TPP to boost relations with Uncle Sam

-No trade deals

There were a few bemused years between 1975-78, when US businesses did not really know how to approach Vietnam. Despite the recent war, American businessmen came to Vietnam as soon as 1976 to scope the possibilities (I have a Citibank prospectus touting investment in Vietnam dated 1976, demonstrating the perennial and ineffable optimism of bankers).

-Prohibition on trade

Until 1994, there was a comprehensive embargo on trade and investment with Vietnam. The result – almost no US/Vietnam business (official statistics show US imports from Vietnam of zero in 1993).

-Lifting of embargo in 1994

As the embargo was lifted in February 1994, businesses responded with a stampede to do business in Vietnam, symbolised by the instant apparition of Coca Cola, Pepsi and Freshfields in the market in Vietnam. Vietnamese exporters also benefitted – exports to the US rose by a factor of 20 between 1994 and 2000. But investment was difficult. Enron – having breathlessly but vainly proposed five mega projects to Vietnam – withdrew back to the US before collapsing.

-Bilateral Trade Agreement in 2000/01

There was an overnight change of sentiment in 2000 when the US-Vietnam bilateral trade agreement was signed. I witnessed it at first hand, having left on holiday amidst gloomy business sentiment and returning a few weeks later to an optimism that was scarcely recognisable. Vietnamese exports to the US surged by 129 per cent in the year after the BTA became effective. They almost doubled again the year after.

-WTO in 2007

After Vietnam acceded to the WTO, trade and investment boomed again. Vietnamese exports to the US, and US exports to Vietnam, have each increased about four times since the WTO became effective in Vietnam.

Based on such history, the TPP will have a profound effect on Vietnam. In fact, there are various reasons for suggesting that the TPP will have an even more positive effect than history portends:

-Businessmen are animals

I would contend that the short and medium term benefit of the TPP for Vietnam is not contained in the text of the TPP itself. It lies in the confidence generated by the mere passage of this landmark agreement. The bizarre animal instincts of businessmen, which have been hibernating for a couple of years, will roar back. This could mop up the real estate overhang, which will put banks back on their feet and revive credit. Vietnam will be off to the races once more.

-The Vietnamese political system benefits

Vietnam needs to grow fast to be stable. Vietnam grows if business grows. Business grows amongst predictability and progress. Unfortunately, the Vietnamese political system tends to focus and deliver on the former, with the latter being a more opportunistic adjunct. The TPP will provide a lens through which businesses can see where progress will be made. If businesses perceive such progress as relatively certain, investment will front-run the reality. Business will grow and the political system will benefit.

-Vietnam’s economy benefits

The TPP is called “comprehensive and high standard” for a reason. It covers a lot of ground. It is not just about greater freedom of trade in goods. Other significant changes that the TPP could bring to Vietnam include a more competitive services sector, increased environmental and labour standards, a greater focus on the rule of law and standards on government procurement. Indeed, the TPP could drive a substantial restructuring and reform of Vietnam’s economy over time.

- Efficiency benefits

One example of this will be the provisions in the TPP on the reform of state-owned enterprises (SOEs), which is seen as necessary to enable foreign firms to compete fairly in each TPP member country. Vietnam has made heroic efforts to privatise and equitise but vested interests have made equally heroic defensive stands. While vested SOE interests have given ground, their retreat has been tactical. Vietnam’s economy has continued to be burdened by the inefficiencies in the SOE world. While SOEs will survive the TPP, the treaty overlay over time will reduce the power of the vested interests and “force” change.

The TPP – if passed and if implemented – will not just improve US-Vietnam trading relationships; it will drive Vietnam itself to new heights.

By Tony Foster - Tony Foster is managing partner of Freshfields Bruckhaus Deringer LLP law firm and an AmCham Hanoi board member