To mark the occasion, VIR’s Thanh Tung talks with Raymond Mallon, economic advisor from the Australia-Vietnam economic reform programme, about the role of APEC in the context of growing global trade protectionist pressures, and how Vietnam can make use of hosting APEC 2017 to attract FDI.
In the context of the likely demise of the Trans-Pacific Partnership (TPP) due to the withdrawal of the US from the deal, what do you think about the role of the Asia-Pacific Economic Cooperation (APEC) in fostering the economic co-operation in the Asia-Pacific region?
The mission of APEC is to champion free and open trade and investment, promote regional economic integration, encourage economic and technical co-operation, enhance human security, and facilitate a favourable and sustainable business environment. These are all high priority objectives for Vietnam.
The US withdrawal from TPP may increase pressure to accelerate both negotiations on the Regional Economic Cooperation Partnership (RCEP), which includes China but not the US, and the promotion of the APEC co-ordinated Free Trade Area of the Asia-Pacific (FTAAP).
During the Vietnam APEC meetings, there are likely to be discussions about APEC’s study on realising FTAAP, as well as discussions on progress with APEC’s roadmap for regional trade in services. However, agreement on FTAAP is unlikely to be reached any time soon. Another option would be for selected APEC members to negotiate a variation of the TPP without the US, and (possibly) include additional large markets – such as China and/or Indonesia.
Regardless of any formal free trade agreements (FTAs), APEC plays an important role in shaping and nurturing regional economic integration by encouraging unilateral economic reforms. APEC is a useful vehicle for Asia-Pacific member economies to share experiences in implementing productivity enhancing reforms.
Would APEC need any change regarding trade and investment co-operation, in your view, especially in the context of growing nationalism and trade protection in economies like the US under Donald Trump?
First, it is important to recognise that the levels of trade tariffs imposed by most APEC economies are relatively low. It is non-tariff barriers (NTBs), especially cumbersome and inconsistent bureaucratic rules and regulations, that are the major remaining obstacle to regional trade and investment. Regional harmonisation of regulations, and the removal of discriminatory treatment favouring state enterprises, could help reduce the negative impacts of NTBs.
Some of APEC’s strengths are its focus on removing impediments to trade and investment “at the border”, enhancing supply chain connectivity “across the border”, and improving the business environment “behind the border”.
Such reforms are generally in the interests of individual APEC member economies regardless of reforms implemented by other economies. Of course, the more economies implement productivity-enhancing reforms, the greater the regional economic benefits, and the greater the benefits to Vietnam. Given the potential unilateral benefits from such reforms, substantive progress can be made without the need for formal economic co-operation agreements.
Second, given the growth in nationalism and protectionism in some countries, APEC members should place more focus on improving the evidence base on the costs and benefits of openness and regional economic co-operation agreements. APEC members need to be able to identify potential losers from regional economic co-operation and help identify options for compensating those adversely affected by economic reforms. Efforts to engage with, and communicate ideas to, a broad range of stakeholders also need to be strengthened.
What do you think about APEC’s role in helping Vietnam attract foreign direct investment (FDI)? Do you think that APEC has helped to bring additional FDI into Vietnam over the past years?
APEC member economies are the most important source of trade and investment co-operation partners for Vietnam and are likely to remain so regardless of any new economic co-operation agreements.
APEC investment in Vietnam has and will continue to play a key role in transferring new technology, increasing labour productivity, and helping Vietnam to further increase its role in regional and global production chains.
Successful implementation of APEC’s “behind the border” reform initiatives will help reduce the costs of conducting business and investment, and will further enhance Vietnam’s potential to increase trade and investment with other APEC member economies.
At the same time, commitments made under other agreements, especially the EU-Vietnam Free Trade Agreement, will help reinforce APEC initiatives and help Vietnam access investment, technology, and markets from the EU and other non-APEC economies and continue to grow.
Vietnam is hosting APEC 2017. How can the country take advantage of this opportunity to lure more FDI, especially from big markets such as the US, Japan, and South Korea, all APEC members?
Vietnam’s position as host of the APEC 2017 meetings provides the country with a unique opportunity to take a leading role in shaping APEC priorities for regional co-operation for the coming year. Given growing global protectionist pressures, Vietnam could encourage APEC to play a stronger role in building the evidence base on the impacts of regional economic integration and in communicating information on these impacts to the citizens of APEC member economies.
Vietnam could also stress the potential gains to be realised from implementing unilateral reforms, such as those reforms Vietnam has committed to under resolutions 19 and 35.
Vietnam still has a labour cost advantage compared with other APEC economies, but a core aim of development is to increase living standards.
Accelerated productivity growth will be needed to sustain improved living standards while retaining Vietnam’s competitiveness. The APEC meetings provide a unique opportunity for Vietnamese leaders to communicate their strategy for productivity growth, including a clear statement on the role of international economic co-operation in promoting productivity growth. Vietnam will also have the opportunity to showcase areas where strong productivity growth is already being achieved.
More generally, the APEC 2017 meetings provide an invaluable opportunity for Vietnam to raise its visibility in the international economic arena, and to advertise investment, trade, tourism, and other economic opportunities to the rest of the world.
Vietnam should aim to renew its efforts to improve the business investment and trade enabling environment during 2017, and to communicate this progress in the international arena. Resolution 19 is a good step in this direction, providing a clear statement of the government’s priorities for improving the business environment from now until 2020 and beyond.