Vietnam Moves Closer to Ratification of Trans-Pacific Partnership

October 21, 2013 Posted by Vietnam Briefing Reading Time: 2 minutes

Oct. 21 – Due to the large amount of state-owned enterprises (SOEs) within Vietnam, the country has found itself at somewhat of an impasse with regards to negotiations on the Trans-Pacific Partnership (TPP). The TPP has called for a high degree of transparency and for a great increase in the openness of markets.

The TPP is a multi-party free trade agreement that, according to the Office of the U.S. Trade Representative, “will enhance trade and investment among the TPP partner countries, promote innovation, economic growth and development, and support the creation and retention of jobs.”

Currently, Vietnamese SOEs represent 70 percent of the country’s total investment capital, 60 percent of bank loans, 50 percent of investments, and generate more than 50 percent of the country’s bad debts. As a result of their large size, SOE reform has proven to be a major sticking point in Vietnam’s bid to liberalize its economy ahead of signing the TPP agreement.

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Once the TPP goes into effect, any enterprise will be able to file legal action against perceived discriminatory treatment. It seems clear that the SOEs could easily find themselves the target of a number of lawsuits.

Now, however, there has been a consensus reached that Vietnam, along with Malaysia, Peru and Brunei, will be granted a five-year grace period to reform its SOE policies. Vietnam will thus not be subject to many of the TPP’s strict requirements immediately after signing, allowing the country to overcome one of its main hurdles to ratifying the agreement.

The U.S. is currently negotiating the TPP with 11 countries: Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. If signed by all the countries, the newly created trade area would account for 40 percent of the world’s total trade turnover.

A large number of analysts have pointed out that Vietnam stands to reap large economic rewards if it is able to successfully implement the terms of the TPP – even more beneficial than the country’s entrance into the WTO.

Perhaps the biggest benefit for Vietnam will come from the U.S. and Japan opening up their garment, footwear, seafood and pharmacy markets. Vietnam will be able to secure greatly lowered tariff rates in these markets – in the case of garments, the tax rate will drop to zero percent (from its current level of 7-15 percent).

Some sectors, however, such as the drinks, farm produce and public procurement sectors, could see a negative impact due to the increase in competition.

In total, it is to be believed that the benefits to Vietnam arising from the implementation of the TPP far outweigh the potential costs.

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