Challenges in Specific Areas After Joining

3.2.2.5. Challenges in specific areas after accession

When joining the WTO, the economy has to face fierce international competition, while the country's development level is still low, labor productivity is low and competitiveness is limited. The government is also concerned that implementing new trade laws will be costly and may limit the country's development strategy.

(1) Loss of import tax revenue and risk of trade diversion

It is obvious that, in the short term, when tariffs are cut, we will lose a large amount of tax revenue compared to before the tariff cut. For example, if we base on the import turnover of goods from Japan in 2001 which was 2 billion 210 million USD and in the case that we reduce the import tax on goods from Japan to 0%, the estimated budget loss will be about 290-300 million USD. In the future, when there is a free trade agreement, the import turnover from Japan will increase even more and this lost tax source will be even larger. In addition, tariff cuts can cause a trade diversion effect, that is, a reduction in trade flows between newly joined countries and countries/regions that are not members of this organization.

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However, according to experts, the loss of import revenue will not be a major problem in the medium and long term. The reason is that currently, revenue from import tax only accounts for about 9% of total state budget revenue, the number of tax-reduced items only accounts for about 20% of total annual import turnover, and the tax reduction is implemented according to a 5-7 year roadmap, so it is estimated that revenue from import tax will only decrease by about 1% of total budget revenue. In addition, joining the WTO with opportunities to expand production and business, increase import and export will create many new sources of revenue, increasing the size of the budget.

(2) The issue of developing the private economic sector

Developing the private economic sector plays an important role in Vietnam's accession to the WTO, because WTO principles basically follow the market nature and competitiveness of private enterprises. In addition, private enterprises have always been an important force participating in competition in the international arena.

The private economic sector in Vietnam was officially recognized in 1986 and has been especially encouraged to develop in recent years. Over a long period of time, the private sector in Vietnam has achieved many successes and made significant contributions to the Vietnamese economy. However, to continue to develop, this sector still faces certain challenges such as:

- The State's policy towards the private sector is still unclear, which is reflected in the controversy over the leading role of the state-owned economic sector.

- The operating environment for the private economic sector has been created, but it is still incomplete, unstable and ineffective.

- There are still some problems in the monetary and financial policy. Prices have been liberalized, but exchange rates and bank interest rates are still regulated by the State. The Vietnamese currency has not yet become a convertible currency. Therefore, the macroeconomic conditions for private sector activities are not really stable. The stock market in Vietnam has begun to be built but still has many shortcomings and weaknesses, so providing capital to the private sector will still face many difficulties. In addition, the private sector itself also has certain weaknesses such as: incomplete and unclear accounting records, weak awareness of law compliance in many private enterprises, most private enterprises do not have a reasonable internal management mechanism, private enterprises often do not properly evaluate human capital, etc.

(3) The issue of opening services to foreign businesses

The General Agreement on Trade in Services (GATS) was signed after the Uruguay Round of negotiations to liberalize trade in services. GATS regulates a wide range of service sectors including 11 major sectors (transportation, construction, distribution, finance, insurance, information, tourism, education, health, etc.) and 155 sub-sectors. After the conclusion of multilateral negotiations in October 2006, Vietnam has committed to implementing all service sectors with more than 110 sub-sectors... in a roadmap of 3 to 5 years.

However, there are still difficulties for Vietnam in opening up service sectors according to its WTO accession commitments, for example in the financial sector.

and telecommunications. Finance is still a sector subject to great control by the State. Although after 20 years of reform, the banking system in Vietnam has developed relatively and been significantly modernized, however, there are still a series of problems such as: lending is still subsidized, bad debt is quite common.

serious, the real competitiveness of Vietnamese banks is still weak... Meanwhile, after joining the WTO, within a certain period of time ( 35 ), Vietnam must commit to allowing foreign banks to conduct business in local currency with Vietnamese customers, to be allowed to buy shares in Vietnamese commercial banks and asset management companies, and to be allowed to expand certain scopes.

operate within certain geographical limits. Eventually, foreign companies will enjoy the national treatment principle, and will have the same privileges as domestic banks. At that time, Vietnamese banks will have to participate in real competition.

The stock market in Vietnam has only been formed in recent years. We only have stock trading centers in Ho Chi Minh City and Hanoi that have been deployed and put into operation, but there are still none in the localities. The law and operating mechanism of the stock market in Vietnam are still in the process of being completed. Meanwhile, joining the WTO, Vietnam will have to commit to opening up this market.

Vietnam's telecommunications industry has developed quite rapidly and dynamically in recent times, however, it is still an industry that is largely controlled by the Government. In the country, it is still an industry that the State monopolizes. When joining the WTO, Vietnam will have to fully open this sector, so the issue of monopoly in the telecommunications industry and its real competitiveness need to be taken into account.

(4) Agricultural issues

As a sensitive issue when joining the WTO, Vietnam is an agricultural country, and agricultural exports currently and in the near future will still account for a large proportion. Meanwhile, there are still many difficulties in exporting agricultural products of developing countries like Vietnam to developed markets.

35 See also chapter II – trade in services.

Agricultural support from OECD countries is still very high - the annual total is about 360 billion USD, of which the US and EU account for 80% of the total. However, the main problem is that Vietnam's agricultural sector is still backward in terms of technical facilities, the quality of Vietnam's agricultural products is not high (both in terms of technical standards, food hygiene and safety, etc.), which will significantly reduce the competitiveness of Vietnamese agricultural products in the world market.

Market access in agriculture

In the agricultural sector, under strong pressure from the Working Party members, Vietnam committed to an average agricultural tariff of 21%. It is worth noting that neighboring ASEAN countries Thailand and the Philippines, members of the Working Party on Vietnam's accession, are subject to higher agricultural tariffs than Vietnam, specifically Thailand at 36% and the Philippines at 34%. Nepal, an LDC that completed its accession negotiations in 2003, is also subject to an average agricultural tariff of 42%.

Support domestic agriculture

Reducing support for domestic farmers would threaten the livelihoods of farmers in poor regions. WTO rules recognize the special needs of developing countries in terms of domestic support. Under the de minimis rule , developing countries are allowed to use up to 10% of the value of production for subsidies. And in practice in Vietnam, most de minimis support does not distort trade but benefits low-income and resource-poor farmers. For example, a study by Oxfam in Vietnam shows the active support of state-owned enterprises (SOEs) in supporting poverty reduction efforts in Nghe An through domestic agricultural support programs. A state-owned transport company subsidizes the cost of transporting agricultural inputs (fertilizers, pesticides, etc.) to farmers in remote rural areas. However, even with such programs, inputs are often delivered only to commune centers. It takes an additional 20 to 60 km to get those inputs to villages where roads are very rough, sometimes taking a whole day. The total subsidies under these programs are too small to distort trade.

(5) Problems of accessing industrial markets

Apart from the highly competitive textile and garment sector that has the potential to benefit from WTO accession, many less developed manufacturing industries will face difficulties when Vietnam joins the WTO. Tariffs as low as 12.6% could threaten Vietnam’s further development and cut off a growing source of employment for its workers. There are concerns that the machine tool sector is not yet strong enough to continue to compete in a fully liberalized market. The automobile and motorcycle sectors are particularly vulnerable to cheap imports from China. Long-term or excessive protectionism is not in Vietnam’s interests, as import liberalization reduces input costs for domestic firms and consumers and increases welfare. However, a balance needs to be found so that sectors that are not well prepared for liberalization receive a certain level of protection and liberalize in line with development priorities.

(6) Problems in implementing agreements

Vietnam has committed to immediate compliance (without a transitional period) with the Technical Agreements on Trade (TTBT) and Sanitary and Phytosanitary Measures (SPS) agreements. The World Bank estimates that the cost of implementing one agreement is around US$100 million. Moreover, compliance with these agreements can be a very complex process. The SPS agreement requires harmonization of national standards for agricultural and aquatic products, which is a major challenge for poor, under-capitalized producers, especially in remote rural areas of Vietnam, and will certainly take a long time to achieve. Vietnam remains a low-income, highly indebted country with policy priorities for poverty reduction, such as health and education. Some newly acceding countries, including neighboring Cambodia and China (for the TBT agreement), have had some success in demanding a transition period, while Vietnam has made concessions on this issue.

(7) Non-market economy and anti-dumping

Classifying Vietnam as a non-market economy (NME) could limit Vietnam's access to international markets and pose a major challenge to Vietnam's WTO accession.

The World Trade Organization allows member countries to use more flexible methods to determine whether dumping has occurred when importing products from a non-market economy. The country investigating a suspected dumping case has the right to decide for itself whether the selling country is a non-market economy. There are reasons to accept such special treatment. However, some WTO members have abused the NME status to practice protectionism. The concept of NME status in international trade first appeared in the 1970s in anti-dumping cases. According to McCarty and Kalapesi, there is no fixed definition of what constitutes a “non-market economy,” and the process by which a country is designated as an NME is arbitrary. The United States tends to initiate the classification, and other countries follow suit. The US Department of Commerce has changed its definition of a non-market economy, moving from “a centrally planned economy,” to “an economy in transition,” to “a highly distorted market.” Under that definition, the US Department of Commerce has proposed six criteria to determine whether a country is a non-market economy. McCarty and Kalapesi have criticized the “irrational logic” of the US definition and demonstrated that in some cases, Vietnam fits the market economy criteria better than some countries classified as having a market economy.

The impact of the NME status on the accession package, and China’s experience, is instructive. In fact, WTO members have asked China to commit to WTO-plus provisions on anti-dumping and “product-specific transitional safeguards”, on the grounds that China remains a non-market economy.

• “Product-specific transitional safeguard”: WTO members can block increased imports of Chinese goods that cause or threaten to cause market disruptions in domestic products (within 12 years of accession).

• Special safeguard on textiles and clothing: if a member considers that imports of textiles and clothing from China, due to market fluctuations, threaten the orderly development of trade in such products, it may request consultations with China. At this point, China must withhold shipments to the requesting countries (for seven years after accession).

• Anti-dumping: the ability to use special “non-market economy” methodology to assess dumping cases against Chinese companies, thereby reducing the burden of proof (Within 15 years of WTO membership).

Vietnam has also had to accept similar safeguard measures as part of the terms of its accession package. Previously, it had agreed to a safeguard clause for market fluctuations in its bilateral agreement with the United States. Thus, the potential of growing manufacturing industries such as the textile industry may be limited and with it, challenges to employment opportunities for thousands of Vietnamese workers [16],[18],[34].

The WTO Agreement on Anti-Dumping is being criticized as weak, creating conditions for the abuse of anti-dumping to cover up protectionism in an arbitrary manner, while anti-dumping should be a trade defense measure that should be used legitimately in special circumstances. For example, anti-dumping measures can be introduced before specific evidence of dumping is proven, or even without minimal evidence, so that even if the accusation is not true, the accused country may have been punished and disadvantaged; or the accusation can be repeated many times, even if it fails. It can be said that the non-market economy status is an excuse for countries to impose WTO-plus demands on Vietnam.

3.2.2.6. Limited human resources are a long-term challenge

To consistently manage the entire integration process, perfect the legal framework, create a dynamic competitive environment and effectively reform the national administration, in addition to determination in terms of policy, it is necessary to have a strong enough staff from the central to local levels. This is also a huge challenge for our country because the majority of our staff are still limited in experience in managing an open economy with the participation of foreign elements. If there is no preparation from now, this challenge will turn into long-term difficulties that are very difficult to overcome. In addition, to take advantage of the WTO dispute settlement mechanism and effectively participate in future negotiations of the organization, it is necessary to have a strong staff.

In order to fulfill this role, we also need to have a team of officials who are familiar with WTO regulations and laws, and have experience and skills in international negotiations. Through accession negotiations, we have gradually built this team, but it is still lacking. Vietnamese officials are often limited in international experience, economic knowledge, foreign languages, and especially negotiation and implementation skills.

As an important and cross-cutting factor, human resources are indispensable to ensure that all areas and stages in the accession negotiation process must contribute to the common goal. During the accession phase, human resources must meet the tasks of analyzing, recommending approaches to making commitments or building certain action programs, and participating directly in negotiations. After completing the accession phase, human resources still play a very important role in implementing Vietnam's commitments and supporting businesses to adapt to the international market.

With such a view on human resources, the challenges that Vietnam faces related to this factor are truly enormous, and therefore require priority in its strategic orientation.[16],[18],[28],[34],[56].

3.3. SOME RECOMMENDATIONS FOR CONTINUING ADJUSTMENTS TO TRADE POLICY

3.3.1. General recommendations to promote the process of international economic integration

l. Raising awareness of international economic integration, fighting against the mentality of dependence and waiting for State protection.

2. Enhance the competitiveness of the economy by promoting domestic economic innovation towards export, investing in advanced equipment and technology, exploiting industries where Vietnam has immediate and long-term advantages, strengthening administrative reform, especially implementation organization. Strengthen the capacity and coordination of ministries and sectors in the process of international economic integration.

3. Promote the reform of state-owned enterprises towards improving their proactiveness, efficiency and competitiveness, along with solving the problem of employment and changing the occupations of workers.

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