Advances & Challenges in Regional
Integration of Vietnam

Vo Van Minh| Strategist
SSI Assets Management Ltd.,

Nguyen Dinh Chuc Deputy Director
Vietnam Academy of Social Sciences (VASS)

APPM's 11th Alumni Seminar on June2016

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Pivotal Policies• New cabinet for 2016-2020 is already formed• Pivoted to the trade-based economy on groundof FTAs i.e. AEC; VKFTA; EAEU; EVFTA; TPP;
• The government continued with banking sector
reform at new phase with institutional
strengthening i.e. Basel II standard approach• Fiscal account remains deficit due to trade tariffs
cut; ambitious infrastructure investment plans;
increasing social welfare program
APPM's 11th Alumni Seminar on June2016

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Economic Outlook• Slow GDP growth for the 2016 but soon recovery in 201718 due to stronger external demand. Export continues tobe main source of growth for Vietnam. Vietnam will
benefit from the migration of low-cost export
manufacturing from China by its participation in key
trade deals• The value of merchandise exports will grow rapidly as
external demand picks up, albeit unevenly in 2016-20.
Productivity growth will be strong, supported by thegrowth of non-oil export industries.
• However, Vietnam’s current-account balance will fall backinto deficit in 2017 on the back of rapid import growth.
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Integration: A regional linkage trend

EVFTA, TPP, VCU, EFTA

Vietnam

AEC
Asean+6EAS
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Regional Linkage: Size of the Economies

Source: EIU _Country Report May 2016
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Regional Linkage: Wealth Comparison

Source: EIU Country Report _ May 2016
APPM's 11th Alumni Seminar on June2016

6Advances In Regional Integration of Vietnam• Vietnam is at golden population structure period in which
70% under 35 is better-trained, and higher educated;• Continuity policy of new cabinet for more-opened economy
in terms of:– Completing the 3 pillars economy restructuring plan in 2015;– Joining various FTAs to make use of current advantages;– Still a key candidate for the China + 1 policy in terms of FDI
flows;• Stronger and more responsible player in ASEAN to receive
attraction of the U.S’s the Asia Pacific pivotal policy• Member of new group named as MITI-V (spelling Mighty
Five incl. Malaysia, India, Thailand, Indonesia, and Vietnam)
to replace the decreasing-power BRICS.

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Advances In Regional Integration of Vietnam• As result:– Surpassing from low-income to medium-income
economy in 2010 with the main drivers from exportindustries and FDI projects;– New global production hub for electronic, computers,
and mobile phone devices with the FDI investmentsfrom Samsung, LG, Microsoft, Foxconn, Intel..
– New global center for textiles and garment production
as well as other labor intensive industries– Will become a new paradise for startups enterprises
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Challenges In Regional Integration of Vietnam• Medium-income trap

– The population will soon move out of the golden
to the aging;– Low level of Total Factor Productivity (TFP) in thedriving sources.
– Better ICOR (Incremental Capital Output Ratio)
but still lower than China (and Japan at 70’s);– Less diversified credit channels. 80% of economy
credit from traditional (banking) credit whilecapital market plays minor role.
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9Challenges In Regional Integration of Vietnam• Winner or Loser of the Integration?: Many disputes
over who will benefit from deeper-penetrated
economy since local enterprises lose domestic
market share. As can be seen;– FMCG industries with Thai; Japan companies;– Cement Industries: Indonesia Enterprises– Agriculture market of China wholesalers;– Steel industry in the hand of Taiwanese Formosa;– Auto & Motorbike industries under control of Japanesemanufacturers and Thai exporters;

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Challenges In Regional Integration of Vietnam• Environmental problem: labor-intensive andheavy industries from the FDI projects. i.e.
steel, hydropower generators; textiles
companies causes a lot of toxics to theenvironment such as air, land, lakes, sea.
• Security challenges for development:
territorial disputes in the Est Sea (south chinasea); the Yellow Sea will push the ASEAN into
segregation due to less trust and lower cooperation.
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11Policy recommendations• Pivoted to first-class FTA: lessons show thatworking with original-tech economy brings alot of opportunities for the receiving economy.
The TPP, with high-standard FTA, will push
Vietnamese economy to restructure to betterfitted. While FTA with China might open thegate for low-technology i.e. heavy industries
to spill-over

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Policy recommendations• Improve work-force skills & support stronger
labor union: Elevated educated work force
will improve the TFP for a long-term growth;• Continuing with preferential national policiesfor startups: Stronger local private enterprises
to compete with foreign counterparts will help
Vietnamese citizen to enjoy the benefit ofeconomic integration
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Thank you for listening

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Current FTAs
 FTA ASEAN-China (2002)

 FTA Vietnam – Korea (2014)

 FTA ASEAN-Korea (2006)

 FTA Vietnam – Russia, Kazakhstan, FTA ASEAN-Japan (2008)
 FTA ASEAN-Australia-New
Zealand (2009)

Belarus (2014)
 TPP
 FTA Vietnam – EU (EVFTA) FTA Vietnam – Switzerland, Iceland, FTA ASEAN-India (2009)
 FTA Vietnam – Japan (2009)

Norway and Liechtenstein (EFTA)
 RCEPT

 FTA Vietnam – Chile (2011)

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Tariff-cut plans for current FTAs

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Leading Markets & Suppliers

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TPP: 21st century/Comprehensive/High standard Agreement
 Wide coverage: Goods market Access; Agriculture marketAccess; Textile and Apparel; Custom/trade facilitation; Rulesof origin; Technical barriers to Trade; Services; Investments;
Financial services; Telecommunication; E-commerce; IPR; GP;
Competition/SOEs; Labor; Environment….
 High level of liberalization and commitment;
 To improve rules for business behind the border;
 Balanced liberalization to address comparative advantageof emerging and advance markets- agriculture;
manufactured goods, services, investment, IPR.

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Impacts of TPP on its members
Population(million)
Australia
Brunei
CanadaChileJapan
Malaysia
MehicoNew ZealandPeruSingapore
US
VietnamGDP($billion)

VN exports($billon)

23.2
1,505
0.4
16
35.1
1,825
17.6
277
127.3
4,902
29.6
312
118.4
1,259
4.5
181
30.9
207
5.4
296
316.4
16,80089.7
171
Total VN Exports to TPP
51.604
Total VN Export
132.032

Source: Population, GDP data from IMF, WEO, April 2014;
Export data from GSO, Vietnam
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3.509
0.017
1.544
0.219
13.630
4.922
0.889
0.274
0.100
2.655
23.84119

Impacts of TPP on Vietnam

Source: Peter A.Petri; The TPP and its impact onVietnam’s economy; March 2013
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Impacts of TPP on Vietnam

Source: Peter A.Petri; The TPP and its impact on Vietnam’s economy; March 2013
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Impacts of restrictive rules of origin on Vietnamese
apparel sector

Source: David Vanzetti and Pham Lan Huong; Rules of origin, labor standards and the TPP; June 2014

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Impacts of TPP on its members
Estimated macroeconomic impacts of TPP in 2020

Source: David Vanzetti and Pham Lan Huong;
Rules of origin, labor standards and the TPP; June 2014
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Impacts of TPP on its members
Estimated macroeconomic impacts of TPP in 2020

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