Vietnam’s Perspective on Regional Integration

1. Vietnam’s Perspective on Regional Integration Vo Tri Thanh Central Institute for Economic Management (CIEM) (votrithanh@mpi.gov.vn) Washington D.C, 14 June 2016

2. 30 Years of Doi Moi: Peformance & Challenges • Significant achievements: (i) From a poor to a (low-) middle income country; (ii) From a largely agriculture - based to a more industrialized & services – based economy; (iii) From a close to an open economy … but not outstanding: Low quality of growth; limited spill-over from FDI; weak position in the global/regional value chains; widening income/asset gap; polluted and deteriorated environment • Key challenges: (1) How can VN get out of “low cost labour trap” and lay down fundamental foundations for overcoming “middle-income trap”? • (2) How can VN achieve (rather) high economic growth while ensuring social and environmental sustainability? • Nature of Doi Moi: To enlarge both sets of (economic) choices by people and the country’s (people’s and institutional) capability to exploit benefits from the newer choices • The major reform dimensions: Market-oriented reforms; Macroeconomic stabilization; “Open door” policy and international integration

3. VN & International Integration Strategy • Three pillars: (1) WTO as basis for further integration; (2) East Asia integration (AEC & “Centrality”; ASEAN +1 & + 6 FTAs); (3) FTAs (esp. TPP, VN-EU FTAs and some others)+ Cooperation with key partners (“Comprehensive/& strategic partnership”)

4. FTAs as a Catalyst for Reform & Development • Expansion of exports & economic activities • Expansion of investment (especially FDI). A way for restructuring the economy. Especially agricultural sector • A pressure/catalyst for institutional reforms & improvement of business environment (Esp. TPP; VN-EU FTA & AEC) • Geo-political considerations • Despite challenges and several technical issues, the commitments under FTAs, especially TPP, VN-EU FTA & AEC, basically consistent with the reforms VN would like to and/or should follow in her new stage of development). Some recent observations: • Changes & development of legal framework (Law of Enterprises; Law of Investment; Law of Public Investment; Law of Gov’t Procurement; Decree on PPP,…) • Efforts to improve business environment (Resolution 19, Resolution 35) • Attempts to restructure SOE, banking, and public investment sectors

5. Economic Impacts of Development of ASEAN++ FTA (RCEP) Note: Cumulative Percentage Point, deviation from baseline, 2011-15. Source:Itakura (2013)

6. AEC - a Reference Point for Regional Integration • ASEAN: Very diversified in terms of dev’t, institutions, and political system • AEC Paradigm • Objectives: Prosperity + Narrowing development gap • Pillars: Good, services, and investment Liberalization (single market & production base) + Facilitation & Connectivity (MPAC) + Cooperation + Open region • Main ideas: (i) Creation of opportunities (Liberalization); (ii) Reduction of transaction costs associated with production networks and value chains & Easier access to new opportunities (Facilitation + Connectivity); and (iii) Improvement of institutional capacity and HR dev’t (Cooperation, e.g. IAI and other donors’ programs) • AEC is a process (Vision of AEC beyond 2015; New context of 21 Century?) • AEC is reference point for RCEP • ASEAN is driving force? The Expert Roundtable (ERIA, 5/2013): RCEP needs to be consistent with 4 pillars of the AEC • RCEP should be designed well to have “significant improvements over the existing ASEAN+1 FTAs”

7. Major issues/challenges • Minimization of FTAs’ “spaghetti-bowl” problems thanks to harmonization of RoO and facilitation (e.g. “behind – the – border” regulations; “NSW”, standards and conformance)? • ASEAN Centrality as facilitator of process and as the driver of substance? • Implementation mechanism/enforcement in RCEP (DSM; review; committees/secretariat) and role of ASEAN Sec? • Liberalization and dealing with non-traditional security issues (natural disasters; infectious diseases; food and energy security; labour migration, etc.) • Feasibility for an EA Cooperation & Dev’t Fund (IAI → IEAI)? The cooperation and coordination to support CLMV (institution reforms, capacity building; SMEs dev’t programs)?

8. RCEP & TPP: Similarities, differences and FTAAP • Similarities: Both see trade liberalization as a positive-sum game. Both commit to deepen liberalization of trade in goods, services and investment. Both commit also to incorporate elements of open regionalism • Differences: • RCEP is very much based on AEC, not just with widely scoped liberalization but including also various dev’t agenda with a philosophy of community-building (in an Asian manner) through deepening economic integration and narrowing dev’t gaps (ERIA 2014). Both AEC and RCEP can be seen as processes. • TPP is driven by US (and in line with US foreign policy objective of pivot toward Asia). It’s seen to be a high quality FTA aiming to establish a 21st century FTA to address next generation issues (labor & environmental standards, competitions, SOEs, gov’t procurement, IPRs +,e-commerce…). TPP is a “single undertaking” arrangement

9. Are both being convergent to FTAAP? • Supporting factors • Both commit to open regionalism and further liberalization. Market forces and interaction are being strengthened thanks to new arrangements • The gains will be larger if the tracks proceed to region-wide integration • The world trading system, and ACE and RCEP, whatever the case, should be dealing with “21th Century trade issues” (TPP appears to be especially close to that, although controversial issues remain). Also, any region-wide agreement will have to reconcile high/higher standards with the capacities and needs of diverse economies (for cooperation to help reduce development gaps). Thus, TPP is not in conflict with RCEP. • Risks • Inappropriate way in dealing with regional geo-political problems • This can be aggravated by unequal distributed benefits from further integration among economies in the region • ASEAN Centrality at risk? But it also appears that adverse side effects could be managed with thoughtful policy responses (high economic Interdependence; dialogue and role of ASEAN (Petri and Vo 2012)

10. The Role of APEC • Features of APEC: • Objectives: liberalization of trade and investment. • Institutions: APEC Summit; Consensus + non-binding (V-APEC: National IAP). • Three dimensions: Trade & investment liberalization; business facilitation + Structural reforms; ECOTECH

11. APEC can play an important role for promoting regional development and integration • To continue supporting the open regionalism, the convergence of TPP and RCEP, and “ASEAN centrality” • To minimize the “spaghetti-bowl” problems of FTAs’ ROOs; to harmonize standards; to promote competition & structural reforms; etc. • To enhance the whole regional connectivity (APEC 2013: to develop a blueprint detailing areas for multi-years cooperation and activities based on the concept of MPAC) • To coordinate efforts in capacity building (esp. for less developed economies). • To be a lively example of a new relationship between very different economies for regional stability and development for all

12. Thank you!