Post-WTO Challenges For Vietnam’s Economy

It has been three years since Vietnam became a member of the World Trade Organization and joined the world market. Vietnam will have to ride out many challenges ahead if it is to reach the sustainable growth target. At the conference “The recovery of the world’s economy and the adaptability of Vietnamese enterprises” held in Hanoi recently, former deputy prime minister Vu Khoan commented that Vietnam joined the World Trade Organization (WTO) just when the world’s economy faced two consecutive recessions: prices escalated globally following oil and the economic and financial crisis happened across the continents. Currently, even though the worst of the recession is temporarily over, on the whole the global economy is at a standstill, the U.S. tightens its belt and Europe has not completely got out of recession. In such a situation, the prospect for Vietnamese export enterprises is still unstable because of the shrinking market and intermittent orders with lower and lower values. The most recent is the foreign exchange rate disadvantage for garment and textile enterprises exporting to Europe as the euro has been continually devalued. Although Europe is not the biggest export market for the garment and textile industry, with the turnover proportion of 20%, the lost revenue is not small. Not only that, the economic restructure happening globally is turning towards energy-saving and environment-friendly. The former deputy prime minister said that if Vietnam does not change the production structure that is obsolete, she will not be able to stand firm in the region, let alone the world. The country constantly stumbles upon non-tariff barriers when exporting tea, coffee, food and wood work. According to Dr. Tran Dinh Thien, rector of the Economics Institute, the appreciation of the renminbi and the strong increase in per capita income of China are also a disadvantage for Vietnam. Speaking at the conference, Thien said cheering when China increased its investment into Vietnam was a big mistake. In the short term, there might be some profits, but the long-term effects are those worth debating. A closer look shows that most of the Chinese projects are focused on exploiting natural resources. As a result, Vietnam is letting its non-renewable resources flow to another country easily. This is a negative trend and should be considered seriously for the sake of the country’s long-term growth, Thien stressed. The more integrated, the more backward? There has been a paradox since Vietnam officially joined WTO no one has realized, that is Vietnam’s competitiveness has been on the decline. On the surface, Vietnam grows faster than many countries yet lags behind them, because Vietnam’s economy merely “expands” in terms of quantity. According to Dao Van Hung, vice rector of the Institute of Policy and Development under the Ministry of Planning and Investment, integration into the global economy certainly has opened up a big opportunity for Vietnam to approach funding sources, technology and knowledge. Nonetheless, it is also a game and if Vietnam does not know how to play it, the loss will be on her. The structure of FDI projects in Vietnam shows that raw minerals, simply processed and assembled products account for 70-75% of the export turnover. Thien commented that the majority of foreign investors come to Vietnam for profits and not helping Vietnam build an advanced industry. Thus, they want to utilize to the full the natural resources and Vietnam’s advantages when developing supporting industries in order to gain quick returns. As a result, Vietnam is still faltering and yet to build supporting industries. Production capability of domestic enterprises is almost at a halt. No supporting industries means Vietnamese domestic enterprises cannot link themselves to the global value chain. In reality, up till now, Vietnam has still not been able to construct such links. That means it fails to integrate right on its own land. According to Thien, with a hand-based economic structure, slow-growing domestic enterprises and a more and more polluted environment, billions of dollars from foreign investments will not be a pleasant thing anymore. The fact that trade deficit has been escalating over the past 25 years is also worth discussing. After integration Vietnam continues to keep its trade deficit at around US$10 billion annually. Yet it is worth noting that 90% of the deficit comes from China. “This is a very serious issue when one country is too dependent in terms of trade on another country,” Thien said. Both the former deputy prime minister and rector Thien agreed that there is a need to restructure the Vietnamese economy towards the growth model based on real demand. Vietnam needs to integrate in a manner that prioritizes technology development in attracting investment capital, allocating projects according to areas for efficiency and saving natural resources.