5-year WTO Membership: Gains and Losses

It is clear that the Vietnamese economy is now being affected by many different factors which result from internal causes like current development level, economic structure, institutions and administration, not only the international economic integration process and WTO entry in particular. Vietnam was unlucky enough to confront the outbreak of financial and monetary crisis and global economic downturn not long after it was admitted to the WTO. Thus, it is very difficult to attribute positive and negative aspects. However, we can see the benefits of WTO admission as follows.

 

First, after joining the WTO, Vietnam is no longer faces discrimination. It is offered the same import tariffs as other WTO members. With fewer non-tariff barriers, Vietnam’s export has increased continually, even in the time of global economic crisis. Except in 2009, annual export growth always stays above 20 percent. The rate was over 30 percent in 2011 and average at 17.3 percent in the five-year period, higher than the initial estimation of 16 percent.

 

Second, with lower import tariffs, prices of imported machinery, equipment and materials for domestic production are also reduced – an important element for edging up competitiveness. The widening trade deficit results from two major causes: The backwardness of Vietnamese economy and excessive outsourcing. The greater production and export require more imports. In addition, global prices are very volatile.

 

Third, consumers also benefit from a wider variety of products and services. The presence of foreign companies like banks, insurers and distributors bring more utilities and options for consumers, although they compete directly with local firms.

 

Fourth, with more opening up, foreign direct investment increases significantly. In the five-year period, foreign direct investment was valued at US$150 billion, a 2.7-time increase, of which US$45 billion has been disbursed, 77 percent higher than the target.

 

Fifth, with more competitive pressure, Vietnamese companies have to improve themselves and learn more about global markets and their rules.

 

Sixth, according to international commitments, the legal system of Vietnam is being supplemented and amended to suit new developments.

 

Finally, with WTO membership, Vietnam’s position is lifted on the international arena. Today, Vietnam has the tools to play on the international arena, including the WTO, with a more equal position.

 

In addition, WTO accession poses new challenges. Specifically, the biggest challenge is growing competitive pressure, even on the domestic market, as we are gradually opening our market to foreign companies. Besides, as Vietnam is now correlated with the world market, global impacts on Vietnam will be stronger and quicker. It is noted that even if Vietnam did not integrate and open its market, its economy would still be affected by external factors because of its backwardness and reliance on imported machinery, equipment and raw materials for export-driven production. Thirdly, Vietnamese companies face certain difficulties when they start to do business on a global scale.

 

Indeed, Vietnam's integration is gradual, not rushed. At first, we joined the AFTA (ASEAN Free Trade Area), then signed the BTA (Bilateral Trade Agreement) with the United States in line with WTO rules, and negotiated WTO entry with its members in over 10 years. Besides, each agreement has a step-by-step roadmap. There is only regret that State agencies did not have sufficient guidance for businesses, which are mostly ignorant of internationally permitted protective measures. Even, they still believe in strong protectionism while disregarding the knowledge of international commitments. As a result, they are at a disadvantage. If we did not integrate into the world, we would surely take no heed to brand names. This concept appeared only after we integrated. However, it is regrettable that many enterprises and localities do not care much about branding, let alone protection. Competent authorities do not provide sufficient guidance and enterprises have to pay a high price for their ignorance. Hopefully, these lessons will awaken government agencies and companies.

 

According to WTO regulations, tariff barriers are not removed but lowered. The lowering of tariffs to 0 - 5 percent relates to commitments that form free trade areas (FTA). As for WTO commitments, the important thing is how to open up the market.

 

Therefore, Vietnamese companies must study market opening roadmaps applied to different sectors according to WTO commitments to move ahead. Besides, it is time for Vietnamese companies to penetrate foreign markets, not passively wait for foreigners’ arrival. This is a hard job, but it needs to be taken into account. All companies have to find their own opportunities. Personally, I cannot make a common recommendation.

 

The United States is definitely the biggest market, but it is not an easy-going one. If you do business with this market, you absolutely must pay attention to its legal system. This system is quite detailed, complicated and easy to violate. Once found to violate the law, it is very costly to follow the case. US companies also observe the Vietnamese legal system when they do business in Vietnam, but the legal system is not complete or transparent. In the US, consulting and brokering systems, including legal aspects, are very developed. If we don’t use these, we will have difficulty accessing this market. All sectors have strong associations. If we do business with an industry, we need to access associations of that industry. For instance, the Vietnam National Apparel and Textile Association (Vitas) is opposite the United States Association of Importers of Textiles and Apparel (USA-ITA). Lobbying is also very common and stringently governed by the law. Business culture and strict laws create the style of business of US companies. They detest bribery.

 

In 2012, a bright outlook is unlikely because Vietnam must persist with policies of curbing inflation and stabilising the economy. For that reason, Vietnam is highly likely to continue with tightened monetary policies. However, the Government has applied a lot of measures to ease difficulties for companies like tax breaks, credit preferences for agriculture, supporting industries and exporters. Vietnam will reduce public investment and excessive favour for State-owned enterprises.

 

World economies will continue to be in trouble, not to mention the possible default of Eurozone countries and the collapse of the euro. Notably, many investors are redirecting their investments into Vietnam after the earthquake hit Japan in early March 2011 and historic flooding ruined industrial facilities in Thailand in late 2011. The massive flooding in Thailand is offering certain business opportunities for Vietnam. The WTO entry of Russia will lower tax barriers against Vietnamese commodities and Vietnam can take this advantage. Necessity is the mother of invention, and this is a strong point of Vietnamese enterprises.