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The Trans-Pacific Strategic Economic Partnership and its impacts on Viet Nam
26/12/2014 21:21' Send Print
State President Truong Tan Sang attends the Summit Meeting of TPP. Photo: Vietnam News Agency

The Trans-Pacific Strategic Economic Partnership agreement: Formation and controversial issues

The Trans-Pacific Strategic Economic Partnership (TPP) agreement was initially reached in June 2005 among four countries of Brunei, Singapore, Chile and New Zealand. As at the beginning there were only four participating countries, it was called Pacific 4 (P4). One of the objectives of the agreement was to create a model agreement that could potentially attract Pacific countries’s participation. When the P4 negotiations completed, the four parties agreed to expand negotiations to financial services and investment. Since March 2008, the United States (US) started to participate in the expanded TPP and officially began full negotiations in September 2008 and Australia, Peru and Viet Nam followed suit. Malaysia joined the official TPP negotiations in October 2010. (1) Viet Nam was an observer of TPP negotiations since the first round and has become an official member since November 2010.

At the Summit of the Asia-Pacific Economic Cooperation (APEC) in Honolulu, Hawaii of the US in November 2011, the Leaders of nine TPP countries announced the objectives of the expanded TPP and TPP agreement to establish a new model of a comprehensive next-generation regional agreement in the 21st-century that liberalizes trade and investment and addresses new and traditional trade issues and challenges. In APEC 2013, the Leaders of TPP countries affirmed that TPP with a new standard for new trade principles is a model for future trade agreements and premises to achieve the building a free trade area in Asia-Pacific. (2)

By now, there are 12 TPP countries including New Zealand, Brunei Darussalam, Canada, Chile, the United States, Malaysia, Mexico, Japan, Australia, Peru, Singapore and Viet Nam. All of them are APEC member countries. Generally, the participation in high-quality free trade area will facilitate countries including developing countries to strengthen specialization and international division of labor, accelerate economic restructuring, improve business environment, attract investment from partners with source technologies, and enhance the competitiveness and benefit opportunities brought about by participating in free market for development.

As compared with the other free trade agreements (FTAs), TPP is a pioneering and comprehensive model in free trade area negotiations relating to traditional and new trade. TPP’s commitments are higher in level and more extensive than other FTAs. Several other non-economic aspects have been put to the negotiating table including free trade union; government procurement and environment, among others. This trade agreement covers fundamental areas from goods and service trade to new issues such as government procurement; competition policies and cooperation in environment and labor. Reduction of tariffs has always been an important issue in a FTA. Depending on trade partners, tariffs cut for “almost all trade” will be a focus of negotiations.

As far as traditional trade and non-traditional trade are concerned, in all rounds of negotiations, the most complicated issue of TPP is intellectual property, market access, state-owned enterprises and environment.

What is controversial in intellectual property is the duration for exclusive protection of data for bio-pharmaceutical products as well as common regulations on intellectual property in pharmacy. The controversial draft proposed by the US relates to innovation of pharmaceutical products, chemical products, data exclusiveness, geographical indications and copy right. (3) Proposals of the US relating to pharmaceutical and chemical products aim at prolonging protection duration of innovations so that pharmaceutical companies can be able to make up for the cost of research and gain more profit. Appropriate protection duration will balance interests of innovation owners and the public. However, if the protection duration is prolonged, the public will be subjected to longer period of prices which include industrial property right; in other words, spending on medical treatment will be higher in a longer period of time.

Besides, the higher the norms of copy right protection towards some literature, arts and sciences the fewer the opportunities to access human knowledge by the public and people especially low-income people will be subjected to copy right fees beyond their means in their enjoyment of literature, artistic and intellectual values.

Difference in terms of viewpoints reflects in regulations on state-owned enterprises relating to concepts and implementation of principles towards state-owned enterprises. In theory, the common principle of FTAs towards state-owned enterprises is there is no discrimination. Good Government management is to ensure state-owned businesses to abide by law, fight corruption and provide no preferential capital to state-owned enterprises. (4) Countries, particularly Malaysia objected to this recommendation. This principle should be negotiated concretely on the principle of no objection from member countries. In the TPP Ministerial Meeting in Singapore in February 2014, countries agreed to downsize the scale of principles toward state-owned businesses. TPP negotiating countries will not be restricted in supporting state-owned enterprises when they are providing services for domestic market. Principles on equal competition being negotiated by countries to be included in the Chapter State-owned enterprises of TPP, if any, will be applied for state-owned enterprises operating in the areas of commodity production and those providing services overseas.

The Trans-Pacific Strategic Economic Partnership aims to enhance other commitments binding partners on environment. In addition, TPP also makes obligatory regulations on wildlife protection. It stipulates that environmental disputes will be settled by a common mechanism to all different aspects.

Another difficulty is the US recommended the use of Investor-state dispute settlement (ISDS) in a large scale including on investment on financial services. This will put heavy responsibility on investment recipient countries in their relations with foreign investors. (5) This regulation can give rise to remarkable discrimination between domestic and foreign investors which favors foreign investors.

Labor is one of the issue in TPP which causes division of viewpoints of developing and developed countries. The US specially laid stress on and put out high demands on labor issues. (6) One of sensitive issues with different interpretations among TPP countries relates to freedom to associate (trade union), the right to intervene in use of child labor and the state’s intervention in settling labor disputes.

Impacts on Viet Nam when joining TPP

Out of 11 TPP partners, Viet Nam signed Free Trade Agreement with seven countries in the ASEAN framework and bilateral agreement (with Chile and Japan). Viet Nam and the US signed bilateral agreement. At present, Peru and Mexico have not yet had concrete commitment with Viet Nam. Canada is considering FTA negotiation in the ASEAN framework.

Participating in TPP can result in economic common growth of Viet Nam. Nevertheless, Viet Nam should study and consider carefully several issues to capitalize on opportunities and competitive advantage, strengthen specialization and benefit from labor division when joining free trade market to maximize national interest.

Given its development status lower than TPP partners, one of the challenges for Viet Nam is an increase in trade deficit and financial vulnerability. By joining TPP, Viet Nam can bring into play its areas of strength. However, it is not easy to capitalize on tariffs removal and export market expansion. To avoid being taken advantage of through re-export, TPP member countries use the Rules of Origin requiring minimum percentage of regional resource inputs and commodity added values. Commodities which fail to meet these requirements are not entitled to regulations of free trade area agreement.

Even with its textile and apparel industry - a sector of strength, Viet Nam has mainly imported material, thus can hardly meet the requirement on country of origin principle (e.g. the requirement of yarn-forward of TPP by which textile materials should originate from TPP member countries). This barrier is likely to nullify the opportunity to enjoy tariffs as stipulated by agreement signed by Viet Nam. That is why, Viet Nam, during the TPP negotiation, is forced to agree in principle to settle the issue of short supply of material while enhancing capacity to produce yarn, dying and textile. At present, Viet Nam’s key export products include textile and apparel, crude oil, aquatic products, footwear, timber and wood products. Particularly, textile and apparel are considered as key export commodity of Viet Nam to the American market. (7) With the country of origin principle, the US is firm in its requirement of yarn forward. This prevents Viet Nam from using yarns and material from non-TPP countries like China. Hence, the country of origin principle of Viet Nam’s export commodities is an important issue in TPP negotiation.

For domestic market, joining TPP will bring about opportunity for accessing diversified, competitive, high quality and low cost products from partner countries. As ad import products are concerned, commodities with high technical and technological content such as machinery, electric and electronic products and transport means account for highest ratio in the list of import commodity of Viet Nam from TPP countries while raw and initially processed commodities are of small ratio. Most of Viet Nam’s import products are for production such as machinery, transport vehicles, iron and steel, cotton, material, oil and petrol from TPP countries with higher competitive advantage than Viet Nam. (8) For other goods, Viet Nam’s enterprises will have to compete to maintain their domestic market shares once trade tariffs over foreign commodities and services are removed. This is extremely difficult when costs of some domestic goods are higher than those of imported ones and less competitive. Hence, the potential risk is that foreign goods will occupy domestic market. For example, the cost of animal feed production of Viet Nam is averagely 10% higher than that of imported product. (9) The implications are Viet Nam’s enterprises will be less competitive and lose its ground in domestic market; laborers also temporarily lose their jobs and other socio-economic problems will arise.

In the process of economic international integration, Viet Nam lacks labor with high qualification in almost all high-tech branches and sectors requiring professional skills. In general, while employments can increase, temporary labor redundancy in some branches and jobs is likely to happen. (10) Labor structure by region, area, branch, sector, sex, age, qualification and income also change. When integration is taking place and trade barrier is removed, unemployment will happen in a certain period of time. Competition will be fiercer for small- and medium-sized enterprises. So, Viet Nam should link negotiation and signing of free trade agreement with long-term socio-economic development strategy, economic restructuring and renewal of growth model.

In the field of high technologies, producers make origin design while production bidders capitalize on production scale, investment in research and development at all level of the supply chain. In production areas which require lower technologies such as footwear, it is necessary to renew styles and revolve short production cycle. Bidders who can save production time will have competitive advantage. (11) When joining free trade area, given its specialization and labor division, Viet Nam takes part in the lowest section of the supply chain. To gain maximal benefit, Viet Nam should engage in some highly-qualified production branches which were completely control of developed countries.

For intellectual property, if Viet Nam accepts the US’ requirements as mentioned above, it will run counter to the business community’s consultancies for the TPP negotiations which include ensuring interest of vulnerable groups (patients, farmers and laborers). (12)

In the field of labor, as far as rights of laborers or human rights are concerned, Viet Nam has joined international conventions on civil and political rights, and economic, social and cultural conventions as well as recognized rights of laborers in its Constitution and laws. Besides, Viet Nam has also committed to ensure rights of laborers within the framework of convention of the International Labor Organization (ILO) through corresponding implementing mechanisms. However, in face of the US’ requirements, if agreement and unanimity of viewpoints of developing and developed countries can not be reached, Viet Nam’s exportation will be blocked for not meeting TPP’s requirements on labor.

Beside challenges arising from TPP negotiations, one of “soft” restrictions comes from us. Lack of an information strategy as well as creation and search for exclusive methods and pathway in labor division, specialization and trade as well as other problems will put Vietnamese businesses in higher competitive risks when participating in the free trade area.

After the 19th round of official negotiations in Brunei in August 2013 and unofficial negotiations in Canada in July 2014, several meetings of different levels have been organized but there has been no big breakthrough in TPP negotiations. Remaining issues in TPP negotiations continue unsolved. TPP’s expected deadline of 2013 is delayed to 2014. This renders an opportunity for Viet Nam to reconsider its benefits and prepare for better competitive capacity before its market is open wider and deeper in different fields. If Viet Nam had to accept pre-imposed principles in negotiations for accession to the World Trade Organization, its early participation in TPP negotiations in the principle of equality and agreement has facilitated its proactiveness to achieve highest national interest.

Considering the history of negotiations and initial objectives of TPP, the number of 12 partners is likely to expand for the establishment of the Asia-Pacific free trade area, thus Viet Nam will have opportunities for testing its competitive capacity in the “playing field.”

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This article was published in Communist Review No 864 (October 2014)

(1) http://mfat.govt.nz/Trade-and-Economic-Relations/2-Trade-Relationships-and-Agreements/Trans-Pacific/index.php (Website of the Ministry of Foreign Affairs and Trade of New Zealand)

(2) Joint Declaration of TPP Leaders on the sideline of APEC 2013

(3) Countries negotiate on intellectual property, source: Center for WTO-Vietnam Chamber of Commerce and Industry (VCCI)

(4) Alan W. Wolff, American Chamber of Commerce: Regulations on international trade principles in FTAs, Documents for FTA workshop , Committee for Foreign Affairs of Congress, August 2012

(5) Recommendations of Vietnamese Business Circle on negotiation for the Chapter Investment in TPP

(6) Recommendations for negotiations on Chapter Labor and labor dispute settlement, TPP

(7) , (8) Dao Ngoc Tien: Opportunities and Challenges for Viet Nam when joining TPP, Workshop “Negotiations and signing of Foreign Trade Agreement: experience and practices,” August 2012

(9) Statement of the General Director of DABACO Group and Stock Company producing animal feed on News and Current Affair broadcast on VTV1 on 5 February 2014

(10) http://www.duthaoonline.quochoi.vn, “Challenges to labor and employment market”

(11) Jonathan R. Pincus: Division of Labor, Specialization and Trade, Fulbright Economics Teaching Program. Introduction to Public Policy & Institutional Analysis, Lecture Note 3 (translated by Quy Tam)

(12) Points of view of Vietnamese Business Community on issues in TPP negotiations, Committee for International Trade Policy Consultancy, Center for WTO, VCCI

Le Mai Thanh, PhD, Editorin-Chief of State and Law newspaper