Last updated: Thursday, May 16, 2013
5 Year WTO Membership: Opportunities Accompanied by ChallengesPosted: Tuesday, March 20, 2012
After 5 years joining the World Trade Organisation (WTO), Vietnam has gained remarkable achievements. Its gross domestic product (GDP) reached approximately US$120 billion in 2011, 2.3-times higher from 2006 with US$53 billion. GDP per capita was US$1,300, twice as much as in 2006 (US$640). Vietnam escaped from the status of least developed country (LDC) and stepped into the group of lower middle income country. However, there are still many difficulties ahead.
Growth in trade and investment
According a report released at a review conference on Vietnam’s five-year entry to the WTO held in Hanoi by the Vietnam Chamber of Commerce and Industry (VCCI), exports climbed from US$48.56 billion in 2007 to US$96.3 billion in 2011, a more than double growth..
Between 2007 and 2011, the business community increased 2.3 times in number and 7.3 times in value of capital from five years earlier. As of August 23, 2011, Vietnam had 602,171 enterprises registered to operate under the Law on Enterprises.
More Vietnamese companies have gradually established their footing on regional and international markets. Annualised export growth was19.25 percent on average in the 2007 - 2011 period, higher than the growth of 18.1 percent in the 5-year period from 2001 to 2005, the time before Vietnam joined the WTO. Export turnover per capita in 2010 was US$914.4, compared with US$559.2 in 2006.
In the past five years, the total value of disbursed FDI was US$45 billion, exceeding the plan by 77.8 percent. Total value of FDI capital amounted to US$146 billion, 7 times higher than in the 2001 - 2005 period.
According to experts, Vietnam has joined a large trade club but it has not actually prepared well enough to grasp opportunities.
Mr Tran Huu Huynh, Vice General Secretary and Head of Legal Department under the VCCI, said: After five years entering the WTO, Vietnam’s competition is confined to abundant natural resources, low-paid labour and low product prices. Vietnamese companies are thus using low prices to strengthen competitiveness and they usually face with antidumping lawsuits.
“When they are sued for antidumping, they have to spend money and time to follow the court. They will lose the chance of exploring and promoting trade to new market segments to increase revenue and profit. This not only affects their business or industry but also the whole economy,” said Mr Huynh.
Many economists pointed out that although the Vietnamese economy made long strides after five years entering the WTO but its enterprises have not asserted their brand names on the world market, renovated technologies and particularly boosted up financial strengths.
A majority of Vietnamese enterprises are importing raw materials for production and business operations. Many exports and fast-growing commodities (leather footwear, garments, textiles, foodstuffs, beverages, steel, nonferrous metals, plastics, electronics appliances, automobiles, motorcycles, etc) are made from imported materials and semi-finished products. Meanwhile, the growing prices of inputs on the global market have sent input costs to more than 60 percent of product prices.
Notably, most Vietnamese companies are using outdated technologies which are reportedly 2 - 3 generations older than the world average. Up to 76 percent of machines and technological lines produced were made from 1950s to 1960s; 75 percent of equipment has been fully depreciated; and 50 percent of equipment is refurbished. Vietnamese businesses invest very little for technological innovation, with about 0.2 percent - 0.3 percent of total revenues.
Dr Vo Tri Thanh, Deputy Director of the Central Institute for Economic Management (CIEM), said: Vietnam has three persistent weaknesses, namely transparency, accountability and enforceability. It needs to pay notice to step up institutional reform to integrate deeper into the world. Professor Claudio Dordi, team leader of the Multilateral Trade Assistance Project (MUTRAP III), said: According to ratings agencies, Vietnam’s institution is marked low and rated little improved. This institutional weakness fails to support the competitiveness of businesses in the process of international integration.
Former Industry and Trade Minister Truong Dinh Tuyen said it was time Vietnam changed from the governing state to the creating state. The State needs to focus on building institution, business environment to boost up national competitiveness.
Besides, the widening income gap, cultural and social fluxes are also emerging challenges. Economic expert Pham Chi Lan said the income gap is socially enlarging, regional gaps are widening. This is a worrying concern. The safeguarding and preservation of national culture are being threatened and challenged by global integration. She particularly warned that corruption and bureaucracy are somewhat becoming more severe.
Former Deputy Industry and Trade Minister Luong Van Tu said: Vietnam needs to improve the legal system and enterprises must adhere to WTO regulations and to have partners to stand firmly on the world market. Specifically, they must know to take advantage of their advantages to pass through difficulties and get more mature.
Ms Pham Chi Lan added that Vietnam necessarily resolves three bottlenecks in institution, human resource development and infrastructure to increase its internal competitiveness. This will be the lessons for next trade agreement negotiation like the Trans-Pacific [Strategic Economic] Partnership Agreement.
Dr Nguyen Minh Phong - Hanoi Institute for Socio-economic Research
The WTO accession has very positive impact on macroeconomic life and businesses. However, Vietnam has not prepared well enough to take up opportunities and resist negative impacts from this playing ground. Enterprises must comprehend this integration more thoroughly and accurately in order to plan development, opt out practical investment plans, avoid risks, diversify businesses, and delve into professional research. They also need to join hands with each other to create the voice of community and national interest.
Former Deputy Prime Minister Vu Khoan
At present, Vietnam does not have common criteria to gauge the degree of WTO integration. In assessing the degree of success of Vietnam, we should not be too eager because Vietnam lacks the foundation of an integrating economy. Therefore, to enhance its competitiveness, Vietnam needs to complete the legal system and mechanism, stabilise macroeconomic conditions, synchronise infrastructure systems, and build opening competitive environment.
Mr Bryan Fornari, Deputy Head of Cooperation and Development at the EU Delegation in Vietnam
Vietnam should continue negotiating terms in the WTO accession where maximum benefits of enterprises need to be taken into account. Besides, it is necessary to harmonise service and trade environments and open the door to the WTO but it must sort out existing weaknesses and balance legitimate benefits of businesses and consumers.
Vietnam also needs to cash in on WTO entry advantages to increase export opportunities thanks to non-discrimination and equal tariffs as other WTO members. WTO accession must help consumers to buy products of high quality and low price thanks to domestic market opening.