FTAs of new generation promoting vietnam’s sustainable development

Nội dung text: FTAs of new generation promoting vietnam’s sustainable development

1. FTAS OF NEW GENERATION PROMOTING VIETNAM’S SUSTAINABLE DEVELOPMENT Nguyen Son1 Abstract: The Bilateral Trade Agreement between Vietnam and the United State (BTA) signed in 2000 seemed to be the fist agreement to set out the demands for profound institutional reform of Vietnam’s existing trade regulations. The modest aim was just to bring Vietnam centrally controlled economy’s trade regulations to conformity with “internationally recognized trade rules”. After 20 years of active and proactive integration into the world economy, Vietnam now is capable to join CPTPP and EVFTA becoming one of the architects participating in reforming WTO regulations which have existed for a quarter of a century. In that sense, the FTA of new generation not only open up potential trade opportunities with developed economies, but also importantly contribute to improvement of our trade and investment environment. This is the most prominent value these FTAs have contributed to successful implementation of development targets of Vietnam. 1. FTAS OF NEW GENERATION REFLECT THE ACHIEVEMENTS OF 20 YEARS OF CONTINUING ACTIVE INTEGRATION OF VIETNAM INTO THE WORLD’S ECONOMY In 2000, Vietnam and United State signed BTA that kicked off profound institutional reform of Vietnam existing trade regulations. Taking into consideration its impact on business environment of Vietnam as well as its trade relations with all trading partners, the BTA could be considered a really meaningful fist step of Vietnam’s integration into the world economy. Vietnam had been granted Norman Trade Relation (NTR) by US. The treatment should be renewed annually by US president. Although Vietnam has not joined WTO, her goods and services now can access to the world’s largest consumer market as favorably as WTO members do. But to be eligible for that treatment, Vietnam must committed to implement broad reform to bring her trade regulations into conformity with basic WTO rules. Those rules have long been international commercial practices but were still unfamiliar to the Vietnamese authorities at that time: non-discrimination, elimination quantitative restriction, transparency of import licensing procedures, custom evaluation, trade-related investment measures, US has sponsored a project to support Vietnam to review and list the laws to be adjusted or enacted2. The dozens of laws and underlaws need to be adjusted or enacted in relation to the BTA implementation distinctly indicate the extent of impact this trade agreement had on Vietnam’s existing trade regulation mechanism. The value of those reforms go far beyond measurable value of market opening. Reforms aimed at establishing a transparent, fair and competitive trade environment have contributed to dismantling the bureaucratic regulations of centrally controlled economy that are suppressing development of the market economy elements, creating a strong impetus for development of private sector. These reforms, along with the improvement of the legal framework for WTO accession, have created a premise for continuous economic growth of Vietnam and an exports in particular even during periods of global economic decline. In that sense, the impact of BTA is not only 1 Deputy Director General, MOIT. The views expressed in this article are those of the author and do not necessarily to be considered to reflect the views of his agency. 2 Technical assistance program for implementation of Vietnam – US Trade agreement (STAR). 193
2. limited to bilateral trade but also positively affects the entire Vietnam’s trade and investment relationship with the world. Some regulations are quite new practices and seem very difficult for Vietnam authorities to meet, but quickly put into practice to help improve the efficiency of administrative management and are much welcomed by businesses: the abolition of the two-price system, non-discriminatory treatment between economic sectors, implementation of customs valuation, transparency of licensing procedure For example, labor standards for textiles and garments can be exported to the US market had set new standards for the working conditions. When put into operation, they had contributed to improvement of living and working conditions of workers in garment sector as well as to increase of productivity and work efficiency. The Enterprise Law 1999 is still regarded as one of the most successful laws in Vietnam. The institutionalization for the first time of the right to freedom of business, the right to operate profitable activities, the ownership of assets arising from legitimate business activities, equality before the law of enterprises of all economic sectors has resulted in the record number of 20,000 businesses created within the first year the law came into effect. This number is equivalent to all businesses existed previously in economy. In the following years, the number of newly established enterprises grew at an average rate of 117%. In 2019, Vietnam has about 760,000 businesses in operation. This contingent of enterprises has pioneered in the realization of opportunities opened up by international economic integration and generated an impressive growth in export turnover. Table 1. Number of enterprises in operation on December 31st Unit: business 2000 2005 2010 2015 39.069 106.616 279.360 442.485 Source: VCCI During the process of WTO accession negotiations and implementation of commitments, Vietnam's trade regulations have continued to improve. Nearly 20 laws have been amended, supplemented and newly enacted, contributing to improving the attractiveness and competitiveness of the investment environment. Foreign investment skyrocketed right after Vietnam basically concluded the accession negotiations. The fact strongly evidences that a transparent and equally competitive business environment are much more appreciated by investors than tax incentives or protection measures. Table 2. Unit: Million USD 2005 2006 2007 2008 6,840.0 12,004.5 21,348.8 71,726.8. Table 2. Foreign investment in the period 2005–2008 Unit: million USD 2005 2006 2007 2008 6.840,0 12.004,5 21.348,8 71.726,8 Source: GSO The WTO membership has laid the foundation for Vietnam to conclude FTAs with top trading partners in the region and the world: Korea, China, Japan, Australia, India, Russia These agreements contributing significantly to promoting trade with contracting partners have no clauses to cause institutional reform. Trade regulation framework since Vietnam's accession to the WTO has continued to operate on the principles of this organization. In addition, the FTA network concentrated on Asian region has contributed to the trade unbalance of Vietnam, tending to Asia. Vietnam's FTA Negotiation Strategy for 2010–2020 period, approved by the Prime Minister, identifying the achievements and 194
3. shortcomings of the existing FTAs had set the aims to conclude FTAs with leading developed economies in order to facilitate Vietnam's industrialization goals and reduce trade dependence on the area. That is the basis for Vietnam to participate in FTAs with presence of the world's leading economies, the US, EU, Japan, Canada CPTPP and EVFTA have really established advanced standards and rules for international trade which are expected to generate dynamic trade growth for member states. For Vietnam, after more than 10 years since the reform of trade regulations to meet the WTO commitment we have to conduct another major reform. Vietnam is not only signing party to have to carry out that task. Almost all signatory countries had to undergo procedures to amend or enact certain number of legal documents to implement the agreement. This clearly evidences the advance that make these FTA the agreements of new generation. From starting point of reforming and learning the common rules of international trade, we have entered the world's leading trade playground joining effort in making advanced standards for international trade. From this perspective, the CPTPP and EVFTA are not merely trade creation. It is strong demonstration of Vietnam's economic development achievements, negotiating and implementing capacity improvement as a result of 20 years of continuing active and proactive integration into the world’s economy. 2. THE FTAS OF NEW GENERATION HAVE SET NEW STANDARDS FOR FREE TRADE Fist, these FTAs aim at maximum trade liberalization. In fact, CPTPP and EVFTA have offered fully free trade of goods. Custom tariffs for almost all items will be eliminated after 5–7 years from the date of entry into force of the agreement. The import of small proportion of sensitive agricultural commodities that are currently subject to quantitative restrictions or high import taxes will be controlled by TRQ system with 0% in-quota tariffs. The products Vietnam already have competitive advantage such as textiles, garments, footwear, seafood enjoy opportunities for export growth thanks to tariff cuts and trade facilitation measures. In particular, the opening of the door to the EU market for agricultural products is of paramount importance to Vietnam. The export turnover obtained from market opening for agricultural products such as rice, garlic, tapioca, mushrooms, honey may seem not very large. But they are entirely obtained from domestic resources and have important social significance, improving income for a part of farmers living in disadvantaged areas. In the context that developed countries are applying a lot of protection measures to agriculture, the inquota tariff of 0% guarantees us a certain share in potential market of importing countries. In addition, the elimination of tariffs on processed agricultural products offers incentive for the food industry to invest in the production of ready-to-use commodities for this market, promoting the restructuring process of agricultural exports toward the increase the proportion of value-added products. In the services and investment sectors, a high degree of trade liberalization is reflected in the "negative list" approach compared to the "positive list" approach which is applicable in the WTO and the FTAs we have signed before. It means that foreign investors, who used to be allowed to trade only in sectors specified in the agreements are now able to engaged in all businesses that are not restricted by the agreements. Schedules of commitments of signing parties list those restrictions (NCM – non– conforming measures). They are bound by these commitments and are not allowed to introduce more restrictive measures. In addition, the “ratchet” principle does not allow any fallback. Once a signing party voluntarily liberalizes a certain NCM, it will have to maintain the new level of liberalization and are not allowed to go back to previous more restrictive measures. Second, CPTPP and EVFTA contain a lot rules affecting domestic trade regulations of member countries. The aim is to create a transparent, competitive, and equal business environment and to ensure 195
4. that the value of liberalization commitments is not impaired by protective domestic measures. Transparency provisions are stipulated across all chapters of the CPTPP and EVFTA: information disclosure, uploading information on official websites, the right to access to information by businesses and society, Thereby, businesses and the society are aware of regulations and are given the opportunity to express their views and supervise the implementation. The completion is a core element of the market economy making the market to function effectively. In order to establish a equal, fair and competitive business environment, CPTPP and EVFTA include provisions stipulating equality between enterprises of all economic sectors regarding their legal status as well as the right to engage in business activities. The non-discrimination principle of MFN and NT ensures equality between foreign-invested and domestic firms. State trading enterprises must operate under the market mechanism. They should not abuse their monopoly status to have unfair competition practice negatively affecting business and investment environment. The state should not over-subsidize state-trading enterprises to the extent that it considerably affects the interests of other countries. Regulations on Government procurement (GP) increase transparency and efficiency in public procurement, provide agencies using the budget with broader bidding options and minimize negative effects. Vietnam commitment on GP cover 21 government agencies, 38 non-business entities and 34 hospitals that will allow enterprises from CPTPP members to participate in bidding for provision of goods and services, engineering package of value from a threshold specified in the agreement. To promote knowledge economy development, the FTAs of new generation set higher level of intellectual property protection than the WTO and other FTAs. Time and level of protection for owners of pharmaceutical inventions, copyrights are increased. Countries must enforce protection of intellectual property rights regarding trademarks, copyrights and related rights at the borders. At the same time, infringements of intellectual property rights must be subject to criminal penalty especially infringements of trademarks, copyrights and related rights. In addition, the registration of copyright procedure should be simple, convenient and transparent. Electronic application of intellectual property rights is recommended. Strengthened laws of intellectual property rights protection will increase the effectiveness of the fight against counterfeiting and facilitate creativeness. Third, FTAs of new generation attach great importance to the sustainable development goal. They cover non–trade issues (environment, labor ) which are bound by trade measures. Actually CPTPP and EVFTA do not propose new criteria other than common international labor and environmental standards. Member States have an obligation to join specific international conventions that are widely accepted. The added value of these FTAs is improved enforcement by making them compulsory obligations assured by economic tools namely dispute settlement mechanisms and trade sanctions. Fourth, CPTPP and EVFTA uphold the role of enterprises and the importance of establishing mechanisms to facilitate their utilization of the benefits of free trade. This is a progressive and practical approach. As business is the one who brings commitments to life. The level businesses benefit by opening market represents a measurement of the validity of the agreement. In order to provide necessary information concerning the agreement and its implementation, the signatories have an obligation to maintain official portal or website. In the CPTPP, the Committee on SME Affairs, including government representatives of the Parties, will regularly discuss measures to support capacity building, solving difficulties for businesses. Foreign businesses are not subject to investment requirements (minimum export percentage, the use of local input materials, compulsory technology transfer, etc.) and have the right to use international arbitration mechanisms to resolve investment dispute. In particular, these agreements contain detailed provisions on simplifying customs procedures 196
5. and issuing certificates of origin. Exporters are allowed to present electronic documents, carry out customs procedures before arrival of the goods, self-issue certificate of origin Authorities have to apply the single window mechanism, conduct risk management and post-clearance control, These trade facilitation measures mean that the burden of proof have been transferred from enterprises to respective authorities. Businesses save a lot of time and transaction costs. At the same time, such mechanism will encourage businesses to voluntarily comply with management regulations and maintain standard accounting databases. However, administrative agencies will have more responsibilities. They need to modernize the facility and work procedure, to improve capacity and renovate management methods. 3. THE IMPLICATIONS OF THE FTAS OF NEW GENERATION FOR SUSTAINABLE DEVELOPMENT The first year of implementation of the CPTPP has sent positive signals. Export to markets that Vietnam did not have FTA before (Canada, Mexico) increased at 29–30%. For EVFTA, the first month of implementation (August 1 to August 31, 2020), 7,200 EUR.1 certificates of origin were issued allowing USD 280 million of goods exported to EU market at preferential tariff (approximately 9% of export turnover in month). The positive result despite the global economy recession caused by the epidemic shows the high interest of businesses on newly opened markets. Surely the EVFTA will make EU quickly rise to a higher position in the list of Vietnamese top trading partners. The tariff reduction roadmap will gradually allow Vietnamese consumers to have access to European products at cheaper prices. However, the most significant and lasting benefits to Vietnam are the reforms of business environment caused by those FTAs. Since joining WTO we have launched an another overall review of legal framework for trade to meet the FTA commitments. Regarding the CPTPP, the Ministry of Justice in collaboration with line ministries and agencies had reviewed 256 legal documents, proposing to amend 12 documents (including 8 laws) and to promulgate 5 new ones. For EVFTA, on the basis of reviewing 219 documents the Government had proposed the National Assembly to amend 4 documents (2 laws) and issued 4 new ones. That is not to mention the dozens of articles in both agreements that will be directly applied because they are clearly defined and do not conflict with current laws. The number of documents to review and need to be revised and issued shows the far-reaching significance and impact of these agreements on the economy. It should also be noted that the work of reviewing legal framework is requirement not only for Vietnam. The member countries that sign the above FTAs, including countries at much higher level of development such as Japan, Canada, EU, all have to enact new laws to implement the agreement. Transparent commercial legal framework, facilitative administrative procedures will create far-reaching and long-term effects for the economy to operate effectively and sustainably. According to the World Bank Global Competitiveness Report 2019/2020, the three barriers that most concern investors when access markets of developing countries including Vietnam are: legal framework especially investment approval procedures, regulations on local content and restrictions on foreign workers. The factor of cheap labor is ranked 11th only. Therefore, the improved investment environment thanks to strict implementation of commitments in the aforementioned FTAs and the potential benefits created by wide FTA network covering almost al the largest economies advantage us in competition for attracting investment flows tending to move to South Asia. The values of free trade and pioneering reforms make these FTAs attractive to the world. Several leading economies have expressed their consideration to joining the CPTPP. 197
6. Another meaning that cannot be ignored is that the negotiation process of these FTAs has formed and qualified a team of international trade experts. CPTPP and EVFTA are pioneering agreements which contain advanced trade rules and most technically complex. Our negotiators have gradually learned and joined effort with international colleagues in creating advanced criteria to meet the development trend of modern trade. The knowledge, international negotiation experience and contemporary thinking are valuable resource this team may contribute to the management, policy making and utilizing the benefits of free trade. 198