ECONOMY: U.S.-Vietnam Trade Pact Ups the Ante for World Bank

By Emad Mekay Reprint | | Print |

Emad Mekay

WASHINGTON, Dec 12 2001 (IPS) - The World Bank is pressing Vietnam to speed up economic reforms it says will help the country on its rocky path from central planning to free market.

“Vietnam has taken significant steps in the past year to restore growth and reduce poverty, but in light of the current global slowdown, (it) needs to act quickly and seize the opportunity to gain in competitiveness and position itself for the decade ahead,” said Andrew Steer, the Bank’s country director.

The urging comes as Vietnam prepares for increased commerce under a bilateral trade pact signed Monday with the United States. It also follows last week’s meeting of Vietnam’s donors, at which Hanoi won pledges of 2.4 billion dollars in aid for next year so long as it toes the Bank’s line on economic restructuring and consults the lender on how best to spend this money.

The Bank is pushing a raft of policy reforms. It argues, in a new report entitled “Implementing Reforms for Faster Growth and Poverty Reduction”, that these will help Hanoi in “establishing itself as a stable and predictable location of high-return investment” and “enhancing their international reputation as a country open to business.”

The recommendations – privatisation, improved governance for companies and the fledgling stock market, and the like – are not new. Rather, the Bank itself acknowledges it is trying to goad Hanoi with a simple message: open fully and quickly to international investors or fall victim to global recession.

The slowdown, although cyclical, is the worst in two decades, the Bank says. It projects global economic growth of 1.3 percent for this year, one-third last year’s 3.8 percent and the lowest rate in eight years.

Prospects for recovery have been pushed back to late 2002 by the events of Sep. 11 and their aftermath. Growth in the volume of world trade has fallen from 13 percent in 2000 to around one percent in 2001 – the sharpest decline in two decades – and is expected to recover to only four percent next year.

In its report, the Bank urges Vietnam to speed economic restructuring, tap the U.S. and Chinese export markets, and move to boost depressed rural incomes.

Despite the uncertainty that shrouds the global economy, the lender sounds upbeat about Vietnam, saying the country’s medium term prospects for growth “remain good – internal factors driving growth are more favourable today than at any time in the past five years.”

For their part, Vietnamese officials appear to be banking on their new bilateral trade agreement with the United States to double the country’s U.S. exports, despite signs of political and business resistance to key products such as Vietnamese catfish.

U.S. Trade Representative Robert Zoellick and Vietnamese Minister of Trade Vu Khoan exchanged implementation letters Monday, thus bringing into effect the bilateral trade treaty signed by the U.S. Congress in October.

“This is an example of how two nations once divided by war can employ trade as a tool to work toward reconciliation,” Zoellick said.

“It’s good that we are talking business now,” Duong Le, trade officer at the Vietnamese embassy here, told IPS. “People of the two countries will get to know each other better this way.”

The Vietnamese diplomat said his country’s exports to the U.S. market since 1994, when former President Bill Clinton lifted a trade embargo against Vietnam, mainly have consisted of agricultural commodities like coffee and fish.

Under the new trade terms, Washington has promised to lower tariffs for Vietnamese companies from its current 40 percent, 10 times those imposed on products from other counties, to four percent.

Le said this would ease the way for Vietnamese footwear, garments, ceramics and handicrafts, boosting the poverty-stricken Asian nation’s balance of trade.

In return, U.S. companies in banking, transportation, and telecommunications will be allowed to sell to Vietnam’s 80 million consumers and tap the country’s investment potential.

Last year, the United States exported 368 million dollars of goods including industrial machinery, fertilisers, and semiconductors to Vietnam. The same year, Vietnam exported 821 million dollars worth of goods to the United States, according to Zoellick’s office.

The agreement, which covers virtually every aspect of bilateral commerce – from trade in services to intellectual property rights and investment – also commits Hanoi to a number of multilateral disciplines on customs procedures, import licensing, and sanitary measures.

It took six years for the proposed bilateral pact to work its way through the U.S. and Vietnamese political systems and in both countries the agreement faced considerable opposition from protectionists out to shield constituent industries and ideologies from the other side.

Even as Congressional approval was won and the sides worked to finalise the paperwork for Monday’s exchange of letters, U.S. lawmakers introduced legislation that would force Vietnamese exporters of catfish to sell their goods in the United States under some other name.

Thus it seems the World Bank’s job going forward will be to continue to hold Vietnamese feet to the fire on economic restructuring – and hope that protectionists in the United States and elsewhere do not stand in the way of the gains for which Vietnam’s reformers embarked on their journey to market.