Frailties apparent after three years of WTO membership

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Three years down the line, the risks and instabilities associated with Vietnam's accession to the World Trade Organization have come to the fore, a new report says.

While the report highlights the benefits of WTO membership that Vietnam has enjoyed, it cautions that the challenges need to be properly addressed.

"Vietnam after three years of WTO membership", published recently by the Central Institute for Economic Management, says the accession in January 2007 has improved the country's position as a new, dynamic and rapidly developing economy.

Expanding export markets, increase in foreign direct investment, and the establishment of favorable investment and business environment are positive outcomes of WTO accession, the report says.

Vietnam's exports increased by 21.3 percent in 2007 and 29.5 percent in 2008. The country in 2008 expanded its export market to 150 nations and territories. Exports declined 9 percent last year, but it was due to price drops during the economic crisis, the report says.

As a WTO member, Vietnam has become an attractive destination for foreign investors. Pledges of foreign direct investment surged to US$71 billion in 2008, compared with only $12 billion in 2006. Although FDI commitments dropped last year to $21.4 billion as a result of the global recession, the figure was still at the same level as pre-crisis 2007.

During the three years of WTO membership, total registered FDI into Vietnam reached more than $114 billion, 4.5 times higher than the target set for the 2006-2010 period. Of this, $29.5 billion was disbursed in the five years.

The business environment has become more favorable and transparent since the integration. Ensuing administrative reforms have had positive impacts on the development of new enterprises.

The downside

At the same time, WTO accession has placed a lot of pressure on Vietnamese enterprises, forcing them to compete with foreign peers even in the domestic market, the institute says in its report


The three years since WTO accession has exposed many risks and unstable factors, it adds.

The institute notes that the no-holds barred approach of some provinces to attract FDI has seen the establishment of many industrial zones and processing parks without paying any heed to social and environmental considerations.

Moreover, the increase in FDI projects has caused agricultural land to shrink, forcing many households to quit farming and move to urban areas to find jobs.

The export sector has shown vulnerabilities to outside shocks and world price changes. The export structure has changed slowly from labor-intensive export products to manufacturing and high-tech commodities.

There has been no significant change either in the export of agricultural products, whose growth rate was even below the average rate of the whole sector, except for coffee, the report says.

It also says that many enterprises have not taken advantage of opportunities brought by the country's WTO accession. The competitiveness of local products, enterprises and the country as a whole is low and has improved slowly.

New strategy

Three years is not a long period for Vietnam to fully integrate into the world economy and the country is already faced with many challenges, the report observes.

The institute advises that to overcome the difficulties, Vietnam has to stimulate reforms, improve the quality of growth and competitiveness of the economy.

While competitive advantages in major export products including footwear, garment and agricultural commodities should be maintained, the country needs to improve its position in the regional and global value chain, the institute says.

Nguyen Dinh Cung, deputy head of the institute, reiterates that increasing competitiveness needs to be the core of all economic development policies and the country has to promote sectors involving technology and high value-added products.

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