Innovative Mindset and Integration Roadmap

11:45:49 AM | 10/15/2019

Right in the first diplomatic documents of the Democratic Republic of Vietnam, President Ho Chi Minh solemnly declared, "Vietnam is ready to adopt the open-door and cooperation policy in all fields". At the same time, he affirmed in a letter sent to the Secretary-General of the United Nations that “Vietnam offers favorable access to investment by foreign capitalists and technicians in all industries; is ready to expand seaports, airports and roads for international trade and transit; and accept to participate in all international economic cooperation organizations under the leadership of the United Nations.” (December 1946)

This is considered a message of Vietnam's international economic integration to the international community. However, the war that divided the country did not allow us to do that for a long time.

10 years after national reunification (1975-1985) witnessed Vietnam strengthening comprehensive cooperation with socialist countries and expanding economic cooperation with non-socialist countries to overcome hardships caused by economic sanctions and to rebuild the nation. At the same time, Vietnam persisted in negotiating to officially join international organizations, thereby taking advantage of international aid and cooperation, and raising Vietnam's position in the international arena.

Vietnam’s integration successes at this stage included official membership in the International Monetary Fund (IMF) on September 15, 1976; official membership in the World Bank (WB) on September 21, 1976; entry to the Asian Development Bank (ADB) on September 23, 1976; official diplomatic relations establishment with the Philippines and Thailand, following all other ASEAN countries, at the end of 1976; membership in the United Nations on September 20, 1977 and active involvement in the Non-Aligned Movement; entry to the Council for Mutual Economic Assistance (SEV) on June 29, 1978; and the Treaty of Friendship and Comprehensive Cooperation with the Soviet Union on November 31, 1978. Therefore, Vietnam managed to stabilize politics and society, gradually remove hardships, stabilize and maintain production, and create a premise for integration.

The 6th National Party Congress (1986) marked the transition from centrally planned economy to a socialist-oriented market economy. Despite not mentioning the term “integration” at this congress, the Party was aware that “closing the door or closing the domestic economy will pose a risk of falling behind". Thereby, the Congress advocated "taking advantage of new favorable conditions for economic and scientific-technical cooperation", widely participating in the assignment of cooperation in the Council for Mutual Economic Assistance, and expanding relations with other countries on the principle of respect for independence, sovereignty, equality and mutual benefits.

Through the National Party Congresses, from the 7th (1991) to date, the thinking of international integration has taken shape and been strengthened. The 11th Congress (2011) the Communist Party of Vietnam (CPV) underlined “active and proactive international integration" and “diversification and multilateralization of foreign relations". Vietnam wishes to be friends with all countries in the international community, striving for peace, independence and development, which is pushing Vietnam's international integration process to a new level in all aspects. Vietnam has made a lot of remarkable achievements in foreign policies in general and international economic integration in particular.

Achievements in bilateral and multilateral cooperation

On bilateral cooperation, Vietnam has established diplomatic relations with more than 170 countries around the world, expanded trade relations, exported goods to more than 230 countries and territories, signed over 90 bilateral trade agreements, nearly 60 investment incentive and protection agreements, 54 double taxation prevention agreements and many bilateral cultural cooperation agreements with countries and international organizations. Vietnam has been recognized as a market economy by 71 partners.

Vietnam has formed fine relations with all major countries, including the five permanent members of the United Nations Security Council (P5) and G8 countries; upgraded the strategic partnership with China to comprehensive strategic partnership, increased the scope of strategic partnership with Russia, established strategic partnerships with Japan, India, South Korea, the United Kingdom, and Spain. In particular, in 2019, for the second time, Vietnam was elected non-permanent member of the United Nations Security Council for the 2020-2021 term.

On multilateral and regional cooperation, Vietnam has developed positive relationships with international financial and monetary organizations such as the Asian Development Bank, the International Monetary Fund and the World Bank. The process of Vietnam's international economic integration has been elevated to a higher level by joining regional and international economic and trade organizations, signing multilateral economic cooperation agreements. In July 1995, Vietnam was admitted to the Association of Southeast Asian Nations (ASEAN) and officially entered the ASEAN Free Trade Area (AFTA) from January 1, 1996. This was considered a groundbreaking action in the international economic integration process of Vietnam. In 1996, Vietnam jointly founded Asia-Europe Meeting (ASEM) and the country was admitted to the Asia-Pacific Economic Cooperation (APEC) in 1998. Up to now, Vietnam has become a member of such international economic organizations as WTO, ASEAN and APEC.

Signing 17 FTAs, including two new-generation FTAs - CPTPP and EVFTA, Vietnam has obtained many development achievements. In 2018, the country’s GDP reached 7.08%, the highest ever since 2008, and rose an average of 6.7% a year in three years (2016 - 2018). Vietnam's economic scale was VND5,500 trillion (US$240.5 billion) in 2018, more than 1.3 times that of 2015, ranking 44th in the world by nominal GDP and 34th by purchasing power parity (PPP). GDP per capita climbed from US$2,109 in 2015 to US$2,587 in 2018, about US$7,650 based on purchasing power parity. Its national competitiveness went up five places over 2016 (from No. 60 out of 138 economies to No. 55 out of 137 economies) and its ease of doing business climbed 14 places (from No. 82 to No. 69 out of 190 economies).

Opportunities and challenges

Extensive integration into the world economy has helped boost exports and remove trade barriers for goods that Vietnam has strengths in such as farm produce, seafood, footwear and apparels. Moreover, it is a driving force for Vietnam to step up merchandise production of exportable products and create opportunities for domestic enterprises to join in regional production chains, supply chains and value chains.

The fulfilment of commitments to the ASEAN Economic Community (AEC) and FTAs will also help increase foreign investment flows into Vietnam. FDI has been and will continue to be a source of economic growth, positive and important employment for the Vietnamese economy.

Building the ASEAN Economic Community and signing FTAs with different partners have enabled Vietnam to diversify and potentially balance its position on Vietnam's economic and trade relations with regional partners and the world, thus uplifting Vietnam's position in the international arena.

The signing of new-generation FTAs, boosted by an accumulation of best experience, routines and practices in the world for business and investment activities will facilitate Vietnam to create new frameworks fitting the landscape of deeper international economic integration. This is the active aspect of Vietnam in integration. These frameworks force Vietnam to improve its business environment and investment environment on the one hand, while encouraging and promoting business and investment of all economic sectors on the other.

International economic integration and market opening are correct decisions of the Party and the State of Vietnam, which have produced various important achievements: Miraculously growing productive forces, relations of production to boost the country's economic growth; redirecting the economic structure to a positive pattern in line with the country's industrialization policy; reforming and completing the legal system, thereby creating conditions to improve the investment environment in a more transparent and open manner to attract investment fund to boost economic growth, fiscal revenue and employment; promoting reforms, perfecting full-market economic institutions, perfecting the business environment to raise economic competitiveness in the long term; promoting the reasonable allocation and efficient use of resources to enhance the competitiveness of Vietnamese products and enterprises in domestic and foreign markets. In addition, international economic integration has created a mix of interests for Vietnam and other countries and partners, thus producing positive impacts on national defense, social security, culture, education, environment, politics and institutional perfection; facilitating rapid export growth, linking exports with imports of raw materials, machinery and technologies for domestic production development.

Nevertheless, international economic integration also poses challenges for Vietnam's economy in general and Vietnamese enterprises in particular. First of all, integration triggers pressure on market opening and strong competition for Vietnamese enterprises. Without good preparations, many manufacturing and service industries may face difficulties. Too sudden trade liberalization can lead to bankruptcy and unemployment from uncompetitive enterprises.

In order to take advantage of FTA incentives, Vietnamese businesses must meet requirements and high standards of goods quality, compliance pressures from regulatory provisions on hygiene, environment, labor, legality and technology.  This is both a good opportunity to improve capacity and a real challenge for Vietnamese businesses because most of them are small and medium in size, without sufficient technology, capital and production experience. On the other hand, FTAs pose challenges to law and policy adaptation. To fully implement its commitments, Vietnam will have to amend many legal provisions on trade, investment, bidding, intellectual property and labor.

Nguyen Thanh