Vietnam: Impact Of WTO Accession – An Analysis

QUESTION: HOW WOULD YOU GENERALLY DESCRIBE THE IMPACT OF THE VIETNAMESE WTO ACCESSION ON THE COUNTRY?

Answer:

Generally speaking, the WTO accession has created more opportunities and advantages than disadvantages to the Vietnamese economy.

However, without appropriate macroeconomic policies and necessary reforms, these opportunities sometimes did become challenges to Vietnam.

Accordingly, appropriate policy measures following the accession, especially in training and education, migrations, regional and social protection policies were of great importance.

  • Macroeconomic impacts:
  • When Vietnam joined the WTO, the world was facing the Great Recession. After the accession, impacts from the global market have become greater due to close connections with other markets, creating more risks to the Vietnamese economy. However, the increase in economic growth is also considerable due to great amount of investment.
  • The import of the heavy industry in Vietnam accelerated after the accession.
  • Vietnam switched from exporting primary commodities to exporting goods produced with high technologies.
  • Since the accession, Vietnam has diverted from agriculture-driven economy to focus more on developing industrial sectors. Areas requiring high technologies have become very attractive.
  • Impacts on agriculture:
  • Although the share of agriculture in GDP in Vietnam is decreasing, this field remains crucial to the Vietnamese economy. Agriculture is facing several issues after the accession including quality and competitiveness.
  • Impacts on the society:
  • The WTO accession has created several working opportunities for unemployed people.
  • It has also lessen the gap between the rich and the poor and eradicated several gender inequlities in Vientnam.
  • The number of juvenile laborers has largely decreased.

QUESTION: HOW WOULD YOU DESCRIBE THE IMPACT OF THE ACCESSION ON POLITICS AND THE ECONOMY OF VIETNAM?

Answer:

  1. a) Impact on the Economy:

Positive impacts on economic growth:

  • Trade liberalization was promoted following the accesion.
  • Market access was also improved for the country's exports.
  • After Vietnam joined the WTO, foreign capital flows strongly poured into the economy and improved the economic growth of Vietnam.
  • Import clearly has a greater growth due to increase in investment as well as higher average income, allowing access to foreign goods.
  • Approximately 5.7 million jobs were created prior to the accession (2000-2006).
  • The annual growth rate of the economy of Vietnam gradually increased from 2001 until 2005 and remained stable, reaching over 8% until 2007.
  • Limiting poverty. For instance, in the Red River Delta area, the figure for poverty decreased from 62.7% in 1993 to 8.8% in 2006.

Negative impacts on economic growth: inequalities among the citizens

  1. b) Impact on the Politics:
  • Market opening and international economic integration has put Vietnam's economy right at the door of opportunities and challenges.
  • Vietnamese law has become more transparent and uniform.
  • There has been a reduction in administrative procedure, creating flexibility in the market.
  • WTO accession has laid a good foundation for Vietnam's deeper integration into the world's economy.
  • The process of economic integration, particularly since Vietnam joined the WTO, however, revealed the immanent weaknesses of the Vietnamese economy.
  • The current situation requires an effective import-export strategy to improve efficiency of resource allocation, improve competitiveness of the economy and macroeconomic stability.
  • In this context, it is important to focus on macroeconomic stability, growth paradigm shift towards quality and efficiency as outlined in the Strategy of Social – Economic Development in the period from 2011 to 2020.

Question: In which domains was this impact particularly strong?

  • One of the crucial terms of the WTO agreement is trade liberalization.
  • After the WTO accession, Vietnam has made a commitment to open markets for services sector. Thus, Vietnam are obliged to open the market (allowing foreign investors to participate in the provision of services in Vietnam or to organizations and individuals in Vietnam) at least at the levels of the commitment. This is one of the main reasons leading to the rise in investment in this sector. Particularly high investment growth in the property business was derived from the transfer of capital from investors from risky markets to the emerging markets with higher returns.
  • In the first few years of joining the WTO, the sector has the strongest investment growth in the economy was the property and business consulting services (an increase of 263.0% in 2007 and 15, 0% in 2008); market sectors open to foreign investment, such as finance and credit (up 87.4% in 2007 and 5.8% in 2008); transport, storage and communication (29.5% in 2007 and 5.8% in 2008).
  • Growths of this sector are mainly due to the contribution of foreign investments and economic sectors outside the state.

QUESTION: HOW IMPORTANT WOULD YOU SAY IS COMPLIANCE TO INTERNATIONAL TRADE LAW – REPRESENTED THROUGH THE WTO – IN POLICY MAKING IN VIETNAM?

Answer:

  • WTO is a community which allows easier trading terms among countries with fewer barriers and this was reinforced by international trade law set forward by the WTO.
  • Therefore, being in compliance with the international trade law is one of the crucial requirements in joining the WTO as it promotes the integration of the Vietnamese economy into the international economy and it also creates similar opportunities for Vietnam in order to further develop its economy.

Question: Would you say that organizations such as the American Chamber of Commerce or the European Chamber of Commerce in Vietnam gained more leverage in representing their interests through the legal WTO commitments?

Yes.

PART 2: QUESTIONS ABOUT A CONCRETE POLICY CASE IN VIETNAM

Case description:

In February 2014, the Vietnamese Ministry of Finance set up and amendment draft to the Law on Special Consumption to impose a 10% tax on sugar-sweetened, non-alcoholic carbonated beverages. This caused resistance by different parties, such as the Ministry of Trade and in particular, the American Chamber of Commerce, representing foreign producers of soft drinks. One of the main arguments of the opponents to the tax was that Vietnam could violate its commitment to the principle of "national treatment" because 88% of the products that would be affected by the tax are foreign branded. In the monthly resolution of the government in July 2014 (Document Number: No 56//NQ-CP, point 8), the government declared to not include the proposed tax within the Law on Special consumption.

Letter of the American Chamber of Commerce to the Vietnamese Prime Minister:

http://36mfjx1a0yt01ki78v3bb46n15gp.wpengine.netdna-cdn.com/wp-content/uploads/2014/06/140602-Letter-to-PM-Nguyen-Tan-Dung-re-proposed-excise-tax-on-CSD-En.pdf

Questions:

Are you familiar with this case? Did you hear about it when it happened?

  • Yes.

How would you generally describe this case? Is rather ordinary or more special?

  • The main reason that the Ministry of Finance proposed such amendment was its concern about the health impacts of sugar-sweetened, non-alcoholic carbonated beverages, such as causing diabetes, obesity, stomachache, gout or even cancer. Concern about health leading to the authority's decision to impose higher special consumption tax rate is quite ordinary. Many other countries in the region such as Thailand or Cambodia also impose higher tax rate for certain types of beverages not good for public health. In Vietnam, goods such as beer, cigars or alcoholic beverages are also subject to very high special consumption tax rate.

Would you say that the claim of a violation of the principle of "national treatment" is justified?

  • I believe you are referring to Article III:2 of the GATT 1994. Generally speaking, this Article prohibits members from treating imported products less favourably than like domestic products once the imported product has entered the domestic market.
  • As you can see, the objective of this article is imported products vs. domestic products. The discrimination in this article is not a discrimination of nationality of investors. For your information, in the Vietnam's market, most of sugar-sweetened, non-alcoholic carbonated beverages are produced or imported by foreign invested companies in Vietnam. All locally produced and imported goods are subject to this type of tax. However, I agree with the AmCham position paper that despite this equal application, the overall effect of the measure benefits local producers at the expense of foreign producers. Thus, a violation of the NT principle could be established.

Would you say that compliance to WTO law was one factor that caused the tax proposal to fail? If so, how important was that factor compared to others?

  • WTO has a dispute resolution regime for any members violating its commitments. If there is any dispute arising and the disputing parties have to go to the Dispute Settlement Body, it will not only harm trade relations but also political relations between the parties. Vietnam always wants to comply with the commitments it made for its own sake.

Would you say that the tax – if applied – could have justified a claim through the WTO dispute settlement mechanism?

  • Vietnam could use Article XX GATT 1994 to make its claim, but it will be hard for Vietnam to meet strict requirements under this exception, especially when there is no established scientific-based evidence available at that time.

THANK YOU !

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

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