Almost eight years have elapsed since Vietnam first experienced its official WTO membership in 2007. At the time of accession, it was envisioned that Vietnam economy would develop rapidly, making the country “take off” and become “a new Asian tiger”. Ever since accession, most enterprises and the Vietnamese feel disappointed with the fact that economic growth has been much lower than expected since Vietnam joined the WTO. Among other things, failing to prepare well and to be so optimistic about the benefits received from the WTO membership of the Vietnamese enterprises are the reasons for such disappointment. Now, the history seems to repeat itself when Vietnam are negotiating another important Free Trade Agreement - the Trans-Pacific Strategic Economic Partnership Negotiations (“TPP”).
Major benefits of TPP for Vietnam are analyzed and even propagated on public media to galvanize public support for closing TPP. Unfortunately, like the WTO, the TPP is not a “delicious cake”, and of course, there is no free lunch for Vietnam. And how TPP affects the agricultural sector employing 70% of Vietnamese population is a question of further analysis.
1. About TPP and Vietnam’s membership
The TPP is a proposed regional free trade agreement (“FTA”) that aims to integrate Asia-Pacific economies. Originating from a modest agreement with only four initial members including Chile, New Zealand, Singapore and Brunei in 2006, with subsequent participation for negotiation of Australia, Canada, Mexico, Peru, Vietnam, Malaysia, the United States and recently Japan, the TPP negotiations have developed to become “the largest, most dynamic trade collaboration of our time”, the 21st century, as called by Ron Kirk, United States Trade Representative. TPP has been gone through 20 negotiation rounds ever since and it keeps going on and is expected to conclude by the middle of this year.
Officially joining in TPP negotiations in November 2010, the Vietnamese government hopes and believes that domestic exporters will have greater access to large, dynamic and fast-growing TPP markets which are home to more than 792 million people and 40% percent of global GDP and one-third of all world trade. Additionally, TPP will improve Vietnam’ competitiveness on the global market by solidifying its participation in lucrative trading blocs.
2. Challenges to come for agriculture sector
a.
Proposed TPP’s rule on agriculture
Under the TPP, there is no agricultural chapter but rules affecting agriculture, food systems and food safety are proposed and the specific drafts are still kept confidential.
[1] Fortunately the important issues and contents of agricultural negotiations have been leaked and updated regularly. Among them, the most ambitious rule of agricultural sector in the TPP agenda is to reduce tariff rate to 0% among the TPP partners. Ironically, agricultural subsidies, which are the main trade-distorting practice of developed countries such as the United States, have been kept out of the agenda of the TPP negotiations. They are clever not to include what would be damaging to their agriculture, thus the developing countries are deprived of what would have been the major trade gain for them.
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b. Possible negative impacts for Vietnamese enterprises
i. Lose market share in domestic market:
Market access for agricultural products is always a sensitive issue since it affects 70% of Vietnamese farming population. Hence, the ambition to reduce tariff rate to 0% under the TPP surely affect domestic enterprises.
Vietnam agriculture has both defensive and offensive interests in the TPP negotiation. Many agribusinesses view positively the prospect of exporting more agriculture products to TPP countries, especially Japan, the United States, and Canada. Presently, Vietnam is third biggest exporter of Japan in terms of peppers and coffee and tropical fruits, and the fifteenth partner of the United States in terms of coffee, cashew, pepper, rice and tea. At the same time, it is concerned about the competition that Vietnam exporter and producers would pose if granted preferential access to the Vietnam market, especially sugar and dairy products, meat and beef.
Under the TPP, Vietnam has to open its agricultural market, i.e. to remove 100% tariffs rate of import duties while the technical barriers are not high, that causes disadvantage for domestic producers. When the TPP enters into forces, Vietnam market is likely to be flooded with agricultural products from TPP countries, especially from New Zealand, the United States, and Australia because of the following reason:
The real concerns are originated from Australia, New Zealand and the United States products
Business community are worried that the livestock products such as beef, pork, poultry, sugar and dairy, tropical fruits such apple, orange, and corn, cotton, beer, wine and beverage will have to compete drastically with products from New Zealand, Australia, and United States. It is believed that those countries will have the capability of making “quick attacks” with their powerful agriculture production force, good experiences and high quality products.
[3]
For corn and cotton, Vietnam currently is importing around 40% from the United States, however, the tariff rate is already 0-5%. Therefore, if the TPP eliminate tariff in these products, Vietnam ones will not be affected. However, it is different in the dairy case. Currently, the import duty for dairy products under the WTO commitment is 25% but the demand is still high.
[4] According to the Vietnam general statistics, the country imported from 72% to 73% diary product in the years of 2013 and 2014, and the number continues annually.
[5] Among them, Vietnam imports mainly from New Zealand, the United States, and Australia with 27%, 13%, and 10% respectively.
Business community also concerns that beef, lamb, poultry, etc from the United States, Australia and New Zealand will flood our market when the TPP agreement comes into effect because with the current tax rate (around 20%), Vietnam products still cannot compete with imported goods.
Drastically competing with beverages, beer and wine imported from TPP countries is also another challenge for domestic producers
Currently, applicable tax for these products under the WTO commitment are very high, 35, 45, and 30% respectively. It is likely that when the tariff rate for these products is 0%, the domestic market will be dominated by imported products since Vietnamese consumers prefer foreign brands.
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Vietnam’s agriculture will not be seriously affected by Brunei, Malaysia, and Singapore, Peru, Chile, and Japan export products
Brunei and Singapore do not have significant agricultural products; accordingly, ability that Vietnam’s agricultural products would be competed strongly from those countries would not occur.
For Malaysia, this country currently has imported majority of agricultural products from Vietnam (especially rice, vegetables, and also meat), hence it doesn’t have any risk as Vietnam opens its agricultural product market to Malaysia in accordance with the TPP.
Vietnam entered into FTA with Chile in 2011, and has yet to have FTA with Peru. However, those are rather far markets due to geographic distance, small scales in term of population and capacity of competition are as same as Vietnam’s. Accordingly, opening the agricultural product market to those two TPP countries will not create any considerable challenge in Vietnam’s market and will not be of great promise in two markets of Chile and Peru.
Japan does not cause any concern for Vietnamese agriculture because it is the net-import country in this sector.
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ii. Lose market share in the TPP partners’ markets
With tariff over agricultural products being eliminated, Vietnam stands a golden chance to export more products to these promising markets, especially with tropical fruits and vegetables, coffee, rice, tea, cashew, black pepper and rubber products. Nevertheless, TPP would not be as smooth and flat as a route for Vietnam’s agriculture. Market access for agriculture product is always a sensitive issue to every country, especially for developed ones. Therefore, domestic agricultural sectors of most developed countries are protected by non-tariff barriers, regulations on health and sanitary standards, and labeling.
[8] Thus, even if the tax rate is 0%, it is concerned that some developed TPP countries still make every effort to protect, restrict importation of agricultural products for preserving their domestic agriculture sector. Especially, the United States is also believed to have effective defensive measures against the farm produce imports. With the capability of manufacturing high quality products, plus technical barriers, the United States is quite capable to protect its agricultural production from imports.
[9]
Technical barriers of the developed countries will be stricter and that the competitive capacity of Vietnam is not so high may prevent Vietnam from enjoying benefits from reduced tariff rates. Even in Japan, the Government considers compensating Japanese farmers for losses they may incur when Japan joins TPP. This shows that the Asian economic power thinks about what impacts the agreement would bring to it.
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For Vietnam, while the domestic producers engage in agricultural sector with small and disperse size, and have no well-defined strategy on production methods, seeds for domestic animals and plants, coupled with weak financial capacity, shortage of capital to improve production technology and low labor productivity, the challenges seem even more daunting when TPP entry is coming close. Thus, the government should facilitate domestic producers in crafting a clear and comprehensive strategy to enhance competitiveness and improve technology to increase productivity and quality to be ready for competing with waves of imported products or risk losing on both its turf and TPP markets. Eventually, farmers will suffer the most. If Vietnam is not ready for such ambitious rule, the government should not sign the TPP agreement at any price.
http://www.smic.org.vn/en/policy-di...-to-vietnams-agricultural-sector-under-thetpp
