1920 HK2 KTQT CLC ML59 60 – Nhom 7 PDF

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FOREIGN TRADE UNIVERSITYHO CHI MINH CITY CAMPUS-------***-------MID-TERM ASSIGNMENTInternational EconomicsLecturer: TRẦN NGUYÊN CHẤTVIETNAM’S ECONOMIC INTEGRATION:FUNDAMENTALS, FTAs AND ITS POTENTIALIMPACTS ON VIETNAM’S ECONOMYGroup 7:1. Trương Phương Thảo2. Võ Thị Thanh Thảo3. Nguyễn Bùi Linh Thi4....

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FOREIGN TRADE UNIVERSITY HO CHI MINH CITY CAMPUS -------***-------

MID-TERM ASSIGNMENT International Economics Lecturer: TRẦN NGUYÊN CHẤT

VIETNAM’S ECONOMIC INTEGRATION: FUNDAMENTALS, FTAs AND ITS POTENTIAL IMPACTS ON VIETNAM’S ECONOMY Group 7: 1.

Trương Phương Thảo

2.

Võ Thị Thanh Thảo

3.

Nguyễn Bùi Linh Thi

4.

Nguyễn Đặng Minh Thi

5.

Trần Minh Thi

List of group 7: No.

Student Name

Student ID

1

Trương Phương Thảo

1801015817

2

Võ Thị Thanh Thảo

1801015819

3

Nguyễn Bùi Linh Thi

1801015825

4

Nguyễn Đặng Minh Thi

1801015826

5

Trần Minh Thi

1801015828

2

Note

Table of content Introduction

5

Chapter 1: Overview of Fundamentals of Economic Integration 1.1. Definition 1.2. Levels of Economic Integration

6 6 7

Chapter 2: Fundamentals of Vietnam’s economic integration 2.1. Purposes in economic integration 2.2. Strategic orientations 2.3 Achievements Vietnam has obtained 2.3.1 Foreign affair 2.3.2. Economy 2.3.3 Institutional reforms 2.3.4 Limitations

8 8 10 12 12 13 15 16

Chapter 3: Free Trade Agreements 3.1. Overview of FTAs 3.1.1. Definition 3.1.2. FTAs’ main contents 3.2. Vietnam’s wide-ranging free trade agreement 3.2.1. Vietnam’s principles and directions in negotiating FTAs: 3.2.2. Vietnam’s participation in FTAs:

19 19 19 19 19 19 20

Chapter 4: An analysis on CPTPP 24 4.1. Overview 25 4.2. Predicted positive impacts of CPTPP on Vietnam’s economy at the time of its signing 27 4.3. Achievements after a year since CPTPP 28 4.4. Potential impacts of CPTPP on Vietnam in the future. 29 4.4.1. Opportunities 29 4.4.2. Challenges 31 4.5. Evaluation and implication from CPTP 32 4.5.1. Evaluation 32 4.5.2. Implications 33 Conclusion

34

3

4

Introduction 2020 is the year which highlights many significant milestones of Vietnam in the international integration process. Particularly, Vietnam officially becomes the President of ASEAN 2020 and a non-permanent member of the United Nations Security Council for 2020-2021. With dual roles, we have reinforced our position higher by not only being “a ruler” in leading and contributing to the mutual peace and prosperity of the world but also gaining more momentum to promote the mutual relationships with other countries. By that, our international integration in the whole picture will be strengthened more deeply and broadly, which can sustain the security and growth of the economy, society in the long-term. Over 30 years, Vietnamese international integration process has achieved both many successes and the limitations side by side. Our process focuses on three main parts: economy; politics, defense and security; culture-society, education, science-technology and others, with the core center in economy. In recent years, the trend of multi-level economic integration has become more popular and deeper, especially Foreign Trade Agreement (FTA). New situations in the world help found new-generation FTA to comply with the continuous changes of the global economy. Simultaneously, Asia-Pacific region plays the leading role of actively promoting and connecting the economies of other regions. Given that, new FTAs regarding the region are negotiated successfully, typically as a Comprehensive and Progressive Agreement for Trans - Pacific Partnership (CPTPP) and Regional Comprehensive Economic Partnership (RCEP). The participation of Vietnam in these two big FTAs is expected to contribute more huge potential benefits and new difficulties to overcome. Thus, this paper is created to define the importance and fundamentals of Vietnam’s economic integration in general and research on FTA in particular, then analyze the opportunities and challenges of CPTPP - the big FTA Vietnam just joined, finally finding some crucial implications. Hopefully, the paper can contribute to improve and encourage the development of Vietnam’s economic integration in the new context. The paper has five main parts: The overview of international economic integration 5

is discussed in the next part. Part II will identify the fundamentals of economic integration in Vietnam. The part III will consider FTAs, its main contents and Vietnam’s participation. The careful analysis on the case of CPTPP and some evaluations and implications on it are given in part IV. The final part concludes the paper with those implications. Chapter 1: Overview of Fundamentals of Economic Integration 1.1. Definition While Economic Integration is defined in various ways, the most fully and clearly understandable definitions that are widely accepted are listed below: -

Economic integration is defined as a process of removing restrictions on

payments, international trade and factor mobility. Economic integration thus leads to the uniting of two or more national economies in a regional trading arrangement. -

Economic integration is an agreement among countries in a geographic

region to cut back and ultimately eliminate tariff and non-tariff barriers to the free flow of products or services and factors of production among each other; any type of arrangement in which countries conform to coordinate their trade, fiscal, and/or monetary policies are referred to as economic integration. Therefore, the main objective of Economic Integration is to maximize welfare of every participant by increasing GDP through stimulating trading between countrymembers of economic unions. 1.2. Levels of Economic Integration Economic Integration is classified in five levels, each present in the global landscape. -

Free-trade area: This is the least restrictive and loosest level of integrating, in which members agree to remove all tariff and nontariff barriers among themselves, but are free to independently determine trade policies with nonmember nations. The main goal of free trade agreements is to develop comparative advantages and 6

economies of scale. -

Custom union: This type of integration involves the free-trade zone’s

characteristics. In addition, however, each member nation imposes same trade restrictions against nonparticipants. Custom unions are specifically helpful to level the competitive playground and address the problem of re-exports by using preferential tariffs in one country to enter another country. -

Common market: This level of economic integration is emphasized by three

characteristics: (1) the free movement of goods and services among member nations, (2) the initiation of common external trade restrictions against nonmembers, and (3) the free movement of factors of production across national boundaries within one economic bloc. -

Economic union (single market): All tariffs are eliminated for trade between

member countries in order to a uniform market. There are also free movements of labor, enabling workers in a member country to move and work in another member country. Monetary and fiscal policies between member countries are harmonized, which means a level of political integration. -

Political union: Represents the potentially most advanced form of

integration with a common government, in which the sovereignty of a member country is dramatically reduced. This level is only found within nation-states, such as federations where there is a central government and regions having a level of autonomy.

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Chapter 2: Fundamentals of Vietnam’s economic integration 2.1. Purposes in economic integration When regional economies agree on integration, trade barriers gradually fall and economic and political coordination significantly increases. The process of economic international integration; therefore, creates new opportunities and huge benefits for Vietnam. In other words, economic integration has played a key role in enhancing efficiency and promoting economic growth. “The purposes of economic integration are related to Vietnam's efforts to ensure trading rights, protect domestic production, especially the SOE sector, and create incentives for export promotion”, according to Vo Tri Thanh (2005). There are two main kinds of targets of economic integration: economic and political ones. Economic integration can bring various benefits to Vietnam, especially in terms of enhancing access to different markets and helping to stimulate the production of traditional products which Vietnam has comparative advantage. Besides, implementing the commitments of the WTO will also help Vietnam to improve its business environment in conformity with international best practices. Vietnam will use its participation in international trade agreements as a tool to ensure and advance national interest and security through increased economic power. In the short run, we can increase our share in the internal trade of grouping and terms of trade are getting better. 8

And it is possible, thanks to elimination of tariffs, para tariffs and extra tariffs barriers. In the longer run, we can observe profitable changes and maximization of profits in our economy as a member country of the integration grouping. Thanks to specialization of production and division of work, production and investments with relatively lower effectiveness will soon be eliminated in replacement of the most effective branches. Integration processes make it easier for countries, which take part in it, to access outside production factors, especially raw materials, labor sources and technical knowledge. Therefore, it enables a series of ready-made goods, increasing a production range at a lower cost. Also, the second group of targets - political ones - played an essential role in the integration. As for the political targets of economic integration, there are two main targets that a country wants to achieve, which are firstly to “strengthen their political position” and then “auction strength in relations with other countries, especially with highly developed ones”. Political cooperation with other countries can help Vietnam to improve international relationships because of stronger economic ties, which provide an incentive to resolve conflicts peacefully and lead to greater stability. For developing economies like Vietnam, joining an economic community helps us to reflect their growth as well as their current position both in economic and political aspects. “In the opinion of most policy makers, integration is the best chance for reform and innovation” said Doan Quang Huy (2013). Prime Minister Nguyen Tan Dung on January 7, 2016 approved the specific objectives through 2020, vision to 2030 of international economic integration that are “expand markets, take advantage of capital, technology, management knowledge; improve the competitiveness of the economy, businesses and products; foster the development of domestic industries, establish higher positions in the regional and international production and supply chain; actively make contributions to the process of transforming growth model and restructuring the economy; beef up industrialization and modernization, enhance internal strength, reduce dependence from the outside, and narrow development gap with ASEAN-6 countries. Regarding the degree of international 9

integration, strive to catch up with ASEAN-6 countries by 2020, ASEAN-4 countries by 2025, and to become one of the top ASEAN countries in such areas that Vietnam has strengths and have a catch-up strategy, including improvement of business environment, by 2030, etc. In the short run, successfully realize the socio-economic development targets that have been figured out.” 2.2. Strategic orientations The trade policy of Vietnam and its participation in various trade agreements can be viewed as the result of a deliberate and strategic choice of its domestic forces for national interest, increased prospective future economic wealth and power – and, therefore, more security. Firstly, Vietnam has prioritized international trade integration with its most significant trade partners outside the ASEAN region. For Vietnam, its own international trade integration is a more important objective than the shared ASEAN interest of establishing a fully functioning, globally integrated AEC. Vietnam has known that, in today’s world, ‘international’ goes side by side with ‘national’ or ‘domestic’, but that there is a fundamental difference between ‘international’ and ‘supranational’. Secondly, by the creative application of these two typical theories- trade creation and trade diversion, Vietnam is consciously pursuing a trade creation strategy whereby it actively seeks to participate in preferential free trade agreements with important economic markets outside the ASEAN region (mainly the EU and the USA) that could potentially have an important trade creation effect for the country. In this scenario, Vietnam has more opportunity to reduce customs tariffs both within the AEC and with the EU and the USA to attract exporting companies to produce in Vietnam, and from Vietnam export to trade partners outside ASEAN. In other words, Vietnam tends to create new trade flows and concentrates on ensuring its own economic security by making use of regional and international trade agreements. Thirdly, the rule-binding trade agreements assists a national domestic purpose of locking in domestic reforms. Domestic reforms, which are vital for the continued 10

economic growth of Vietnam in an increasingly globalized and interconnected world, but which are not easy to pass through and for which the Vietnamese political elite do not definitely have the courage to implement on their own. The rule-binding agreements with the EU and the TPP-11 countries that force Vietnam to reform serve this purpose better than the non-binding and voluntary of ASEAN. Through a careful selection of trade agreements, particularly Vietnam’s participation in the EU–Vietnam Free Trade Agreement (EVFTA), the Trans Pacific Partnership (TPP), the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP) (more commonly known as the TPP-11) and the ASEAN Economic Community (AEC), Vietnam aims to position itself in a strategically advantageous position in comparison with other economies of the AEC. “Within the AEC, Vietnam wants to capture some trade creation effects by orienting itself and attracting investors at the end of the production chain where added value is higher” (Sophie Deprez, 2018) [3]. Advantageous access to the EU and the USA, ASEAN’s main consumer markets, would permit Vietnam to export finished manufactured products at a lower cost than other countries in the AEC. Vietnam’s integration in international trade is mainly oriented by concerns for national interest and security through increased economic power. Through a vigilant selection of its participation in international trade, the political elite of Vietnam wants to ensure continued economic growth through preferential access to key markets. The political elite of Vietnam has a very strategic view on economic international integration and has identified trade and export-oriented growth as international policy preferences, thereby using trade integration as a strategic instrument to optimize their national priorities within the international trade system. In “Overall strategy for international integration through 2020, vision to 2030”, Prime Minister Nguyen Tan Dung also confirmed Vietnam’s orientation in economic integration is that “Until 2030, the degree of economic integration is equal to the average level of ASEAN-4 countries; international integration will be accelerated in parallel with the process of enhancing linkages among sectors and regions; focus on implementing 11

effectively inked agreements, especially the new-generation FTAs.” 2.3 Achievements Vietnam has obtained Vietnam has escaped its economic and political isolation, expanded its relations with other countries, including the superpowers and other major world politico-economic centers. Vietnam has successfully created and maintained an environment favorable for national construction and defense. Meanwhile, large investment sources from outside have been utilized and the socialist-oriented market economy has been refined. In the area of culture-society and education-training, the expanded cooperation has helped in hunger eradication, settlement of social security issues, poverty reduction, and improvement of people’s cultural and spiritual lives. Large cities and important economic centers have made significant leaps forward in integration and are providing strong growth momentum for the national economy. Vietnam’s position has been enhanced regionally and globally, creating a completely new image of the country as an active, responsible and economically successful partner in international integration. 2.3.1 Foreign affair Firstly, in 1995, Vietnam became a member of ASEAN and successfully joined the ASEAN Free Trade Area one year later. Over the past two decades, 2016, Viet Nam was also a signatory to a wide range of FTAs under the ASEAN-plus framework, remarkably participating in ASEAN’s Economic Community and Socio-Cultural Community. Vietnam has highly been appreciated by the international community in terms of making efforts in the negotiation of the Regional Comprehensive Economic Partnership among ASEANs. Secondly, Vietnam–United States Bilateral Trade Agreement in 2000 was considered as the solid stepping stone which mapped out a strategy for Vietnam joining the global playing field, particularly setting Vietnam a path to participate more deeply in regional (FTA-based) integration and WTO areas. Former U.S Ambassador to Vietnam, Peterson, has argued “the Agreement will yield significant economic benefits to both nations”. After an arduous and long process of negotiation, Vietnam officially became one 12

of the members of WTO in January 2007. Vietnam Chamber of Commerce and Industry Chairman, Vu Tien Loc emphasized that WTO membership has changed Vietnam’s legal framework, economic, trade and investment policies, as well as its economic management manner. Therefore, the accession to WTO is supposed to speed up trade liberalization and improve market access for the new member country’s exports, which should result in increased trade (Cling et al. 2009). 2.3.2. Economy International integration has brought many benefits to Vietnam in terms of economic performance. Its trade with ASEAN has increased significantly, with average growth of 13.0% per annum for imports and 16.8% per annum for exports (Figure 1). The declining share of ASEAN in Viet Nam’s trade strongly reflects Viet Nam’s faster expansion of trade with its non-ASEAN partners, such as the United States, China, and Japan and the European Union. Figure 1. Vietnam’s Trade with ASEAN, 1995–2014

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(a) Exports to ASEAN

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(b) Imports from ASEAN As trade expansion, Vietnamese businesses can more deeply participate in the regional supply chain. ASEAN’s share in Viet Nam’s value added from exports has been rather stable (Figure 2). East Asia’s share has tended to increase, reflecting the outcome of Vietnam’s integration efforts with East Asian countries, which have induced more imports of intermediate products from those countries. The expanded share of East Asia in Vietnam’s exports has also been induced by integration efforts under ASEAN framework with these partners, namely through FTAs with Korea, Japan and China.

Figure 2. Share of Value Added in Viet Nam’s Gross Exports by Country, 1995–2011 (%)

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In addition, foreign direct investment (FDI) has increased remarkably and has made important contributions to gross domestic product, exports, and job and income creation. Total registered capital decreased ...