mainly because import tariffs on these products will be lowered.

While the CPTPP will generate positive effects on the economy as a whole, some sectors may face increased competition. For example, certain Vietnamese agricultural producers may now have to compete with cheaper imports from abroad. This is not necessarily a bad thing. Access to better quality products at lower prices in the domestic market is good for consumers. While producers may not like to face competition, ultimately it may compel them to upgrade their performance and become more competitive. But clearly this is something that we need to pay attention to. As part of its global integration strategy Vietnam needs to continue to focus on enhancing competitiveness and on ensuring that firms and workers are able to adjust to a changing economic environment.

H.E. Augusto Morelli, Ambassador of Peru to Vietnam

When Peru ratifies the CPTPP, which will happen shortly, the trade deal will be the most important legal framework in conducting trade relations between Peru and Vietnam. The deal will help reduce barriers and enhance cooperation in trade-related issues such as sanitary and phytosanitary measures, customs procedures, and trade facilitation. We expect to continue developing bilateral trade with Vietnam, which in 2017 reached $555 million, up 17.6 per cent compared to 2016. 

The CPTPP will certainly have a positive impact on our economies. The estimated increase in GDP would amount to some 3.5 per cent. National exports are projected to grow 4.2 per cent and imports 5.3 per cent, with larger increases of 6.9 per cent and 7.6 per cent, respectively, assuming productivity gains.

The trade deal presents opportunities for Vietnam to increase its productivity by assisting domestic companies to access cheaper industrial inputs, introduce new technologies, and foster competition and innovation. Other benefits include better access to members’ markets for small and medium-sized enterprises (SMEs). Supporting and assisting SMEs has significant economic and social consequences.

The CPTPP is expected to boost exchanges and diversify the pattern of our trade, while fostering contacts between economic partners on both sides. 

However, countries like Peru and Vietnam will face challenges that include lowering logistics and transaction costs and improving transport infrastructure and connectivity, among others. All of these factors should be addressed in order to promote the participation and integration of the private sector into global value chains.

The results of market opening will bring intensive competition for enterprises in both countries. In that context, Peru and Vietnam will have to strengthen their competitiveness and their ability to introduce new technologies into production. In order to ensure that the forecasts on the benefits of the CPTPP are achieved in all member countries, our governments are working to prepare for efficient implementation.

Dr. Vu Tien Loc, Chairman, Vietnam Chamber of Commerce and Industry (VCCI)

Joining the CPTPP marks an important step for Vietnam in the process of global integration, reaching the highest standards in the world. In that context, the country’s business community will benefit a great deal from this agreement, especially foreign-invested enterprises (FIEs). A survey by PwC in November revealed that 34-40 per cent of Vietnamese enterprises expect new FTAs, including the CPTPP, to help them increase revenue in the time to come. 

The CPTPP will bring more favorable conditions to Vietnam to expand its market scale, penetrate into markets of potential around the world thanks to better preferential tax incentives, promote trade, and approach more investment capital. Moreover, enterprises in Vietnam will have the chance to find new partners, import new technologies, and approach global standards in goods quality and social responsibility.

All of these, however, are only opportunities. The key to realizing them is for Vietnam to continue institutional reform and improvements to its business environment. These would definitely increase the competitiveness of Vietnam’s economy and contribute to GDP growth.

Meanwhile, enterprises will face a range of challenges. Firstly, when tariff barriers are reduced, technical barriers tend to rise. Secondly, Vietnamese enterprises must overcome barriers to penetrate into other markets. The third key challenge is the harsh competition in the domestic market. Enterprises need to master information on the integration process, especially the roadmap to reducing taxes, comparisons between different markets, and priority exports to markets with low taxes.

Mr. Matthew Lourey, President, Australian Chamber of Commerce (AusCham) in Vietnam

There will certainly be benefits to Vietnam’s trade position arising from the CPTPP, as it will become far more globally-competitive from a price as well as a transparency perspective, but it is not just FDI that I see as the key measure of success. Australia is not a large investor in Vietnam when measured in pure FDI terms. On the other hand, Australia is Vietnam’s eighth-largest trading partner, so it is two-way trade that I see as being the real measure that we should be looking at. FDI will increase, but the benefits to Vietnam (and Australia) from increasing two-way trade in goods and services, which directly impacts both economies, will be more impactful.

From a Vietnamese perspective, manufacturing sectors will see an immediate benefit given the tariff reductions. However, over the longer term, the services sector will benefit significantly, as Vietnam has more opportunities for skilled labor movement and less restrictions on foreign investment abroad.

The CPTPP is a significant event for Vietnam and Australia. The broad and extensive nature of the agreement facilitates significant structural changes (particularly for Vietnam, but also for Australia), that will benefit both countries in the future.

The CPTPP is a significant step for Vietnam that will not be without significant challenges. Labor reform is something that will be difficult (changes permitting non-government associated trade unions, for example), but the foundations are being put in place by the government to tackle this, and given time the changes will find their way into Vietnamese businesses. The other area that needs attention is education - making sure Vietnamese businesses are aware of the opportunities now available as a result of the CPTPP and how they can access these. The requirements in the CPTPP for sufficient material origin requirements, for example, may require changes to supply chains, but the benefits to access 14 per cent of the world’s GDP on a favorable basis is worth the challenge.

Mr. Bao Nguyen, President, Canadian Chamber of Commerce (CanCham) in Vietnam

The CPTPP creates a trading block that represents $10 trillion, or 14 per cent of global GDP, and 500 million people, while still setting the tone for trade in the important Asia-Pacific region. Its implementation will stimulate and accelerate domestic reforms in Vietnam and further demonstrate the country’s commitment to broad-based, comprehensive international reform and international integration. 

Vietnam has been Canada’s largest trading partner in the ASEAN region since 2015, and the CPTPP changes the scope of Canada - Vietnam relations, particularly for Canadian businesses that want to participate in Vietnam’s extraordinary growth story. With greater transparency and clearer rules and guidelines, Canadian businesses will have more confidence when deciding to invest in Vietnam. Furthermore, with the large Vietnamese community in Canada, Canada is well equipped to make easier connections and take advantage of business opportunities in Vietnam. 

As Canada is the second-largest market among CPTPP members, one would also expect Vietnamese companies to more actively investigate business opportunities in the country and establish new relationships, strategic alliances, and investments with Canadian companies.

The CPTPP commitments will certainly help Vietnam improve its investment and business climate, as well as attract more FDI. With reductions or removal of tariffs, the trade deal will also bring in a reduction in State revenues while imposing high standards of governance and transparency, making balancing of the budget even more delicate.

To implement commitments, Vietnam will also have to revise many laws, rules, and regulations on trade, customs, intellectual property, labor, the environment, and government procurement, across ministries and other levels of government. This will require some time. More importantly it has to ensure that practices in these areas are compliant with modified laws, rules, and regulations, as the CPTPP imposes greater requirements on member countries’ preferential access to other member countries’ markets. Many SMEs will likely have a hard time keeping up with changes as they come along.

Also, in order to maintain sustainable economic growth, Vietnam must be wary of the “middle-income trap” and continue to increase its output and productivity by focusing on capital investment and technological progress, move into higher value production stages in the supply value chain being developed around the CPTPP, and focus on real labor productivity-enhancing benefits.

Mr. Davidson Dee Ladi, Economic Minister Counsellor, Embassy of Malaysia in Vietnam

The most important impact of the CPTPP for Vietnam is its deeper participation in the regional and global production network. The CPTPP will provide favorable access for Vietnam to further penetrate into and expand export markets. Tariff elimination or gradual reduction and a more facilitative trading regime among CPTPP members will benefit Vietnam’s export-oriented manufacturing sector and agricultural sector. Vietnam is already a major producer and exporter of textiles and garments, footwear, seafood, and agriculture produce such as rice and coffee, and participation in the CPTPP will further support the development of these sectors.

Foreign investors inside or outside of Vietnam, including Malaysian investors and businesses, have welcomed with great interest Vietnam’s participation in the CPTPP. By joining the agreement, which requires commitments to open up market access both regionally and domestically and provide a more conducive environment for investment and business activities, Vietnam will provide more assurance in terms of stability and transparency.

I believe existing Malaysian enterprises in Vietnam will develop their investment and business strategies based on this latest development. By participating in the CPTPP, Vietnam has now become more attractive, not only due to its large market of some 95 million people and a growing middle-class, but also potential export opportunities into CPTPP members’ markets.

Vietnam will face not only opportunities but also a variety of challenges. These challenges are both in trade and investment as well as demand for domestic institutional reforms. These include increasing pressure on domestic enterprises to improve competitiveness and address their inadequacies and for Vietnam to undertake a consolidation of its legal framework in accord with international practices. 

However, the most serious challenge for Vietnam is the large gap in socioeconomic development with other CPTPP countries. While Vietnam has made great progress in opening up its economy and is a member of the WTO and ASEAN, it still faces major issues such as intellectual property protection and labor standards. These challenges require Vietnam prepare local enterprises to compete both in domestic and global markets and undertake institutional reforms to improve domestic market conditions.

Nevertheless, Vietnam can overcome these challenges. Participation in the CPTPP is a game-changer for developing countries like Vietnam and will provide a push for it to continue to improve its socioeconomic development to be on par with its more developed ASEAN neighbors.

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