Vietnam: Spotlight on APEC and Vietnam

While Vietnam's central city of Danang is abuzz with preparations for the upcoming APEC Economic Leaders' Week, and the much-anticipated visit by US President Donald Trump, businesses and investors are waiting for clearer signals on the US approach to the country and the region.

Unlike the visit of former president Barack Obama in 2016 and his administration's 'Pivot to Asia' policy, Donald Trump has been less forthcoming about his stance on Southeast Asia. The moves that have been made – scrapping the Trans-Pacific Partnership (TPP) for example, heavily suggest the US is pivoting away again, and have seriously dented Vietnam's free trade aspirations.

Some remain upbeat, saying that President Trump's attendance at the APEC Economic Leaders' Meeting in Danang this November is a positive sign, underscoring the US's commitment to the partnership between the two nations and the region as a whole.

Trump's speech at the summit will likely be the first articulation of his administration's strategy towards the Asia-Pacific region. The White House has indicated a United States' "vision for a free and open Indo-Pacific region." The details of this vision will no doubt have a big impact on the way international businesses view the region in the years to come.

Planned meetings between Trump and Vietnamese leaders in Hanoi are hoped to continue the thawing of relations that was accelerated under the Obama administration. During Obama's visit in 2016, the arms sanctions that had been in place for over five decades were lifted, effectively transforming Vietnam into one of the United States' leading comprehensive strategic partners in the region. Companies from the two countries inked new commercial deals involving planes, engines and wind energy, worth more than US$16 billion. Now, Vietnam is a major trading partner and free-trade advocate.

Politically, it is hoped that some more flesh will be put on the bones of the US foreign policy towards Southeast Asia, particularly on subjects like the South China Sea.

Focus on free trade

Setting aside predictions on US behaviour, the summit in Danang will gather economic leaders of 21 APEC members to discuss issues of shared concern, including the future of trade in the region – an issue of heightened importance considering the demise of the TPP. APEC is a key trading bloc, comprising 39% of the world's population, 59% of its GDP and 48% of its trade. It is also a proponent of free trade, and since its inception in 1989 average tariff rates among members have fallen by nearly two-thirds – from 13.3 per cent in 1989 to 5.1 per cent in 2015, while intra-regional trade has risen more than seven-fold. Vietnam's average most-favoured-nations (MFN) tariffs declined from 18.5 per cent in 2007 to 9.5 per cent in 2015.

All APEC member economies have set trade and investment liberalisation as a priority, through reduced trade barriers and the promotion of the free flow of goods, services and capital among APEC economies.

The region as a whole has enjoyed strong economic growth, and Vietnam is considered an attractive investment location, with opportunities bolstered by an emerging middle class, a young population, a skilled labour force, competitive labour costs, strong GDP growth and a stable political climate.

Indeed, the trade liberalisation process encouraged by APEC is having a positive effect on FDI inflows into Vietnam. Japan in particular is showing a healthy interest, currently positioned as Vietnam's second-biggest foreign investor, with 3,523 valid investment projects, registered at US$46.15 billion. Even without the TPP, Vietnam's involvement in a number of other free trade agreements helps improve the country's attractiveness to foreign investment.

If Vietnam continues adopting APEC-promoted institutional reforms, and thus reduces the fees and risks associated with doing business in the country, this attractiveness can only improve. Currently, more needs to be done to create a business-friendly investment environment and reassure businesses that trade and investment disputes can be resolved with little fuss. Reassuring investors is a key priority for Vietnam to maintain its growth trajectory. The successful involvement of the country in forums like APEC helps to present an image of economic stability and strong leadership underscores its commitment to issues raised at the summit.

All eyes on Danang

Through hosting the 2017 summit, Vietnam has the opportunity to showcase itself as a business tourism and conference destination. Discussions in Danang will seek to establish new drivers for economic growth and cement the role of APEC in tackling common challenges in the region. Vietnam's position of leadership will enhance its stature on the world stage and initiatives raised could attract global interest.

Large-scale FDI projects from APEC members have already made significant contributions to Vietnam's socio-economic development. Giants like Samsung, Intel and Honda have established a presence in the country and could consider increasing their investments. Smaller players may also see similar potential.

For local businesses, the APEC meeting presents a golden opportunity to promote trade and investment with foreign partners. Representatives from thousands of international enterprises are expected to descend on the beachside resort, allowing for prime networking and the establishment of partnerships. Vietnam's investment climate has improved markedly since it last hosted the summit in 2006, so observers can expect even more deals to come out of Danang.

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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