May 31, 2014
Free trade agreements may offer a solution to Vietnam’s trade deficit with China in the current context.
In recent weeks, China’s decision to install an oilrig, protected by various escort ships and planes, in Vietnam’s exclusive economic zone has sparked public outrage in the latter. The conflict has escalated as China becomes increasingly aggressive. Some even worry about the possibility of China retaliating on the economic front.
In this context, few have paid attention to recent Trans-Pacific Partnership (TPP) negotiations and meetings in HCMC and Singapore. It seems that the issues discussed in HCMC were scarcely new and revolved chiefly around protracted debates on market liberalization, intellectual property protection, environment, investment, State-owned enterprises and so on. Meanwhile, the conference in Singapore managed to achieve only some progress regarding taxation and market access. However, the agreement is not entirely satisfactory, according to Malaysia’s Minister of International Trade and Industry Mustapa Mohamed.
Vietnamese concerned about TPP are hardly surprised at this limited pace of progress. However, disappointment is still inevitable because, given the raging dispute in the East Sea, Vietnam needs to turn to TPP, as well as free trade agreements with the European Union, Russia-Belarus-Kazakhstan and the like, more than ever to scale down its economic dependence on China. Such free trade agreements are also beneficial for Vietnam’s long-term prospects.
The key to diverse supplies
By virtue of tax incentives, free trade agreements allow Vietnam to diversify her supplies of both inputs and outputs. Machinery, materials and consumer goods, especially those from technologically advanced economies renowned for high-quality products, can be imported into Vietnam at more affordable prices. The service sector – for example, construction and finance – will enjoy more dynamic, equitable and transparent competition among providers, which are likely to offer better fees, too. This will pave the way for Vietnam to address its trade deficit with China, which has relied on its low costs to gain an edge over other suppliers which may have better products and more eco-friendly technologies.
Considering that seven out of the eight free trade agreements Vietnam has signed involve countries in Asia and Oceania, Vietnam could have found replacements for Chinese suppliers more effectively. However, consumer decisions are still influenced to a large extend by prices. Chinese contractors and workers continue to dominate. In the end, Vietnam’s efforts to achieve trade surpluses with various economies have been neutralized by the trade deficit with China. Such reliance is hard to eradicate.
For upcoming free trade agreements, Vietnam once again stands a good chance to gaining access to more reasonably priced and better supply from knowledged0based and green economies.
A feasible solution for export conundrum
Official statistics show that China makes up about 10% of Vietnam’s export turnover and is not the biggest market for Vietnamese outbound shipments. However, as the biggest importer of Vietnam’s fruits and vegetables, China can exert its influence directly on countless Vietnamese farmers.
Vietnam sells agro-products to China not because the latter offers attractive prices. Problems abound with regard to export to China: tardy payments, failure to comply with business contracts and so on are rampant. However, Vietnam has no choice since many of its products cannot meet the stringent demands of such market as the EU and the U.S.
The use of free trade agreements to diversify export markets for Vietnam’s products, especially those of the agricultural sector, is vital. Vietnam pins its hope not only on benefiting from tax incentives but also on enhancing its ability to deal with technical barriers.
The intricate links of global trade
As policymakers ponder ways of helping Vietnam avoid “putting all the eggs in one basket,” the fact remains that when it comes to global trade, economies worldwide are interconnected. Vietnam and China are no exception.
While free trade agreements and many other measures may help Vietnam become less reliant on China, it should be acknowledged that some connections between the two economies remain unavoidable. It is import to maintain stable trade links between Vietnam and China for their long-term benefits. Attempts to damage trade links between Vietnam and China are inadvisable and deleterious to the long-term interest of enterprises, as well as the entire economy.
(By Trang Nguyen)