Vietnam: economic outlook and role as ASEAN chair in 2020
Fuelled by its positive performance in 2019, Vietnam is expected to continue witnessing high growth in the year to come. By contrast, the global economic outlook remains uncertain. The Organisation for Economic Co-operation and Development’s (OECD) Economic Outlook for November estimates that global trade growth in 2019 slowed to 1.2 per cent, the weakest rate for a decade. Furthermore, the OECD – in line with World Trade Organization and IMF projections – predicts only a modest recovery in 2020-21, with trade growth, at around 1.5 per cent in 2020 and 2.25 per cent in 2021, remaining below the 2013-18 average.
The stagnation in trade has been a major factor in bringing down the OECD’s estimate of global GDP growth in 2019 to just under 3 per cent, and it is projected to remain around this level in 2020-21. Again, these are the weakest annual growth rates since the 2008-09 global financial crisis.
A key factor in global trade stagnation and weak global investment has been trade policy uncertainty. A recent survey published by the European Investment Bank reported that more than 70% of surveyed businesses in the EU and the US referred to uncertainty as a reason not to invest (Financial Times, 28 November 2019). Uncertainty has been generated by the U.S.-China trade tensions, Brexit and rising geopolitical tensions. In addition, there has been lack of progress in WTO negotiations, failure to agree on appointments to the WTO Appellate Body and trade restrictive actions by major powers.
These developments have raised serious concerns about whether governments can engage in the level of cooperation required to restore business confidence. Current global challenges to economic prospects have highlighted both the threat posed by high levels of uncertainty to investment and growth, and the importance of governments working together to provide an environment conducive to growth.
However, the challenge to the rules-based trading system should be kept in perspective. WTO rules continue to govern most world trade and a growing number of free trade agreements (FTAs) have added additional depth to the rules governing major trade flows.
The global economy remains highly integrated through international production networks, sophisticated supply chains, and high levels of cross-border investment. While there has been speculation about a possible “decoupling” of the US and Chinese economies and a realignment of trade flows – and a process of reorganising trade and production seems to be underway in response to US-China tensions – there has not yet been any significant unwinding of the existing high levels of economic integration. Furthermore, positive international engagement has resulted in recent success stories, one of which is Vietnam.
Vietnam and the benefits of international cooperation
Vietnam is well-placed both to present a good story about its own place within the world economy and to play a positive role with regional partners in finding a path to reinvigorate international co-operation. It is a member of the World Trade Organization, a party to the Free Trade Agreement (FTA) between ASEAN member states as well as to the series of ASEAN+1 FTAs with major trading partners in the region, and a beneficiary of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
The ASEAN FTAs and the CPTPP account for a significant share of Vietnam’s trade as well as encompassing a diverse range of economies that account for major shares of global GDP and trade. The CPTPP’s high number of commitments, and the quality and reach of its rules in seeking to address contemporary trade issues like digital commerce, competition policy and state-owned enterprises make it a new-generation trade agreement that is highly relevant to today’s business community.
These features of its FTAs should all make Vietnam an attractive investment destination in a world where greater certainty and predictability are key requirements for investors. Furthermore, the third Regional Comprehensive Economic Partnership (RCEP) Summit in Bangkok in November 2019 announced that 15 of the participating countries (the 10 ASEAN member states plus Australia, China, Japan, South Korea, and New Zealand) had concluded all 20 chapters of the RCEP agreement, including market access commitments on goods, services, and investment and seek to sign the agreement during 2020.
This represents a significant demonstration of support for deepening regional economic integration. The RCEP would be the world’s largest trade combination after the WTO and this announcement was a clear signal that ASEAN and its FTA partners can still work together and conclude major trade agreements. The RCEP will further consolidate Vietnam’s favourable position as a member of a broad set of significant trade agreements.
The signing of the EU-Vietnam FTA (EVFTA) in Hanoi on 30 June 2019 was another milestone down this path, and the participants are working to complete ratification of the agreement in 2020 to allow its entry into force. The EVFTA is significant not only because of the EU’s continuing role as a major economic hub, but like the CPTPP, it is a new generation trade agreement seeking to be more responsive to today’s business needs.
Vietnam is well-positioned to contribute to strengthening the international cooperation that business is seeking. As ASEAN chair in 2020 the country has an opportunity to take a leading role in maintaining a rules-based international trading system. It could promote a serious engagement by ASEAN in exploring the scope for it to be a more active player within the WTO system, including by being proactive in sharing with other WTO members ASEAN’s leadership experience with economic integration and in developing the regional economic architecture.
Vietnam can also use its year as chair to lead efforts to maintain ASEAN’s leadership role in three ways. Firstly, by working to finalise a quality RCEP agreement to be signed in 2020 and continuing to work constructively with India to explore pathways for it to become an RCEP member.
Secondly, it can conduct an effective review of the mid-term implementation of the ASEAN Economic Community Blueprint 2025. Finally, Vietnam can continue to ensure that the bloc’s existing FTAs remain relevant, and that opportunities to update and streamline the rules and market access commitments are actively pursued.
Vietnam is also well-placed to work with other CPTPP parties to reinforce and consolidate the agreement’s importance as a new generation deal that points to the future direction of trade policy collaboration. Supporting the accession of additional countries and ensuring early progress with the CPTPP’s built-in agenda will be critical factors in boosting business confidence in the agreement.
This agreement’s entry-into-force saw significant interest and support from business, but this interest – and resulting investment in the CPTPP’s signatories – will only be sustained if there is visible progress in realising the deal’s potential.
It will also be important for Vietnam to continue to use its FTA commitments as a basis to strengthen domestic institutions, ensure the transparency of regulatory actions, enhance co-ordination among government agencies, and strengthen channels for dialogue with business and civil society.
Such domestic action should co-exist with Vietnam’s international engagement, particularly in its role as ASEAN chair to progress international cooperation and thereby boost business confidence.
Note: This article was originally published by Vietnam Investment Review under the title ‘Free trade signings stimulate success’. Republished with permission.