Is Vietnam ready to compete on free-trade playgrounds?

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  A farmer prepares land for the next rice crop in the suburbs of Hanoi. Despite having natural resources to become a major producer and exporter of farm produce, Vietnam is mainly known for cheap, crude products. / PHOTO: AFP

Vietnam professes, especially in the rhetoric of government leaders and so-called experts, seeing many chances to expand its markets with the signing of major pacts like the free trade agreement (FTA) with the EU to be finalized later this year, and the Trans-Pacific Partnership (TPP) that is under negotiation with 11 other countries.

However, in reality, such chances are just theoretical exercises in international economics, as Vietnam lacks strengths to play along and hold its own on free-trade playgrounds.

According to the theory of comparative advantage developed by economist David Ricardo (1772-1823), a nation should concentrate on producing and exporting products where it has comparative advantages, while engaging in international trade to import products where it does not. This way, every nation would maximize its benefits from international trade, the theory goes.

So, in entering a “flat world” that the FTAs are purportedly creating, every country needs to focus on its key industries that can help it withstand the flows of goods from other countries.

At the launch of the book “Swiss Made: The Untold Story Behind Switzerland's Success,” by James Breiding in Hanoi last month, Vu Khoan, former deputy prime minister, conveyed the same message.

He said Swiss people have this simple but very effective concept: they make use of and develop what they have. So, with fields, pastures, and snow, they focus on building agriculture and tourism as their key industries.

Now, speaking of Switzerland, people would think about Nestlé, chocolate and cheese. And its well-protected and maintained snow covered landscapes continue to attract lots of tourists from around the world.

With such well-developed key industries, Switzerland is always eager for FTA playgrounds. This is also true of countries like Australia, which is keen on exporting the products of its animal husbandry industry, to mention just one; the US with banking and ownership of a large amount of intellectual properties; and Japan with its car industry.

What does Vietnam have to enter FTAs and gain from them?

For many years, local experts have argued over whether or not agriculture is Vietnam’s key industry.

The country has been blessed with natural resources like fertile land and suitable climatic conditions to become a major producer and exporter of farm produce like rice, coffee, cashew and pepper. However, the experts have pointed out that the internationally recognized produce is Thai rice, Japanese rice, Indian cashew, or Italian and American coffee. Only when it comes to cheap, crude products do people occasionally speak of Vietnam.

How about tourism?

Vietnam has a long way to go in using its tourism resources well,  given the lack of effective investment in infrastructure, human resources, and cultural preservation, and the failure to effectively tackle problems like robbery, rip offs, and tourist harassment.

The Central Institute for Economic Management recently introduced six industries chosen as spearheads for Vietnam: electronics, agricultural machinery, agriculture and sea produce processing, shipbuilding, environment and energy saving, and auto and auto part manufacturing.

The industries were, in fact, chosen in 2007 along with the government’s pronouncements about issuing policies that would help develop them.

However, the industries are still underdeveloped, as official figures show that their imports have kept increasing over the years.

According to the General Statistics Office, last year Vietnam’s import of machines, devices and spare parts increased by 16 percent year on year. The import of electronics, computers and accessories was also up 34.9 percent.

The country imported US$3 billion worth cattle feed and raw materials, a year-on-year rise of 23.6 percent, while its rice exports earned less than $3 billion.

Generally speaking, what should be Vietnam’s comparative advantage (agriculture) has yet to be made best of, while those which are considered as key industries in national development strategy are still languishing.

Without comparative advantages, Vietnam’s trade balance will be under great pressure soon. 

For instance, if TPP is finalized, Australia-imported beef with the same prices as Vietnamese but with higher quality will obviously dominate the domestic market.

Towards the end of last year, the Hoang Anh Gia Lai Group attracted widespread objections and criticism from local sugar producers when proposing to the government that it imports 30,000-40,000 tons of crude sugar from Laos, refines it in Vietnam, and re-exports it to China.

Nguyen Hai, general secretary of the Vietnam Sugar and Sugarcane Association, warned that the project, if approved, would kill local sugar producers and sugarcane farmers.

The association also submitted a petition asking for help from the government.

However, once Vietnam enters one free-trade playground after another, businesses will no longer be able to turn to the government and seek its help to survive.

The evidence so far is that FTAs are not the level playing fields their votaries claim them to be. Signatories bound by their regulations have found that they favor the stronger players because the stronger players are setting the rules, and the weaker players typically end up getting crumbs at the negotiating table.

Vietnam needs to seriously think about how it is going to become strong enough to survive in such an environment. One has to survive first, thrive later.

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