Vietnam and the Trans-Pacific Partnership (TPP) Michael A. Trueblood Director, Economic Growth and Governance Office Presentation for the Mansfield Foundation Workshop Hanoi, Vietnam June 10, 2016
Presentation Outline Overview of the TPP Agreement Potential economic impacts of the TPP on Vietnam Features of the TPP Agreement USG programming to address TPP challenges
Overview of the Trans-Pacific Partnership
What is the Trans-Pacific Partnership? The TPP is a free trade agreement (FTA) between 12 Pacific rim countries, which account for nearly 40 percent of global GDP Considered most comprehensive FTA in modern history It will have a two year ratification period and five year phase in period The signing ceremony took place in New Zealand on 4 February 2016, starting the two year ratification period It should enter fully into force around 2023 if ratified
What are Strategic Reasons for TPP? For the United States, its foreign policy in recent years is emphasizing a strategic pivot toward Asia For Vietnam and other countries, FTAs provide an opportunity to address difficult reforms For the multilateral trading system, the Doha Round trade negotiations are stalled Arguably too unwieldy with so many countries now So many interests make it difficult to find common ground TPP with its new features may be a way to stitch together strong regional FTAs
How TPP is Comprehensive One of the largest FTAs in world (~40 percent world GDP) Very large number of tariff lines (market access) 18,000 Covers several trade issues simultaneously Traditional areas - market access, rules of origin, customs, etc Strictest labor agreement to date Wide ranging environment chapter Intellectual property rights agreement most comprehensive to date Addresses state-owned enterprises Breaks new grounds in areas like development, SMEs
Potential Economic Impacts of the TPP on Vietnam
Billion dollars Vietnam s Main Export Destinations, 2014 140 120 100 80 60 40 USA EU Malaysia S. Korea China Japan 20 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Others Japan China S. Korea Malaysia EU USA Rest of world Source: UNITC Interactive Tariff and Trade DataWeb database
Vietnam s Main Product Exports, 2014 Leather products 2% Fruits and nuts 1% Wood products 2% Plastics 2% Coffee and tea 3% Fish products 3% Cereals 1% Rubber 2% Other 14% Electronics 28% Furniture 4% Fuels and oil 6% Apparel 14% Footwear 9% Source: UNITC Interactive Tariff and Trade DataWeb database Machinery 9%
Modeling Projections to 2030 GNP growth (percent) Exports (percent) Country PIIE World Bank PIIE World Bank Australia 0.6 0.8 4.9 5.0 Brunei 5.9 4.4 9.0 7.0 Canada 1.3 1.6 7.0 6.0 Chile 0.9 1.3 5.3 5.0 Japan 2.5 2.7 23.2 23.0 Malaysia 7.6 7.7 20.1 19.0 Mexico 1.0 1.8 4.7 3.0 New Zealand 2.2 2.9 10.2 12.0 Peru 2.6 2.3 10.3 9.0 Singapore 3.9 2.8 7.5 6.0 United States 0.5 0.4 9.1 8.0 Vietnam 8.1 9.8 30.1 30.0 PIIE Petersen Institute for International Economics
Foreign Direct Investment Should Increase Based On Other Experience FDI avg. growth rate FDI avg. growth rate five years before five years after FTA Year signed (Percent) (Percent) NAFTA 1994-0.7 11.0 CAFTA - DR 2004-8.9 13.5 ASEAN - India 2003-2.6 12.3 ASEAN - Korea 2006 3.8 7.5 ASEAN - Japan 2008 12.0-3.2 Source: World Bank, World Development Indicators 2016, author calculations
Key Provisions of the TPP
The TPP 30 Chapters Initial Provisions Market Access Rules of Origin Textiles and Apparel Customs Administration Trade Remedies Sanitary and Phytosanitary Technical Barriers to Trade Investment Trade in Services Financial Services Temporary Entry for Business Persons Telecommunications Electronic Commerce Government Procurement Competition State-Owned Enterprises Intellectual Property Labor Environment Cooperation and Capacity Building Competitiveness and Business Facilitation Development Small and Medium-Sized Enterprises Regulatory Coherence Transparency and Anti-Corruption Administrative and Institutional Provisions Dispute Settlement Exceptions Final Provisions
Market Access: Examples of Tariffs to Zero* US Imports from VN Current HS8 Code Description 2014 (1,000 Dollars) tariff rate (tax) 61102020 Sweaters, pullovers and similar articles, knitted or crocheted, of cotton, nesoi 1,109,500 17% 61103030 Sweaters, pullovers and similar articles, knitted or crocheted, of manmade fibers, nesoi 698,048 32% 62046240 Women's or girls' trousers, breeches and shorts, not knitted or crocheted, of cotton, nesoi 505,209 17% 64029990 Footwear w/outer soles & uppers of rubber or plastics, nesoi, n/cov. ankle, nesoi, valued over $12/pair 488,026 20% 64039990 64041190 Footwear w/outer soles of rubber/plastics/comp. leather & uppers of leather, n/cov. ankle, for women/child./infants, val. over $2.50/pair 406,868 10% Sports & athletic footwear w/outer soles of rubber/plastics & uppers of textile, valued o/$12/pair 390,623 20% 62034240 61046220 42029230 Men's or boys' trousers and shorts, not bibs, not knitted or crocheted, of cotton, not containing 15% or more by weight of down, etc 350,680 17% Women's or girls' trousers, breeches and shorts, knitted or crocheted, of cotton 319,987 15% Travel, sports and similar bags with outer surface of textile materials other than of vegetable fibers 247,676 18% * TPP countries agree to zero out trade tariffs on over 18,000 tariff lines Source: USITC, author calculations
Provision include: Labor Chapter Adopting and maintaining fundamental labor laws (per ILO) Freedom of association and the right to collective bargaining Elimination of forced labor Abolition of child labor Elimination of discrimination Requiring laws on minimum wages, acceptable hours of work, and occupational safety and health.
Labor Side Agreement: U.S.-Vietnam Provision include: VN shall permit workers to form grassroots unions VN will not require unions to operate by the VGCL Statute VN grassroots unions shall not have political obligations No VN law shall undermine collective bargaining, right to organize VN laws shall prohibit discrimination, permit the right to strike VN will increase number of MOLISA inspectors from 500 to 1200 VN will develop, implement strategy to combat forced / child labor VN will update publicly every 6 months all union registrations VN, US will establish POCs, committees to review progress VN, US agree to secure technical assistance to address labor
Provisions include: Environment Chapter Cooperation on Ozone Shipping pollution Conservation and biodiversity Invasive species (along with SPS) Transition to low emissions and resilient economy Fisheries regulation Illegal wildlife trafficking and logging Encourages publication of laws, corporate social responsibility, and recognizes voluntary mechanisms Establishes consultative processes, POCs, dispute resolution
Customs Chapter Provisions include: Publicizing tariffs, laws, and regulations Developing transparent and reasonable inspection procedures Implementing advance ruling procedures (tariffs, valuation processing, rules of origin) Using automated e-systems Developing express shipment procedures Releasing products within 48 hours under normal conditions Striving to meet World Customs Organization standards Developing risk management systems
State-Owned Enterprises Chapter Provisions include: SOEs shall not receive favorable treatment SOEs shall not offer preferential treatment to other enterprises SOEs shall not display anti-competitive behavior SOEs shall not offer non-commercial assistance to another enterprise that harms another Party Requires Parties to list all SOEs publicly and respond to information requests from other Parties upon request Excludes SOEs that have been foreclosed or carry defaulted debts
Technical Barriers to Trade Chapter Provisions include: Reducing discriminatory trade barriers, promotes transparency Respecting and building on international standards and agreements, such as WTO TBT standards Harmonizing standards and reducing the need for exporters to have products tested twice (exporters and importers) Achieved by equivalency of standards, mutual recognition of conformity assessment reports and designation of conformity assessment bodies Special annexes cover wine and spirits, ICT, pharmaceutical products, cosmetics, medical devices, proprietary formulas for prepackaged food and food additives, organic foods
Sanitary and Phyto-Sanitary Chapter Provisions include: Establishment of a consultative committee Agreement to base SPS decisions on science-based evidence Agreement to use risk-based assessments Commitment to make SPS decisions in transparent manner Procedures among Parties to challenge decisions and request full justifications for selected decisions Parties may audit other Parties institutional capacity Permits emergency measures in threatening situations Exporters must notify importers of impending threats Encourages technical cooperation to strengthen capacity
Small and Medium Enterprises Chapter Provisions include: Each Party shall establish websites targeting SMEs: Text of the TPP agreement General information and provisions relevant to SMEs Provide links to other SME web sites Each Party is encouraged to provide additional information: Customs Intellectual property rights Sanitary and phyto-sanitary issues Foreign regulations Taxes and business registration procedures Encourages committees to oversee progress in these areas
Development Chapter Provisions include: Recognizes importance of broad-based economic growth Recognizes importance of economic opportunities for women Recognizes importance for the role of science, technology, education, and math for the economy Encourages endeavors to jointly address these issues Encourages committees to review progress in these areas
Final Provisions Chapter Provisions include: Agreement enters into force 60 days after all Parties notify the Depositary of completion of legal applicable legal procedures Alternatively, the agreement enters into force if least six countries comprising 85 percent of TPP GDP (in 2013) ratify after two years of the signing ceremony (by February 2018) An original signatory country may petition to join TPP if it completes its legal procedures after TPP enters into force A TPP Commission would determine if the signatory is eligible A Party may withdraw from the TPP with six months written notice.
Main TPP Challenges for Vietnam Addressing changes in laws and regulations Training Establishing committees and points of contacts Raising public awareness Engaging private sector, preparing for start of TPP
U.S. Government Assistance Programs Related to the TPP
USG Assistance for TPP in Vietnam Chapters USAID - EG2 USAID - ESDO USDA USDOL 2 Market Access ** 3 Rules of Origin *** 4 Textiles and Apparel ** 5 Customs Administration *** 7 Sanitary and Phytosanitary o 8 Technical Barriers to Trade * 9 Investment * 11 Financial Services * 14 Electronic Commerce * 15 Government Procurement ** 16 Competition Policy * 18 Intellectual Property o 19 Labor o *** 20 Environment *** 21 Cooperation and Capacity Building *** 22 Competitiveness and Business Facilitation *** 24 Small and Medium-Sized Enterprises o 25 Regulatory Coherence ** 26 Transparance and Anti-Corruption * * Small program ** Medium program *** Large program o New proposed program
GIG Program on Trade and Governance Governance for Inclusive Governance (GIG) project The goal of the GIG Program is to strengthen the cooperation with the public and private sectors in Vietnam to enhance areas of governance expected to facilitate broader-based growth, with an emphasis on the legal framework and systems for accountability Main components: Promotes economic growth and trade with clear and transparent legal and regulatory framework Strengthens government oversight processes Improves inclusion, expands opportunities for vulnerable populations Implementing Partner: Chemonics, 2013-2018
Examples of GIG s Activities on the TPP TPP Chapter Comment 2 Trade in goods Business environment, Resolution 19, Provincial Competitive Index (PCI) 3 Textiles and apparel Min. of Industry and Trade (MOIT), Min. of Finance (MOF) (Customs) 4 Rules of origin MOF (Customs) 5 Customs administration MOF (Customs) 7 Technical Barriers to Trade (TBT) Min. of Science and Technology (MOST) 15 Government procurement Min. of Planning and Investment (MPI) 19 Labor Awaiting PMU approval to work with Min. Labor, Invalids, and Social Affairs (MOLISA); labor standards; industrial relations standards 21 Cooperation and capacity building Covered in other activities (MOIT, MPI, MOF, Min. of Justice (MOJ), National Assembly, and State Audit of Vietnam) 22 Competitiveness Resolution 19, also in PCI activity 24 SMEs MOF (Customs), MPI (Central Inst. Economic Management) 25 Regulatory coherence MOJ 26 Transparency State Audit of Vietnam, National Assembly 28 Dispute settlement MOJ, State / enterprise dispute settlement
Final Thought Ratification Next Steps TPP requires six countries with > 85% group GDP Effectively U.S., Japan, and at least 4 other countries by Feb 2018 Malaysia ratified already in January 2016 Vietnam expected sometime in 2016 United States voting probably in spring or after election Recent USITC study in May 2016 will be very important
Thank You!