The trans pacific partnership (TPP) opportunities and challenges for vietnam

Ho¹t ®éng nghiªn cøu khoa häc

THE TRANS-PACIFIC PARTNERSHIP (TPP):
OPPORTUNITIES AND CHALLENGES FOR VIETNAM
1, 2
Hoang Chi Cuong
1 Graduate School of Asia-Pacific Studies, Waseda University, Tokyo, Japan
2 Faculty of Business Administration, Hai Phong Private University
Abstract
The aims of this short article are to give an overview about the Trans-Pacific Partnership (TPP) and outline the
opportunities and challenges, which Vietnam may face with after it becomes a full membership of this agreement in the
coming years. The author hopes to arrive at a more profound understanding about the TPP and its possible effects to the
country's economy. The methodologies used in this article include qualitative, quantitative research tools and
descriptive analysis.
1. INTRODUCTION
he ongoing 2008 global financial and economic
crisis revealed both the strengths and weaknesses of
the global trading system under the WTO regime. It is
known that the global trade liberalization under the
WTO is the best existing policy for the world as a whole.
However, the current round of multilateral trade
negotiations under the WTO, the Doha Development
Agenda (DDA), has been deadlocked. Thus, a large
number of countries have become unsatisfied with the
WTO due to the slow progress in multilateral trade
liberalization and limited coverage of the WTO rules.
Faced with these concerns, many countries (including
Vietnam) have turned to free trade agreements (FTAs)
such as the Trans-Pacific Partnership (TPP), the
Comprehensive Economic Partnership for East Asia
(CEPEA), etc. under which trade barriers are removed

among the member countries. The TPP may bring both
the opportunities and challenges to Vietnam as a nature
of international economic integration. As for the business
sector and the society at large, the lack in experience with
the TPP and apprehension over the consequences of
market liberalization, demand more details about the
benefits of the membership and question the possible
impact of the TPP rules on the country's economy.
Particularly this begs the question, what are the effects of
the TPP on Vietnam or what are the opportunities and
challenges, which Vietnam may face with when this
agreement comes into effect? Using this inquiry as a
starting point, this article will seek to comprehensively
answer this question. The article is organized as follows.

T

The subsequent section, 2 will first give an
introduction to the TPP. Section 3, then, discusses the
opportunities and challenges, which Vietnam may face
with when the TPP enters into force. The last section
outlines some concluding remarks and recommendations.
2. AN INTRODUCTION TO THE TPP
The Trans-Pacific Partnership (TPP) is a proposed
regional free trade agreement (FTA) currently under
negotiation between Australia, Brunei, Canada, Chile,
Malaysia, Mexico, New Zealand, Peru, Singapore, the
United States, and Vietnam. The negotiating partners have
expressed an interest in allowing this proposed “living
agreement” to cover new trade topics and to include new

members that are willing to adopt the proposed
agreement's high standards. Canada and Mexico are the
most recent countries to join the negotiations and Japan
has participated in consultations with the partner countries
about the possibility of joining.
The TPSEP was previously known as the Pacific
Three Closer Economic Partnership (P3-CEP). Its
negotiations launched on the sidelines of the 2002
APEC Leaders' Meeting in Los Cabos, Mexico, by
Prime Ministers Helen Clark of New Zealand, Goh
Chok Tong of Singapore and Chile President Ricardo
Lagos. Brunei first took part as a full negotiating party in
the fifth round of talks in April 2005, after which the
trade bloc became known as the Pacific-4 (P4).
Although all original and negotiating parties are
members of the Asia-Pacific Economic Cooperation
(APEC), the TPSEP and TPP are not APEC initiatives.
However, the TPP is considered to be a pathfinder for the
proposed Free Trade Area of the Asia-Pacific (FTAAP),
an APEC initiative.

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The original agreement was concluded by Brunei,
Chile, New Zealand, and Singapore on 3 June 2005, and
entered into force on 28 May 2006 for New Zealand and
Singapore, 12 July 2006 for Brunei, and 8 November
2006 for Chile. It is a comprehensive free trade

agreement, affecting trade in goods, rules of origin, trade
remedies, sanitary and phytosanitary measures, technical
barriers to trade, trade in services, intellectual property,
government procurement and competition policy. Among
other things, it called for reduction by 90 percent of all
tariffs between member countries by 1 January 2006, and
reduction of all trade tariffs to zero by the year 2015.
On the last day of the 2010 APEC summit, leaders of
the nine negotiating countries endorsed the proposal
advanced by United States president Barack Obama that
set a target for settlement of negotiations by the next
APEC summit in November 2011. However, negotiations
have continued through 2012 and into 2013.
The TPP negotiations have taken center stage as the
most significant trade initiative of the 21st century. As of
May 2013, negotiators have made extensive progress in
17 negotiating rounds since the talks began in March
2010, though hard work remains to finish the deal in the
coming year or so. The TPP would strengthen ties
between Asia and the Americas, create a new template for
the conduct of international trade and investment, and
potentially lead to a comprehensive free trade area (FTA)
in the Asia-Pacific. It could stimulate trade by benefiting
the competitive industries of both emerging-market and
advanced economies. And it could yield an innovative
model for consolidating the “noodle bowl” of existing
trade agreements. Asian agreements, in turn, have aimed
to promote the ASEAN Economic Community in 2015,
improve political relations in Northeast Asia. The TPP
emerged as a US priority some years ago, but it has

recently become identified with the “rebalancing” of US
foreign policy toward sustaining a US presence in Asia.
The proposed TPP and its potential expansion are
important due to the economic significance of the AsiaPacific region for both the participants and the world. The
region is home to 40% of the world's population, produces
over 50% of global GDP, and includes some of the fastest
growing economies in the world. Along with increasing
economic influence these economies account for a
growing share of world trade. The region is significant not
just as a burgeoning market, but also as an integral part of
international supply chains.

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Table 1: TPP Members and Economic Statistics, 2011
Mem ber

GDP
($
billions)

Population
(millions)

GDP/capita
(in $ at

PPP)

Real GDP
grow th
(%)

A ustralia
B runei
C anada
C hile
M alaysia
M exico
N ew Zealand
Peru
Singapore
V ietnam
U S.
T otal

1,487
16
1,739
24 8
28 8
1,154
15 9
17 7
26 0
12 3
15,076

20,727

22.4
0.4
34.4
17.2
28.6
113.7
4.4
30.0
5.3
89.3
311.9
657.8

4 0,847
4 9,536
4 0,519
1 7,361
1 6,240
1 4,653
2 8,012
1 0,062
5 9,710
3,359
4 8,328
-

2.14
2.21

2.41
5.92
5.08
3.94
1.35
6.91
4.89
5.89
1.81
-

Source: International Monetary Fund, World
Economic Outlook, October 2012.
The 11 countries that constitute the current group of
TPP participants are economically and
demographically diverse. As shown in Table 1 above,
the United States is much larger than the other
members in terms of its economy and population.
Compared to the next closest TPP member in each
category, the United States has nearly three times as
many people as Mexico has and more than eight times
the GDP of Canada. GDP per capita at purchasing
power parity (PPP), a rough measure of a country's
level of economic development, ranges from just over
$3,000 in Vietnam to nearly $60,000 in Singapore,
more than $10,000 higher than that of the United
States. These countries vary greatly in their geography
as well. They range from Australia, a large and
resource rich continent, to Singapore, a small, tradedependent city-state. What are the opportunities and
challenges for Vietnam resulting from the TPP's

participant? The answer partially comes from the next
section.
3. THE OPPORTUNITIES AND CHALLENGES
FOR VIETNAM
According to some analysts, Vietnam would be the
largest beneficiary on the TPP track and of an AsiaPacific-wide Agreement. Five factors explain this result
are: (1) strong trade with the United States; (2) high
protection abroad against apparel and footwear, which
are Vietnam's principal exports; (3) strong competitive
positions in these and other manufacturing industries
where China's comparative advantage is fading; (4) high
initial domestic protection; and (5) powerful scale
effects in Vietnam's principal production clusters.


Ho¹t ®éng nghiªn cøu khoa häc
The first three factors boost Vietnam's exports and
terms of trade under the TPP. The last two amplify these
benefits by stimulating productivity gains. Higher
incomes in turn enable Vietnam to invest more and grow
more rapidly.
The TPP will benefit the economy of Vietnam thanks
to import tax incentives pledged by TPP members for the
major exports of Vietnam, including garments and
textiles. The garment and textile sector has become
Vietnam's spearhead industry with a large amount of
export revenue among other export items. With nearly
4,000 businesses, which generate jobs for about 2.5
million people, the sector created revenue of nearly
US$20 billion and registered over US$17 billion from

exports in 2012. In which, the US has become the largest
importer of Vietnamese garments and textiles,
accounting for about 50% of the country's total exports.
However, in order to benefit from such incentives,
Vietnamese garment and textile products have to satisfy
the “Yarn Forward” ROO (Rule of Origin), which
requires TPP nations to use TPP member-produced yarn
in their textiles to have duty-free access. This greatly
affects Vietnam's garment and textile industry as 90% of
materials used in the sector are imported from foreign
countries, with most being non-TPP members. So,
Vietnam ought to boost support industries to ensure local
supply of materials and reduce dependence on imports
while improving the quality of the design sector, in a bid
to ensure the stable and sustainable development of the
garment and textile industry. Also, the Government
should build exclusive policies for the industry and zone
off industrial zones specializing in garments and textiles,
with a focus on the dyeing sector.
Of course, Vietnam would also face significant
challenges in implementing an agreement that requires
stringent disciplines in areas such as labor and
government procurement. It also faces tough challenges
in maintaining a macroeconomic environment that
permits adjustment and encourages long-term
investments.
Particularly, Vietnam's political system differs from
that of the United States but domestic issues will also
have a large impact there. State-owned enterprises play
an important role in the economy and could face

significant adjustments under the competition policy
chapter. Labor provisions calling for “freedom of

association” would be difficult to reconcile with
Vietnam's single, state-sponsored labor union.
Producers in several industries worry that the TPP's
environmental provisions could raise costs. As the
country with the lowest per capita income in the TPP,
Vietnam hopes for “special and differential treatment”,
but the TPP is unlikely to include such provisions. Much
will depend on whether provisions affecting its critical
textile and apparel exports are favorable enough to
justify hard concessions.
In the regards to the structure of Vietnam's exports, it
has been still constructed by a focus on traditional
products with the country's comparative advantages in
natural resources like raw materials (e.g., crude oil, coal,
and iron ore, etc.), agriculture, forestry and aquatic
products (e.g., rice, coffee, cashew nut, pepper, cash fish,
etc.) and some light industry products (e.g., garment,
textile, and footwear, etc.) with low added value. Low
competitiveness and disadvantageous export structure
can hinder or prevent Vietnam from reaping the possible
benefits of trade liberalization under the TPP.
Overall, Vietnam is projected to gain the most
from the TPP and has shown flexibility on difficult
issues. But overall, Vietnam's participation in the
agreement is well founded.
4. CONCLUDING REMARKS
The proposed Trans-Pacific Partnership FTA

would be a significant FTA for Vietnam and could
eventually become the platform for an Asia-Pacific free
trade area, an area that encompasses 40% of the world's
people and over half of global production. It would be
the largest Vietnam's FTA based on trade flows. Due to
the great diversity among the TPP participants, there
may be challenges in achieving a comprehensive and
high standard agreement. TPP countries vary in terms of
population, economic development, and geography.
To this end, what are the implications for Vietnam? It
must be noted that to facilitate the competitive ability of
Vietnam's merchandises in TPP member's markets and
sustain an effective paradigm of foreign trade is not a
simple task. It requires a careful analysis of related
information (e.g., information on each industry, each
merchandise, etc.) That the author could not cover in a
short time. Generally, the followings are some
recommendations to allow Vietnam to achieve
sustainable development and enjoy the benefits in the
coming years when the TPP enters into force.

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Firstly, Vietnam should develop an effective and
efficient physical infrastructure in terms of roads,
railways, ports, airports, electric, water supply system,
etc. This creates convenient conditions for trade by
reducing time and costs in both transportation and

transactions. Good infrastructure may also induce FDI
that has taken an important role in diversifying Vietnam's
exports and in improving the quality and competitiveness
of Vietnam's merchandises in international markets.
Secondly, the country should speed up the changes
of export structure by taking it to the next level in the
global value chain.
In conclusion, the nature of international
integration will always see some fields/sectors of the
economy prosper while others may not. Membership of
the TPP is essential for Vietnam because nowadays it is
very hard for a developing country to stay outside of the
global trading system, bearing in mind that the TPP opens
up the doors of opportunity. But, it is not an end itself.
Also, it is not a “magic wand” of “Harry Potter” that fixes
ails of an economy or protects it from global ups and
downs. And, one should remember that participation to
the TPP is just one more step after WTO accession in a
long-term development strategy introduced in the process
of Renovation (“Doi moi” in Vietnamese) since the late
1980s. Again, to maximize the benefits offered by the
TPP, Vietnam should undoubtedly continue to review its
long-term strategies to enhance the country's
competitiveness. Export increase, to some extent, is one
of the most important indicators of national
competitiveness over the long-term, as the factor that
makes the export increase is also one that determines its
competitiveness.
REFERENCES
[1] Brock R. Williams, 2013. “Trans-Pacific

Partnership (TPP) Countries: Comparative Trade and
Economic Analysis”, CRS Report for Congress.
[2] Jeffrey J. Schott, Barbara Kotschwar, and Julia
Muir, 2012. “Understanding The Trans-Pacific
Partnership”, retrieved 23 July 2013 from website
h t t p : / / w w w. a m c h a m v i e t n a m . c o m / 9 3 7 0 / t p p understanding-the-trans-pacific-partnership/.
[3] Peter A. Petri and Michael G. Plummer, 2012.
“The Trans-Pacific Partnership and Asia-Pacific
Integration: Policy Implications”, Working Paper No. PB
12-16.

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[4] Peter A. Petri, Michael G. Plummer, and Fan Zhai,
2012. “The Trans-Pacific Partnership and Asia-Pacific
Integration: A Quantitative Assessment”, retrieved 23
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2 0 1 3
f r o m
w e b s i t e
/>[5] VOV, “TPP agreement and its impact on
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/>