June 20, 2015
– Vietnam is at the threshold of a series of new-generation free trade agreements (FTAs) that promise once-in-a-life-time chances for her economy. However, while swinging the door open to new markets, these FTAs would further narrow down the leeway within which the Government can take actions to carry out policies supporting local industries. The narrower the leeway becomes, the more sophisticated the policies must be.
Integration topics are heating up economic forums in Vietnam. May began with the signing of two FTAs, one with South Korea and the other with the Eurasian Economic Union. On the timetable were also intense talks over the Trans-Pacific Partnership Agreement (TPP) aimed for conclusion in the near future. June is expected to be the final days of negotiations over the FTA with the European Union, at least according to the statement of the European partner. Vietnam is about to implement the most significant FTAs she has ever signed.
It is undeniable that market opening, integration and trade liberalization have great significance to the economy, to the improvement of business efficiency for hundreds of thousands of enterprises, and to the increase in income for tens of millions of workers after two decades of integration. Perhaps, no one could doubt the enormous, potential benefits of those FTAs inked with key trade partners, both on national and global scales.
However, every medal has two sides, and on the other side of the FTA medal, there is a story rarely told, although it is no less important. That is, the range within which state policies could be formulated to support domestic firms will become limited corresponding to each FTA commitment. Vietnam’s ability to facilitate the development of domestic industries will subsequently be undermined considerably.
An old story?
Perhaps, many people would opine that it is not the right time to talk about protection. In reality, things are not what they seem to be.
Free trade, with no barriers so that goods, services, labor and investment can flow smoothly from one nation to another, is a big dream of the global economy.
Nevertheless, the sober should be fully aware this dream remains Utopian. FTAs may eliminate one more trade barrier after another. The business environment around the world may become more convenient, friendlier, more unfiled and less obstructive. Still, there will never be a harmonious would where there are no longer trade barriers, or where all countries share the same system of business game rules.
The truth of the matter is national interest is always the top priority in all stratagems and commitments. No government is willing to treat local and foreign businesses in a completely equal manner, or to abolish all preferential measures and supports for their businesses.
Consequently, no matter how free trade becomes, the support for domestic industries, especially the key and sensitive ones, is never an outdated story.
Rich as Japan is, her agriculture remains heavily protected. The local footwear industry is still explicitly protected with tariffs although the U.S. is the world’s number-one economic powerhouse. Even the OECD countries still use all kinds of sophisticated schemes to restrict imports. Then, the argument that Vietnam should be hesitant to bring up measures to support domestic enterprises may sound absurd.
Room left for policies on supporting domestic firms
A review of the commitments Vietnam has made, including the World Trade Organization and eight FTAs currently in force, shows that the range within which the country can support and protect local businesses has further restricted substantially.
There is almost no room left to protect local production by tariff or non-tariff measures, except for a number of sensitive products. Nor is there freedom to give domestic investors more incentives than foreign investors. What’s more, Vietnam can no longer offer credit packages to those industries she want to assist. Nor can she prioritize local companies in the bids for procurement in State budget, or freely apply labor and environment standards in conformity with the capabilities of local firms.
However, compared with the restricted leeway, the free space remains vast. Vietnam may set up technical barriers to trade (TBT) and sanitary and phytosanitary (SPS) standards to protect her quality products and her safe farm produce. She may also use anti-dumping, anti-subsidy and self-protection tools against unfair competition or massive import of foreign goods, which pose threats to domestic producers.
Vietnam can even provide financial subsidies to enterprises in a certain industries as long as they are not export subsidies or aimed at prioritizing the consumption of locally-made goods. She can even adopt preferential financial measures which are not aimed at any particular sector, or provide credit supports for agricultural production. Moreover, there is a lot of space where Vietnam has not made any commitment. Trade is limitless, and what has been pledged so far only concerns goods, services, intellectual property and investment.
Remarkably, the common measures for supporting all businesses but especially meaningful to ailing domestic firms – such as assistance in labor training, research and development, infrastructure construction inside and outside the barriers – are still out there. Likewise, there should be measures for improving the investment and business environment so that state management is not an obstacle to creativity and business.
The room left for polices, therefore, is still very wide. The point is whether Vietnam can utilize it to take off.
(The Sun Daily)