Vietnam became A full member of ASEAN on 28 July 1995. With Vietnam’s Membership, ASEAN now represents a market of about 420 million people and a regional Gross Domestic Product (GDP) of over US $ 500 billion. ASEAN is also now a step closer toward having all ten Southeast Asian Countries in ASEAN.
Vietnam’s accession to the various ASEAN agreements demonstrates her commitment to economic cooperation in the region, to the opening up of her economy and to trade liberalization. Her current impressive economic growth testifies to this vigorous drive toward reforming her economy.
Economic Background
Vietnam’s economy is in transition from a pure centrally-planned economy based on a agriculture to a socialist market economy. In 1986, Vietnam embarked upon an economic reform process popularly known as ‘Doi Moi’ which paved the way for Vietnam of today.
Essentially, the reform included plans which were directed at developing a multi-sectoral market; reforming the legal, banking, fiscal and monetary systems; controlling inflation and the national budgets; and creating a conducive environment to attract investments, especially foreign direct investment. The reform, which is still on-going, has proven to be quite a success. Annual growth in terms of her GDP averaged 8.2% for the period 1991 to 1995; and growth for the next few years is expected to be in the range 9-10%. Although per capita GDP is still low when compared to other Southeast Asian countries, there is clearly strong potential for growth and foreign investors have been flocking since the reform process began. A total of approximately US $19 billion has been committed since 1988, of which US $ 7 billion was committed in 1995 alone.
Growth in total industrial output has exceeded 10% per year since 1991. Hence, industry and construction together constitute around 30% in 1995, up from 23% in 1990. Similarly, the services sector has grown to 43% of total GDP, up from 39% in 1990. This indicates that Vietnam’s economic structure is shifting from agriculture towards industry and services.
Vietnam has also been successful at controlling inflation, which has fallen from three digit figures prior to the reform to 5.2% in 1993, 14.4% in 1994 and an expected 12.7% in 1995. This is quite a significant achievement within a short period of time.
Vietnam’s Trade
Equally impressive is the growth in Vietnam’s international trade. Exports in 1994 total US $ 4.05 billion, up from US $ 2.4 billion in 1990; whereas total imports more than doubled, from US $ 2.75 billion to US $ 5.83 billion in 1990 and 1994 respectively. The growth in imports is of course fueled by demand for capital goods, following the strong inflow of foreign direct investments.
Vietnam’s main exports are crude oil, textiles and garment, rice, coffee, rubber, coal, aquaculture and processed forest products. Although agricultural products still crowd the list of exports, this will Soon change as Vietnam expands her industrial base. Her main imports are petroleum products, steel, fertilizer, electronics, machinery and equipment.
Vietnam’s current major trading partners are Japan, Singapore, Hong Kong, Taiwan, Korea and the European Union, with trade with the Asian economies constituting about 80% of her total trade. Prior to 1990 Vietnam’s main trading partners were the socialist countries particularly the Soviet Union. As Vietnam expands its markets abroad, promote export-oriented industries and puts emphasis on import substitution of manufactured goods, the composition of Vietnam’s trade in terms of trading partners and type of products is likely to change even more.
As for her trade with ASEAN, Table 5 shows that exports to ASEAN have more than doubled since 1990 while imports have almost tripled. ASEAN’s share of Vietnam’s total exports was around 20%, up from 13% in 1990. ASEAN’s share of imports grew from 19% to 27% in 1994.
Table 5
VIETNAM’S TRADE WITH ASEAN
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Exports 1990 (US$ Millions) 1994 (US$ Millions)
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Exports to ASEAN 323.4 794.8
ASEAN’s Share of
Vietnam’s Exports (%) 13.4 19.6
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Imports 1990 (US$ Millions) 1994 (US$ Millions)
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Imports to ASEAN 528.2 1,568.8
ASEAN’s Share of
Vietnam’s imports (%) 19.2 27.0
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sources: General Statistical Office of Socialist Republic of Vietnam and ASEAN Secretariat
Trade with ASEAN is expected to expand even further with Vietnam’s participation in the CEPT Scheme for AFTA.Vietnam’s CEPT Package & Commitment to AFTA
Vietnam signed the “Protocol for the Accession of the Socialist Republic of Vietnam to the Agreement on the Common Effective Preferential Tariff Scheme (CEPT) for the ASEAN Free Trade Area (AFTA) on 15 December 1995 during the Fifth ASEAN Summit in Bangkok, Thailand.
Under the terms and conditions of its accession, Vietnam is to:
(a) extend, on a reciprocal basis, Most-Favoured Nation and National Treatment to ASEAN Member Countries;
(b) provide relevant information on her trade regime as and when requested;
(c) prepare a list for tariff reduction and begin tariff reduction effective 1 January 1996 and ending at 0-5% tariff rate on 1 January 2006;
(d) phase in products which are temporarily excluded in five equal installments beginning 1 January 1999 and ending 1 January 2003, and prepare a list of these products for their annual installment; and
(e) phase in agricultural products which are temporarily excluded beginning 1 January 2000 and ending 1 January 2006, and prepare a list of these products for their annual installment.
On 1 January 1996, Vietnam implemented her first package for the CEPT Scheme, which was enacted by Government Decree No. 91 of December 18, 1995. In this first package, Vietnam has included 857 tariff lines in the Inclusion List. Of these, 548 have zero tariff while the remaining 309 are in the 1-5% tariff range. This means that out of a total of 2,218 tariff lines used by Vietnam, about 39% are in the Inclusion List, with almost a quarter of the tariff lines carrying zero tariffs. Figure 23 provides an idea of the product composition of Vietnam’s Inclusion List as of 1 January 1996.
Of the remaining tariff lines, 1,189 or 54% have been placed under the Temporary Exclusion List (TEL) category. Beginning in January 1999, the TEL products would be phased into the CEPT Scheme in five annual installments, ending in January 2003. This implies that by the year 2003, by which date all products in Vietnam’s TEL would be phased into the Inclusion List, at least 92% (i.e. sum of 857 and 1,189) of her tariff lines would be in the CEPT Scheme.
Vietnam’s Sensitive List covers 26 tariff lines; these are mainly unprocessed agricultural products which would also be phased-in, beginning in January 2001 and ending in January 2010, similar to other Member Countries.
The following table summarizes Vietnam’s first submission for the CEPT Scheme:
Table 6
VIETNAM’S CEPT PRODUCT LISTS BY NUMBER OF TARIFF LINES
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List Number of Tariff Lines Percent of Total (%)
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Immediate Inclusion 857 38.6
Temporary Exclusion 1,189 53.6
Sensitive 26 1.2
General Exception 146 6.6
Total 2,218 100.0
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Source: ASEAN Secretariat
Implications for Vietnam & ASEAN
In this period of increasing regionalization and globalization, Vietnam’s Membership in ASEAN helps its economy and hastens its integration into the world economy.
International competition promotes greater efficiency in the allocation of resources. Hence as Vietnam’s economy is subjected to competition from the other ASEAN countries, resources are pulled towards those activities that generate greater income and welfare of its people.
The accession to the CEPT Agreement and Vietnam’s participation in many other areas of ASEAN economic cooperation such as intellectual property, services, industrial cooperation and investment also sends a strong signal to foreign investors of the direction of her economic policies. They strengthen the perception that Vietnam is firmly committed to the continuing liberalization of her trade and investment regime.
Finally, Vietnam’s participation in AFTA is also leading to an early adoption of those norms and practices governing the conduct of international trade. This is especially important given Vietnam’s application for accession to the World Trade Organization (WTO) which the other ASEAN countries have strongly supported.
