IAPS Dialogue: The online magazine of the Institute of Asia & Pacific Studies

How Important is the 29th APEC to Vietnam?

U.S. Defense Secretary Robert Gates and other defense ministers meet with Vietnam president Nguyen Minh Triet, at the Presidential Palace during the Association of Southeast Asian Nations Defense Minister' Meeting Retreat in Hanoi, Vietnam, Tuesday, Oct. 12, 2010. DOD photo by Master Sgt. Jerry Morrison(RELEASED)

Written by Nguyen Thanh Trung.

When Vietnam hosted the Asia Pacific Economic Cooperation (APEC) Economic Leader’s Meeting in 2006, the whole country was eager to embrace economic integration. Vietnam was even likened to a little tiger economy in Southeast Asia at the time. One year later, it became an official member of the World Trade Organisation (WTO). Expectations for Vietnam’s further economic expansion were widely made. However, the joy was temporal. Since then, Vietnam’s economic growth has slowed down, being unable to maintain the pace that elevated Vietnam to become a success story in Asia in the 1990s and early 2000s.

Vietnam is a benefactor of APEC’s trade liberalisation and investment agenda. In 2005, 66 percent of foreign direct investment (FDI) in Vietnam came from APEC members. The figure climbed up to 78 percent in 2015. Similarly, more than three-fourths of Vietnam’s overall trade were with APEC economies.

In the last couple of years, Vietnam’s economy regained its positive resilience with an average increase of more than six percent, buoyed by a strong domestic demand, rising commodity prices and export-oriented manufacturing. Against the backdrop of retreat, retrenchment and inward-looking trends worldwide, Vietnam needs more momentum to maintain its positive economic performance. Free trade agreements (FTAs) are what the Vietnamese government is largely looking for to boost the export-driven economy.

However, there was a huge blow to Vietnam’s expectations when days after taking office, President Trump formally scraped the Trans-Pacific Partnership (TPP). Vietnam was believed to be the country to lose the most from the U.S. withdrawal of the TPP, which put preferential access to the American market out of reach for Vietnamese exporters. While APEC is not considered as a formalised FTA, it has come a long way to push forward trade and investment liberalisation and facilitation. Since its inception in 1989, APEC has broadened its institutional activities based on consultative mechanisms at both the technical and ministerial levels, which have facilitated the development of shared norms, values, and interests.

Thus, APEC 2017 is a good chance for Vietnam as a host to accelerate collaborative action on trade and investment liberalisation, business facilitation, and economic and technical cooperation, similar to what was adopted in the 1995 Osaka Action Agenda.

Vietnam may use their role as this year’s APEC host to advance the reorientation of Vietnam’s foreign policy from “participation” to “active engagement” in multilateral institutions. (The recalibration of an integrational approach was already approved at the 12th National Congress of the Vietnamese Communist Party in early 2016.) With the theme “Creating New Dynamism, Fostering A Shared Future” for APEC 2017, Vietnam introduced four pillars, namely fostering sustainable, innovative and inclusive growth; deepening regional economic integration; strengthening micro, small and medium enterprises’ competitiveness and innovation in the digital age; and enhancing food security and sustainable agriculture in response to climate change.

The 2017 APEC Economic Leaders’ Summit is expected to bring numerous benefits to Vietnam. Firstly, the summit is one of the most notable events across the world, drawing the attention of the international community, so it can help enhance Vietnam’s reputation on the international stage. It is a chance for Vietnam to demonstrate its serious commitment to the APEC agenda, making positive contributions to the regional liberalisation process.

Another benefit is that the loose, informal nature of APEC has provided a venue for its member economies to hold separate bilateral meetings on the side-lines to discuss topics other than the official APEC agenda. Vietnam will undoubtedly take advantage of this chance to deepen cooperation with major APEC leaders. Indeed, four APEC leaders including the U.S. President Donald Trump, Chinese President Xi Jinping, Canadian Prime Minister Justin Trudeau, and Chilean President Michelle Bachelet have confirmed official visits to Vietnam during the APEC summit. Each carries significant weight in Vietnam’s economy: China has been Vietnam’s largest trade partners for years with bilateral trade reaching over $70 billion in 2016; the US is Vietnam’s largest trading partner behind China with $52 billion; and Vietnam topped other Southeast Asian nations to become the largest trade partner with Canada with a trade surplus of approximately $5 billion in 2016. APEC serves as a conduit for Hanoi to boost bilateral trade with other member economies.

Thirdly, Vietnam could also use its role as APEC chair to advance its economic, political and security agenda. With the US withdrawal from the TPP, a political vacuum in the region needs to be filled. Vietnam’s active participation in the APEC summit could be instrumental in collaborating with other major powers to relaunch a TPP version 2.0 or engage China’s positive leadership of the Regional Comprehensive Economic Partnership (RCEP) for a sustainable regional integration.

Fourthly, Vietnam is a beneficiary of APEC’s trade liberalisation and investment agenda. In 2005, 66 percent of foreign direct investment (FDI) in Vietnam came from APEC members. The figure climbed up to 78 percent in 2015. Similarly, more than three-fourths of Vietnam’s overall trade were with APEC economies. This upward trend is certain to continue, and remains conducive to Vietnam’s ambition to move up in the global supply chains. The first quarter of 2017 saw 50 percent of Vietnam’s industrial output and 70 per cent of exports come from the FDI sector. Hence, Vietnam’s export-driven economy is expected to continue its reliance upon intra-bloc investments in the years to come.

Finally, owing to APEC, Vietnam has to overhaul its rules and laws to comply with reform and economic integration commitments. Even though APEC rules are non-binding principles based on consensus, Vietnamese leaders admitted that they have been using APEC as a driving force for reforms, spurring a sweeping change in institutional changes. In April 2016, Vietnam’s government signed the “2016-2020 Socio-Economic Development Plan” to speed up the reforms by improving market institutions, maintaining macroeconomic stability and prioritising infrastructure investments. In May 2016, a new committee called “National Committee on Trade Facilitation” (NCTF) was established to fulfil the government’s trade promotion goals. Multiple barriers to foreign companies have been removed to make Vietnam more business-friendly and improve market access to prospective investors. APEC and similar trade pacts exert an instrumental influence on Vietnam’s policy-making process. Yet, institutional challenges are still ahead.

Vietnam is also negatively affected by APEC’s agenda. Its local industries face fierce competition from foreign companies, especially in manufacturing and service sectors. In addition, Vietnam is increasingly dependent on technology and capital from developed economies. Without wise policies at the APEC summit, Vietnam will find smaller economies are at a relative disadvantage compared to bigger economies.

Though APEC still has problems with its implementation mechanism, Vietnam should proactively work with other APEC members to enhance mutual understanding and lay a solid foundation for achieving a free, open regional trade area.

Nguyen Thanh Trung is currently serving as Dean in the Faculty of International Relations, University of Social Sciences and Humanities at Vietnam National University in Ho Chi Minh City. He can be contacted at trungnt@hcmussh.edu.vn. Image credit: CC by Wikimedia Commons.