BTA yet to reach full potential

However, experts claim Vietnam could have been in a better position to capitalise on the BTA and bolster its economy if its economic, social and political institutions had been sharper.
The USAID’s STAR project and the Ministry of Planning and Investment’s Foreign Investment Agency (FIA) last week released the “Assessment of the five-year impact of the US-Vietnam Bilateral Trade Agreement on Vietnam’s Trade, Investment and Economic Structure”.
According to the report, the US has become Vietnam’s largest export market just two years after the BTA’s implementation, levelling off at around 20 per cent of Vietnam’s overall exports.
The most direct impact of the large BTA-initiated cuts in US tariff rates was an 128 per cent increase in Vietnamese exports in 2002 and then another 90 per cent jump in 2003 with apparel goods leading the list of exports.
With the implementation of the US-Vietnam Textile Agreement, which established quantitative limits of around 7 per cent annual growth starting in May 2003, Vietnam’s export growth to the US ran between 16-29 per cent for the 2004-2006 period.
“Vietnamese export growth to the US may increase in 2007 and beyond because clothing export quotas were lifted in January when Vietnam acceded to the WTO,” said STAR project director Steve Parker.
Parker said Vietnam’s success in diversifying manufactured exports out of clothing and into an increasingly broad range of light manufactured products in which its market share was small was also paying dividends.
US exports to Vietnam have also performed strongly, more than doubling over the past five years with an average growth rate at around 20 per cent per year.
According to the report, US-related FDI into Vietnam (including capital from both US-based companies and US subsidiaries located in third countries) surged after the BTA and rank among the highest FDI from all countries from 2003 to mid-2006.
US-related registered FDI jumped from $216 million in 2001 to $1.05 billion in the first six months of 2006.
FDI from other countries in Vietnam has also grown strongly since 2003, particularly in apparel, footwear and wood processing. FDI in these three sectors expanded by more than seven-fold over the 2000-20005 period. “This FDI can be attributed directly to the BTA,” the report said.
“Investor confidence has risen for a number of reasons, including the effective implementation of the BTA, Vietnam’s accession to the WTO, improved local business environment, and good prospects for continued strong economic growth,” said Parker.
An FIA survey last year of FDI firms in Vietnam, including 94 per cent non-US firms, revealed that foreign investors considered the BTA commitments important for treating foreign and domestic investors equally, opening more services to foreign investment, improving transparency, strengthening IPR protection and removing requirements inconsistent with the WTO.
Economists claim that while Vietnam was able to make use of the BTA to boost trade and investment with the US and other countries, it had been slow to improve political institutions and infrastructure to fully tap the BTA’s potential.
Vietnam has changed or enacted nearly 100 laws and regulations to meet the BTA requirements.
However, Vietnam Economic Institute vice head Dr. Tran Dinh Thien said the slow implementation of laws and regulations was a problem.
“The country needs to seriously consider and address the situation, turning words into practice,” Thien said.
Backward social and physical infrastructure had also hindered Vietnam from taking advantage of the BTA, he added.
“Inside reforms are decisive factors for Vietnam to make the best of the BTA opportunities,” Thien said.
According to the report, while much of the legal reform accomplished over the past five years had focused on improving the framework for commercial activity, other elements had evolved slowly.
These include modernising and adjusting Vietnamese state institutions’ organisation, functional focus, administrative procedures and incentives.
“A key challenge for Vietnam over the next five to 10 years will be to implement these many reform more effectively in practice,” it said.