1) Among the recommendations you raised for the government, reform to SOEs is the first one. Based on your observation, what are the remaining challenges for SOE reforms?
Answer: Comprehensive institutional reform of SOEs is of highest importance. It must be done by real privatization with majority options for investors. Investors must be granted with real performance control and business management control for SOE management. The Government must increase the number of shares sold and ensure a win-win solution for both investors and the government. In addition, the Government must stop supporting SOEs with loans to solve non-performing loan problem. These reforms should be fully implemented until end of 2017 or it will be too late to grasp the benefits of the upcoming EVFTA and the TPP.
2) Did you have a Q&A session with the members of the National Assembly? What are the issues they care about?
Answer: Yes. The main issue of their concern is what “institutional reform” of SOEs means. When they have a clear understanding of the concept, they will be able to develop a detailed plan. I have explained to them the meaning of institutional reforms as you see from my answer in Question 1. Other issues that some members raised are implementation of the TPP (by adopting a single and exclusive document for the TPP or other solutions), technical barriers for agricultural and livestock products, real advantages of reduced tariffs (in reality, not many firms are able to take advantage of the tariff reduction or the reduced tariffs have been applied in certain bilateral agreements) as well as competition issues.
3) As you mentioned 60% of imported materials sourced from other non-TPP countries, will the yarn-forward rule of origin totally change the supply chain and economic structure here? I heard a Chinese textile company is developing an industrial park in Vietnam in order to do weaving and dying here.
Answer: Vietnam will have to scale up the value-added chain as a result of the TPP. To enjoy benefits of TPP’s rules of origin, there must be a total transformation of the Vietnamese garment sector from a purely “cut and sew” operation to the next level of the supply chain. Not only Chinese investors are diverting their investment in Vietnam in this sector, the Japanese and EU investors are also considering this as a great opportunity to invest as there will be a huge demand for textile machines. The sector will witness significant changes when it becomes a fully integrated garment centre.
4) We heard a lot of discussion on TPP’s impact on the textile, garment and footwear industry. As the traditional industries, they are going to have much more opportunities when TPP takes effect. Are there any other industries will also benefit from it? How about the challenges TPP will bring to certain industry, like agriculture?
Answer: The TPP will have significant positive impact on Vietnam’s exports in textile, footwear, agriculture, forestry and fisheries sectors. This is due to major reduction in import duties for goods from Vietnam, especially in Japan and the United States. Supply chain established after the effectiveness of the TPP will also bring Vietnam a lot of new opportunities. Recently, many big corporations have chosen Vietnam as a part of their production chain of high tech products. The TPP will help to develop this trend.
The livestock industry will suffer from fierce competition as a result of the TPP. In Vietnam, the livestock industry is still small, not modernized, mainly household scale with participation of small and medium enterprises. Products have certain difficulties in meeting high quality and sanitary standards.
5) How do you see TPP’s role in Vietnam’s economic reform?
Answer: Vietnam would be the largest beneficiary of this trade pact. Statistics shows that by participating in the TPP, Vietnam’s GDP would add an additional increase of 13.6% to the baseline scenario. According to the World Bank and other institutions, Vietnam’s GDP in 2020 will increase by USD 23.5 billion and USD33.5 billion in 2035. Export value will also increase by USD 68 billion in 2025. Vietnam’s real income by 2025 is also forecast to increase by 10.5%, leaving Malaysia’s as the second highest income rising country out of the TPP members far behind at 5.6%.
TTP will help Vietnam balance relationships with key markets, approach larger markets including the U.S, Japan, Canada, boost import-export, reduce import deficit, and attract foreign investment. In addition, TTP will also help Vietnam’s economy allocate its resources more effectively, enabling active supports to the processes of restructuring, innovation and improving regulations, and improve administrative reforms.
For your information, Vietnam has made progress over 3 continuous years to reach 56th position in 2015 on the Global Competitiveness Index list, a jump of 12 positions compared to 2014. It is noteworthy that Vietnam is more competitive than 6 European Union countries on this list. Even more notably, 4 out of these 6 countries, namely Slovenia, Cyprus, Slovakia and Greece, are considered as advanced global economies, and have the GDP per capita of at least USD17,700, eight times more than Vietnam.
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Please do contact the author Oliver Massmann under omassmann@duanemorris.com if you have any questions. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.