metadata: authors: 0: author: Auffret, Phillipe
count: Vietnam
docna: 0: docna: Trade reform in Vietnam : opportunities with
            emerging challenges
docty: Policy Research Working Paper
subtopic: Trade Policy,International Trade and Trade Rules,Rules of Origin,World Trade Organization,Inequality,Trade and Multilateral Issues
teratopic: International Economics and Trade
abstracts: cdata!: In 1986 Vietnam initiated a transition
            from a centrally planned economy to a market-oriented
            economy where the government would keep playing a leading
            role. These renovation (doi moi) policies were successful at
            generating economic growth and reducing poverty. In the
            ten-year socioeconomic strategy endorsed by the Ninth Party
            Congress in April 2001, the authorities further articulated
            their development objectives in terms of economic growth and
            poverty reduction. To reach these objectives, the government
            indicated that its structural reform priorities were to
            change Vietnam's trade and financial policies,
            liberalize the climate for private investment, increase the
            efficiency of public enterprises, and improve governance.
            The author argues that the pace of implementation of trade
            reform-which has been impressive so far-is raising new
            challenges. On one side, fast liberalization of trade reform
            may soon conflict with the slow pace of implementation of
            other reforms, including restructuring of state-owned
            enterprises and state-owned commercial banks. On the other
            side, Vietnam would greatly benefit from fast implementation
            of trade reform and particularly fast accession to the World
            Trade Organization (WTO), especially after China's
            recent WTO accession. Auffret concludes that implementation
            of trade reform will be a testing ground to reveal the
            extent of Vietnam's commitment to a market-oriented economy.
geo_reg_key: 517198,517191
repnme: repnme: Trade reform in Vietnam : opportunities
            with emerging challenges
display_title: Trade reform in Vietnam :
            opportunities with emerging challenges
listing_relative_url: /research/2003/06/2384819/trade-reform-vietnam-opportunities-emerging-challenges
topicv3: Poverty m1326687 695,Trade m1326924 698,Trade Policy and Integration m1327407 775,Trade Policy m1327640 776,World Trade Organization Accession
            m1504273 2568
publishtoextweb_dt: 2010-07-01T00:00:00Z
historic_topic: International Economics and Trade
origu: PREM Sector Department (EASPR)
no_of_pages: 24
model_extractions: POLICY RESEARCH WORKING PAPER 3076

# Abstract

In 1986 Vietnam initiated a transition from a centrally planned economy to a market-oriented economy where the government would keep playing a leading role. These renovation _(doi moi)_ policies were successful at generating economic growth and reducing poverty. In the ten-year socioeconomic strategy endorsed by the Ninth Party Congress **in** April 2001, the authorities further articulated their development objectives **in** terms of economic growth and poverty reduction. To reach these objectives, the government indicated that its structural reform priorities were to change Vietnam's trade and financial policies, liberalize the climate for private investment, increase the efficiency of public enterprises, and improve governance.

Auffret argues that the pace of implementation of trade reform-which has been impressive so far-is raising new challenges. On one side, fast liberalization of trade reform may soon conflict with the slow pace of implementation of other reforms, including restructuring of state-owned enterprises and state-owned commercial banks. On the other side, Vietnam would greatly benefit from fast implementation of trade reform and particularly fast accession to the World Trade Organization (WTO), especially after China's recent WTO accession. Auffret concludes that implementation of trade reform will be a testing ground to reveal the extent of Vietnam's commitment to a market-oriented economy.

This paper-a product of Poverty Reduction and Economic Management Sector Unit, East Asia and Pacific Region-was written as a background paper on trade for the _2002 Vietnam Development Report._ Copies of this paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Kevin Tomlinson, room 14-076, telephone 202-473-9763, fax 202-676-1494, email address ktomlinson@worldbank.org. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org. The author may be contacted at pauffret@worldbank.org. June 2003. (19 pages)
# **TRADE REFORM IN VIETNAM: OPPORTUNITIES WITH EMERGING CHALLENGES'**

Philippe Auffret World Bank lThis paper was written as a background paper on trade for the 2002 Vietnam Development Report. Viet Tuan Dinh (Word Bank) and Theo Larsen (Word Bank) provided valuable inputs. Claire Pierangelo (Counselor for Economic Affairs, Embassy of the United States of America), Jessica Levine Adkins (Deputy Economic Counselor, Embassy of the United States of America), Will Martin (World Bank), James Riedel (Senior Economic Advisor, STAR Vietnam) and Susan Adams (IMF) provided comments on an earlier version. Tuyet **Thi** Phung provided editorial support.
I
# **TRADE REFORM** IN **VIETNAM: OPPORTUNITIES WITH** EMERGING<sup>CHALLENGES</sup>

# **A. Fast Pace of Implementation**<sup>**of Trade Reform**</sup>

**Pre-renovation Vietnam's trade**<sup>**regime was characterized by a smallnumber of Foreign**</sup> **Trading Corporations (FTCs)**<sup>**witheffectivemonopolies overimportsandexportsof**</sup> **their product range.** Planned<sup>import volumesweredetermined bythe projecteddifferences</sup> between domestic demand and<sup>supplyfor particulargoods,with exportvolumesset atlevels</sup> necessary to finance planned<sup>imports.Pricesservedasanaccounting function andhadno</sup> real role in allocating resources.

**The reform of Vietnam's trade**<sup>**policywhichwasat thecornerstoneofthe1986**</sup> **renovation policy had two main objectives.**<sup>The first objectiveof thetradereformwasto</sup> make the transition from a centrally-planned<sup>toamarket-basedeconomyby:(i) liberalizing</sup> domestic prices and linking them<sup>toworld pricesso that theyplayarole in guidingresource;</sup> (ii) increasing the number of trading<sup>entitiesbeyondthe initialnumberof centrallycontrolled</sup> FTCs to avoid that price signals<sup>are distorted throughanti-competitivebehavior by monopoly</sup> state traders or through _de facto_ quantitative<sup>restrictions;(iii)developing tradepolicy</sup> instruments such as tariffs, quotas and<sup>licenses;and'(iv)removingexchangeratedistortions.</sup> These reforns of the trading system<sup>wereinextricablylinkedwith reformof theenterprise</sup> sector to allow indirect regulation<sup>through market-determinedpricestoreplacedirect</sup> regulation of enterprise outputs. The second objective was to<sup>promote export-oriented</sup> industries--by redressing the<sup>anti-export biasembodied intheprotectionistregime--while</sup> simultaneously protect the manufacturing<sup>sectordeveloped during the centrally-plannedera.</sup>

**Since the introduction of** **_doi moi_** in 1986,<sup>**progressto reform trade has beenimpressive**</sup> (Table I summarizes recent changes.<sup>Annex1 describesmajor changesin tradepolicy since</sup>

2
_doi moi)._ Measures that have been taken include: (i) relaxation of the restrictions to establish FTCs, allowing for a rapid increase in the number of enterprises allowed to engage in trade from about 30 in 19882 to over 1,200 by the end of 19943 and 16,200 in 20014; (ii) introduction of trade policy instruments including quantitative restrictions (QRs) and tariffs followed by a gradual significant liberalization, with a gradual reduction in import barriers and improvements in export incentives; and (iii) liberalization of foreign exchange regime. Reform measures have been motivated by the overall reform efforts of the World Bank and the International Monetary Fund (IMF) as well as a number of regional and multilateral trading arrangements.

Table 1: Major Changes in Trade Policy since 2000

|Year|||Objectives||
|---|---|---|---|---|
||**Increasenumbers**<br>**of**FTCs|**Developtradepolicy**<br>**Instruments**|**Remove exchange**<br>**ratedistortions**|**Becomea memberofinternational**<br>**tradingarrangements**|
|2000||**o**Removedquantitative<br>importrestnctionson8out<br>ofremaining19groupsof<br>products**i**e.including<br>fertilizer,liquid soda,<br>ceramicgoods, plastic<br>packaging,DOP plasticizer,<br>ceramicsanitaryware,<br>electncfans,andbicycle||**o**Signed abilateraltrade agreementwith<br>theUSinJulypavingthewayforMFN<br>accessofVietnamese exportsto theUS<br>market,gradual openingupofVietnam's<br>economy,forgoodsandservices as well<br>asinvestnents|
|2001|**a**Pemuttedall<br>legalentities<br>(companies and<br>individuals)to<br>exportmost<br>goods without<br>havmgtoacquire<br>aspecial**license**<br>byrevisingthe<br>implementing<br>decreeofthe<br>|<br>**o**RemovedQRs<br>multilaterally onalltanff<br>linesofthe following<br>groupsofproducts liquor,<br>clinker,paper,floortiles,<br>constructionglass,some<br>typesofsteel,andvegetable<br>oil|**o**Reduced the<br>foreignexchange<br>surrender<br>requirementfrom<br>50to40percent|**a**Moved713tarifflinesfromthe<br>TemporaryExclusionList(TEL)to the<br>InclusionList(IL)|
||Tradelaw||||
|2002|||**o**Reduced the<br>foreign exchange<br>surrender<br>requirementfrom<br>40to30percent<br>(May)|**o**Detailedalistofgoods andtax ratesfor<br>implementingtheAgreementonthe<br>CommonEffectPreferentialTanffs<br>(CEPT)SchemeofASEANcountriesfor<br>theyear 2002.<br>**o**Issuedtheimplementingdecisionforthe<br>USBTA,includingguidelinesfor<br>responsibilities andactions(March)<br>**o**AGovernmentnegotiatonteamstarted<br>workingsessionsonWrOaccession**in**<br>Geneva(April)|

Quantitative restrictions: Since 1986, the quotas and targets, which were at the base of the central planning system, have been progressively eliminated. By early 2003, all QRs on imports will be abolished with the exception of sugar (to be kept until 2005) and petroleum products.<sup>5</sup> With the exception of textile and garment (whose quotas<sup>6</sup> are currently allocated

> **2** CIE, 1998, p.l<sup>0</sup>

3 CIE, 1998, p.<sup>1 0</sup> 4 World Bank, 2002, p. 35

**5** QRs on imports of cement, motorbikes and vehicles for fewer than nine passengers are scheduled to be abolished by end-2002

6 Textile quotas under the Multi-Fiber Agreement (MFA) of the WTO are scheduled to be phased<sup>outbyend-</sup> 2004. A WTO Agreement on Textile and Clothing (ATC) is expected to take effect starting<sup>in2005. Since</sup> 3
through an auction process) and a list of sensitive<sup>items,all QRs on exportshavebeen already-</sup> eliminated. Importantly, the schedule to phase out<sup>QRswas announcedinthe Five-year</sup> Import-Export Program (2000-05), allowing<sup>theprivate sectortoanticipate andadjust to the</sup> new trade regime.

Tariffs: The 1988 _Law on Import and Export_<sup>_Duties_representedthefirst stepto puta trade</sup> tax system in place. This original tariff<sup>schedulewas rationalizedin1992andsimplifiedin</sup> 1999 following Vietnam's accession to AFTA<sup>andinpreparation fortheWTO.</sup> Duty exemptions and refunds for imports used<sup>to produceexports werea central partof this reform</sup> package and Vietnam currently has a well<sup>functioningduty drawbackssystem.7</sup> The current tariff structure has three sets of rates<sup>8</sup> : (i)<sup>Most FavoredNation (MFN) tariff ratesapplicable</sup> to imports from countries with which Vietnam<sup>enjoys MFNstatus (about75percentof</sup> imports in 2000); (ii) Common Effective<sup>PreferentialTariff(CEPT)ratesapplicable to</sup> imports from ASEAN countries (about<sup>25percentof importsin2000of whichabouthalf</sup> benefits from CEPT rates following the<sup>country-of-originrule);and(iii)Generalrates(50</sup> percent above MFN rates) applicable to<sup>importsfromcountriesthatdonotfallunderthe</sup> MFN and CEPT rates (imports from these<sup>countriesis negligible).The (unweighted)average</sup> MFN tariff rate has been increasing partially<sup>duetothe conversionofQRs into tariff-</sup> equivalent. However, both the number of tariff lines<sup>(13atbeginning2002) andthe</sup> maximum tariff rate (120 percent at<sup>beginning2002)havebeendecreasing.</sup> The (unweighted) CEPT tariff rate has declined<sup>to10.7percentin 2002.</sup>

**Table 2: Tariff Rates with Roadma for**<sup>**the Future**</sup>

|Years|1996|1997|1998|1999|2000|2001|2002|2003|2004|2005|2006|
|---|---|---|---|---|---|---|---|---|---|---|---|
|MFNTanffRate(%)1/||||||||||||
|Average(unweighted)|12.3|13.4|136|na|na|151|157|||||
|Range||0-200|||||0-120|||||
|CEPTImplementation2/||||||||||||
|NumberofItems||||||||||||
|InclusionList|856|1,496|1,996|3,590|4,230|4,830|5,430|6,030|6,030|6,030|6,030|
|TemporaryExclusionList|2,123|1,483|983|2,440|1,800|1,200|600|0|0|0<br>|0<br>|
|SensitiveList|26|26|26|51|51|51|51|51|51|51|51|
|GeneralExceptions List|213|213|213|202|202|202|202<br>|202<br>|202<br>|202<br>|202<br>|
|Total|3,218|3,218|3,218|6,283|6,283|6,283|6,283|6,283|6,283|6,283|6,283|
|TanffRate(%)||||||||||||
|Average(unweighted)||||||||||||
|InclusionList|70|6.8|5.8|5.6|47|3.9|38|2.8|2.6|2.5|2.3|
|TemporaryExclusionList|19.9|19.9|19.9|199|19.8|19.6|19.4|175|13.4|89|3.9|
|Average|12.7|12.6|12.1|11.9|11.4|109|10.7|93|7.4|5.3|3.0|
|USBTA3/|||||____|||___<br>_|__<br>___|<br>__||

1/ MFN rates imposed on goods imported<sup>from countries having MFNstatusintrade relation with Vietnam</sup> 2/ Common Effective Preferential tanff(CEPT)<sup>imposed on goodsimportedfrom ASEANcountnes.</sup> 3/ USBTA agreed to reduce current tanff<sup>ratesonalimitedrangeof industnalandagnculturalitems(about250)by 30 to50</sup> percent by 2004.

Source Athukorala (2002); Kazi and Duc<sup>(2000),CIE (1997)</sup> Vietnam is not a member of WTO, it<sup>isexpectedtoretainbilateralquotas withvariouscountries.Textilequotas</sup> with the US have not yet been set.

7 For more on this issue, see lanchovichina,<sup>2001.</sup> 8 A third set of rates (50 percent above preferential<sup>rates) is appliedto countriesthat do notfallunder the</sup> preferential and special preferential tates.<sup>However, tradewiththesecountriesis negligible.</sup> 4
External pavments: Major steps have been taken to liberalize the foreign exchange market including a gradual phasing out of the foreign exchange surrender requirement (reduced to 30 percent in May 2002) by end-2003.<sup>9</sup> The tax on profit remittances from Foreign Invested Enterprises (FIEs) will be eliminated by end-2002 consistent with efforts to harmonize tax treatment between foreign and domestic enterprises. However, there are still some restrictions on current international transfers and payments.'<sup>0</sup> Regional and Multilateral Trading Arrangements: Reform measures have been motivated by the overall reform efforts of the World Bank and the IMF as well as a number of regional and multilateral trading arrangements including the 1992 preferential trade agreement with the European Economic Community, the 1995 membership in the ASEAN Free Trade Area (AFTA) and the 2001 Bilateral Trade Agreement with the US (US BTA). In 1995, Vietnam submitted an application to join the World Trade Organization (WTO) and has started the process of negotiating the conditions of accession.

Outside these trade agreements, the Government retains _de jure_ control over a number of instruments that could affect trade. For example, in October 2002, the Government decided to limit the number of motorcycle parts which foreign motorbike assemblers could import in Vietnam in 2002. In December 2002, the Government made plans to raise import taxes on complete knocked-down (CKD) component kits for car without previous consultation with the industry. Pressure from the industry eventually prevented the plans to be carried forward.

# B. The Road Ahead: Growing Challenges

The fast pace of implementation of trade reform is raising new challenges:

- Challenges in terms of coordination with other structural reforms: faster liberalization of trade reform may soon conflict with the slower pace of implementation of other reforms including restructuring of State-Owned Enterprises (SOEs), State-Owned Commercial Banks (SOCBs) and tax administration reform;

- Challenges related to the pace of accession to the WTO: Vietnam would greatly benefit from fast accession to the World Trade Organization (WTO); particularly in the context of China's recent WTO accession.

# B.1. Coordination of Trade Reform with Other Structural Reforms

Vietnam has been so far able to liberalize the trade regime while maintaining a policy bias in favor of domestic-market oriented industries, particularly those dominated by state-owned enterprises (SOEs). In fact, so far, line ministries and other agencies have been able to comply with the trade liberalization commitments made by the Government while still protecting the SOEs under their dependence. First, although from a legal standpoint, all registered firms, regardless of ownership, can trade, there exist barriers which discourage trading by non-state enterprises, thereby protecting SOEs. For example, stringent regulatory requirements demanded by line ministries de facto prevent private firms from participating in rice exports and fertilizer imports. Also, monopoly in production may translate in monopoly in trading as in the case of coal, a major traditional export of Vietnam. Second, the tariff

> 9 Surrender requirement on foreign exchange was introduced in 1998.

> **10** For more details, see RMF, July 2002, p.<sup>41</sup> .

5
structure embodies a policy bias in favor of domestic industries, particularly<sup>thosedominated</sup> by SOEs. Most low tariff rates are on items predominantly used<sup>bySOEsasinputs inthe</sup> production of intermediate goods or final goods for the domestic<sup>market.Also,although</sup> Vietnam has taken steps to meet its AFTA commitments on tariff reductions,<sup>ithas been able</sup> to differ their impacts by declaring goods that are already at zero or low<sup>ratesandimportantly</sup> to maintain a number of key products in the General Exception List (GEL)<sup>thereby excluding</sup> them from any tariff reduction schemes." Third, although in principle all firmns can buy foreign exchange from banks, in practice, only large firms, mostly<sup>SOEsareable tosecure</sup> foreign exchange from state-owned commercial banks (SOCBs).

**However, the policy bias in favor of domestic-market oriented industries**<sup>**andSOEin**</sup> **particular could have considerable welfare costs, in particular**<sup>**becauseof itsimpacton**</sup> **investment decisions.,** It leads to inefficient allocations of resources<sup>by all typesof investors</sup> (public, foreign invested and private) in all sectors of the economy by creating<sup>a biasin favor</sup> of the manufacturing sector (and a corresponding bias<sup>against agriculture)and,withinthe</sup> manufacturing sector, in favor of some industries like motor vehicles<sup>andmotorbikes,</sup> wearing apparels and plastic products (Table 3).12 A large share of public'<sup>3</sup> and foreign investments<sup>14</sup> are directed toward sectors with relatively high levels<sup>ofprotection.</sup> In addition, the policy emphasis to build up joint ventures between foreign<sup>investorsandstate</sup> firmns (instead of private firns) so that physical capital levels of output<sup>grow rapidly doesnot</sup> encourage the emergence of a market-oriented economy.

**Table 3: Effective Rates of Protection by Sectors, 2002**

||EffectiveRate|ofProtectdon(ERP)1/|
|---|---|---|
|Sector|1997|2002|
|agriculture|7.7|7.4|
|ining|6.1|16.4|
|Manufacturing|121.5|960|
|Average(Simple)|595|54.1|
|Me.no:|||
|radables|722|58.5|
|1/QR inclusiveestimates.<br>Sourc:Atbukorala(2002)|||

**"** Items in the GEL include among others alcoholic beverages, vehicles with<sup>fewer than15seats andmotorbikes</sup> with capacity less than 250cc and kits. Vietnam<sup>has yettoannounce -ascheduletoreduce tariffson products</sup> included in the GEL.

**12** The Effective Rate of Protection (ERP) (defined as the percentage change<sup>in producers'value-added,asa result</sup> of taxes on trade, over the level of value-added that would have<sup>prevailedintheabsenceofthosetaxes)is</sup> estimated at 7 percent for agriculture compared to 96 percent for manufacturing.<sup>It is particularly highfor motor</sup> vehicles and motorbikes (559 percent), sugar (366 percent),<sup>tea (241percent),wearingapparel(181percent)and</sup> plastic products (163 percent). However, the market<sup>issegmentedbetweendomestic-orientedproductionand</sup> export competing production. -ERPs for export-competing<sup>productionaredrasticallydifferent:motorvehiclesand</sup> motorbikes (-501 percent), sugar (-28 percent), wearing apparel<sup>(-31percent)andplasticproducts(-43percent)</sup> which helps explain booming exports in these sectors (For more<sup>details,see Athukorala,2002).</sup>

13 For example, under the Public Investment Program (2001-05),<sup>the publicsectorwillcontinuetoinvestin</sup> construction materials (11 percent of total investment in industry)<sup>andfoodprocessing(11percent)whichboth</sup> benefit from high levels of protection.

14 McCarty (1998) observes that among the five highest sectors fecipients<sup>of FDI(inthetraded-goodssector)</sup> cement, fuels, vehicles, electrical machinery, and beverages,<sup>allthesectorsexceptfuels areproducingimport-</sup> substituting goods (reported in Fukase and Martn, 1999,<sup>p.14).</sup> 6
Commitments to implement already ratified international trade agreements<sup>providean</sup> opportunity to revitalize and deepen the SOE and banking reforms. Implementation of commitments under AFTA and the USBTA will decrease SOEs' level of protection. Under AFTA, most QRs are being abolished while items in the Temporary Exclusion List (TEL) are expected to be transferred to the Inclusion List (IL) by 2003 with tariffs to be reduced to<sup>0-5</sup> percent by 2006 (Table 2). In addition, the Sensitive List (SL) is expected to be phased out by 2010. As a result, the (unweighted) average CEPT tariff rate applicable to imports from the ASEAN region (except those in the SL and the GEL) is expected to decline sharply from 10.7 percent in 2002 to 3 percent by 2006. Most industries and SOEs in particular will be affected by a decline in protection level. Under increasing pressure from the SOEs<sup>(andSOE</sup> management in particular), the authorities may decide to postpone SOE restructuring,<sup>which</sup> can be achieved by increasing the level of fiscal transfers to SOEs. This is not recommendable for two reasons. First, there are substantial welfare costs associated<sup>with the</sup> provision of subsidies to non-efficient SOEs. Second, subsidizing SOEs would de facto<sup>lead</sup> to a redistribution of fiscal resources to SOE employees who are mostly non-poor,<sup>thereby</sup> reducing resources available to finance poverty-reduction programs. The authorities may also request SOCBs to make loans to the failing SOEs. This would only (momentarily) transfer the burden associated with keeping afloat non-efficient SOEs to<sup>the bankingsector.</sup> International experiences invariably show that such a strategy eventually leads to<sup>extremely</sup> costly banking crises. Instead, an appropriate strategy would be for the authorities<sup>totake</sup> advantage of the pressure brought about by the trade reforms to: (i) restructure SOEs, equitizing those in the competitive sector while regulating natural monopolies,<sup>and(ii) curtail</sup> the relation of inter-dependence between SOEs and SOCBs as agreed under the 1MF Poverty Reduction and Growth Facility (PRGF).

Vietnam also committed to open important services, including **banking** and insurance, under the 1USBTA (Box 1). This is expected to lead to a slightly more competitive banking and insurance sectors starting in three years which will have a direct bearing<sup>onbanking</sup> reform. The authorities could take advantage of the pressure brought about by the<sup>USBTA to</sup> reinforce regulation and make SOCBs independent from both the regulator and Government's inference possibly through equitization.

7
Box 1: **Joining Regional and Multilateral Trading Agreements**

# AFTA

- Overall **tariff reductions.** Tanffs on the vast majonty of tariff lines (95 percent, according to preliminary estimates) on ASEAN imports will be reduced to at most 20 percent by the start of 2003, and to 0-5 percent by beginning of 2006.

- * Tariff **reductions** on manufactures. By early 2004 average tanffs on manufactures from ASEAN countnes will be cut by 50 percent.

- * Reduced average tariffs By early 2004, average tariffs on ASEAN imports of textiles, leather, wood products, non-metallic mineral products (e.g. glass and ceramic products), and food products will fall by more than 60 percent.

# **USBTA**

- Liberalizing **trading rights** for U.S. firms in three to six years:

- *** Reducing current tariff rates** on a **limited** range of industrial and agricultural items (about 250) by 30 to 50 percent over three years.

- *** Removing** QRs on most products in three to seven years -- steel and cement after six years and petroleum products after seven years.

- * **Opening the services sector.** Vietnam will be providing more market access than low and middle income countries under the Uruguay round and only slightly less than the larger transition economies.

- *** Banking sector:** (i) penmit majority US ownership of banks after three years; (ii) grant national treatment in the possible equitization of SOCBs; and **(m)** phase in national treatment of deposit taking activities after eight years.

- * **Leasing sector:** 100 percent U.S. equity **in** financial leasing and in other leasing will be introduced after three years.

- *** Insurance sector: :** (i) permit majority US ownership of firms after three years; (ii) eliminate restrictions on the operations of joint ventures after three years (and wholly US-owned companies after six years); and (iii) permit wholly US-owned firm after five years.

- **Other services.** Immediate introduction of 100 percent U.S. equity **in** a range of technical services, including **in** legal, accounting, engmeenng, computer-related, and construction areas.

- * **Trade-related investment measures.** All WTO-inconsistent measures (e.g. local content requirements) will be phased out within five years

- *** Intellectual property rights.** WTO-consistent protection of intellectual property rights are to be introduced in 12-18 months.

- * **Transparency.** All laws and decisions goverming issues **in** the agreement will be published; administrative or judicial tnbunals for review will be established, as will the right of appeal.

# WTO

- Vietnam made its **initial** offer on specific comiutments **in** services in January 2002

- Fifth meeting of the Working Party on accession of Vietnam held **in** April 2002, to review the status of Vietnam's bilateral access negotiations and action plans for implementation of a number of WTO agreements, including those related to investment and intellectual property rights.

- Sixth meeting held in December 2002; start of the bilateral negotiations.

**Commitments to implement international trade agreements also provide an opportunity to deepen the tax administration reform.** A major consideration in the reductions in tariffs from AFTA, the USBTA and future trade agreements is their medium-term fiscal implications. International evidence suggests that significant tariff reduction can in fact lead to increase government revenue by both increasing total import duty collection and broadening the domestic tax base.'<sup>5</sup> There is a need to develop a long-term tax revenue

**i5** Athukorala (2002, p. 30) provides examples and references.

8
strategy that fully incorporates the impact of trade agreements as part of the tax administration reform.

Finally, commitments to implement international trade agreements provides opportunities **to** improve trade-related infrastructure. Vietnam's infrastructure for trade has been improving slowly. For example, the modification of port facilities and operations in response to containerization has increased efficiency and reliability of container handling operation. Also, the adoption of the new Custom Law in October 2001 has improved customs operations drastically. Customs clearance has already been streamlined while the modification of custom valuation to transaction values in compliance with WTO rules, to be implemented by end-2003 as agreed under the USBTA, will further increase efficiency. Ratification of the FAL Convention (Convention on Facilitation of International Maritime Traffic) of the International Maritime Organization (IMO) will further streamline the documentation process relevant to ship calls thereby further increasing productivity. However, further improvements are required to make the current system meet existing needs and keep up with future rise in trade volumes. Important issues are the high price and low efficiency of SOE cartel in ports -- with negative impact on the efficiency of sea-freight provided by the private sector -- and airports; and the low efficiency and high prices associated with SOE monopoly in air cargo, coastal shipping, railways, power and telecommunication. Key elements in the modem logistics of trade, including e-commerce and web pages, face stringent regulation that are difficult to justify from an economic perspective. Transport by land by the private sector is also constrained by low rural accessibility and poor road maintenance (Table 4).16 There is an urgent need for further deregulation and standardization of logistics industry and greater private participation in infrastructure services.

> 16 For more details, see Hopkins (2002), Nomura Research Institute (2002) and Almec Corporation (2000).

9
<!-- Start of picture text --> Table 4: Trade-Related Infrastructure<br><!-- End of picture text --> <!-- Start of picture text --> Ports/ Air freight Inland Road Railways Power Telecom-<br>Alrports waterway freight freight municati<br>shipping on<br>Market State cartel State Large barge Pnvate and State State State<br>structure monopoly Public sector public trucks monopoly monopoly monopoly<br>Small barge.<br>Private sector<br>Availability Reasonable Good Good Good Good Unreliable * Delays<br>of service - with in new<br>voltage line<br>fluctuatio installati<br>n on<br>*Restricti<br>ons on<br>intemet-<br>based<br>business<br>_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __________ ~~~to o ls.<br>Price High Not available Depends on Competitive Adequate Adequate Very high<br>location<br>Productivity Low Low Low Low Very low Very high Low<br>/Reason Insufficient . Insufficien Insufficient Insufficient Underuse losses<br>container t cold managemnent road d railways<br>handlity ing *DlStorage leading to development capacity<br>capacity in insufficient and<br>to outdated dredging and maintenance<br>Insufficient secutty lack of safety<br>airfreight checks<br>facility in<br>airports * Unsatisfact<br>ory<br>facilities<br>and<br>handling<br>techniques<br>Overall Vanes by Negative Vanes by Neutral Negative Negative Negative<br>Impact on region and region and<br>trade product product<br><!-- End of picture text --> Source: Adapted from Hopkins (2002) and Nomura Research Institute (2002).

# **B.2. Pace of Accession to the WTO**

**Vietnam would greatly benefit from fast accession to** WTO. To the extent that WTO sets accepted rules of trade among its members, it de facfo discriminates against non-member countries. As a consequence, Vietnam could gain enormously from WTO accession.<sup>As the</sup> experience of China indicates, accession to WTO generates considerable benefits<sup>in termsof</sup> improved legal framework and enabling environment which result in substantial productivity gains and incremental.capital inflows (Box 2). Also, as a WTO member, Vietnam would be in a better position to defend its interest on the international scene. There is some evidence that, as tariff barriers and quantitative import restrictions are progressively dismantled as part of the on-going global liberalization process, importing countries tend to intensify the use of sanitary and phytosanitary standards (SPS) or allegations of price dumping or subsidies to protect the interests of their domestic producers. Indeed, Vietnamese exporters are increasingly facing these new trade barriers as evidenced in the exports of shrimps to the

10
EU1<sup>7</sup> , frozen fish fillets to the US<sup>18</sup> , garlic"<sup>9</sup> and water-proof footwear2<sup>0toCanada,andgas</sup> lighters to the EU.<sup>2</sup> 1 Because Vietnam is not yet a member of WTO<sup>and cannotthustake</sup> advantage of the dispute settlement mechanism, it must use separate and differing<sup>bilateral</sup> legal measures to resolve such disputes. In addition, dispute resolution may be very<sup>costly</sup> and require technical expertise which may not be readily available. It is important that Vietnam develops capacities to meet SPS standards for both exports and domestic purposes. In addition, this will help Vietnam prepare itself for effective participation<sup>infuture</sup> reconsideration of SPS standards and the related implementation and dispute<sup>settlement</sup> procedures that have already been identified as key items on the WTO agenda<sup>forfuture</sup> multilateral trade negotiations.<sup>22</sup> Finally, the cost of WTO accession will increase<sup>overtime</sup> because the "terms of accession" into WTO will be increasingly demanding.<sup>23</sup> Consequently, to the extent possible, it is important that Vietnam accede WTO before the conclusion<sup>of the</sup> Doha Development Agenda--which will raise the "terms of accession"--scheduled<sup>for</sup> January 1, 2005. Interestingly, China decided to accelerate its accession<sup>toWTOin early</sup> 1999 in order to benefit from much lower "terms of accession"<sup>in applicationuntilthe end of</sup> 1999 when the WTO started a new round of multilateral negotiations<sup>(Wang,1999).</sup> China's accession to WTO creates additional incentives for<sup>Vietnam tobecomea</sup> member. Competition with China's exports in third markets will<sup>intensifyas aresultof</sup> China's accession to WTO. Vietnam is expected to be especially affected<sup>by theabolition of</sup> quotas on Chinese textile and apparel exports, starting in 2005. Also, China's WTO accession will improve China's business environment which could<sup>divertawayForeign</sup> Direct Investments (FDI) from countries with a similar comparative<sup>advantage,including</sup> Vietnam. Box 3 provides a more detailed analysis of the impacts of<sup>China's WTOaccession</sup> on Vietnam.

**17** On September 2001, the EU unilaterally required chloreramphenical<sup>tests forshrimps importedfromVietnam</sup> generating considerable losses to Vietnam shrimp exporters.

On June 2002, the Catfish Farmers of Amenca and individual U.S. catfish<sup>processorsfileda</sup><sup>**petition**foran</sup> antidumping investigation on imports of certain frozen fish fillets from Vietnam.<sup>InNovember2002, the U.S.</sup> Department of Commerce decided to classify Vietnam as a non-market economy<sup>forthe purposesof antidumpmg</sup> and countervailing duty proceedings. As the result of this decision, in making<sup>thedumpingdetermination,the</sup> U.S. Department of Commerce will not use prices and costs that prevail in<sup>Vietnambut insteaduse thosewhich</sup> prevail in a surrogate country. Full ruling is available on the web-site: http://www.ia.ita.doc.gov/download/vietnam-nme-status/vietnam-nme-status.htm 19 Canada has classified Vietnam as a non-market economy in relation to<sup>the garlicdumpingsuit.</sup> 20 On April 2002, the Shoe Manufacturers' Association of Canada<sup>filedasuitagainstimportsof waterproof</sup> footwear originating from Hong-Kong, China; Macao, Chma and Vietnam<sup>arguingthat theseitems have causedor</sup> are threatening to cause injury. Canada classified Vietnam as a<sup>non-marketeconomyinrelation to thegarlic</sup> dumping suit.

**21** On May 2002, the European Federation of Lighter Manufacturers<sup>filed an anti-dumpingsuit againstcheap</sup> Imports of disposable gas-fueled pocket lighters from China, Indonesia,<sup>MalaysiaandVietnam.</sup>

22 The Uruguay round reform commitments in the area of<sup>agricultureareembodiedin two related agreements:the</sup> Uruguay round Agreement on Agriculture (URAA) and the<sup>SanitaryandPhytosanitaryAgreement (SPSA).The</sup> URAA contains the new rules and commitments in the key areas of<sup>export subsidies, domestic support and market</sup> access while the SPSA establishes general guidelines for ammal and<sup>planthealthregulationsastheyrelatedto</sup> international trade in agncultural products. Although the SPSA<sup>reaffirmstheright of countries toset theirown</sup> safety and health standards, it aims to minimize the likely trade-impeding<sup>impact of SPSregulations.A new WTO</sup> Committee on SPS measures for speedy settlement of disputes<sup>thatariseinthe implementationof the SPSAhas</sup> been established.

**23** The present WTO member countries determine the "terms of accession."<sup>In order to develop the globaltrade</sup> system new members have to adopt the highest standards when liberalizing<sup>their traderegime.Therefore,the</sup> expected commitments usually exceed by far those of the established WTO-members.

11
**Consequently,. Vietnam may want to make**<sup>**specialeffortsto accelerateWTO accession.**</sup> Currently, Vietnam accession process seems<sup>stalled.24</sup> This may appear as surprising given the fact that (i) Vietnam's political leadership<sup>seems to indicatethat WTOaccession isa key</sup> priority, (ii) Vietnam would greatly benefit<sup>from rapid WTOmembership, particularly in the</sup> context of China's recent accession, and<sup>(iii)USBTA negotiationshaveexposedVietnam</sup> policy makers to a process similar to that of the<sup>WTO.</sup>

**In the end, implementation of trade reform**<sup>**isa testingground that revealsthe extent of**</sup> **Vietnam's commitment to a market economy.**<sup>Vietnamis facedwith competingpressures.</sup> On one side, proponents of the status-quo<sup>resisttheimplementationof trade reform because</sup> of its implications on other segments of<sup>theeconomyincludingSOEsandSOCBs.On the</sup> other side, proponents of a market economy<sup>encourageexpeditedimplementationof trade</sup> reforrm including accession to WTO. The<sup>largecohortof youngVietnamesethat jointhe</sup> labor force each year will, in the end, make the<sup>balancetilt.</sup>

> 24 **The** initial offer on specific commitments **in** services made in January 2002 fell short of key commitments under the USBTA. Bilateral negotiations are scheduled<sup>tobeginwith the EUandJapan</sup><sup>**in**2002but negotiatorsin</sup> Geneva seem little optimistic about the process outcome.

**1 2**
# Box 2: China: One Year into the WTlO Process

This Box contains excerpts from a speech "China: One Year into the WTO Process"<sup>byPeople'sRepublicof</sup> China's Vice Minister of Fmance, Jin Liqun, delivered at the World Bank on October<sup>22, 2002 (Videoand full text</sup> of the Vice Minister's remarks are now available on-line at: htto://www.worldbank<sup>or2/wbi/B-SPAN/).</sup> This speech which describes the opportunities and challenges faced by China may be of<sup>interesttoVietnaminits</sup> accession to WTO.

|"Sinceac|cession,thegovemmenthastakenanumberofactionsrequiredofa WTO-member.|
|---|---|
|Thepast<br>andtheg|yearhasbeenayearofimprovingthelegal framework.TheCongress<sup>hasmadeoramended newlaws</sup><br>ovemmenthasdonethesamewithitsordinances.|
|Thepast<br>thecentra|yearhasbeenayearoftraining.Aseriesoftraining courseshave<sup>been arrangedforseniorofficialsat</sup><br>landlocal levelstolearnabout WTOandChina'srights andobligationsasamember.|
|Thepast|yearhasbeenayearofimplementingthecommitments.<br>|
|o|Uponaccession,thegovernmenttook promptactionsto implementtariff<sup>reductionsandto abolisha</sup><br>numberofnon-tariffbarriersfor2002 aspledged.AsofJanuary1I2002,<sup>areductioninaveragetariffs</sup><br>from15.3percent to12percentbecameeffective,involving5,300tariff<sup>items,covering73percentof</sup><br>thetariffschedule.|
|o|The govemment has doneagreatamountofworktoopentheservicesmarket<sup>inaccordancewiththe</sup><br>WTOcommitments.Someforeignbankshavestarted to negotiate with<sup>the ChinesebanksforM&A</sup><br>deals.Andforeignfinancialinstitutions havebeeninvitedtoformjointventures<sup>todisposeNPLstaken</sup><br>awayfromthefour majorcommercial banks.|
|o|Insomeareas,the opennessoftheservices marketisevenaheadofthetimetable<sup>forthe firstyearof</sup><br>membership.For, example, foreigninsurance companies are allowedtoopen<sup>businessinBeijingand</sup><br>Tianjing.<br>Someforeignretailbranchesarenegotiatingwiththeir Chinesecounterpartstotakea<br>majontyshareintheirequity.FromJulythisyear, foreigntravelagents<sup>havestartedtoformjoint</sup><br>venturesorset-upwholly-owned subsidiariesinShanghai.|
|o|Lawsandregulations on the protectionofintellectualpropertyrightshave been<sup>reviewedoramended</sup><br>inline withtheTRIPAgreement.|
|Thepast<br>member.|year hasbeenayearofimprovingtheenablingenvironmentforthecountry<sup>tofunctionasa WTO</sup><br>|
|o|ChinahasjoinedtheGeneralDataDisseminationSystem(GDDS)oftheIMF,andistakingconcrete<br>measurestoimprovetheaccountingstandardsand informationdisclosure<sup>in relatedsectors.</sup><br>|
|o|To enhancetransparency,anew office,WTONotificationandEnquiry Center,<sup>hasbeenestablished,</sup><br>whosedutyistoreportontheimplementafionofWTOprotocolsandanswer<sup>inquiriesonWTO-related</sup><br>matters.|
|Wearee<br>manysec|ncouragedtoseethat thehead-oncompetitionhasspurredtechnological<sup>upgradingandrestructuring in</sup><br>torssuchasthe autosector,resultinginmarkedimprovement inefficiency.|
|However,|toughchallengesremaintobetackled.<br>|
|a<br>|Sincethebeginningofthisyear,anumberofsectors andproducts began<sup>tofeelthepressureofWTO</sup><br>obligations,particularlymsteel,petrochemicalsand agriculture.<br>|
|O|We are facedwitharesurgenceofprotectionalism inindustrializedcountries.<br>|
|o|ImplementingWTOtanffscheduleshasledtoadeclineinourstaterevenues.In<sup>the firstsixmonthsof</sup><br>thisyear,revenuesfromcustomduties andimport-relatedVATtaxes<sup>decreasedby7.5percent.</sup>|
|Although<br>thechalle|these policies[may]not seemdirectly relevantto WTOobligations,<sup>themajor policyresponsestomeet</sup><br>ngesare:<br>|
|o|Deepeningthepublicfinancereformincludingdelinkingrevenuesfromexpenditures<sup>toeradiateabuses</sup><br>orevenoutright corruption.<br>|
|o|Acceleratingfinancial sectorrefonm.<br>|
|O|Acceleratingtherestructuringoftheagricultureandruraleconomy.|
|o|Investinginpeople and creatingjobopportunities.Intensifying protectionof<sup>eco-environment.</sup>|

13
<!-- Start of picture text --> Box 3: Impact of China's WTO Accession on Vietnam<br><!-- End of picture text -->

|China'saccessiontoWTOpresentsbothopportunitiesand challengesforEastAsianeconomiesand<sup>Vietnam</sup><sup>**in**</sup><br>particular.Itsimpactswill befelt throughanumberofchannels:|
|---|
|1.Increasedoverallwelfare.Adecline**in**China'sprotectionwouldpushtheproduction<sup>possibilityfrontier</sup><br>outward leadingtoanoverall gain**in**welfare.However,China'slarge sizemayalsoshift thetenmsoftrade<br>withpossiblynegativeimpactonthird countries includingVietnam.Also,factorpnceequalizationis<br>expected toputadownwardpressureonunskilledwages**in**thirdcountriesincluding<sup>Vietnamwhichmay</sup><br>increaseinequality.|
|2.InsignificantimpactonVietnam'saggregate exportlevel.<br>China'commitmentstoabolishnon-tanff<br>barriersand reduce tariffs(fromanaverageof13.3percentmi2001to 6.8percentatthe endof<sup>the</sup><br>irnplementationpenod)willfueltrade withtherestofthe world.However,China'saccessiontoWTOis<br>expectedtohaveaninsignificantoverallimpactonVietnam'sexports:the increaseinVietnam's<sup>exportsto</sup><br>Chinaisexpectedtobemore than offsetbysubstitutionofthird-countryimportsawayfromVietnam.|
|3.SignificantimpactonVietnam'sexportlevelandcompositiontoChina. Increased accesstoChina'smarket<br>isexpectedtostimulate exports fromVietnamacrossmost industriesincludingriceproduction,<sup>food</sup><br>processingindustry,lightmanufacturing,metals and petrochemicals, andelectronics.|
|4.<br>SignificantimpactonVietnam'sexportcompositiontothirdmarkets.Competition withChina'sexportsin<br>thirdmarketswillintensifyasaresultofChina'saccessiontotheWTO.Thiswillhold especially<sup>for</sup><br>countneslikeVietnamthathavesimilar comparativeadvantageinlaborintensiveproducts.<sup>Vietnam</sup><br>exportsleveltothirdcountriesisexpectedto decline.Forexample,Vietnam'stextile<sup>andgarmentindustry</sup><br>(16percentoftotalexports)wllbedirectedaffectedby the abolitionofquotasonChinesetextilesand<br>apparelexportstotheUSandthe EUstarting**in**2005,whichleavesVietnam withonly3yearstoestablish<br>itselfintheUSmarketforapparel.China'sWTO accessionisexpectedtoleadtoasubstantial declinein<br>Vietnam'sapparel exportsand productionby 2010(themost significantdeclineisexpectedtooccuraround<br>2005when quotasonChineseapparel areremoved).|
|5.Increased transparencyandpredictabilityofChina'strade policy.AsgeneralWTOpolicyrulesrequire<br>membercountriestopublishtraderulesand regulations,China'stradingpartnerswillbenefitfrom<sup>the</sup><br>increased transparencyandpredictabilityofChina's,trade policy.<br>Thespecificcommitments involve<br>uniform applicationofthetraderegime,independentjudicialreviewandamechanismtobringproblems<sup>of</sup><br>localprotectionism totheattentionofthecentralgovemment.AccesstoChina'smarket willbe<sup>more</sup><br>securedanddisputeswillbe resolved followinginternationalstandards,<sup>an</sup>important<sup>benefittoChina's</sup><br>trading partnersincluding Vietnam.|
|6.IncreasedChina'sattractivenessasadestinationfor ForeignDirectInvestment(FDI).<sup>Theopeningofthe</sup><br>servicesector**including**telecommunication,distnbution,banking,insurance,asset<sup>management,and</sup><br>securitiesto foreigndirectinvestmentas wellastheprovisionofnationaltreatmenttoforeign<sup>funded</sup><br>enterprises may represent themostsigificantpartofChina'saccessiontoWTO.EntryintotheWTOwill<br>requireChinatoamend**its**laws,regulationsandpracticestoalignthemwithanumberof<sup>international</sup><br>investment-relatedrules.theGeneralAgreementofTradeinServices (GATS),the AgreementonTrade-<br>RelatedInvestmentMeasures(TRIMS), andtheAgreementon Trade-Related Intellectual PropertyRights<br>(TRIPS). TheGATS,forexample,requiresmemberstoprovide MFN treatmentand transparencyontrade<br>inservices.Chinawillalsoberequiredtoabideby intemational standardsinthe protectionofintellectual<br>propertyandincreasetransparency**in**legislationformulation andjusticepractice,whichshould encourage<br>furtherFDIinto China. AsChinaimproves**its**bustnessenvironment,FDI maybedivertedaway fromother<br>countriesincludingVietnam.ForeigninvestmenttoVietnammaydeclinebyasmuchas30percent by<br>2010astheresultofChina'saccessionwithnegativeimpacts oneconomicgrowth.|

7. Increased bargaining power of developing countries **in** the WTO. China's accession to<sup>theWTO will</sup> strengthen the voice of developing countnes and East Asian countnes **in** particular in<sup>this intemational</sup> forum. Also, Vietnam can leam from China's experience in accessing the WTO which could<sup>facilitateits</sup> own accession.

Source: Adapted from lanchovichina, Suthiwart-Narueput and Zhao (2002) 14
# References:

Almec Corporation - Pacific Consultants International, 2000. "The<sup>StudyoftheNational</sup> Transport Development Strategy in the Social Republic of Vietnam<sup>(VITRANSS)." Final</sup> Report. Prepared by Japan International Cooperation Agency, Ministry of<sup>Transport, Socialist</sup> Republic of Vietnam and the Transport Development and Strategy Institute<sup>(July 2000).</sup> Athukorala, Prema-Chantra. 2002. "Trade Policy Reforms, Export<sup>Strategies,andthe</sup> Incentive Structure." Background Paper to the World Bank study "Vietnam<sup>Exports:Policy</sup> and Prospects" (September 2002).

Centre for International Economics (CE). 1999. "Non-Tariff<sup>Barriers inVietnam:A</sup> Framework for Developing a Phase Out Strategy". (September<sup>1999)</sup> Centre for International Economics (CE). 1998. "Vietnam's Trade<sup>Policies1998".(July</sup> 1998).

Centre for International Economics (CIE). 1997. "Vietnam's Trade<sup>Policies1997".(August</sup> 1997).

Fukase, Emiko and Martin, Will. 1999. "A Quantitative<sup>Evaluationof Vietnam'sAccession</sup> to the ASEAN Free Trade Area." Policy Research Working Paper<sup># 2220.TheWorld Bank.</sup> (November 1999).

Hopkins, Ben. 2002. "The Impact of Vietnan's Infrastructure on<sup>Exporters:ASurvey."</sup> Background Paper to the World Bank study "Vietnam Exports: Policy<sup>and Prospects" (March</sup> 2002).

Ianchovichina, Elena. 2001. "Vietnam's Duty Drawback System: Current State and Implications". World Bank Policy Note. (November 2001).

Ianchovichina, Elena and Martin, Will. 2001. "Trade Liberalization<sup>in China's Accessionto</sup> WTO". Journal of Economic Integration 16(4), pp. 421-444.

Ianchovichina, Elena and Martin, Will. 2002. "Economic Impacts of China's<sup>Accessionto</sup> the WTO". Paper presented at the seminar on WTO Accession, Policy<sup>ReformandPoverty</sup> Reduction in China. World Bank. Beijing. June 28-29, 2002.

Ianchovichina, Elena; Suthiwart-Narueput, Sethaput and Zhao,<sup>Min.</sup> 2002. "Regional Impact of China WTO Accession". Paper presented at the Regional<sup>Workshop on East Asia</sup> Trade and Poverty. Singapore. (September 2002) International Monetary Fund (2002). Vietnam Country Report No 02/151.<sup>(July 2002).</sup> Liqun, Jin. 2002. "China: One Year into the WTO Process." Speech<sup>madespoke thisweek</sup> at the World Bank on October 22, 2002. See: http://www.worldbank.org/wbi/B-SPAN/ or http://www.worldbank.org/wbi/B-SPAN/sub_china_seminar.htm Lord, Montague. 2002. "Vietnam's Export Competitiveness:<sup>Tradeand Macroeconomic</sup> Policy Linkages." Background Paper to the World Bank study "Vietnam<sup>Exports:Policy and</sup> Prospects" (March 2002).

15
Matin, Kazi and Duc, Minh Pham. 2000. "Vietnam Trade<sup>Liberalization:Followingthe</sup> AFTA Program." Social Development. (Summer 2000).

Nomura Research Institute, 2002. "Vietnam Development, Trade<sup>Facilitationandthe Impact</sup> on Poverty Reduction." Prepared for Ministry of Transport,<sup>Vietnam andtheWorldBank.</sup> (June 2002).

Ministry of Planning and Investment. 2002. "Public Investment<sup>Programme2001-2005".</sup> Social Republic of Vietnam. (July 2002).

Pham, Van Thuyet. 2002. "Vietnam: Regulatory Environment and<sup>SupportServicefor Export</sup> Development" (2002). Background Paper to the World Bank study<sup>"VietnamExports: Policy</sup> and Prospects".

Prime Minister's Research Commission, Vietnam Institute for<sup>TradeandGerman Technical</sup> Cooperation. (2001). "Inter-Ministerial Coordination during<sup>WTO Accession: Experiences</sup> of Selected (transition) Economies and some Considerations<sup>forVietnam."(September</sup> 2001).

Wang Yong. 1999. "Why China Went for WTO". China Business Review.<sup>Washington.</sup> July-August, pp. 4245.

World Bank. 2002. "Vietnam' Export Policies and Performance: Challenges and Opportunities." Draft.

Web sites: Classification of Vietnam as a non-market economy by the<sup>USDepartmentof Commerce:</sup> http://www.ia.ita.doc.gov/downloadlvietnam-nme-status/vietnam-nme-status.htm 16
# Annex 1: Major Changes in Trade Policy since _doi moi_

|Year|||Objectives||
|---|---|---|---|---|
||Increasenumbers ofFTCs|Developtradepolicyinstruments|Removeexchangerate<br>distortions|Becomeamemberofinternationaltradingarrangements|
|1988|oRestnctions onestablishmentof<br>foreigntrading organizations<br>relaxedandcentralgovernment<br>monopolyofforeigntrade<br>terminated|oAdoptionofthe Law on ImportandExport<br>Duties|oForeign exchangecontrol<br>decreeliberalizesretension<br>foreignexchange,openingof<br>foreign currencyaccounts, use<br>oftransfersto payforimports<br>andrepay foreignloans||
|1989|oReqwrementthatSOEsfulfill<br>CMEAexport targetsbefore<br>exporting toconvertible<br>currencyarearemoved<br>oProducersofexportablegoods<br>allowed tosellthemtoany<br>appropriatelylicensedforeign<br>trade company|**o**Quotas removed onallbuttenexportand14<br>importcommodities(subsequentlyreducedto<br>sevenexportand12import commodities)<br>oNumberofexportcommoditiessubjectto<br>exportduties reducedfrom30to12andmost<br>ratesreduced<br>oNumberofimport commodities subjectto<br>duties reduced from124to80, rangeofrates<br>expanded from5-50percentto 5-120percent<br>oAllbudgetaryexportsubsidies removed|oForeignexchangeratesystem<br>unified||
|1990<br>I|oGeneralexport-import<br>companiesrequiredtoregister<br>withregulatoryorgamzationfor<br>individualcommodities<br>oExportsofcertaincommodities<br>limitedtomembersofrelevant<br> <br>exportersassociations|oSpecialimportdutiesimposedonselected<br>goodssuchasmopedsandtounstvehicles|||
|1991|<br>**a**Pnvatecompanuesallowedto<br>directlyengageinintenational<br>trade|oExportdutyonncereducedfrom10percent<br>toIpercent<br>oImportedmputsused to produceexports<br>exempted fromduty|**o**Foreignexchangetrading<br>floorsopenedatSBVN||
|1992||<br>oHarmoruzedSystem(HS)oftariff<br>nomenclatureintroduction||oTradeagreement signedwith EuropeanUnion(EU) establishes<br>quotaon exportsoftextileandclothingtoEUandgrantstariff<br>preference on selected imports fromEU|
|1993||oExportshipmentlicensingrelaxed- six<br>monthlylicensesissuedfor 22 export<br>commodities<br>o90daydutysuspensionsystemforinputs<br>intoexport productionintroduced<br>o Tariffandrevenuelawsamendedtoadd||oVietnamjoinsCustomsCooperation Council|
|**Year**|||**Objectives**<br>||
|---|---|---|---|---|
||**Increasenumbersof**FlTCs|**DeveloptradepolicyInstruments**|**Removeexchangerate**<br>**distortions**|**Becomea memberof Internationaltradingarrangements**|
|||provisions forotherthan normal<br>importation(suchas,goods**in**tansit)<br>*UnitedNations(UN)Layoutkeyfor<br>customsdeclarationadopted|||
|1994|aStepsinprocessofhcensingto<br>engageininternationaltrade<br>reducedfromthreetotwo<br>*Exportshipmentlicensing<br>furtherrelaxed- completely<br>liftedforallcommoditiesexcept<br>nce,timber and petroleum|*Eliminationofirnportpermitsforallbut15<br>products<br>*Dutyexemptionsystemforexportsextended<br>to suspenddutypaymentsfor90 days||*Vietnam gainsGATrobserverstatus|
|1995|*Requirementfor importerstoget<br>import pernutsonabyshipment<br>basiselirninatedforawiderange<br>ofconsumerandproducer goods|*Coverageofexportquotasreducedto one<br>commodity- rice<br>. ExporttaxratesraisedonIIproducts<br>*Rangeofgoodssubjecttomanagement by<br>importquotareducedtoseven||*VietnamjomsASEANandaccedestoprotocolsofmembership<br>ofAFTA<br>. 1996lstofgoodsunderthecommon effectivepreferentialtariff<br>(CEPT)forAFFApromulgated (involvesnochangeinduties)|
|1996||. Maximumtariffratereducedto80percent<br>specialsalestaximposedatratesup to100<br>percentonimported(butnotlocally<br>produced) passengercarsfollowingreducton<br>intarifftate<br>*Import-exportpolicydecisionfor1996<br>reducesnumberofgoodsmanaged by import<br>quotatosix|*Inwardforeignexchange<br>renuttancetaxlifted|*Listofcommoditiesunder CEPTofAFTAfor1997<br>promulgated|
|1997||.<br>Importsofsugarprohibited.<br>Numberofgoodssubjecttomportquotasto<br>achievenaturalbalancesincreases<br>*<br>Temporaryprohibitions imposedon<br>importsofwiderangeofconsumergoods<br>thenlifted<br>-|||
|1998<br>_____|*Licensedexportersallowedto<br>exportanynon-regulated export<br>products, regardlessofwhether<br>thegoods are specifiedintheir<br>license<br>. Producersofallnon-regulated<br>export productsallowedto<br>exportdirectly,ratherthan<br>throughatrading company|*Highesttariffratereducedto60percent<br>. Managementofimportsofmostconsumer<br>goodsshiftedtotanrffsratherthanquotasor<br>licensing<br>*Restrictionsimposedonimportsofalcohol<br>*Useofmimmumpncelistforvaluationof<br>importsbyforeigninvestedenterprises<br>terminated<br>. Amendmenttoimport/exporttaxlaw<br>introduces3-scheduletanff,and provision|*Forward andswapforeign<br>exchange bransactons<br>authonzed<br>. Partial surrender requirements<br>imposed onenterpnsesholding<br>foreignexchangeaccounts|*Informalroad mapofCEPTtanffreductionsto2006 issued<br>. Listofcommodities underCEPTfor1998promulgated,<br>completingcoverageofinclusionhst|
|Year|||Objectives||
|---|---|---|---|---|
||IncreasenumbersofFICs|Developtrade**policy**Instruments|Removeexchangerate<br>distortions|Becomea memberofInternationaltradingarrangements|
|||forantidumpingandcountervailing duty|||
|1999|||oEncouragedtradmgactivities<br>byreducingtheforeign<br>exchangesurrender<br>requirement from80percentto<br>50 percentofforeignexchange<br>eamings||
|2000||oRemovedquantitativeimport restrictionson<br>8outofremaining19groupsofproductsi.e.<br>includingfertilizer,liquidsoda,ceramnuc<br>goods,plastcpackaging,DOPplasticizer,<br>ceramic sanitaryware,electricfans,and<br>bicycle||**a**Signedabilateral trade agreementwithtde USinJulypavingtde<br>wayfor MFNaccessofVietnameseexportstotheUS market,<br>gradualopenigupofVietnam'seconomy,forgoodsand<br>servicesas well as investments|
|2001|oPermittedalllegalentities<br>(companiesandindividuals)to<br>exportmostgoodswithout<br>havingtoacquireaspecial<br>licensebyrevisingthe<br>implementingdecreeofthe<br>Tradelaw|oRemovedQRsmultilaterally onalltariff<br>hnesofthe followinggroupsofproducts<br>liquor,chnker,paper,floortiles,construction<br>glass,some typesofsteel,andvegetableoil|oReducedtheforeign exchange<br>surrenderrequirementfrom50<br>to40percent|oMoved713tanfflinesfromtbeTemporaryExclusionList<br>(TEL)tothe Inclusion List(IL)|
|2002|||oReduced theforeignexchange<br>surrenderrequirementfrom 40<br>to30percent (May2002)|oDetailedalistofgoods and tax rates forimplementingthe<br>Agreement ontheCommonEffectPreferential Tariffs(CEPT)<br>SchemeofASEANcountriesfortdeyear 2002 Basedonthe<br>schedule,481 itemsweremovedin toInclusionhstwithtariff<br>lowerthan20percent.Todatethere are5558 lines inthe<br>InclusionList,770intheTemporaryExclusionList,53m the<br>SensitiveAgricultural Listand139m GeneralExclusionList<br>oIssued tde implementing decisionfortheUSBTA, including<br>guidelinesfor responsibihties andactions(Decisionno.<br>35/2002/QD-TTgMarch12,2002)<br>oA Govemmentnegotiationteamstartedworkingsessionsoh<br>WTOaccessioninGeneva (April 2002)|
# **Policy Research Working Paper Series**

||**Title**|**Author**|**Date**|**Contact**<br>**forpaper**|
|---|---|---|---|---|
|WPS3056|AvoidingthePitfallsinTaxing<br>FinancialIntermediation|PatrickHonohan|May2003|AYaptenco<br>31823|
|WPS3057|TeachingAdultsto Read Betterand<br>FasterResultsfromanExperiment<br>inBurkinaFaso|HelenAbadzi|May2003|HAbadzi<br>80375|
|WPS3058|WorkingforGod?Evaluating Service<br>DeliveryofReligious Not-for-Profit<br>HealthCareProvidersinUganda|RitvaReinikka<br>Jakob Svensson|May 2003|H.Sladovich<br>37698|
|WPS3059|DoCapitalFlowsRespondtoRisk<br>andReturn?|C6sarCalder6n<br>NormanLoayza<br>LuisServen|May2003|TTourougui<br>87431|
|WPS3060|World Market Integrationthrough the<br>LensofForeignDirectInvestors|RuiAlbuquerque<br>NormanLoayza<br>LuisServen|May 2003|T.Tourougui<br>87431|
|WPS3061|ReciprocityinFreeTrade<br>Agreements|CarolineFreund|May2003|PFlewitt<br>32724|
|WPS3062|LaborEffectsof AdultMortalityin<br>Tanzanian Households|Kathleen Beegle|May 2003|EdeCastro<br>89121|
|WPS3063|TradeLiberalization,Firm<br>Performance, andLaborMarket<br>OutcomesintheDevelopingWorld<br>WhatCanWe LearnfromMicro-Level<br>Data?|PaoloEpifani|May 2003|P.Flewitt<br>32724|
|WPS3064|TradePolicy,TradeVolumes,and<br>Plant-LevelProductivityinColombian<br>ManufacturingIndustries|AnaM.Fernandes|May 2003|A.Fernandes<br>33983|
|WPS3065|GhostDoctors.Absenteeismin<br>BangladeshiHealthFacilities|NazmulChaudhury<br>JeffreyS.Hammer|May2003|HSladovich<br>37698|
|WPS3066|ThePotentialDemandforand<br>StrategicUseofanHIV-1Vaccine<br>inSouthernIndia|ShreelataRaoSeshadri<br>PSubramaniyam<br>PrabhatJha|May2003|HSladovich<br>37698|
|WPS3067|TheMini-IntegratedMacroeconomic<br>ModelforPovertyAnalysisAFramew<br>forAnalyzingtheUnemploymentand<br>PovertyEffectsofFiscalandLabor<br>Market Reforms|Pierre-Richard Agenor<br>ork|May 2003|M.Gosiengfiao<br>33363|
|WPS3068|PovertyandEconomic Growthin<br>Egypt,1995-2000|HebaEl-laithy<br>Michael Lokshin<br>ArupBanerjli|June2003|PSader<br>33902|
|WPS3069|InternationalMigration,Remittances,<br>and theBrainDrain.AStudyof24<br>Labor-Exporting Countries|RichardH.Adams,Jr.|June2003|NObias<br>31986|
|WPS3070|AreYouSatisfied?CitizenFeedback<br>andDeliveryofUrbanServices|UweDeichmann<br>SomikVLall|June 2003|Y.D'Souza<br>31449|
# **Policy Research Working Paper Series**

||**Title**|**Author**|**Date**|**Contact**<br>**forpaper**|
|---|---|---|---|---|
|WPS3071|Survey TechniquestoMeasureand<br>Explain Corruption|RitvaReinikka<br>JakobSvensson|June2003|HSladovich<br>37698|
|WPS3072|DiversityMatters:TheEconomic<br>GeographyofIndustry Locationin<br>India|SomikV.Lall<br>JunKoo<br>SanjoyChakravorty|June2003|V.Soukhanov<br>35721|
|WPS3073|Metropolitan Industrial Clusters:<br>Patterns andProcesses|SanjoyChakravorty<br>JunKoo<br>SomikV.Lall|June2003|V.Soukanov<br>35721|
|WPS3074|TheGenderImpactofPension<br>Reform:ACross-CountryAnalysis|EstelleJames<br>AlejandraCox Edwards<br>RebecaWong|June 2003|MPonglumjeak<br>31060|
|WPS3075|ChildLabor, IncomeShocks,and<br>AccesstoCredit|Kathleb.Beegle<br>RajeevH.Dehejia<br>RobertaGatti|June2003|E.deCastro<br>89121|