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14 Nov 2006

International Economy

APEC & WTO: Boon to Vietnamese Economy in 2007, Emerging Star of Asia (Current Issue No.1917)


Vietnam has formulated strategies for integrating itself into the world community through Regional Trading Arrangements (RTA) that include memberships in the Asia-Pacific Economic Cooperation (APEC) and Association of Southeast Asian Nations (ASEAN). At the global level, Vietnam has also recently been accepted by World Trade Organization (WTO) to be a WTO member. Bilaterally, the country is scheduled to start negotiating on an FTA agreement with Japan in 2007.

In 2006, Vietnam will exhibit its potential and preparedness by hosting an APEC summit of 21 nations[1] slated for November 18-19, 2006, in Hanoi. Along with this, the APEC CEO Summit will also be hosted by Vietnam. Thailand's Prime Minister Gen. Surayud Chulanont is scheduled to attend the upcoming APEC Summit and to deliver the keynote address to the APEC CEO Summit on November 17, 2006. He will take that opportunity to showcase Thailand's economic policy platform that is concentrating on the philosophy of a ;Sufficiency Economy”.

APEC is regarded as a key economic forum given the number of member economies that account for 57 percent of all the world's countries. Moreover, the international trade value of APEC that makes up around 45 percent of the world's trade will be the key driving force behind the WTO Doha Development Agenda (DDA) negotiations– currently the most comprehensive trade liberalization framework on the globe. If the WTO DDA negotiations are successful, 150 member countries will be committed to opening their markets. Meanwhile, APEC is implementing to liberalize of trade and investment, plus facilitate and reduce trade-related costs by 5 percent by 2010 which will help broaden regional trade and investment. In light of this, APEC member business sectors stand to benefit, particularly small-to-medium-sized enterprises (SMEs) that will see their international trade-related costs drop.

Vietnam had been accepted by WTO to be a WTO member on November 7, 2006. It is projected that the official start of Vietnam's WTO membership in January 2007 will create opportunities for Vietnamese exports to expand further into the markets of other WTO member countries due to eligibility for tariff reductions. Key exports of Vietnam that have a bright outlook include garments/textiles, shoes, fishery products, wood and wooden products, computers, electronic machinery and parts. Moreover, Vietnam's liberalization of its service and investment sectors is projected to draw more FDI into the country, creating more employment and lifting the income of the Vietnamese people.

However, the cost of becoming a WTO member is that Vietnam will have to liberalize its domestic market to goods, services and investments to all WTO member countries, resulting in Vietnamese entrepreneurs and their business sector having to adjust and prepare themselves to compete with imports that will pour into the Vietnamese market following Vietnam's tariff reductions that will enable imported goods with lower prices to compete in Vietnam, as well as heighten the competition between Vietnam's business sector and foreign 's service businesses that will be set up in Vietnam more broadly.

The Vietnamese authorities still need to improve upon the competitiveness of Vietnam's business sector by expediting the drafting and implementation of rules and regulations to create fairer competition in a favorable investment climate, i.e., promoting competition between state enterprises and the private sector. At present, Vietnam has more than 5,000 state enterprises operating a variety of service businesses, e.g., in the financial sector, telecommunications, transportation, energy and other industries, but they still lack the motivation to compete and do not yield very high operational efficiency.

Moreover, Vietnam's obligation to follow their agreement with the WTO in terms of protection for intellectual property, the environment and labor has resulted in Vietnam having to bear higher operational costs as they will have to comply with these higher standards. The Vietnamese authorities should provide a greater knowledge and understanding to the business sector and urge them to adjust and prepare to cope with stricter regulations on business operations. Otherwise, they may face problems with NTBs (non-tariff barriers) imposed by developed countries like the US and the EU who proverbially stress protection for intellectual property, the environment and labor in connection with trade. If they fail to comply, Vietnam's exports shipped to these countries may face trade barriers, themselves.

[1] Includes Thailand, the US, Australia, Brunei, Canada, Chile, China, Hong Kong, Indonesia, Japan, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, South Korea, the Philippines, Russia, Singapore, Taiwan and Vietnam

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