EU offers Vietnam a TPP alternative
While Vietnam was poised to be TPP's biggest winner, a European Union free trade pact will lessen the blow and keep liberalizing reforms on track
When US President Donald Trump last month pulled America from the Trans-Pacific Partnership multilateral trade pact, a deal that promised to open vast new market opportunities for Vietnam, the potential losses to Hanoi were not limited to faster trade, investment and economic growth.
Many wondered if the US’ abandonment of TPP meant Vietnam would reciprocally drop the various liberalizing reform commitments required of the deal’s signatories, including stronger environmental protection, higher health standards, and greater labor rights.
Enter the European Union. With the US’ withdrawal from TPP, Vietnamese businesses are now looking towards the EU-Vietnam Free Trade Agreement, scheduled to come into effect in 2018, to expand their markets and profits. The deal, notched over two and a half years of strenuous negotiations, aims to serve as a model for Europe’s future economic engagement with the Association of Southeast Asian Nations (ASEAN).
For the EU, the pact strives to showcase trade based on social responsibility and high production standards. That’s increasingly important in an era where cheap imports from developing nations risk amplifying the anti-globalization ire that threatens to spread in Europe after the United Kingdom’s vote last year to leave the EU and the rise of Donald Trump’s protectionist populism.
For Vietnam, it is important to win benefits abroad from trade pacts that will make reform at home, including related to rights and association, easier to push among conservatives in the one-party state. EVFTA, for instance, requires fair competition for government contracts, meaning no favoritism towards state-owned or other government-aligned local companies.
The European Trade Policy and Investment Support Project in Hanoi estimates EVFTA will boost Vietnam’s exports to the EU by around 50% by the year 2020. It also estimates total “gains in welfare” for Vietnam to rise from US$2.2 billion in 2020 to US$4.1 billion in 2025. EU imports to Vietnam are expected to rise some 43% by 2020, according to the project’s projections.
“Of course, the bilateral agreement includes some difficult issues for Vietnam,” said Nguyen Duc Thang, deputy general director of the Ministry of Foreign Affairs’ ASEAN desk. “Maybe 10 years ago Vietnam was quite reluctant to touch on [state procurement and good governance] issues. But I don’t see problems for us [now]. We committed ourselves for new reforms.”
Outgoing US President Barack Obama and other top TPP proponents often portrayed the dozen-nation pact, projected to account for 40% of global GDP and roughly 30% of world trade, as the “next generation” of trade deals because it went beyond tariff reductions. Similar sweeping language could be heard here on Thursday at a conference entitled: “EVFTA: A Game Changer for Vietnam in ASEAN?” organized by the European Chamber of Commerce.
EVFTA’s supporters hope that its high environmental and social regulations will fend off the kind of criticism that plagued the North American Free Trade Agreement, or NAFTA, namely that it was a boon to US corporations at the expense of US workers. The EVFTA’s sustainable development chapter, for example, obligates Vietnam to recognize freedom of association, which should open the way for the formation of independent labor unions beyond the single national union now controlled by the ruling Communist Party.
When TPP optimism was still running high, Vietnamese officials often talked of the preparations for the pact moving in tandem with requirements for EVFTA. Officials were busily changing various laws to accommodate both deals in regard to intellectual property protection, corporate disputes, and rules of origin for exported goods. Vietnam was poised to be TPP’s biggest winner, with GDP and trade projected to grow 11% and 28% respectively over the deal’s first decade.
Some in Vietnam believe TPP could yet survive. Chile, one of the dozen Pacific signatories, will host a TPP discussion in March with the 11 remaining nations, a sign the agreement could yet move forward without the US. Vietnam has not committed to participate but others like Singapore and Canada have confirmed their attendance. Non-TPP countries China, South Korea and Colombia have also been invited to attend the talks. (China was notably excluded from TPP when the US was spearheading the deal.)
Under EVFTA, Vietnam will aim to ramp up its exports of food, shoes and clothes, while EU countries will look to ship more vehicles, drugs and machinery. Both sides see the deal as an inclusive trade antidote to critics who condemn globalization and transnational capitalism as only beneficial to profit-maximizing corporations and not as a means to uplift living standards and tackle poverty.
Just this week street protests greeted the European Parliament’s approval of a hard-fought trade pact with Canada. As for Southeast Asia, no other government has reached the stage of signing an EU trade agreement except for Singapore, even though Europe is by far the biggest investor in the region. The EU is currently Vietnam’s second largest trade market, representing 19% of Vietnam’s total exports in 2015, trailing only the United States at 21%.
Chris Humphrey, executive director of the EU-ASEAN Business Council, urged Vietnam to prod its ASEAN neighbors to negotiate similar trade-expanding bilateral pacts with the EU. The EU gave up on notching a multilateral regional trade deal in 2009 due to snagged negotiations, opting instead since to pursue bilateral pacts with individual ASEAN nations.
Thang wants Vietnam to serve as a regional free trade leader, even though rising intra-regional protectionism has so far stymied the ASEAN Economic Community’s promise of free flowing labor and goods. “[EVFTA] is one way Vietnam will contribute substantively to the ASEAN Economic Community,” Thang said. “Of course now it will be a pushing factor for other ASEAN states to follow suit, for sure.”