Wide-ranging agreement opens up more diverse trade channels

April 03, 2024 | 09:21
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The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is set to expand its membership. Economist Raymond Mallon talked with VIR’s Thanh Dat about implications for Vietnam of expanded membership to include the United Kingdom and other countries.

How can Vietnam expand investment and trade when the CPTPP amplifies its membership with the UK and others in the time to come?

Wide-ranging agreement opens up more diverse trade channels
Economist Raymond Mallon

While the UK may not become a major market for Vietnam, any expansion of CPTPP membership offers the potential for Vietnam to gain broader global market access that should facilitate trade diversification and increased investment and technology transfer. The main benefits from an expanded CPTPP are likely to stem from coherent approaches to regulating trade across more nations.

This, and reduced tariffs, should stimulate overall trade growth and help drive growth in incomes and employment. But there will also be challenges in ensuring equitable benefits from any increased trade.

Vietnam’s most obvious benefit from expanded CPTPP membership will be lower-cost access to a larger and more diverse market with reduced tariffs and trade barriers. This can lead to increased export volumes and revenue for Vietnamese businesses, with the potential for increased and higher productivity employment.

More broadly, expanded CPTPP should help the government achieve its objective of more geographically diverse trade flows to reduce Vietnam’s reliance on any single market. This will enhance the economy’s resilience to economic shocks and geopolitical tensions.

The CPTPP promotes regulatory coherence and transparency. More consistent trade regulation will facilitate smoother cross-border transactions and reduce business compliance costs and risks. Streamlining and harmonising administrative procedures required from Vietnamese exporters will increase their incentives to trade with smaller and emerging markets, thus promoting trade diversification.

Accession to the CPTPP’s relatively transparent and predictable investment regime will help attract increased and higher quality foreign direct investment from new member countries. Foreign investors from all other countries will also be more likely to invest in Vietnam as it offers increasing market access to a broader range of CPTPP member countries.

What challenges can you see from these new economies as well as in Vietnam’s economy?

However, new members will also introduce increased competition. Some Vietnamese firms are likely to face pressure to enhance productivity, quality, and innovation to remain competitive. Some may not survive the increased competition. Policymakers may need to consider options for supporting those adversely affected by the CPTPP.

On the other hand, most consumers will benefit from increased choice and lower prices generated by increased competition. Increased competition in input markets may also benefit some Vietnamese producers that use imported inputs.

Vietnam may need to invest in institutional capacity and human resources to effectively navigate the complexities of an expanded trade agreement and to maximise the opportunities from an expanded market. Such investments may also be needed to help any workers adversely impacted by increased competition.

What are your recommendations for Vietnam to bolster trade and investment with the expanded CPTPP?

Vietnam should continue to encourage new members proactively to join the CPTPP, while also stopping or discouraging the provision of any concessions to new members that would undermine the regulatory coherence provided by the deal.

Monitoring the implementation of economic integration agreements on an ongoing basis remains important to help identify resulting beneficiaries and losers. Identifying and communicating information on beneficiaries will help sustain support for integration that benefits the Vietnamese economy and its people.

Consideration could be given to proactively disseminate information to businesses on investment and market opportunities from existing and new CPTPP members. It will be especially important to target the specific needs of small- and medium-sized enterprises to ensure more equitable benefits from trade. Informal firms may also have opportunities to benefit via linkages with formal firms directly engaging in trade.

Providing training, workshops, and resources to managers of such enterprises could help them better understand the opportunities and requirements of existing and emerging international markets. This might include assistance with export procedures, quality standards, and accessing finance.

Improving infrastructure, such as transportation networks and digital connectivity, can facilitate trade and investment flows within the expanded CPTPP region. Vietnam should prioritise infrastructure development to enhance its competitiveness in the expanded market.

Strengthening institutions responsible for trade facilitation and regulatory compliance should also help. More broadly, investing in education, training, and innovation can enhance competitiveness and enable Vietnam to integrate into the expanded CPTPP more effectively.

UK formally inks deal to join CPTPP UK formally inks deal to join CPTPP

The United Kingdom formally signed a treaty to accede to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) trade group in New Zealand on July 16, kickstarting its membership of a modern and ambitious trade deal spanning 12 economies across Asia, the Pacific, and now Europe.

How will Vietnamese exports be affected once the UK joins the CPTPP? How will Vietnamese exports be affected once the UK joins the CPTPP?

Vietnamese exports to the British market will have to face off with robust rivals from other CPTPP nations.

UK deems Vietnam a market economy UK deems Vietnam a market economy

The United Kingdom will consider Vietnam as operating under market economy principles following the UK's accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

UK-Vietnam trade pact already demonstrating value UK-Vietnam trade pact already demonstrating value

The United Kingdom-Vietnam trade relationship is poised to reach new heights, buoyed by the celebration of 50 years of UK-Vietnam bilateral relations last year, guided by the continued implementation of the UK-Vietnam Free Trade Agreement (UKVFTA), and further boosted by the UK joining the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP).

By Thanh Dat

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