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AGENDA:
• OUTLOOK ON VIETNAM’S POLITICAL SITUATION
• OVERVIEW OF THE RECENT TRADE PACTS: ASEAN
ECONOMIC COMMUNITY (AEC), EU- VIETNAM
FREE TRADE AGREEMENT (EVFTA) AND THE
TRANS-PACIFIC PARTNERSHIP (TPP)
• MARKET ACCESS COMPARISON OF CERTAIN
COMMERCIAL SECTORS IN THE WTO, AEC, EVFTA
AND TPP
• CONCLUSION
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Vietnam to be Asia’s second fastest growing
country
• In 2016, Vietnam’s GDP is expected to grow at 6.9%, higher than the
6.6% forecast, through better construction activity and manufacturing
strength (Standard Chartered Bank)
• The second fastest-growing economy in Asia, second only to India.
• Progressing for the third year in a row, Vietnam reached the 56th
position in 2015 on the Global Competitiveness Index (GCI) list, a jump
of 12 positions compared to 2014.
• Vietnam tops 6 European Union countries on the GCI list
• Consumption is likely to remain the biggest growth driver in 2016,
closely followed by investment.
• China’s economic slowdown and the US Federal Reserve increasing
interest rates were driving investor withdrawals from emerging markets.
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Vietnam Quo Vadis
• Central Committee of Communist Party Vietnam:
180 official members; 20 alternate members. 104
members are re-elected.
• Average age: 53
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Vietnam Quo Vadis (cont.)
• The loss of power of Prime Minister Nguyen Tan Dzung …
– Secretary General Nguyen Phu Trong continues his next 5-year term
– PM Dzung is not allowed to perform another term
– The Secretary General is pro-China while PM Dzung is pro-America.
Mr. Trong was hesitant to criticize China when it brought Drill 981 to the Paracels in 2014
Mr. Dzung in his capacity of the PM has supervised the foreign investment inflow and
improved relations with top US leaders. He criticized China more strongly than other
members of the Congress of its defiant acts in the East Sea.
• ….and the fear of “Vietnam could move back”:
• PM Dzung is considered to be better at dealing with foreign investors and more
willing to remove the cover of Marxism ideology of the Congress than Mr. Trong
• However: Vietnam was and always is a consensus driven society
No person cult --- No “God” like figures as Mao in China
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AEC establishment
• One of the 3 pillars of ASEAN Community, together
with ASEAN Security Community and ASEAN Socio-
Cultural Community
• Originated from ASEAN Vision 2020 adopted in 1997
on the 30th anniversary of the Association of Southeast
Asian Nations
• The realization of the end goal of economic integration
as espoused in the Vision 2020, which is based on a
convergence of interests of ASEAN member countries
to deepen and broaden economic integration through
existing and new initiatives with clear timelines.
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AEC Market Snapshot – Asia’s main
investment hub
• GDP: US$2311.3 billion (2012)
• GDP per capita: US$3748.4 (2012)
• Population: 620 million, 60% under the age of 35
• AEC % of world GDP: ~3.3%
• AEC % of world population: 9%
• AEC’s merchandise exports: US$1.2 trillion - ~54% of total
ASEAN GDP and 7% of global exports
• If ASEAN were one economy, it would be the 7th largest in
the world – 4th largest by 2050 if growth trends continue
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AEC Compliance deadline
• AEC Compliance deadline was set on 31 December 2015
• Cambodia, Laos, Myanmar and Vietnam have been given
an extended period of time to come into trade reduction
compliance and be fully integrated with the rest of the
union.
• 31 December 2015 is a milestone in the long path
towards a single coherent market considering diversified
languages, level of development and culture of the AEC
Members.
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EVFTA – Bilateral negotiations
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Launch of
negotiations
First
round in
Hanoi
15 rounds
alternately
in Vietnam
and
Brussels
Last
round in
Hanoi
Agreement
in
principle
06/2012
10/
2012
Conclusion
of
negotiation
FTA text
released
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EVFTA – Comprehensive agreement
• Trade in goods
Market access for goods – tariffs
Rules of Origin
Export duties
Technical Barriers to Trade (TBT)
Sanitary and Phytosanitary Measures
Customs and Trade Facilitation
Administrative Cooperation in Customs Matters
• Services and investment:
National treatment
Liberalisation commitments / market access
Investment to state dispute settlement
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Cross-cutting issues
Dispute Settlement and Investment
Dispute Settlement
Government Procurement
State Owned Enterprises & Subsidies
Intellectual Property Rights
Geographical Indications
Trade and Sustainable Development
Cooperation and Capacity building
Annexes (car; green tech and pharma)
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EVFTA – Main features
Symmetrical elimination of nearly all tariffs (over 99%)
Removal of almost all export duties and cap on remaining
ones
Services commitments going beyond GATS
Negotiations on Investment protection and disputes
settlement on-going
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EVFTA – Tariff Liberalization
• Tariff liberlization:
– 99% of tariffs both value and number of tariff lines
– After 7 years for EU
– Vietnam 10 years
• Coverage at entry into force:
– 71% of value of Vietnamese exports / 84% tariff lines
– 65% value of EU exports / 49% tariff lines
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EVFTA – Benefits for Vietnam
• Vietnam’s annual economic expansions rate may grow an additional 15%
every year (said Tomaso Andreatta, representative of the European Business
Association in Vietnam (EuroCham), at the Vietnam Business Forum 2014)
• Tariffs for most of Vietnamese export product to the EU will gradually
reduce to 0% and Vietnam’s export to EU is expected to grow about 35%
for next few years
• The real wages of skilled laborers may increase by up to 12% while real
salary of common workers may rise by 13%
• The EVFTA is the legal framework for a more stable relationship in bilateral
trade for Vietnam when competing in the international market
• The EVFTA will generate greater effects, e.g. increased quality of
investment flows from EU, acceleration of the process of sharing expertise
and transfer of green technology and the creation of more employment
activities
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History of the TPP
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Trans-pacific Strategic
Economic Partnership
(P4) signed
Scope of negotiation
extended with
participation of other
countries, including the
US
Negotiation of the
TPP officially launched
First negotiation round in
Melbourne- Australia
with 7 membersOther countries such
as Malaysia, Japan,
Canada and Mexico
participated in the
negotiation
Finally agreement reached
in Atlanta negotiation
round
05 Oct. 2015
03 June 2005
Dec 2009
Oct 2010 –
July 2013
2007
March 2010
Text released on 05 Nov.
2015 and the agreement
was signed on 4 Feb 2016
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How is the TPP Different?
• GDP of 12 TPP Members is nearly $28 trillion, 40% of global GDP and
one-third of world trade
• The TPP is being touted as a “high-standard agreement” meaning “a
landmark, 21st-century trade agreement, setting a new standard for
global trade and incorporating next-generation issues”
• So-called "key elements" including the notion of comprehensive
market access, a fully regional agreement, cross-cutting issues
(regulatory coherence, competiveness and business facilitation, small and
medium sized enterprises, and development), new trade challenges
(particularly rules on state owned enterprises); as well as, finally, the
notion of a living agreement.
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TPP Trade in Goods
• Tariff and non-tariff barriers on most industrial goods are
eliminated immediately, with tariffs on some sensitive products will
be phased out as agreed by the TPP Parties.
• Each TPP Parties provide a tariff schedule covering all goods.
• Parties agree not to use performance requirements, such as local
production requirements.
• Parties agree not to impose WTO-inconsistent import-export
restrictions and duties. If any, they are required to notify the others
about the procedures to ensure transparency and promote trade
flows.
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Trade in Services
• Negative approach, meaning that their markets are fully
opened to service suppliers from other TPP Parties, except
otherwise indicated in their commitments (non-conforming
measures)
• In order to make such reservations, the member state must
prove the necessity of such preservation and negotiate with
other member states. If approved, the non-conforming
measures are only limited to such list, except for measures in
certain sensitive sectors which are included in a separate list
• Ratchet approach: Member states are only allowed to adopt
policies that are better than what they commit
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Rules of Origin
• Originating goods:
– Wholly obtained or produced goods;
– Produced in and from materials originating from TPP countries; or
– Produced in and using material not originating from TPP countries nut
satisfying TPP rules of origin.
• Separate rules of origin for each specific type of goods
• Separate chapter on rules of origin for textile products
• Rules of origin in TPP are predominantly based on a specified shift
in tariff classification, regional value content and production stages
• No requirement for certificates of origin under TPP, or third-party
certification of origin but self-certification is sufficient
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Textiles and Apparel
• Most tariffs on textiles and apparel will be eliminated
immediately, although tariffs on some sensitive products will
be phased out as agreed by the TPP Parties.
• Yarn-forward rule of origin: requires use of yarns and fabrics
from TPP countries in end products qualifying for
preferential treatment under TPP.
• Exceptions:
– a carefully tailored short supply list (when certain yarns and fabrics
not widely available in the region).
– de minimis
– 1 for 1 rule applied for women’s and men’s cotton trousers exported
to the US
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Yarn-forward rule: Impact on Vietnam’s textile industry
• Current status and Issues:
– Around 6,000 textile companies in Vietnam - ~600,000 machines have to be replaced
– 60% of imported materials sourced from other non-TPP countries (mainly China)
– Domestic production of materials has not met the demand
– Yarn production must go together with weaving and dying but environment protection
is currently an issue.
• Impacts and what to do next:
– More foreign investment in textile industry with investment value of up to USD1
billion.
– Sourcing managers are looking for alternatives due to rising costs, labor shortages, strict
compliance and environmental regulations and a move to production of high value
products in China
– Establish domestic supply chain
– Bring into operation domestic yarn production factories
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Investor-state dispute settlement (ISDS)
• Through binding arbitration, including for violations of the investment
and financial services chapters.
• ISDS provisions are expected to include protections commonly found in
investment agreements such as non-discrimination; fair and equitable
treatment; full protection and security; the prohibition of expropriation
that is not for public purpose, without due process, or without
compensation; the free transfer of funds related to investments; and the
freedom to appoint senior management positions regardless of
nationality.
• Expected new protections in the TPP:
– Transparency in arbitral proceedings, disclosure of filings and arbitral awards, and
participation of interested non-disputing parties to make amicus curiae submissions
to a tribunal
– Safeguards to ensure government’s ability to regulate in the public interest (public
health, safety and the environment)28
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How will TPP impact Vietnam?
• Vietnam will enjoy strong economic and trade expansion. Vietnam’s
GDP would add an additional increase of 13.6% to the baseline
scenario.
• Vietnam is expected to gain significantly from the TPP’s considerable
plans for tariff and duty reduction
• Vietnam’s export will enjoy the agreement’s great benefits when the
US and Japan are one of the biggest partners of Vietnam, especially
the garment and textiles sector
• Export to the US would increase by 13-20% a year until 2017,
fetching total export of US$25-30 billions
• The foreign businesses are planning to enter Vietnam in preparation
for a post-TPP business climate.
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How will TPP impact Vietnam?
• FDI inflows grow
• Improving agricultural yield: maximising yields on
existing lands and utilizing unusable / idle land by
new deployed technology
• Reducing power and waters needs that are retarding
growth and GDP plans
• More sophisticated joining of separate business
sections to integrate into new profit streams
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TPP and AEC intersection
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Thailand
Malaysia
Brunei
CanadaAustralia
Cambodia
Indonesia Myanmar
Peru
Philippines
Japan
Laos
Mexico New Zealand
Singapore
The United States
Vietnam
Chile
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ASEAN TPP: Market Access Liberalization as
Consequence of TPP
• Indonesia plans to loose restrictions on foreign investment in
nearly 50 sectors, including e-commerce, retail, healthcare,
movie and several other industries
• Indonesia prepares for the so-called 'Negative Investment
List“, which provides a greater openness to foreign
investment and gets itself ready for the TPP
• China, Korea, the Philippines, Indonesia and Thailand are
also keen to join the TPP to overcome the disadvantages
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Notes regarding the market access
commitments
• The WTO, AEC and EVFTA take a positive approach,
meaning what is open to foreign investment is listed.
• The TPP only lists the restrictions, meaning what is not
written therein is fully open (negative approach).
• In WTO Market Access Service Sector the principle applies:
Who does not ask and demand might not get the market
access for investment. There is NO Automatic Right for
Market Access for the WTO members in the WTO Services
Sectors in principle.
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Distribution sector
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Distribution of cigarettes and cigars,
publications, precious metals and stones,
pharmaceutical products and drugs, explosives,
processed oil and crude oil by foreign
investors are still prohibited
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Distribution sector
WTO / AFAS EVFTA TPP
The establishment of outlets
for retail services (beyond the
first one) shall be allowed on
the basis of an Economic
Needs Test (ENT)
Same as in the WTO / AFAS
but added the following:
In case of establishing an
outlet less than 500m2 within
the area planned for trading
activities and already
completed construction of
infrastructure, ENT is not
required.
5 years from the date of entry
into force of the Agreement,
the requirement of the ENT
will be abolished.
Same as in the EVFTA but
added the following:
The main criteria of the ENT
include the number of existing
service suppliers in a particular
geographic area, the stability
of market and geographic
scale.
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Power/ Energy Sector
WTO /
AFAS
EVFTA TPP
N/A Unbound (meaning no commitment)
regarding:
- Production of electricity; transmission
and distribution of electricity on own
account
- Manufacture of gas; distribution of
gaseous fuels through mains on own
account
- Production of steam and hot water;
distribution of steam and hot water on
own account
Other sub-sectors: not included
(meaning no commitment) in the service
schedule.
Only the following restrictions:
- Foreign investment to own or operate
power transmission facilities in Viet Nam
may not be permitted. EVN (Viet Nam
Electricity Corporation) is currently the
sole authorised owner and operator of
power transmission facilities in Viet Nam.
- Viet Nam reserves the right to adopt or
maintain any measure with respect to
hydroelectricity and nuclear power.
- Services incidental to energy distribution:
Foreign services suppliers are not allowed
to supply the services incidental to energy
distribution. Foreign investment in these
services is not permitted.
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Insurance Services
EVFTA WTO / AFAS TPP
No commitment
regarding cross-border
supply of health
insurance services
Non-life branches of
foreign insurance
enterprises shall be
permitted subject to
prudential regulations. No
specific conditions are
specified, meaning the
Government can adopt
conditions as it wishes to.
No restriction regarding
cross-border supply of
health insurance service
Same as EVFTA
Supply of Cross-border services by foreign insurance company
must be conducted via an insurance broker which has the
license to establish and operate in Vietnam.
Non-life branches of foreign insurance enterprises shall be
permitted.
In order to be granted the license for establishment of non-life
insurance branch in Viet Nam, a foreign non-life insurance
company must satisfy the conditions under Vietnamese law,
including: (a) Operational and financial capacity and branch
management and supervisory capacity in Viet Nam of foreign
non-life insurance company. (b) The cooperation between the
foreign insurance administrative body of the country where the
company head office is located and the Vietnamese insurance
administrative body in managing and supervising the branch of
foreign non-life insurance company in Viet Nam.
The above list of conditions are closed. The Government can
adopt different conditions than what mentioned but must not
be more restricted.
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Banking services
WTO/ AFAS / EVFTA TPP
Mode 1: No commitment, except:
Provision and transfer of financial information, and financial
data processing and related software by suppliers of other
financial services; and
Advisory, intermediation and other auxiliary financial services on
all activities listed in subparagraphs from (a) to (k), including
credit reference and analysis, investment and portfolio research
and advice, advice on acquisitions and on corporate
restructuring and strategy.
Mode 3: Foreign purchase of shares in each Viet Nam's joint-
stock commercial bank may not exceed 30% of the bank's
chartered capital.
A branch of foreign commercial bank is not allowed to open
other transaction points outside its branch office, excluding
ATMs.
Mode 1: No restriction
Mode 3: No other restrictions other than:
A foreign credit institution or a foreign institution engaged in a
banking operation shall only be permitted to establish one
representative office in each province or city under central
authority.
General directors (directors), deputy general directors (deputy
directors), chief accountants, directors of branches and directors
of subsidiary companies and people assuming equivalent
positions must reside in Viet Nam during their term of office
whenever they assume the positions in the Board of Directors of
a credit institution.
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Securities services
WTO/ AFAS EVFTA TPP
Commitments on 6 sub-sectors
Mode 3:
foreign securities service suppliers
are permitted to establish
representative offices and joint
ventures with maximum foreign
ownership of 49%.
After 5 years from the date of
accession, securities service
suppliers with 100% foreign-
invested capital shall be permitted.
Same commitments in 6 sub-sectors
Commitments on 2 additional
services: Provision and transfer of
financial data processing; and credit
reference and analysis.
Mode 3: Same as the WTO/ AFAS
No restrictions except the following:
The operation and services provided
by branches of foreign securities
company and fund management
company in Viet Nam are subject to
approval of the Government of
Viet Nam, including the imposition
of conditions for the approval.
Foreign participation from above
49% to less than 100% of charter
capital of a securities company, fund
management company in Viet Nam
is subject to approval of the
Government of Viet Nam, including
the imposition of conditions for the
approval.
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Telecommunication Services
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Sub-sectors WTO/ AFAS EVFTA TPP
Non facilities-based services
Other services - Virtual
Private Network (VPN)
Mode 3: Joint venture with
maximum 65% foreign
ownership
Mode 3: Joint venture with
maximum 70% foreign
ownership
Mode 3: Upon entry into force,
Joint venture with maximum
65% foreign ownership
5 years from the date of entry
into force of the Agreement,
this capital limitation will be
75%.
Mode 3: Upon entry into force,
Joint venture with maximum
70% foreign ownership
5 years from the date of entry
into force of the Agreement,
this capital limitation will be
75%.
joint venture or purchase of
shares in a Vietnamese
enterprise, with maximum 65%
foreign ownership.
No later than 5 years from the
date of entry into force of the
Agreement, this capital
limitation will be 100%.
joint venture or purchase of
shares in a Vietnamese
enterprise, with maximum 70 %
foreign ownership.
No later than 5 years from the
date of entry into force of the
Agreement, this capital
limitation will be 100%.
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Government Procurement
Criteria EVFTA TPP
Monetary values that determine whether
procurement by central government is
covered under an agreement
130,000 Special Drawing Rights (SDRs) (US$191,000) from 15 years
since the entry into force of the agreement
Initial transitional threshold: 1.5 million SDRs
130,000 Special Drawing Rights (SDRs) (US$191,000)
from 25 years since the entry into force of the agreement
Initial transitional threshold: 2 million SDRs
Procurement of construction services by
central government entities
Initial threshold: 65.2 million SDRs
After 15 years, 8.5 million SDRs
Initial threshold: 40 million SDRs
After 15 years, 5 million SDRs
Entities covered 22 central government bodies (added the Ministry of Public Security)
42 other entities: added two state-owned enterprises (Vietnam
Electricity and Vietnam Railways) and two universities (Vietnam
National University – Hanoi and Vietnam National University – Ho Chi
Minh City)
Sub-central government coverage: Adds 2 cities: Hanoi and Ho Chi
Minh – expansion of the list within 15 years since the entry into force of
the agreement
21 central government bodies
38 other entities
No sub-central government coverage - expansion of the
list within 3 years since the entry into force of the
agreement
Exclusion of preferences for SMEs Broad exclusion applies only to procurement of goods and services whose
value is estimated at 260,000 SDRs or less and may not be
applied to SMEs with more than 500 permanent full-time
employees.
Application of offsets Based on value of a contract Based on the total value of covered procurement53
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